Note 2 – Investments

Investments available-for-sale

The amortized cost and estimated fair values of investments available-for-sale at the dates indicated are presented in the following table:



		September 30, 2014								December 31, 2013
				Gross		Gross		Estimated				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(In thousands)		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. government agencies	$	144,473	$	-	$	(3,757)	$	140,716	$	147,688	$	-	$	(8,222)	$	139,466
State and municipal		157,854		9,731		-		167,585		159,524		6,060		(156)		165,428
Mortgage-backed		374,326		9,995		(4,417)		379,904		439,054		10,188		(6,992)		442,250
Corporate debt		2,000		2		-		2,002		2,000		4		-		2,004
Trust preferred		1,349		-		(172)		1,177		1,701		-		(288)		1,413
Total debt securities		680,002		19,728		(8,346)		691,384		749,967		16,252		(15,658)		750,561
Marketable equity securities		723		-		-		723		723		-		-		723
Total investments available-for-sale	$	680,725	$	19,728	$	(8,346)	$	692,107	$	750,690	$	16,252	$	(15,658)	$	751,284

Any unrealized losses in the U.S. government agencies, state and municipal, mortgage-backed or corporate debt investment securities at September 30, 2014 are not the result of credit related events but due to changes in interest rates. These declines are considered temporary in nature and are expected to decline over time and recover as these securities approach maturity.

The mortgage-backed securities portfolio at September 30, 2014 is composed entirely of either the most senior tranches of GNMA, FNMA or FHLMC collateralized mortgage obligations ($176.2 million), or GNMA, FNMA or FHLMC mortgage-backed securities ($203.7 million). The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value.

At September 30, 2014, the trust preferred portfolio consisted of one pooled trust preferred security. The pooled trust preferred security, which is backed by debt issued by banks and thrifts, totals $1.3 million with a fair value of $1.2 million. The fair value of this security was determined by management through the use of a third party valuation specialist due to the limited trading activity for this security.

The income valuation approach technique (present value) used maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The methodology and significant assumptions employed by the specialist to determine fair value included:

Evaluation of the structural terms as established in the indenture;

Detailed credit and structural evaluation for each piece of issuer collateral in the pool;

Overall default (.52%), recovery and prepayment (2%)/amortization probabilities by issuers in the pool;

Identification of adverse conditions specifically related to the security, industry and geographical area;

Projection of estimated cash flows that incorporate default expectations and loss severities;

Review of historical and implied volatility of the fair value of the security;

Evaluation of credit risk concentrations;

Evaluation of the length of time and the extent to which the fair value has been less than the amortized cost; and

A discount rate of 11.8% was established using credit adjusted financial institution spreads for comparably rated institutions and a liquidity adjustment that considered the previously noted characteristics.

As a result of this evaluation, it was determined that the pooled trust preferred security had not incurred any credit-related other-than-temporary impairment (“OTTI”) for the quarter ended September 30, 2014. Non-credit related decline in fair value on this security, which is not expected to be sold and which the Company has the ability to hold until maturity, was $0.2 million at September 30, 2014. This non-credit related decline in fair value was recognized in other comprehensive income (“OCI”) at September 30, 2014.

The methodology and significant inputs used to measure the amount related to credit loss consisted of the following:

Default rates were developed based on the financial condition of the trust preferred issuers in the pool and the payment or deferral status. Conditional default rates were estimated based on the payment characteristics of the security and the financial condition of the issuers in the pool. Near term and future defaults are estimated using third party industry data in addition to a review of key financial ratios and other pertinent data on the financial stability of the underlying issuer;

Loss severity is forecasted based on the type of impairment using research performed by third parties;

The security contains one level of subordination below the senior tranche, with the senior tranche receiving the spread from the subordinate bonds;

Credit ratings of the underlying issuers are reviewed in conjunction with the development of the default rates applied to determine the credit amounts related to the credit loss; and

Potential prepayments are estimated based on terms and rates of the underlying trust preferred securities to determine the impact of excess spread on the credit enhancement, the removal of the strongest institutions from the underlying pool and any impact that prepayments might have on diversity and concentration.

The following table provides the activity of OTTI on investment securities due to credit losses recognized in earnings for the period indicated:



(In thousands)		OTTI Losses
Cumulative credit losses on investment securities, through December 31, 2013	$	531
Additions for credit losses not previously recognized		-
Cumulative credit losses on investment securities, through September 30, 2014	$	531

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in an unrealized loss position at the dates indicated are presented in the following table:



	September 30, 2014
					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies	14	$	140,716	$	-	$	3,757	$	3,757
Mortgage-backed	26		140,189		341		4,076		4,417
Trust preferred	1		1,177		-		172		172
Total	41	$	282,082	$	341	$	8,005	$	8,346

	December 31, 2013
					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies	15	$	139,466	$	8,222	$	-	$	8,222
State and municipal	12		11,680		156		-		156
Mortgage-backed	30		169,377		6,865		127		6,992
Trust preferred	1		1,413		-		288		288
Total	58	$	321,936	$	15,243	$	415	$	15,658

The amortized cost and estimated fair values of debt securities available-for-sale by contractual maturity at the dates indicated are provided in the following table. The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following table using the expected average life of the individual securities based on statistics provided by independent third party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.



		September 30, 2014				December 31, 2013
				Estimated				Estimated
		Amortized		Fair		Amortized		Fair
(In thousands)		Cost		Value		Cost		Value
Due in one year or less	$	2,000	$	2,002	$	2,080	$	2,085
Due after one year through five years		43,148		44,500		12,766		13,285
Due after five years through ten years		341,678		348,934		392,389		392,339
Due after ten years		293,176		295,948		342,732		342,852
Total debt securities available for sale	$	680,002	$	691,384	$	749,967	$	750,561

At September 30, 2014 and December 31, 2013, investments available-for-sale with a book value of $200.2 million and $186.6 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at September 30, 2014 and December 31, 2013.

Investments held-to-maturity

The amortized cost and estimated fair values of investments held-to-maturity at the dates indicated are presented in the following table:



		September 30, 2014								December 31, 2013
				Gross		Gross		Estimated				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(In thousands)		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. government agencies	$	64,510	$	-	$	(1,984)	$	62,526	$	64,505	$	-	$	(4,827)	$	59,678
State and municipal		156,971		4,121		(724)		160,368		159,889		1,920		(5,753)		156,056
Mortgage-backed		209		27		-		236		244		29		-		273
Total investments held-to-maturity	$	221,690	$	4,148	$	(2,708)	$	223,130	$	224,638	$	1,949	$	(10,580)	$	216,007

Gross unrealized losses and fair value by length of time that the individual held-to-maturity securities have been in a continuous unrealized loss position at the dates indicated are presented in the following tables:



	September 30, 2014
					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies	8	$	62,526	$	-	$	1,984	$	1,984
State and municipal	57		52,941		55		669		724
Total	65	$	115,467	$	55	$	2,653	$	2,708

	December 31, 2013
					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies	8	$	59,678	$	4,827	$	-	$	4,827
State and municipal	113		94,243		5,366		387		5,753
Total	121	$	153,921	$	10,193	$	387	$	10,580

The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value, and considers the unrealized losses in the held-to-maturity portfolio temporary in nature.

The amortized cost and estimated fair values of debt securities held-to-maturity by contractual maturity at the dates indicated are reflected in the following table. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.



		September 30, 2014				December 31, 2013
				Estimated				Estimated
		Amortized		Fair		Amortized		Fair
(In thousands)		Cost		Value		Cost		Value
Due in one year or less	$	3,099	$	3,112	$	1,720	$	1,725
Due after one year through five years		4,563		4,618		3,249		3,269
Due after five years through ten years		154,865		163,345		139,033		135,074
Due after ten years		59,163		52,055		80,636		75,939
Total debt securities held-to-maturity	$	221,690	$	223,130	$	224,638	$	216,007

At September 30, 2014 and December 31, 2013, investments held-to-maturity with a book value of $206.6 million and $165.8 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agency securities, exceeded ten percent of stockholders' equity at September 30, 2014 and December 31, 2013.

Equity securities

Other equity securities at the dates indicated are presented in the following table:



(In thousands)		September 30, 2014		December 31, 2013
Federal Reserve Bank stock	$	8,269	$	8,269
Federal Home Loan Bank of Atlanta stock		28,803		32,418
Total equity securities	$	37,072	$	40,687