Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities [Abstract]

Investment Securities

Note 2 — Investment Securities

The following tables summarize the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolio at June 30, 2011 and December 31, 2010 and the corresponding amounts of unrealized gains and losses therein.

	June 30, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
	(Dollars in thousands)
Available-for-sale
Obligations of U.S. Government agencies	$	187,340		784		(389	)		187,735
Obligations of states and political subdivisions		82,827		1,366		(952	)		83,241
Mortgage backed securities
U.S. GSE’s* MBS - residential		146,606		2,421		(482	)		148,545
U.S. GSE’s CMO		109,705		2,170		(55	)		111,820
Other CMO		2,607		—		(229	)		2,378
Corporate bonds		36,470		176		(865	)		35,781
	$	565,555		6,917		(2,972	)		569,500

* Government sponsored entities

	December 31, 2010
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
	(Dollars in thousands)
Available-for-sale
Obligations of U.S. Government agencies	$	202,153		527		(1,763	)		200,917
Obligations of states and political subdivisions		67,137		318		(3,337	)		64,118
Mortgage backed securities
U.S. GSE’s MBS - residential		141,524		1,880		(1,679	)		141,725
U.S. GSE’s CMO		139,208		1,756		(630	)		140,334
Other CMO		3,382		50		(359	)		3,073
Corporate bonds		36,551		467		(885	)		36,133
Equity securities		2		—		—			2
	$	589,957		4,998		(8,653	)		586,302
Held-to-maturity
Obligations of states and political subdivisions	$	310		1		—			311
	$	310		1		—			311

Proceeds from sales of securities and the associated gains (losses) for the three and six months ended June 30, 2011 and 2010 were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Dollars in thousands)						(Dollars in thousands)
Proceeds	$	25,508		$	20,364		$	59,984		$	20,364
Gross Gains		132			356			439			356
Gross Losses		(187	)		(214	)		(358	)		(214	)

The amortized cost and fair value of the investment securities portfolio excluding equity securities are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2011
	Amortized		Estimated
	cost		fair value
	(Dollars in thousands)
Available-for-sale:
One year or less	$	1,669		1,700
After one year through five years		25,811		25,934
After five years through ten years		80,622		81,614
After ten years		457,453		460,252
	$	565,555		569,500

The following tables summarize the investment securities with unrealized losses at June 30, 2011 and December 31, 2010, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.

	June 30, 2011
	Less than 12 months				12 months or longer				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	fair value		loss		fair value		loss		fair value		loss
	(Dollars in thousands)
Temporarily impaired
Obligations of U.S. Government agencies	$	48,756		389		—		—		48,756		389
Obligations of states and political subdivisions		33,637		952		—		—		33,637		952
Mortgage backed securities
U.S. GSE’s MBS — residential		43,984		384		465		98		44,449		482
U.S. GSE’s CMO		3,215		28		2,742		27		5,957		55
Other CMO		339		3		1,546		160		1,885		163
Corporate bonds		11,242		125		6,966		740		18,208		865
	$	141,173		1,881		11,719		1,025		152,892		2,906
Other-than-temporarily impaired
Mortgage backed securities
Other CMO	$	—		—		493		66		493		66
	$	141,173		1,881		12,212		1,091		153,385		2,972

	December 31, 2010
	Less than 12 months				12 months or longer				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	fair value		loss		fair value		loss		fair value		loss
	(Dollars in thousands)
Temporarily impaired
Obligations of U.S. Government agencies	$	99,306		1,763		—		—		99,306		1,763
Obligations of states and political subdivisions		45,906		3,245		2,309		92		48,215		3,337
Mortgage backed securities
U.S. GSE’s MBS — residential		81,783		1,538		509		141		82,292		1,679
U.S. GSE’s CMO		46,776		630		—		—		46,776		630
Other CMO		—		—		2,085		359		2,085		359
Corporate bonds		22,385		481		3,880		404		26,265		885
	$	296,156		7,657		8,783		996		304,939		8,653

Other-Than-Temporary Impairment — June 30, 2011

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under the provisions of ASC 320-10, Investments — Debt and Equity Securities. In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income or loss, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of June 30, 2011, the Company’s security portfolio consisted of 339 securities, 89 of which were in an unrealized loss position. Of these securities with unrealized losses, 54.88% were related to the Company’s mortgage-backed and corporate securities as discussed below.

Mortgage-backed Securities

At June 30, 2011, $260,365 or approximately 99.09% of the Company’s mortgage-backed securities were issued by U.S. government-sponsored entities and agencies, primarily the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Government National Mortgage Association (“Ginnie Mae”), institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2011.

The Company’s mortgage-backed securities portfolio also includes five non-agency collateralized mortgage obligations with a market value of $2,378 which had unrealized losses of approximately $229 at June 30, 2011. These non-agency securities were rated AAA at purchase.

At June 30, 2011, four of these non-agency securities were rated below investment grade and a cash flow analysis was performed to evaluate OTTI. The assumptions used in the model include expected future default rates, loss severity and prepayments. The model also takes into account the structure of the security including credit support. Based on these assumptions the model calculates and projects the timing and amount of interest and principal payments expected for the security. In addition the model was used to “stress” each security, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the security could no longer fully support repayment. Upon completion of the June 30, 2011 analysis, our model indicated that none of these securities were other-than-temporarily impaired. During the first quarter of 2011, one of these securities was considered to be other-than-temporarily impaired with an OTTI loss of $127, of which $62 was recognized in earnings. This security remains classified as available-for-sale at June 30, 2011.

At June 30, 2011, the fair values of three collateralized mortgage obligations totaling $1,950 were measured using Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades during the period. The discount rates used in the valuation model were based on a yield of 10% that the market would require for collateralized mortgage obligations with maturities and risk characteristics similar to the securities being measured.

Corporate Securities

The Company holds nineteen corporate securities totaling $35,781, of which twelve had an unrealized loss of $865. The Company’s unrealized losses on corporate securities relate primarily to its investment in single issuer corporate and corporate trust preferred securities. At June 30, 2011, two of the corporate securities were rated below investment grade and seven securities to three issuers were not rated. None of the issuers were in default but in January of 2011 the Company was notified that two trust preferred securities totaling $1,250 to two issuers not rated had elected to defer interest payments. The issuers are both bank holding companies with operations in the Southeast. One of the issuers of $1,000 of such securities announced a successful capital raise which was completed in the first quarter of 2011. The Company considered several factors including the financial condition and near term prospects of the issuers and concluded that the decline in fair value was primarily attributable to temporary illiquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. Although these issuers have indicated they will defer payments going forward, the Company has considered the capital position of the subsidiary banks, the liquidity of the holding company, the existence and severity of publicly available regulatory agreements, and the fact that these deferrals are coming after the most severe impact of the national and regional recession. The prospect of capital formation in the current market, improving operating results of the industry overall have caused the Company to conclude that a return to normal subsidiary dividends and thus interest payments on the debt for these issuers is reasonably assured at this time. Because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2011.

At June 30, 2011, the fair values of four corporate securities totaling $2,335 were measured using Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades during the period. The discount rates used in the valuation model were based on current spreads to U.S. Treasury rates of long-term corporate debt obligations with maturities and risk characteristics similar to the subordinated debentures being measured. An additional adjustment to the discount rate for illiquidity in the market for subordinated debentures was not considered necessary based on the illiquidity premium already present in the spreads used to estimate the discount rate.

The table below presents a roll forward of the credit losses recognized in earnings for the six month period ended June 30, 2011.

Beginning balance, January 1, 2011	$	571
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		—
Additions/Subtractions
Amounts realized for securities sold during the period		—
Amounts related to securities for which the company intends to sell or that it will be more likely than not that the company will be required to sell prior to recovery of amortized cost basis		—
Reductions for increase in cash flows expected to be collected that are recognized over the remaining life of the security		—
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		62
Ending balance, June 30, 2011	$	633

Total other-than-temporary impairment recognized in accumulated other comprehensive loss was $65 as of June 30, 2011.

Other-Than-Temporary Impairment — June 30, 2010

As of June 30, 2010, the Company’s security portfolio consisted of 299 securities, 56 of which were in an unrealized loss position. The majority or 66.64% of unrealized losses were related to the Company’s mortgage-backed and corporate securities. Four of the mortgage-backed securities were rated below investment grade and a cash flow analysis was performed to evaluate OTTI. The assumptions used in the model include expected future default rates, loss severity and prepayments. The model also takes into account the structure of the security including credit support. Based on these assumptions, the model calculates and projects the timing and amount of interest and principal payments expected for the security. In addition, the model was used to “stress” each security, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the security could no longer fully support repayment. Upon completion of the June 30, 2010 analysis, our model indicated that none of the securities were other-than-temporarily impaired.