NOTE 4 – INVESTMENT SECURITIES

The Company’s investment policy blends the Company’s liquidity needs and interest rate risk management with its desire to increase income and provide funds for expected growth in loans. The investment securities portfolio consists primarily of U.S. government sponsored mortgage-backed securities and agencies, state, county and municipal securities and corporate debt securities. The Company’s portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For the small portion of the Company’s portfolio found to present credit risk, the Company has reviewed the investments and financial performance of the obligors and believes the credit risk to be acceptable.

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2015, December 31, 2014 and September 30, 2014 are presented below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in Thousands)
September 30, 2015:
U. S. government agencies	$	14,957	$	26	$	(15)	$	14,968
State, county and municipal securities		161,509		3,875		(519)		164,865
Corporate debt securities		5,901		150		(19)		6,032
Mortgage-backed securities		622,313		5,208		(2,001)		625,520
Total securities	$	804,680	$	9,259	$	(2,554)	$	811,385

December 31, 2014:
U. S. government agencies	$	14,953	$	-	$	(275)	$	14,678
State, county and municipal securities		137,873		3,935		(433)		141,375
Corporate debt securities		10,812		228		-		11,040
Mortgage-backed securities		369,581		6,534		(1,403)		374,712
Total securities	$	533,219	$	10,697	$	(2,111)	$	541,805

September 30, 2014:
U. S. government agencies	$	14,951	$	-	$	(491)	$	14,460
State, county and municipal securities		134,641		3,708		(714)		137,635
Corporate debt securities		10,801		237		(73)		10,965
Mortgage-backed securities		364,399		4,493		(2,443)		366,449
Total securities	$	524,792	$	8,438	$	(3,721)	$	529,509

The amortized cost and fair value of available-for-sale securities at September 30, 2015 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary.

	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	4,574	$	4,604
Due from one year to five years		48,907		50,206
Due from five to ten years		63,934		65,751
Due after ten years		64,952		65,304
Mortgage-backed securities		622,313		625,520
	$	804,680	$	811,385

Securities with a carrying value of approximately $381.9 million serve as collateral to secure public deposits and for other purposes required or permitted by law at September 30, 2015, compared with $286.6 million and $265.9 million at December 31, 2014 and September 30, 2014, respectively.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2015, December 31, 2014 and September 30, 2014.

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in Thousands)
September 30, 2015:
U. S. government agencies	$	-	$	-	$	4,985	$	(15)	$	4,985	$	(15)
State, county and municipal securities		28,339		(297)		10,451		(222)		38,790		(519)
Corporate debt securities		894		(19)		-		-		894		(19)
Mortgage-backed securities		213,439		(1,184)		30,708		(817)		244,147		(2,001)

Total temporarily impaired securities	$	242,672	$	(1,500)	$	46,144	$	(1,054)	$	288,816	$	(2,554)

December 31, 2014:
U. S. government agencies	$	-	$	-	$	14,678	$	(275)	$	14,678	$	(275)
State, county and municipal securities		15,038		(70)		19,665		(363)		34,703		(433)
Corporate debt securities		-		-		-		-		-		-
Mortgage-backed securities		36,760		(221)		46,812		(1,182)		83,572		(1,403)

Total temporarily impaired securities	$	51,798	$	(291)	$	81,155	$	(1,820)	$	132,953	$	(2,111)

September 30, 2014:
U. S. government agencies	$	-	$	-	$	14,460	$	(491)	$	14,460	$	(491)
State, county and municipal securities		10,296		(98)		22,696		(616)		32,992		(714)
Corporate debt securities		-		-		4,997		(73)		4,997		(73)
Mortgage-backed securities		71,050		(416)		51,314		(2,027)		122,364		(2,443)

Total temporarily impaired securities	$	81,346	$	(514)	$	93,467	$	(3,207)	$	174,813	$	(3,721)

As of September 30, 2015, the Company’s security portfolio consisted of 369 securities, 111 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed and state, county and municipal securities, as discussed below.

At September 30, 2015, the Company held 84 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. 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 September 30, 2015.

At September 30, 2015, the Company held 24 state, county and municipal securities, one U.S. government-sponsored agency security, and two corporate securities that were in an unrealized loss position. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and 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 September 30, 2015.

During the first nine months of 2015 and 2014, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities. During the third quarter of 2015, the Company received all interest payments due on a security that had previously deferred interest since the fourth quarter of 2010. The Company’s investments in subordinated debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at September 30, 2015, December 31, 2014 or September 30, 2014.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2015, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2015, these investments are not considered impaired on an other-than-temporary basis.

The following table is a summary of sales activities in the Company’s investment securities available for sale for the nine months ended September 30, 2015, year ended December 31, 2014 and nine months ended September 30, 2014:

	September 30, 2015		December 31, 2014		September 30, 2014
	(Dollars in Thousands)
Gross gains on sales of securities	$	396	$	141	$	141
Gross losses on sales of securities		(259)		(3)		(3)
Net realized gains on sales of securities available for sale	$	137	$	138	$	138
Sales proceeds	$	69,208	$	94,051	$	92,975