NOTE 3 – 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 March 31, 2016, December 31, 2015 and March 31, 2015 are presented below:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Dollars in Thousands)
March 31, 2016:
U.S. government agencies	$	7,592	$	45	$	(9)	$	7,628
State, county and municipal securities		152,764		4,894		(125)		157,533
Corporate debt securities		8,407		139		(24)		8,522
Mortgage-backed securities		657,764		7,042		(1,386)		663,420
Total debt securities	$	826,527	$	12,120	$	(1,544)	$	837,103

December 31, 2015:
U.S. government agencies	$	14,959	$	-	$	(69)	$	14,890
State, county and municipal securities		157,681		4,046		(411)		161,316
Corporate debt securities		5,900		145		(28)		6,017
Mortgage-backed securities		599,721		3,945		(2,704)		600,962
Total debt securities	$	778,261	$	8,136	$	(3,212)	$	783,185

March 31, 2015:
U.S. government agencies	$	14,954	$	72	$	(42)	$	14,984
State, county and municipal securities		154,499		4,800		(235)		159,064
Corporate debt securities		10,794		193		(52)		10,935
Mortgage-backed securities		420,497		6,185		(1,335)		425,347
Total debt securities	$	600,744	$	11,250	$	(1,664)	$	610,330

The amortized cost and fair value of available-for-sale securities at March 31, 2016 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 shown separately in the following maturity summary.

	Amortized		Fair
	Cost		Value
	(Dollars in Thousands)
Due in one year or less	$	4,028	$	4,060
Due from one year to five years		52,090		53,677
Due from five to ten years		51,887		53,967
Due after ten years		60,758		61,979
Mortgage-backed securities		657,764		663,420
	$	826,527	$	837,103

Securities with a carrying value of approximately $493.0 million serve as collateral to secure public deposits and for other purposes required or permitted by law at March 31, 2016, compared with $551.0 million and $426.6 million at December 31, 2015 and March 31, 2015, respectively.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of the continuous unrealized loss position at March 31, 2016, December 31, 2015 and March 31, 2015.

		Less Than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities		Value		Losses		Value		Losses		Value		Losses
	(Dollars in Thousands)
March 31, 2016:
U.S. government agencies		$	4,991	$	(9)	$	-	$	-	$	4,991	$	(9)
State, county and municipal securities			5,845		(96)		1,639		(29)		7,484		(125)
Corporate debt securities			883		(24)		-		-		883		(24)
Mortgage-backed securities			142,687		(975)		24,762		(411)		167,449		(1,386)
Total debt securities		$	154,406	$	(1,104)	$	26,401	$	(440)	$	180,807	$	(1,544)

December 31, 2015:
U.S. government agencies		$	9,932	$	(27)	$	4,958	$	(42)	$	14,890	$	(69)
State, county and municipal securities			19,293		(199)		11,557		(212)		30,850		(411)
Corporate debt securities			1,383		(28)		-		-		1,383		(28)
Mortgage-backed securities			263,281		(1,950)		29,950		(754)		293,231		(2,704)
Total debt securities		$	293,889	$	(2,204)	$	46,465	$	(1,008)	$	340,354	$	(3,212)

March 31, 2015:
U.S. government agencies		$	-	$	-	$	4,958	$	(42)	$	4,958	$	(42)
State, county and municipal securities			4,675		(34)		10,579		(201)		15,254		(235)
Corporate debt securities			5,007		(52)		-		-		5,007		(52)
Mortgage-backed securities			46,361		(378)		31,483		(957)		77,844		(1,335)
Total debt securities		$	56,043	$	(464)	$	47,020	$	(1,200)	$	103,063	$	(1,664)

As of March 31, 2016, the Company’s security portfolio consisted of 406 securities, 55 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 March 31, 2016, the Company held 46 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 March 31, 2016.

At March 31, 2016, the Company held six 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 March 31, 2016. During the first three months of 2016 and 2015, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities. 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 March 31, 2016, December 31, 2015 or March 31, 2015.

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 March 31, 2016, 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 March 31, 2016, these investments are not considered impaired on an other-than-temporary basis.

At March 31, 2016, December 31, 2015 and March 31, 2015, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

The following table is a summary of sales activities in the Company’s investment securities available for sale for the three months ended March 31, 2016, year ended December 31, 2015 and three months ended March 31, 2015:

	March 31, 2016		December 31, 2015		March 31, 2015
	(Dollars in Thousands)
Gross gains on sales of securities	$	312	$	396	$	31
Gross losses on sales of securities		(218)		(259)		(19)
Net realized gains on sales of securities available for sale	$	94	$	137	$	12
Sales proceeds	$	41,564	$	72,528	$	5,118