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 June 30, 2016, December 31, 2015 and June 30, 2015 are presented below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in Thousands)
June 30, 2016:
U.S. government agencies	$	5,999	$	38	$	-	$	6,037
State, county and municipal securities		151,504		6,936		(54)		158,386
Corporate debt securities		20,151		174		(22)		20,303
Mortgage-backed securities		645,045		14,053		(178)		658,920
Total debt securities	$	822,699	$	21,201	$	(254)	$	843,646

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

June 30, 2015:
U.S. government agencies	$	14,956	$	-	$	(210)	$	14,746
State, county and municipal securities		165,070		3,305		(1,003)		167,372
Corporate debt securities		12,710		184		(58)		12,836
Mortgage-backed securities		665,274		4,948		(3,022)		667,200
Total debt securities	$	858,010	$	8,437	$	(4,293)	$	862,154

The amortized cost and fair value of available-for-sale securities at June 30, 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 not included in the following maturity summary.

	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	4,829	$	4,875
Due from one year to five years		60,389		62,119
Due from five to ten years		52,279		55,280
Due after ten years		60,157		62,452
Mortgage-backed securities		645,045		658,920
	$	822,699	$	843,646

Securities with a carrying value of approximately $473.6 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at June 30, 2016, compared with $551.0 million and $323.9 million at December 31, 2015 and June 30, 2015, 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 June 30, 2016, December 31, 2015 and June 30, 2015.

	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)
June 30, 2016:
U.S. government agencies	$	-	$	-	$	-	$	-	$	-	$	-
State, county and municipal securities		-		-		3,862		(54)		3,862		(54)
Corporate debt securities		5,683		(22)		-		-		5,683		(22)
Mortgage-backed securities		30,187		(128)		9,411		(50)		39,598		(178)
Total debt securities	$	35,870	$	(150)	$	13,273	$	(104)	$	49,143	$	(254)

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)

June 30, 2015:
U.S. government agencies	$	9,818	$	(138)	$	4,928	$	(72)	$	14,746	$	(210)
State, county and municipal securities		50,294		(680)		10,404		(323)		60,698		(1,003)
Corporate debt securities		7,149		(58)		-		-		7,149		(58)
Mortgage-backed securities		238,174		(2,046)		30,672		(976)		268,846		(3,022)
Total debt securities	$	305,435	$	(2,922)	$	46,004	$	(1,371)	$	351,439	$	(4,293)

As of June 30, 2016, the Company’s securities portfolio consisted of 408 securities, 19 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 June 30, 2016, the Company held 14 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 June 30, 2016.

At June 30, 2016, the Company held two state, county and municipal securities and three corporate debt 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 June 30, 2016.

During the first six 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, except for one security that began deferring interest during 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 June 30, 2016, December 31, 2015 or June 30, 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 June 30, 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 June 30, 2016, these investments are not considered impaired on an other-than-temporary basis.

At June 30, 2016, December 31, 2015 and June 30, 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 six months ended June 30, 2016, year ended December 31, 2015 and six months ended June 30, 2015:

	June 30, 2016		December 31, 2015		June 30, 2015

	(Dollars in Thousands)
Gross gains on sales of securities	$	313	$	396	$	41
Gross losses on sales of securities		(219)		(259)		(19)
Net realized gains on sales of securities available for sale	$	94	$	137	$	22
Sales proceeds	$	46,731	$	72,528	$	30,113