Investment Securities

Securities designated as available-for-sale are carried at fair value. However, the unrealized difference between amortized cost and fair value of securities available-for-sale is excluded from net income unless there is an other than temporary impairment and is reported, net of deferred taxes, as a component of shareholders' equity as accumulated other comprehensive income (loss). Securities held-to-maturity are carried at amortized cost, as the banks have the ability, and management has the positive intent, to hold these securities to maturity. Premiums and discounts on securities are amortized and accreted according to the interest method.

The primary objective of FNB's management of the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. FNB is required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. FNB maintains investment balances based on a continuing assessment of cash flows, the level of loan production, current interest rate risk strategies and an assessment of the potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risks.

The following table summarizes the amortized cost and estimated fair value of investment securities and presents the related gross unrealized gains and losses:



March 31, 2013
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale:
Obligations of:
U.S. government sponsored enterprises	$	2,069	$	38	$	—	$	2,107
Residential mortgage-backed securities-GSE	409,949		1,794		3,279		408,464
Residential mortgage-backed securities-Private	21,992		879		250		22,621
Commercial mortgage backed securities-GSE	23,054		—		658		22,396
Corporate notes	36,567		240		40		36,767
Total	$	493,631	$	2,951	$	4,227	$	492,355
Held to Maturity:
Residential mortgage-backed securities-GSE	73,515		1		271		73,245
Total	$	567,146	$	2,952	$	4,498	$	565,600

December 31, 2012
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale:
Obligations of:
U.S. Treasury and government agencies	$	6,646	$	335	$	—	$	6,981
U.S. government sponsored enterprises	22,118		55		—		22,173
States and political subdivisions	5,918		120		—		6,038
Residential mortgage-backed securities-GSE	436,344		5,678		948		441,074
Residential mortgage-backed securities-Private	22,649		750		454		22,945
Commercial mortgage backed securities-GSE	23,150		209		—		23,359
Commercial mortgage backed securities-Private	5,283		34		—		5,317
Corporate notes	36,710		270		17		36,963
Total	$	558,818	$	7,451	$	1,419	$	564,850

CommunityOne and Granite, as members of the Federal Home Loan Bank of Atlanta (“FHLB”), are required to own capital stock in the FHLB based generally upon the balances of total assets and FHLB advances. FHLB capital stock is pledged to secure FHLB advances. This investment is carried at cost since no ready market exists for FHLB stock and there is no quoted market value. However, redemption of this stock has historically been at par value. The combined banks owned a total of $5.2 million of FHLB stock at March 31, 2013 and $6.3 million at December 31, 2012. Due to the redemption provisions of FHLB stock, FNB estimated that fair value approximated cost and that this investment was not impaired at March 31, 2013. FHLB stock is included in other assets at its original cost basis.

CommunityOne, as a member bank of the Federal Reserve Bank of Richmond (“FRBR”), is required to own capital stock of the FRBR based upon a percentage of the bank's common stock and surplus. This investment is carried at cost since no ready market exists for FRBR stock and there is no quoted market value. At both March 31, 2013 and December 31, 2012, CommunityOne owned a total of $3.1 million, of FRBR stock. Due to the nature of this investment in an entity of the U.S. government, FNB estimated that fair value approximated the cost and that this investment was not impaired at March 31, 2013. FRBR stock is included in other assets at its original cost basis.

At March 31, 2013, $102.7 million of the investment securities portfolio was pledged to secure public deposits, $13.9 million was pledged to retail repurchase agreements and $2.1 million was pledged to others, leaving $446.9 million available as lendable collateral.

During the three months ended March 31, 2013 and 2012, the banks sold securities with a book value of $145.9 million and $10.8 million respectively, and recognized a gain of $2.4 million and a loss of $(46) thousand, respectively. The banks sold these securities in order to manage our interest rate sensitivity profile.

The following tables show our investments' estimated fair value and gross unrealized losses, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2013 and December 31, 2012. All unrealized losses on investment securities are considered by management to be temporary given the credit ratings on these investment securities or the short duration of the unrealized loss or both.



	Less than 12 Months				12 Months or More				Total
(dollars in thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
March 31, 2013
Available for Sale:
Residential mortgage-backed securities-GSE	$	284,396	$	3,279	$	—	$	—	$	284,396	$	3,279
Residential mortgage-backed securities-Private	3,365		217		4,025		33		7,390		250
Commercial mortgage-backed securities-GSE	22,396		658		—		—		22,396		658
Corporate notes	—		—		3,234		40		3,234		40
Total	$	310,157	$	4,154	$	7,259	$	73	$	317,416	$	4,227
Held to Maturity:
Residential mortgage-backed securities-GSE	$	48,036	$	272	$	—	$	—	$	48,036	$	272

December 31, 2012
Obligations of:
Residential mortgage-backed securities-GSE	$	123,489	$	904	$	7,027	$	44	$	130,516	$	948
Residential mortgage-backed securities-Private	6,482		438		1,017		16		7,499		454
Corporate notes	—		—		3,249		17		3,249		17
Total	$	129,971	$	1,342	$	11,293	$	77	$	141,264	$	1,419

At March 31, 2013, there were four available-for-sale securities that were in an unrealized loss position for longer than 12 months, compared to four at December 31, 2012.

If an entity intends to sell a debt security or cannot assert it is more likely than not that it will not have to sell the security before recovery, other than temporary impairment ("OTTI") must be taken. If the entity does not intend to sell the debt security before recovery, but the entity does not expect to recover the entire amortized cost basis, then OTTI must be taken, but the amount of impairment is to be bifurcated between impairment due to credit (which is recorded through earnings) and noncredit impairment (which becomes a component of other comprehensive income (“OCI”) for both available-for-sale and held-to-maturity securities). For held-to-maturity securities, the amount in OCI will be amortized prospectively over the security's remaining life. After analyzing its securities portfolio at March 31, 2013, and after considering ratings, fair value, cash flows and other factors, FNB did not have any OTTI during the three months ended March 31, 2013 and March 31, 2012.

The aggregate amortized cost and fair value of securities at March 31, 2013, by remaining contractual maturity, are shown in the following table. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.



	Available-for-Sale				Held-to-Maturity
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	16,458	$	16,551	$	—	$	—
Due after one year through five years	18,904		19,089		—		—
Due after five years through 10 years	3,274		3,234		—		—
Due after 10 years	—		—		—		—
Total	38,636		38,874		—		—
Mortgage-backed securities	454,995		453,481		73,515		73,245
Total	$	493,631	$	492,355	$	73,515	$	73,245