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 designated as held-to-maturity are carried at amortized cost, as the Bank has 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.

Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain 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:



September 30, 2014
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale:
Obligations of:
U.S. government sponsored enterprises	$	2,034	$	19	$	—	$	2,053
Residential mortgage-backed securities-GSE	313,522		591		11,666		302,447
Residential mortgage-backed securities-Private	17,653		1,015		—		18,668
Commercial mortgage-backed securities-GSE	22,475		—		831		21,644
Commercial mortgage-backed securities-Private	10,376		—		319		10,057
Corporate notes	8,397		30		—		8,427
Total available-for-sale	374,457		1,655		12,816		363,296
Held-to-Maturity:
Residential mortgage-backed securities-GSE	134,618		—		4,859		129,759
Commercial mortgage-backed securities-Private	10,066		—		243		9,823
Total held-to-maturity	144,684		—		5,102		139,582
Total investment securities	$	519,141	$	1,655	$	17,918	$	502,878

December 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	$	2,051	$	26	$	—	$	2,077
Residential mortgage-backed securities-GSE	364,513		974		24,340		341,147
Residential mortgage-backed securities-Private	19,770		982		—		20,752
Commercial mortgage-backed securities-GSE	22,767		—		1,328		21,439
Commercial mortgage-backed securities-Private	10,408		—		823		9,585
Business Development Company investment	1,753		984				2,737
Corporate notes	16,795		82		—		16,877
Total available-for-sale	438,057		3,048		26,491		414,614
Held-to-Maturity:
Residential mortgage-backed securities-GSE	141,724		—		9,907		131,817
Commercial mortgage-backed securities-Private	10,071		—		763		9,308
Total held-to-maturity	151,795		—		10,670		141,125
Total investment securities	$	589,852	$	3,048	$	37,161	$	555,739

As a member of the Federal Home Loan Bank of Atlanta (“FHLB”), the Bank is 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 Bank owned a total of $5.1 million of FHLB stock at September 30, 2014 and $5.9 million at December 31, 2013. Due to the redemption provisions of FHLB stock, we have estimated that fair value approximated cost and that this investment was not impaired at September 30, 2014. FHLB stock is included in other assets at its original cost basis.

As a member bank of the Federal Reserve Bank of Richmond (“FRBR”), the Bank also 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 September 30, 2014 and December 31, 2013, the Bank owned a total of $4.7 million and $4.3 million of FRBR stock, respectively. Because this investment is in an entity of the U.S. government, we have estimated that fair value approximated the cost and that this investment was not impaired at September 30, 2014. FRBR stock is included in other assets at its original cost basis.

At September 30, 2014, $116.6 million of the investment securities portfolio was pledged to secure public deposits, $17.3 million was pledged to retail repurchase agreements and $176.9 million was pledged to others, leaving $197.1 million available as pledgeable collateral.

During the three and nine months ended September 30, 2014, the Bank sold securities with a book value of $23.9 million and $26.4 million and recognized gross gains of $0.5 million and $1.2 million respectively, and gross losses $0.4 million in both the three month and nine month period. During the three months and nine months ended September 30, 2013, the Bank sold securities with a book value of $3.3 million and $175.1 million, respectively, and recognized gross gains of $0.1 million and $2.9 million, respectively, and gross losses of $0 and $0.2 million, respectively. The Bank sold securities in 2014 to exit its position in a SBIC Fund investment that had converted to a publicly traded equity, to fund loan growth and to manage our interest rate sensitivity profile. The Bank sold securities in 2013 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 September 30, 2014 and December 31, 2013. The change in unrealized losses during the nine months ending September 30, 2014 was attributed to changes in interest rates and not to changes in the credit quality of these securities. All unrealized losses on investment securities are considered by management to be temporary given the credit quality of 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
September 30, 2014
Available-for-Sale:
Residential mortgage-backed securities-GSE	$	—	$	—	$	281,209	$	11,666	$	281,209	$	11,666
Commercial mortgage-backed securities-GSE	—		—		21,645		831		21,645		831
Commercial mortgage-backed securities-Private	—		—		10,057		319		10,057		319
Total available-for-sale	—		—		312,911		12,816		312,911		12,816
Held-to-Maturity:
Residential mortgage-backed securities-GSE	—		—		129,759		4,859		129,759		4,859
Commercial mortgage-backed securities-Private	—		—		9,823		243		9,823		243
Total held-to-maturity	—		—		139,582		5,102		139,582		5,102
Total	$	—	$	—	$	452,493	$	17,918	$	452,493	$	17,918

December 31, 2013
Available-for-Sale
Residential mortgage-backed securities-GSE	$	222,475	$	16,585	$	76,501	$	7,755	$	298,976	$	24,340
Commercial mortgage-backed securities-GSE	—		—		21,439		1,328		21,439		1,328
Commercial mortgage-backed securities-Private	9,585		823		—		—		9,585		823
Total available-for-sale	232,060		17,408		97,940		9,083		330,000		26,491
Held-to-Maturity:
Residential mortgage-backed securities-GSE	131,817		9,907		—		—		131,817		9,907
Commercial mortgage-backed securities-Private	9,308		763		—		—		9,308		763
Total held-to-maturity	141,125		10,670		—		—		141,125		10,670
Total	$	373,185	$	28,078	$	97,940	$	9,083	$	471,125	$	37,161

At September 30, 2014 and December 31, 2013, there were 36 and ten available-for-sale securities that were in an unrealized loss position for 12 months or more, respectively.

COB analyzed its securities portfolio at September 30, 2014, and considered ratings, fair value, cash flows and other factors to determine if any of the securities were other than temporarily impaired. Since none of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption obligations, and COB has determined that it is not more likely than not that COB will be required to sell the security before recovery of its amortized cost basis, none of the securities are deemed to be other than temporarily impaired.

The aggregate amortized cost and fair value of securities at September 30, 2014, 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 the obligations. Mortgage backed securities are grouped based on stated maturity date, but actual maturity will vary based on the actual repayment of the underlying mortgage loans.



	Available-for-Sale				Held-to-Maturity
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
U.S. government sponsored agencies
Due after one year through five years	$	2,034	$	2,053	$	—	$	—
Residential mortgage-backed securities-GSE
Due after five years through 10 years	7,267		7,378		—		—
Due after ten years	306,255		295,069		134,618		129,759
Residential mortgage-backed securities-Private
Due after ten years	17,653		18,668		—		—
Commercial mortgage-backed securities-GSE
Due after five years through 10 years	22,475		21,644		—		—
Commercial mortgage-backed securities-Private
Due after ten years	10,376		10,057		10,066		9,823
Corporate notes
Due in one year or less	8,397		8,427		—		—
Total	$	374,457	$	363,296	$	144,684	$	139,582