Investment Securities

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 available-for-sale investment securities and presents the related gross unrealized gains and losses:



June 30, 2012
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Obligations of:
U.S. Treasury and government agencies	$	6,864	$	232	$	—	$	7,096
U.S. government sponsored enterprises	3,586		30		—		3,616
States and political subdivisions	5,988		78		—		6,066
Residential mortgage-backed securities-GSE	381,857		3,904		259		385,502
Residential mortgage-backed securities-Private	32,797		652		769		32,680
Commercial mortgage-backed securities-Private	5,354		—		15		5,339
Corporate notes	36,992		—		155		36,837
Total	$	473,438	$	4,896	$	1,198	$	477,136

December 31, 2011
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Obligations of:
U.S. Treasury and government agencies	$	7,081	$	107	$	—	$	7,188
U.S. government sponsored enterprises	32,479		36		151		32,364
States and political subdivisions	6,075		16		1		6,090
Residential mortgage-backed securities-GSE	348,884		2,611		1,222		350,273
Residential mortgage-backed securities-Private	33,111		73		967		32,217
Corporate notes	3,206		—		32		3,174
Total	$	430,836	$	2,843	$	2,373	$	431,306

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 $7.3 million of FHLB stock at June 30, 2012 and at December 31, 2011. Due to the redemption provisions of FHLB stock, FNB estimated that fair value approximated cost and that this investment was not impaired at June 30, 2012. 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 June 30, 2012 and December 31, 2011, CommunityOne owned a total of $3.7 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 June 30, 2012. FRBR stock is included in other assets at its original cost basis.

At June 30, 2012, $82.0 million of the investment securities portfolio was pledged to secure public deposits, $12.3 million was pledged to retail repurchase agreements, $4.1 million was pledged to the FRBR and $0.7 million was pledged to others, leaving $378.2 million available as lendable collateral.

During the three and six months ended June 30, 2012, the banks sold securities with a book value of $112.7 million and recognized a gain of $2.0 million. The banks sold these securities in order to modify our interest rate sensitivity profile.

The following tables show 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 June 30, 2012 and December 31, 2011. 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
June 30, 2012
Residential mortgage-backed securities-GSE	$	43,983	$	167	$	12,594	$	92	$	56,577	$	259
Residential mortgage-backed securities-Private	13,061		769		—		—		13,061		769
Commercial mortgage-backed securities-Private	5,339		15		—		—		5,339		15
Corporate notes	36,837		155		—		—		36,837		155
Total	$	99,220	$	1,106	$	12,594	$	92	$	111,814	$	1,198

	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
December 31, 2011
Obligations of:
U.S. government sponsored enterprises	$	21,248	$	151	$	—	$	—	$	21,248	$	151
States and political subdivisions	1,907		1		—		—		1,907		1
Residential mortgage-backed securities-GSE	89,730		1,042		16,552		180		106,282		1,222
Residential mortgage-backed securities-Private	21,519		967		—		—		21,519		967
Corporate notes	3,173		32		—		—		3,173		32
Total	$	137,577	$	2,193	$	16,552	$	180	$	154,129	$	2,373

At June 30, 2012, 10 available-for-sale securities were in an unrealized loss position less than 12 months compared to 32 at December 31, 2011. At June 30, 2012, there were 3 available-for-sale securities that were in an unrealized loss position for longer than 12 months, compared to seven at December 31, 2011.

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. FNB did not have any OTTI during the three and six months ended June 30, 2012 and June 30, 2011.

As of June 30, 2012, FNB had four private residential mortgage-backed securities that were rated as below investment grade by one or more rating agencies. These securities were acquired in the Merger and have a current fair value of $8.1 million. It is our intention to continue to hold these securities.

FNB analyzed its securities portfolio at June 30, 2012, paying particular attention to its private label mortgage-backed securities. After considering ratings, fair value, cash flows and other factors, FNB does not believe securities to be other-than-temporary impaired.

The aggregate amortized cost and fair value of securities at June 30, 2012, 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
(dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	8,436	$	8,407
Due after one one year through five years	33,381		33,459
Due after five years through 10 years	4,749		4,653
Due after 10 years	6,864		7,096
Total	53,430		53,615
Mortgage-backed securities	420,008		423,521
Total	$	473,438	$	477,136