NOTE 2 – INVESTMENTS

Investments available-for-sale

The amortized cost and estimated fair values of investments available-for-sale at the dates indicated are presented in the following table:

	September 30, 2011									December 31, 2010
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. government agencies	$	206,409	$	3,168	$	(12	)	$	209,565	$	305,643	$	3,949	$	(2,887	)	$	306,705
State and municipal		158,196		8,450		(7	)		166,639		111,583		182		(4,228	)		107,537
Mortgage-backed		549,836		20,282		(36	)		570,082		476,914		10,998		(951	)		486,961
Trust preferred		5,936		325		(573	)		5,688		6,783		190		(993	)		5,980
Total debt securities		920,377		32,225		(628	)		951,974		900,923		15,319		(9,059	)		907,183
Marketable equity securities		100		-		-			100		100		-		-			100
Total investments available-for-sale	$	920,477	$	32,225	$	(628	)	$	952,074	$	901,023	$	15,319	$	(9,059	)	$	907,283

At September 30, 2011, unrealized losses associated with U.S. Government Agencies and state and municipal securities have been caused by changes in interest rates and are not considered credit related as the contractual cash flows of these investments are either explicitly or implicitly backed by the full faith and credit of the U.S. government. The mortgage-backed portfolio at September 30, 2011 is composed entirely of either the most senior tranches of GNMA collateralized mortgage obligations ($228.3 million), or GNMA, FNMA or FHLMC mortgage-backed securities ($341.8 million). The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value. Unrealized losses that are related to the prevailing interest rate environment will decline over time and recover as these securities approach maturity.

At September 30, 2011, the trust preferred portfolio consisted of two securities totaling $3.0 million, each backed by a single financial institution issuer. The fair value of this security was $3.3 million as determined using broker quotations. The Company also owns one pooled trust preferred security backed by debt issued by banks and thrifts, which totals $2.9 million, with a fair value of $2.4 million. The fair value of this security was determined by a third party valuation specialist due to the limited trading activity for this security in the marketplace.

The specialist used an income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The methodology and significant assumptions employed by the specialist to determine fair value included:

Evaluation of the structural terms as established in the indenture;

Detailed credit and structural evaluation for each piece of collateral in the pool;

Default, recovery and prepayment/amortization probabilities;

Identification of adverse conditions specifically related to the security, industry and geographical area;

Projection of estimated cash flows that incorporate default expectations and loss severities;

Review of historical and implied volatility of the fair value of the security;

Evaluation of credit risk concentrations;

Evaluation of the length of time and the extent to which the fair value has been less than the amortized cost; and

A discount rate of 12.62% was established using credit adjusted financial institution spreads for comparably rated institutions and a liquidity adjustment that considered the previously noted characteristics.

As a result of this evaluation, it was determined that the pooled trust preferred security incurred credit-related other-than-temporary impairment (“OTTI”) of $76 thousand, which was recognized in earnings for the quarter ended September 30, 2011. For the nine months ended September 30, 2011, credit-related OTTI incurred on this security amounted to $160 thousand. Cumulative credit-related OTTI of $422 thousand has been recognized in earnings through September 30, 2011. The non-credit related OTTI recognized in other comprehensive income (“OCI”) at September 30, 2011 was $0.6 million. The security is not expected to be sold and the Company has the ability to hold the security until maturity.

The significant inputs used to measure the amount related to credit loss consisted of the following:

Default rates were developed based on the financial condition of the trust preferred issuers in the pool and the payment or deferral status. Conditional default rates were estimated based on the payment characteristics of the security and the financial condition of the issuers in the pool. Near term and future defaults are estimated using third party industry data in addition to a review of key financial ratios and other pertinent data on the financial stability of the underlying issuer;

Loss severity is forecasted based on the type of impairment using research performed by third parties;

The security only contains one level of subordination below the senior tranche, with the senior tranche receiving the spread from the subordinate bonds. Given recent performance, it is not expected that the senior tranche will receive its full interest and principal at the bond’s maturity date;

Credit ratings of the underlying issuers are reviewed in conjunction with the development of the default rates applied to determine the credit amounts related to the credit loss; and

Potential prepayments are estimated based on terms and rates of the underlying trust preferred securities to determine the impact of excess spread on the credit enhancement, the removal of the strongest institutions from the underlying pool and any impact that prepayments might have on diversity and concentration.

The following table provides the activity of OTTI on investment securities due to credit losses recognized in earnings for the period indicated:

(In thousands)	OTTI Losses
Cumulative credit losses on investment securities, through December 31, 2010	$	262
Additions for credit losses not previously recognized		160
Cumulative credit losses on investment securities, through September 30, 2011	$	422

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in an unrealized loss position at the dates indicated are presented in the following table:

At September 30, 2011					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies		2	$	14,990	$	12	$	-	$	12
State and municipal		1		395		7		-		7
Mortgage-backed		5		20,623		35		1		36
Trust preferred		1		2,365		-		573		573
Total		9	$	38,373	$	54	$	574	$	628

At December 31, 2010					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies		13	$	115,829	$	2,887	$	-	$	2,887
State and municipal		72		91,693		4,228		-		4,228
Mortgage-backed		11		139,899		949		2		951
Trust preferred		1		2,798		-		993		993
Total		97	$	350,219	$	8,064	$	995	$	9,059

The amortized cost and estimated fair values of investment securities available-for-sale by contractual maturity at the dates indicated are provided in the following table. The Company has allocated mortgage-backed securities into the four maturity groupings reflected in the following table using the expected average life of the individual securities based on statistics provided by independent third party industry sources. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

	September 30, 2011				December 31, 2010
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	65,346	$	65,961	$	31,537	$	31,747
Due after one year through five years		76,513		78,689		167,190		170,292
Due after five years through ten years		345,192		354,617		258,107		255,700
Due after ten years		433,326		452,707		444,089		449,444
Total debt securities available for sale	$	920,377	$	951,974	$	900,923	$	907,183

At September 30, 2011 and December 31, 2010, investments available-for-sale with a book value of $256.7 million and $244.2 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agencies securities, exceeded ten percent of stockholders' equity at September 30, 2011 and December 31, 2010.

Investments held-to-maturity

The amortized cost and estimated fair values of investments held-to-maturity at the dates indicated are presented in the following table:

	September 30, 2011									December 31, 2010
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. government agencies	$	74,998	$	143	$	(188	)	$	74,953	$	-	$	-	$	-		$	-
State and municipal		114,094		3,966		(61	)		117,999		101,091		2,530		(44	)		103,577
Mortgage-backed		428		52		-			480		499		48		-			547
Total investments held-to-maturity	$	189,520	$	4,161	$	(249	)	$	193,432	$	101,590	$	2,578	$	(44	)	$	104,124

Gross unrealized losses and fair value by length of time that the individual held-to-maturity securities have been in a continuous unrealized loss position at the dates indicated are presented in the following tables:

At September 30, 2011					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies		4	$	44,812	$	188	$	-	$	188
State and municipal		7		12,843		61		-		61
Total		11	$	57,655	$	249	$	-	$	249

At December 31, 2010					Continuous Unrealized
					Losses Existing for:
	Number								Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
State and municipal		4	$	1,769	$	33	$	11	$	44
Total		4	$	1,769	$	33	$	11	$	44

The Company does not intend to sell these securities and has sufficient liquidity to hold these securities for an adequate period of time, which may be maturity, to allow for any anticipated recovery in fair value. Accordingly, the unrealized losses in the held-to-maturity portfolio are considered temporary in nature.

The amortized cost and estimated fair values of debt securities held-to-maturity by contractual maturity at the dates indicated are reflected in the following table. Expected maturities will differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment penalties.

	September 30, 2011				December 31, 2010
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	24,047	$	24,516	$	26,238	$	26,750
Due after one year through five years		9,511		9,875		15,871		16,616
Due after five years through ten years		114,872		116,371		24,426		25,118
Due after ten years		41,090		42,670		35,055		35,640
Total debt securities held-to-maturity	$	189,520	$	193,432	$	101,590	$	104,124

At September 30, 2011 and December 31, 2010, investments held-to-maturity with a book value of $61.4 million and $85.8 million, respectively, were pledged as collateral for certain government deposits and for other purposes as required or permitted by law. The outstanding balance of no single issuer, except for U.S. Agency securities, exceeded ten percent of stockholders' equity at September 30, 2011 and December 31, 2010.

Other Equity securities

Other equity securities at the dates indicated are presented in the following table:

(In thousands)	September 30, 2011		December 31, 2010
Federal Reserve Bank stock	$	7,530	$	7,530
Federal Home Loan Bank of Atlanta stock		24,981		26,465
Atlantic Central Bank stock		75		75
Total equity securities	$	32,586	$	34,070