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INVESTMENTS

12 Months Ended

Dec. 31, 2012

Note 4 – Investments

Investments available-for-sale

The amortized cost and estimated fair values of investments available-for-sale at December 31 are presented in the following table:

	2012									2011
			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	$	155,442	$	1,084	$	(98	)	$	156,428	$	197,816	$	2,436	$	-		$	200,252
State and municipal		160,496		13,996		(1	)		174,491		160,657		12,456		(2	)		173,111
Mortgage-backed		471,527		19,080		(128	)		490,479		551,518		18,639		(13	)		570,144
Corporate debt		2,000		-		(4	)		1,996		2,000		-		(22	)		1,978
Trust preferred		1,701		-		(236	)		1,465		5,936		260		(480	)		5,716
Total debt securities		791,166		34,160		(467	)		824,859		917,927		33,791		(517	)		951,201
Marketable equity securities		723		-		-			723		100		-		-			100
Total investments available-for-sale	$	791,889	$	34,160	$	(467	)	$	825,582	$	918,027	$	33,791	$	(517	)	$	951,301

Any unrealized losses in the U.S. government agencies, state and municipal, mortgage-backed or corporate debt investment securities at December 31, 2012 are the result of changes in interest rates and are not considered credit related. These declines are considered temporary in nature and will decline over time and recover as these securities approach maturity.

The mortgage-backed portfolio at December 31, 2012 is composed entirely of either the most senior tranches of GNMA collateralized mortgage obligations ($206.6 million), or GNMA, FNMA or FHLMC mortgage-backed securities ($283.9 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.

At December 31, 2012, the trust preferred portfolio consisted of one pooled trust preferred security. The pooled trust preferred security is backed by debt issued by banks and thrifts, which totals $1.7 million, with a fair value of $1.4 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) 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 issuer collateral in the pool;

Overall default (.38%), recovery and prepayment (2%) amortization probabilities by issuers in the pool;

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 12.0% 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 $109 thousand, which was recognized in earnings for the year ended December 31, 2012. Non-credit related OTTI on this security, which is not expected to be sold and which the Company has the ability to hold until maturity, was $0.3 million at December 31, 2012. This non-credit related OTTI was recognized in other accumulated comprehensive income (“OCI”) at December 31, 2012.

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

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 have been 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 December 31, 2011		422
Additions for credit losses not previously recognized		109
Cumulative credit losses on investment securities, through December 31, 2012	$	531

Gross unrealized losses and fair values by length of time that the individual available-for-sale securities have been in an unrealized loss position at December 31 are presented in the following table:

	2012
					Continuous Unrealized
	Number				Losses Existing for:				Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies		2	$	29,900	$	98	$	-	$	98
State and municipal		1		390		1		-		1
Mortgage-backed		2		12,653		128		-		128
Corporate debt		1		1,996		4		-		4
Trust preferred		1		1,465		-		236		236
Total		7	$	46,404	$	231	$	236	$	467

	2011
					Continuous Unrealized
	Number				Losses Existing for:				Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
State and municipal		1	$	397	$	2	$	-	$	2
Mortgage-backed		3		5,081		13		-		13
Corporate debt		1		3,326		22		-		22
Trust preferred		1		2,467		-		480		480
Total		6	$	11,271	$	37	$	480	$	517

The amortized cost and estimated fair values of investment securities available-for-sale by contractual maturity at December 31 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.

	2012				2011
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	35,544	$	36,349	$	65,569	$	65,972
Due after one year through five years		3,957		3,994		62,993		64,656
Due after five years through ten years		382,957		399,180		342,813		354,238
Due after ten years		368,708		385,336		446,552		466,335
Total debt securities available for sale	$	791,166	$	824,859	$	917,927	$	951,201

At December 31, 2012 and 2011, investments available-for-sale with a book value of $195.4 million and $255.4 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 December 31, 2012 and 2011.

Investments held-to-maturity

The amortized cost and estimated fair values of investments held-to-maturity at December 31 are presented in the following table:

	2012									2011
			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	$	64,498	$	125	$	(29	)	$	64,594	$	54,983	$	406	$	-		$	55,389
State and municipal		150,995		6,194		(123	)		157,066		123,075		5,244		(1	)		128,318
Mortgage-backed		321		43		-			364		407		53		-			460
Total investments held-to-maturity	$	215,814	$	6,362	$	(152	)	$	222,024	$	178,465	$	5,703	$	(1	)	$	184,167

Gross unrealized losses and fair values by length of time that the individual held-to-maturity securities have been in a continuous unrealized loss position at December 31 are presented in the following tables:

	2012
					Continuous Unrealized
	Number				Losses Existing for:				Total
	of				Less than		More than		Unrealized
(Dollars in thousands)	securities		Fair Value		12 months		12 months		Losses
U.S. government agencies		1	$	9,961	$	29	$	-	$	29
State and municipal		13		16,868		123		-		123
Total		14	$	26,829	$	152	$	-	$	152

	2011
					Continuous Unrealized
	Number				Losses Existing for:				Total
	of				Less than		More than		Unrealized
(Dollars in thousands)		securities		Fair Value		12 months		12 months		Losses
State and municipal		1	$	541	$	1	$	-	$	1
Total		1	$	541	$	1	$	-	$	1

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, and substantiates that 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 December 31 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.

	2012				2011
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	7,431	$	7,523	$	18,860	$	19,203
Due after one year through five years		4,653		4,725		6,937		7,144
Due after five years through ten years		116,735		120,074		98,428		101,008
Due after ten years		86,995		89,702		54,240		56,812
Total debt securities held-to-maturity	$	215,814	$	222,024	$	178,465	$	184,167

At December 31, 2012 and 2011, investments held-to-maturity with a book value of $155.5 million and $58.7 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 December 31, 2012 and 2011.

Equity securities

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

(In thousands)	2012		2011
Federal Reserve Bank stock	$	8,269	$	7,530
Federal Home Loan Bank of Atlanta stock		25,367		27,328
Other equities		-		75
Total equity securities	$	33,636	$	34,933

Securities gains

Gross realized gains and losses on all investments for the periods indicated are presented in the following table:

	For the year ended December 31,
(In thousands)	2012		2011		2010
Gross realized gains from sales of investments available-for-sale	$	56	$	-	$	1,001
Gross realized losses from sales of investments available-for-sale		-		-		(371	)
Net gains or (losses) from calls of investments available-for-sale		294		205		99
Net gains or (losses) from calls of investments held-to-maturity		109		87		67
Net securities gains	$	459	$	292	$	796