INVESTMENTS

12 Months Ended

Dec. 31, 2013

Investments [Abstract]

INVESTMENTS

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:

	2013								2012
			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	$	147,688	$	-	$	(8,222)	$	139,466	$	155,442	$	1,084	$	(98)	$	156,428
State and municipal		159,524		6,060		(156)		165,428		160,496		13,996		(1)		174,491
Mortgage-backed		439,054		10,188		(6,992)		442,250		471,527		19,080		(128)		490,479
Corporate debt		2,000		4		-		2,004		2,000		-		(4)		1,996
Trust preferred		1,701		-		(288)		1,413		1,701		-		(236)		1,465
Total debt securities		749,967		16,252		(15,658)		750,561		791,166		34,160		(467)		824,859
Marketable equity securities		723		-		-		723		723		-		-		723
Total investments     available-for-sale	$	750,690	$	16,252	$	(15,658)	$	751,284	$	791,889	$	34,160	$	(467)	$	825,582

Any unrealized losses in the U.S. government agencies, state and municipal, mortgage-backed or corporate debt investment securities at December 31, 2013 are the result of changes in interest rates. 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, 2013 is composed entirely of either the most senior tranches of GNMA collateralized mortgage obligations ($205.2 million), or GNMA, FNMA or FHLMC mortgage-backed securities ($237.0 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, 2013, 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 management through the use of a third party valuation specialist due to the limited trading activity for this security.

The 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 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 (.50%), 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 13.0% 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 had not incurred any credit-related other-than-temporary impairment (“OTTI”) for the year ended December 31, 2013. 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, 2013. This non-credit related OTTI was recognized in other accumulated comprehensive income (“OCI”) at December 31, 2013.

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;

· 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, 2011	$	422
Additions for credit losses not previously recognized		109
Cumulative credit losses on investment securities, through December 31, 2012		531
Additions for credit losses not previously recognized		-
Cumulative credit losses on investment securities, through December 31, 2013	$	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:

	2013
				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	15	$	139,466	$	8,222	$	-	$	8,222
State and municipal	12		11,680		156		-		156
Mortgage-backed	30		169,377		6,865		127		6,992
Trust preferred	1		1,413		-		288		288
Total	58	$	321,936	$	15,243	$	415	$	15,658

	2012
				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	$	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

The amortized cost and estimated fair values of debt 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.

	2013				2012
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	2,080	$	2,085	$	35,544	$	36,349
Due after one year through five years		12,766		13,285		3,957		3,994
Due after five years through ten years		392,389		392,339		382,957		399,180
Due after ten years		342,732		342,852		368,708		385,336
Total debt securities available for sale	$	749,967	$	750,561	$	791,166	$	824,859

At December 31, 2013 and 2012, investments available-for-sale with a book value of $186.6 million and $195.4 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, 2013 and 2012.

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:

	2013								2012
			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	$	64,505	$	-	$	(4,827)	$	59,678	$	64,498	$	125	$	(29)	$	64,594
State and municipal		159,889		1,920		(5,753)		156,056		150,995		6,194		(123)		157,066
Mortgage-backed		244		29		-		273		321		43		-		364
Total investments held-to-maturity	$	224,638	$	1,949	$	(10,580)	$	216,007	$	215,814	$	6,362	$	(152)	$	222,024

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:

	2013
				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	8	$	59,678	$	4,827	$	-	$	4,827
State and municipal	113		94,243		5,366		387		5,753
Total	121	$	153,921	$	10,193	$	387	$	10,580

	2012
				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	1	$	9,961	$	29	$	-	$	29
State and municipal	13		16,868		123		-		123
Total	14	$	26,829	$	152	$	-	$	152

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.

 

	2013				2012
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	1,720	$	1,725	$	7,431	$	7,523
Due after one year through five years		3,249		3,269		4,653		4,725
Due after five years through ten years		139,033		135,074		116,735		120,074
Due after ten years		80,636		75,939		86,995		89,702
Total debt securities held-to-maturity	$	224,638	$	216,007	$	215,814	$	222,024

At December 31, 2013 and 2012, investments held-to-maturity with a book value of $165.8 million and $155.5 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, 2013 and 2012.

Equity securities

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

(In thousands)	2013		2012
Federal Reserve Bank stock	$	8,269	$	8,269
Federal Home Loan Bank of Atlanta stock		32,418		25,367
Total equity securities	$	40,687	$	33,636

Securities gains

Gross realized gains and losses on all investments for the years ended December 31 are presented in the following table:

(In thousands)	2013		2012		2011
Gross realized gains from sales of investments available-for-sale	$	-	$	56	$	-
Gross realized losses from sales of investments available-for-sale		(3)		-		-
Net gains or (losses) from calls of investments available-for-sale		44		294		205
Net gains or (losses) from calls of investments held-to-maturity		74		109		87
Net securities gains	$	115	$	459	$	292