NOTE 5 – INVESTMENT SECURITIES

The amortized cost and fair values of investment securities, with gross unrealized gains and losses, consist of the following:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2013

Securities available for sale:
U.S. Government-sponsored enterprise obligations	$	526,440	$	4,698	$	(298	)	$	530,840
Obligations of state and political subdivisions		117,199		5,826		(179	)		122,846
Mortgage backed securities		1,272,646		25,531		(1,853	)		1,296,324
Other securities		1,460		78		—			1,538

Total securities available for sale	$	1,917,745	$	36,133	$	(2,330	)	$	1,951,548

Securities held to maturity:
U.S. Government-sponsored enterprise obligations	$	69,951	$	1,016	$	—		$	70,967
Obligations of state and political subdivisions		85,723		3,867		(232	)		89,358
Mortgage backed securities		42,768		453		(446	)		42,775

Total securities held to maturity	$	198,442	$	5,336	$	(678	)	$	203,100

December 31, 2012

Securities available for sale:
U.S. Government-sponsored enterprise obligations	$	281,746	$	4,364	$	(386	)	$	285,724
Obligations of state and political subdivisions		120,680		6,573		(178	)		127,075
Mortgage backed securities		1,303,030		29,108		(1,482	)		1,330,656
Other securities		1,460		89		—			1,549

Total securities available for sale	$	1,706,916	$	40,134	$	(2,046	)	$	1,745,004

Securities held to maturity:
U.S. Government-sponsored enterprise obligations	$	69,949	$	1,244	$	—		$	71,193
Obligations of state and political subdivisions		88,909		4,730		(113	)		93,526
Mortgage backed securities		46,204		728		(153	)		46,779

Total securities held to maturity	$	205,062	$	6,702	$	(266	)	$	211,498

Securities with carrying values of $1,500,441,000 and $1,712,860,000 were pledged to secure public deposits and other borrowings at March 31, 2013 and December 31, 2012, respectively.

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to 1) the length of time and the extent to which the estimated fair value has been less than amortized cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in estimated fair value above amortized cost. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies and whether downgrades by bond rating agencies have occurred, as well as review of issuer financial statements and industry analysts’ reports.

Information pertaining to securities with gross unrealized losses at March 31, 2013 and December 31, 2012 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:


	Less Than Twelve Months					Over Twelve Months					Total
(Dollars in thousands)	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
March 31, 2013
Securities available for sale:
U.S. Government-sponsored enterprise obligations	$	(298	)	$	165,763	$	—		$	—	$	(298	)	$	165,763
Obligations of state and political subdivisions		(1	)		336		(178	)		1,094		(179	)		1,430
Mortgage backed securities		(1,851	)		188,106		(2	)		2,679		(1,853	)		190,785

Total securities available for sale	$	(2,150	)	$	354,205	$	(180	)	$	3,773	$	(2,330	)	$	357,978

Securities held to maturity:
U.S. Government-sponsored enterprise obligations	$	—		$	—	$	—		$	—	$	—		$	—
Obligations of state and political subdivisions		(232	)		10,478		—			—		(232	)		10,478
Mortgage backed securities		(446	)		24,372		—			—		(446	)		24,372

Total securities held to maturity	$	(678	)	$	34,850	$	—		$	—	$	(678	)	$	34,850

December 31, 2012
Securities available for sale:
U.S. Government-sponsored enterprise obligations	$	(386	)	$	59,741	$	—		$	—	$	(386	)	$	59,741
Obligations of state and political subdivisions		—			—		(178	)		1,094		(178	)		1,094
Mortgage backed securities		(1,473	)		180,027		(9	)		3,919		(1,482	)		183,946

Total securities available for sale	$	(1,859	)	$	239,768	$	(187	)	$	5,013	$	(2,046	)	$	244,781

Securities held to maturity:
U.S. Government-sponsored enterprise obligations	$	—		$	—	$	—		$	—	$	—		$	—
Obligations of state and political subdivisions		(113	)		8,242		—			—		(113	)		8,242
Mortgage backed securities		(153	)		16,262		—			—		(153	)		16,262

Total securities held to maturity	$	(266	)	$	24,504	$	—		$	—	$	(266	)	$	24,504

The Company assessed the nature of the losses in its portfolio as of March 31, 2013 and December, 31, 2012 to determine if there are losses that are deemed other-than-temporary. In its analysis of these securities, management considered numerous factors to determine whether there were instances where the amortized cost basis of the debt securities would not be fully recoverable, including, but not limited to:

•

the length of time and extent to which the estimated fair value of the securities was less than their amortized cost,

•

whether adverse conditions were present in the operations, geographic area, or industry of the issuer,

•

the payment structure of the security, including scheduled interest and principal payments, including the issuer’s failures to make scheduled payments, if any, and the likelihood of failure to make scheduled payments in the future,

•

changes to the rating of the security by a rating agency, and

•

subsequent recoveries or additional declines in fair value after the balance sheet date.

Management believes it has considered these factors, as well as all relevant information available, when determining the expected future cash flows of the securities in question. Except for the bond discussed below, in each instance, management has determined the cost basis of the securities would be fully recoverable. Management also has the intent and ability to hold debt securities until their maturity or anticipated recovery if the security is classified as available for sale. In addition, management does not believe the Company will be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security.

At March 31, 2013, 54 debt securities had unrealized losses of 0.78% of the securities’ amortized cost basis and 0.15% of the Company’s total amortized cost basis. The unrealized losses for each of the 54 securities relate to market interest rate changes. Two of the 54 securities have been in a continuous loss position for over twelve months at March 31, 2013. These two securities had an aggregate amortized cost basis and unrealized loss of $3,953,000 and $180,000, respectively. One of the two securities was issued by the Federal National Mortgage Association (Fannie Mae). Fannie Mae securities are rated AA+ by S&P and Aaa by Moodys. One of the securities in a continuous unrealized loss position for over twelve months was issued by a political subdivision and discussed in further detail below.

At December 31, 2012, 49 debt securities had unrealized losses of 0.85% of the securities’ amortized cost basis and 0.12% of the Company’s total amortized cost basis. The unrealized losses for each of the 49 securities relate to market interest rate changes. Three of the 49 securities had been in a continuous loss position for over twelve months at December 31, 2012. These three securities had an aggregate amortized cost basis and unrealized loss of $5,200,000 and $187,000, respectively. Two of the three securities were issued by either the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National Mortgage Association (Ginnie Mae). The Fannie Mae, Freddie Mac, and Ginnie Mae securities are rated AA+ by S&P and Aaa by Moodys. One of the securities in a continuous unrealized loss position for over twelve months was issued by a political subdivision and is discussed in further detail below.

Prior to 2012, management assessed the operating environment of a bond issuer as adverse and concluded that the Company had one unrated revenue municipal bond that warranted an other-than-temporary impairment charge. The specific impairment was related to the loss of the contracted revenue source required for bond repayment. The Company determined the impairment charge using observable market data for similar assets, including third party valuation of the security, as well as information from unobservable inputs, including its best estimate of the recoverability of the amortized cost of the security as outlined above. Changes to the unobservable inputs used by the Company would have resulted in a higher or lower impairment charge, but the unobservable inputs were not highly sensitive and would not result in a material difference in the impairment charge recorded for the year ended December 31, 2011. The Company recorded total impairment of 50% of the par value of the bond and provided a fair value of the bonds that was consistent with current market pricing. During the first three months of 2013, the Company continued to analyze the operating environment of the bond as it did in 2012 and 2011 and noted no further deterioration in the operating environment of the bond issuer.

During the three months ended March 31, 2013 and the year ended December 31, 2012, there was no activity related to credit losses on the other-than-temporarily impaired investment security where a portion of the unrealized loss was recognized in other comprehensive income.

As a result of the Company’s analysis, no other declines in the estimated fair value of the Company’s investment securities were deemed to be other-than-temporary at March 31, 2013 or December 31, 2012 except where noted above.

The amortized cost and estimated fair value by maturity of investment securities at March 31, 2013 are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities.


	Securities Available for Sale							Securities Held to Maturity
(Dollars in thousands)	Weighted Average Yield			Amortized Cost		Estimated Fair Value		Weighted Average Yield			Amortized Cost		Estimated Fair Value
Within one year or less		0.12	%	$	78,131	$	78,219		1.77	%	$	21,425	$	21,507
One through five years		1.34			231,579		234,222		2.00			56,171		57,395
After five through ten years		1.90			593,060		606,763		2.53			23,073		24,182
Over ten years		1.75			1,014,975		1,032,344		2.91			97,773		100,016

Totals		1.68	%	$	1,917,745	$	1,951,548		2.48	%	$	198,442	$	203,100

The following is a summary of realized gains and losses from the sale of securities classified as available for sale.


	Three Months Ended March 31,
(Dollars in thousands)	2013			2012

Realized gains	$	2,365		$	2,815
Realized losses		(37	)		(15	)

Net realized gains	$	2,328		$	2,800

In addition to the gains above, the Company realized certain immaterial gains on the calls of held to maturity securities.

Other Equity Securities

At March 31, 2013 and December 31, 2012, the Company included the following securities in “Other assets” on the Company’s consolidated balance sheets:


(Dollars in thousands)	March 31, 2013		December 31, 2012

Federal Home Loan Bank (FHLB) stock	$	10,404	$	16,860
Federal Reserve Bank (FRB) stock		28,155		28,155
First National Bankers Bankshares, Inc. (FNBB) stock		899		899
Other investments		406		302

Total equity securities	$	39,864	$	46,216