Investment Securities

6 Months Ended

Jun. 30, 2011

Note 3. Investment Securities

As of June 30, 2011, and December 31, 2010, the amortized cost and estimated fair value of available-for-sale securities were as follows:


	June 30, 2011
	Amortized		Unrealized		Unrealized			Fair		OTTI in
(In Thousands)	Cost		Gains		Losses			Value		AOCI*
States and political subdivisions	$	124,579	$	2,653	$	(452	)	$	126,780	$	—
Single issue trust preferred securities		55,618		—		(9,021	)		46,597		—
Corporate FDIC insured		13,830		—		(28	)		13,802		—
Mortgage-backed securities:
Agency		147,304		3,748		(126	)		150,926		—
Non-Agency Alt-A residential		18,191		—		(6,935	)		11,256		(6,935	)

Total mortgage-backed securities		165,495		3,748		(7,061	)		162,182		(6,935	)
Equity securities		440		218		(43	)		615		—

Total	$	359,962	$	6,619	$	(16,605	)	$	349,976	$	(6,935	)


	December 31, 2010
	Amortized		Unrealized		Unrealized			Fair		OTTI in
(In Thousands)	Cost		Gains		Losses			Value		AOCI*
U.S. Government agency securities	$	10,000	$	—	$	(168	)	$	9,832	$	—
States and political subdivisions		178,149		2,649		(4,660	)		176,138		—
Trust preferred securities:
Single issue		55,594		—		(14,350	)		41,244		—
Pooled		23		241		—			264		—

Total trust preferred securities		55,617		241		(14,350	)		41,508		—
Corporate FDIC insured		25,282		378		—			25,660		—
Mortgage-backed securities:
Agency		209,281		7,039		(1,307	)		215,013		—
Non-Agency Alt-A residential		19,181		—		(7,904	)		11,277		(7,904	)

Total mortgage-backed securities		228,462		7,039		(9,211	)		226,290		(7,904	)
Equity securities		495		206		(65	)		636		—

Total	$	498,005	$	10,513	$	(28,454	)	$	480,064	$	(7,904	)


*		Other-than-temporary impairment in accumulated other comprehensive income.

As of June 30, 2011, and December 31, 2010, the amortized cost and estimated fair value of held-to-maturity securities were as follows:


	June 30, 2011
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
States and political subdivisions	$	4,106	$	51	$	—	$	4,157

Total	$	4,106	$	51	$	—	$	4,157


	December 31, 2010
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
States and political subdivisions	$	4,637	$	67	$	—	$	4,704

Total	$	4,637	$	67	$	—	$	4,704

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at June 30, 2011, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized
(In Thousands)	Cost		Fair Value
Due within one year	$	116	$	118
Due after one year but within five years		27,147		27,545
Due after five years but within ten years		24,073		25,072
Due after ten years		142,691		134,444

		194,027		187,179
Mortgage-backed securities		165,495		162,182
Equity securities		440		615

Total	$	359,962	$	349,976

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at June 30, 2011, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized
(In Thousands)	Cost		Fair Value
Due within one year	$	1,426	$	1,441

Due after one year but within five years		2,310		2,340
Due after five years but within ten years		370		376
Due after ten years		—		—

Total	$	4,106	$	4,157

The carrying value of securities pledged to secure public deposits as required by law and for other purposes was $246.86 million and $302.67 million at June 30, 2011, and December 31, 2010, respectively.

During the three months ended June 30, 2011, gross gains on the sale of securities were $4.33 million while gross losses were $1.10 million. During the six months ended June 30, 2011, gross gains on the sale of securities were $6.68 million while gross losses were $1.62 million. During the three months ended June 30, 2010, gross gains on the sale of securities were $1.23 million while gross losses were $26 thousand. During the six months ended June 30, 2010, gross gains on the sale of securities were $1.49 million while gross losses were $34 thousand.

The following tables reflect those investments, both available-for-sale and held-to-maturity, in a continuous unrealized loss position for less than 12 months and for 12 months or longer at June 30, 2011, and December 31, 2010.


	June 30, 2011
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
States and political subdivisions	$	27,090	$	(452	)	$	—	$	—		$	27,090	$	(452	)
Single issue trust preferred securities		—		—			46,597		(9,021	)		46,597		(9,021	)
FDIC-backed securities		13,802		(28	)		—		—			13,802		(28	)
Mortgage-backed securities:
Agency		29,319		(119	)		4,924		(7	)		34,243		(126	)
Alt-A residential		—		—			11,256		(6,935	)		11,256		(6,935	)

Total mortgage-backed securities		29,319		(119	)		16,180		(6,942	)		45,499		(7,061	)
Equity securities		127		(23	)		116		(20	)		243		(43	)

Total	$	70,338	$	(622	)	$	62,893	$	(15,983	)	$	133,231	$	(16,605	)


	December 31, 2010
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Government agency securities	$	9,832	$	(168	)	$	—	$	—		$	9,832	$	(168	)
States and political subdivisions		80,420		(4,660	)		—		—			80,420		(4,660	)
Single issue trust preferred securities		—		—			41,244		(14,350	)		41,244		(14,350	)
Mortgage-backed securities:
Agency		71,613		(1,307	)		18		—			71,631		(1,307	)
Alt-A residential		—		—			11,277		(7,904	)		11,277		(7,904	)

Total mortgage-backed securities		71,613		(1,307	)		11,295		(7,904	)		82,908		(9,211	)
Equity securities		155		(55	)		93		(10	)		248		(65	)

Total	$	162,020	$	(6,190	)	$	52,632	$	(22,264	)	$	214,652	$	(28,454	)

At June 30, 2011, the combined depreciation in value of the 90 individual securities in an unrealized loss position was approximately 4.74% of the combined reported value of the aggregate securities portfolio. At December 31, 2010, the combined depreciation in value of the 214 individual securities in an unrealized loss position was approximately 5.93% of the combined reported value of the aggregate securities portfolio.

The Company reviews its investment portfolio on a quarterly basis for indications of other-than-temporary impairment (“OTTI”). The analysis differs depending upon the type of investment security being analyzed. For debt securities, the Company has determined that it does not intend to sell securities that are impaired and has asserted that it is not more likely than not that the Company will have to sell impaired securities before recovery of the impairment occurs. This determination is based upon the Company’s investment strategy for the particular type of security and its cash flow needs, liquidity position, capital adequacy and interest rate risk position.

For non-beneficial interest debt securities, the Company analyzes several qualitative factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies and other qualitative factors to determine if the impairment will be recovered. Non-beneficial interest debt securities consist of U. S. government agency securities, states and political subdivisions, and single issue trust preferred securities. If it is determined that there is evidence that the impairment will not be recovered, the Company performs a present value calculation to determine the amount of credit related impairment and records any credit related OTTI through earnings and the non-credit related OTTI through other comprehensive income (“OCI”). During the three- and six-month periods ended June 30, 2011, the Company incurred no OTTI charges related to non-beneficial interest debt securities. The temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, and other current economic factors.

For beneficial interest debt securities, the Company reviews cash flow analyses on each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. Beneficial interest debt securities consist of mortgage-backed securities and pooled trust preferred securities. An adverse change in cash flows expected to be collected has occurred if the present value of cash flows previously projected is greater than the present value of cash flows projected at the current reporting date and less than the current book value. If an adverse change in cash flows is deemed to have occurred, then an OTTI has occurred. The Company then compares the present value of cash flows using the current yield for the current reporting period to the reference amount, or current net book value, to determine the credit-related OTTI. The credit-related OTTI is then recorded through earnings and the non-credit related OTTI is accounted for in OCI.

During the three-month period ended June 30, 2011, the Company incurred no credit-related OTTI charges related to beneficial interest debt securities. During the six-month period ended June 30, 2011, the Company incurred credit-related OTTI charges related to beneficial interest debt securities of $527 thousand. These charges were related to a non-Agency mortgage-backed security (“MBS”). During the three- and six-month periods ended June 30, 2010, the Company incurred credit-related OTTI charges on beneficial interest debt securities of $134 thousand. These charges were related to two pooled trust preferred security holdings and brought the carrying value of those securities to zero.

For the non-Agency, Alt-A residential MBS, the Company models cash flows using the following assumptions: voluntary constant prepayment speed of 5, a customized constant default rate scenario that assumes approximately 22% of the remaining underlying mortgages will default, and a loss severity of 60.

The table below provides a cumulative roll forward of credit losses recognized in earnings for debt securities for which a portion of an OTTI is recognized in OCI:


	For the Three Months		For the Six Months
(In Thousands)	Ended June 30, 2011		Ended June 30, 2011
Estimated credit losses, beginning balance (1)	$	4,778	$	4,251
Additions for credit losses on securities not previously OTTI		—		—
Additions for credit losses on securities previously OTTI		—		527
Reduction for increases in cash flows		—		—
Reduction for securities management no longer intends to hold to recovery		—		—
Reduction for realized losses		—		—

Estimated credit losses, ending balance	$	4,778	$	4,778


(1)		The beginning balance includes credit-related losses included in OTTI charges recognized on debt securities in prior periods.

For equity securities, the Company reviews for OTTI based upon the prospects of the underlying companies, analysts’ expectations, and certain other qualitative factors to determine if impairment is recoverable over a foreseeable period of time. During the three- and six-month periods ended June 30, 2011, the Company did not recognize any OTTI charges on equity securities. For the three- and six-month periods ended June 30, 2010, the Company recognized OTTI charges on certain of its equity securities of $51 thousand.

As a condition to membership in the Federal Home Loan Bank (“FHLB”) system, the Company is required to subscribe to a minimum level of stock in the FHLB of Atlanta (“FHLBA”). The Company believes this ownership position provides access to relatively inexpensive wholesale and overnight funding. The Company accounts for FHLBA and Federal Reserve Bank stock as a long-term investment in other assets. At June 30, 2011, and December 31, 2010, the Company owned approximately $11.50 million and $12.24 million, respectively, in FHLBA stock, which is classified as other assets. The Company’s policy is to review for impairment of such assets at the end of each reporting period. Based on the Company’s review of publicly available information about the FHLBA and its own internal analysis, the Company believes that its FHLBA stock was not impaired as of June 30, 2011.

- Definition

Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets.

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