Note 2.

Investment Securities

The amortized cost and estimated fair value of available-for-sale securities, including gross unrealized gains and losses, at June 30, 2013, and December 31, 2012, were as follows:


	June 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
(Amounts in thousands)
U.S. Treasury securities	$	9,694	$	—	$	(280	)	$	9,414	$	—
Municipal securities		153,022		2,910		(3,951	)		151,981		—
Single issue trust preferred securities		55,735		—		(9,553	)		46,182		—
Mortgage-backed securities:
Agency		329,209		3,431		(6,374	)		326,266		—
Non-Agency Alt-A residential		13,689		—		(2,805	)		10,884		(2,805	)

Total mortgage-backed securities		342,898		3,431		(9,179	)		337,150		(2,805	)
Equity securities		5,315		189		(73	)		5,431		—

Total	$	566,664	$	6,530	$	(23,036	)	$	550,158	$	(2,805	)


	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
(Amounts in thousands)
Municipal securities	$	151,119	$	8,195	$	(97	)	$	159,217	$	—
Single issue trust preferred securities		55,707		—		(11,061	)		44,646		—
Mortgage-backed securities:
Agency		310,323		6,023		(449	)		315,897		—
Non-Agency Alt-A residential		14,215		—		(3,148	)		11,067		(3,148	)

Total mortgage-backed securities		324,538		6,023		(3,597	)		326,964		(3,148	)
Equity securities		3,446		190		(105	)		3,531		—

Total	$	534,810	$	14,408	$	(14,860	)	$	534,358	$	(3,148	)

(1)	Other-than-temporary impairment in accumulated other comprehensive income

The amortized cost and estimated fair value of held-to-maturity securities, including gross unrealized gains and losses, at June 30, 2013, and December 31, 2012, were as follows:


	June 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Amounts in thousands)
Municipal securities	$	627	$	12	$	—	$	639

Total	$	627	$	12	$	—	$	639


	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Amounts in thousands)
Municipal securities	$	816	$	16	$	—	$	832

Total	$	816	$	16	$	—	$	832

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities by contractual maturity at June 30, 2013, 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.


(Amounts in thousands)	Amortized Cost		Fair Value
Available-for-sale securities
Due within one year	$	727	$	739
Due after one year but within five years		18,187		18,635
Due after five years but within ten years		30,835		31,180
Due after ten years		168,702		157,023

		218,451		207,577
Mortgage-backed securities		342,898		337,150
Equity securities		5,315		5,431

Total	$	566,664	$	550,158


Held-to-maturity securities
Due within one year	$	—	$	—
Due after one year but within five years		627		639
Due after five years but within ten years		—		—
Due after ten years		—		—

Total	$	627	$	639

Available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer at June 30, 2013, and December 31, 2012, were as follows:


	June 30, 2013
	Less than 12 Months					12 Months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(Amounts in thousands)
U.S. Treasury securities	$	9,414	$	(280	)	$	—	$	—		$	9,414	$	(280	)
Municipal securities		44,274		(3,951	)		—		—			44,274		(3,951	)
Single issue trust preferred securities		—		—			46,182		(9,553	)		46,182		(9,553	)
Mortgage-backed securities:
Agency		179,683		(6,297	)		1,695		(77	)		181,378		(6,374	)
Non-Agency Alt-A residential		—		—			10,884		(2,805	)		10,884		(2,805	)

Total mortgage-backed securities		179,683		(6,297	)		12,579		(2,882	)		192,262		(9,179	)
Equity securities		4,983		(17	)		133		(56	)		5,116		(73	)

Total	$	238,354	$	(10,545	)	$	58,894	$	(12,491	)	$	297,248	$	(23,036	)


	December 31, 2012
	Less than 12 Months					12 Months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(Amounts in thousands)
Municipal securities	$	6,436	$	(97	)	$	—	$	—		$	6,436	$	(97	)
Single issue trust preferred securities		—		—			44,646		(11,061	)		44,646		(11,061	)
Mortgage-backed securities:
Agency		74,197		(449	)		15		—			74,212		(449	)
Non-Agency Alt-A residential		—		—			11,066		(3,148	)		11,066		(3,148	)

Total mortgage-backed securities		74,197		(449	)		11,081		(3,148	)		85,278		(3,597	)
Equity securities		3,106		(25	)		108		(80	)		3,214		(105	)

Total	$	83,739	$	(571	)	$	55,835	$	(14,289	)	$	139,574	$	(14,860	)

There were no held-to-maturity securities in a continuous unrealized loss position at June 30, 2013, or December 31, 2012. At June 30, 2013, the combined depreciation in value of the 174 individual securities in an unrealized loss position was 4.19% of the combined reported value of the aggregate securities portfolio. At December 31, 2012, the combined depreciation in value of the 57 individual securities in an unrealized loss position was 2.78% of the combined reported value of the aggregate securities portfolio.

The following table details the Company’s gross gains and gross losses realized from the sale of securities for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
(Amounts in thousands)
Gross realized gains	$	152		$	30		$	307		$	119
Gross realized losses		(39	)		(39	)		(77	)		(77	)

Net gain (loss) on sale of securities	$	113		$	(9	)	$	230		$	42

The carrying value of securities pledged to secure public deposits and for other purposes was $274.99 million at June 30, 2013, and $292.88 million at December 31, 2012.

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 debt security and its cash flow needs, liquidity position, capital adequacy, and interest rate risk position.

For nonbeneficial 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. Nonbeneficial interest debt securities consist of U.S. Treasury securities, municipal securities, 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 impairment and records any credit-related OTTI through earnings and noncredit-related OTTI through OCI. During the three and six months ended June 30, 2013 and 2012, the Company incurred no OTTI charges related to nonbeneficial interest debt securities. Temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, destabilization in the Eurozone, 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 corporate FDIC insured securities and mortgage-backed securities (“MBS”). 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 noncredit-related OTTI is accounted for in OCI. During the three and six months ended June 30, 2013 and 2012, the Company incurred no credit-related OTTI charges associated with beneficial interest debt securities. Temporary impairment on the Agency MBS is primarily related to changes in interest rate.

For the non-Agency Alt-A residential MBS, the Company uses a discounted cash flow model with the following assumptions: constant prepayment rate of 9.7%, a customized constant default rate scenario that assumes approximately 19% of the remaining underlying mortgages will default within three years, and a customized loss severity rate scenario that ramps the loss rate down from 69% to 15% over the course of approximately seven years.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(Amounts in thousands)
Beginning balance⁽¹⁾	$	7,478	$	6,536	$	7,478	$	6,536
Additions for credit losses on securities not previously recognized		—		—		—		—
Additions for credit losses on securities previously recognized		—		—		—		—
Reduction for increases in cash flows		—		—		—		—
Reduction for securities management no longer intends to hold to recovery		—		—		—		—
Reduction for securities sold/realized losses		—		—		—		—

Ending balance	$	7,478	$	6,536	$	7,478	$	6,536

(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 months ended June 30, 2013 and 2012, the Company recognized no OTTI charges on equity securities.

As a condition to membership in the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) systems, the Company is required to subscribe to a minimum level of stock in the FHLB of Atlanta (“FHLBA”) and FRB of Richmond (“FRB Richmond”). The Company feels the FHLBA ownership position provides access to relatively inexpensive wholesale and overnight funding. FHLBA and FRB Richmond stock are reported as long-term investments in “Other assets” on the Company’s “Condensed Consolidated Balance Sheets.” At June 30, 2013, and December 31, 2012, the Company owned $10.00 million and $11.30 million, respectively, of FHLBA stock. The Company’s policy is to review the stock for impairment at each reporting period. Based on the Company’s review and publicly available information concerning the FHLBA, it believes that as of June 30, 2013, its FHLBA stock was not impaired. At June 30, 2013, and December 31, 2012, the Company owned $5.58 million of FRB Richmond stock.