NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (table dollar amounts in thousands, except share data) INVESTMENT SECURITIES NOTE 4 Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The historical cost of these investments totaled $102,973,000 at December 31, 2003. Total fair value of these investments at December 31, 2003, was $101,018,000, which is approximately 28.3 percent of the Corporation's available-for-sale and held-to- maturity investment portfolio. These declines primarily resulted from recent increases in market interest rates and failure of certain investments to maintain consistent credit quality ratings (or meet projected earnings targets). Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other-than- temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. 36 ----------------------------------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE =================================================================================================================================== Available for sale at December 31, 2003 U.S. Treasury .......................................... $ 1,498 $ 1,498 Federal agencies ....................................... 38,290 $ 523 $ 52 38,761 State and municipal .................................... 118,794 6,932 86 125,640 Mortgage-backed securities ............................. 174,208 813 1,817 173,204 Corporate obligations .................................. 500 16 516 Marketable equity securities ........................... 9,237 4 9,241 -------- -------- -------- -------- Total available for sale ............................ 342,527 8,288 1,955 348,860 -------- -------- -------- -------- Held to maturity at December 31, 2003 State and municipal .................................... 7,860 389 8,249 Mortgage-backed securities ............................. 77 77 -------- -------- -------- -------- Total held to maturity .............................. 7,937 389 8,326 -------- -------- -------- -------- Total investment securities ......................... $350,464 $ 8,677 $ 1,955 $357,186 ======== ======== ======== ======== Available for sale at December 31, 2002 U.S. Treasury .......................................... $ 125 $ 125 Federal agencies ....................................... 27,630 $ 814 $ 8 28,436 State and municipal .................................... 135,715 5,787 178 141,324 Mortgage-backed securities ............................. 117,724 2,448 54 120,118 Other asset-backed securities .......................... 1,000 1,000 Corporate obligations .................................. 12,101 465 12,566 Marketable equity securities ........................... 29,452 20 116 29,356 -------- -------- -------- -------- Total available for sale ............................ 323,747 9,534 356 332,925 -------- -------- -------- -------- Held to maturity at December 31, 2002 State and municipal .................................... 9,013 448 9,461 Mortgage-backed securities ............................. 124 124 -------- -------- -------- -------- Total held to maturity .............................. 9,137 448 9,585 -------- -------- -------- -------- Total investment securities ......................... $332,884 $ 9,982 $ 356 $342,510 ======== ======== ======== ========