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SECURITIES

9 Months Ended

Sep. 30, 2017

4. SECURITIES

The following tables summarize the amortized cost and estimated fair value of the available for sale and held to maturity investment securities portfolio at September 30, 2017 and December 31, 2016 and the corresponding amounts of unrealized gains and losses therein:

		September 30, 2017
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
Available for sale:
U.S. GSE securities		$	64,994			$	-			$	(766	)		$	64,228
State and municipal obligations			91,359				430				(469	)			91,320
U.S. GSE residential mortgage-backed securities			195,062				112				(1,770	)			193,404
U.S. GSE residential collateralized mortgage obligations			323,427				75				(4,300	)			319,202
U.S. GSE commercial mortgage-backed securities			6,129				41				(17	)			6,153
U.S. GSE commercial collateralized mortgage obligations			51,211				-				(825	)			50,386
Other asset backed securities			24,250				-				(1,213	)			23,037
Corporate bonds			46,000				-				(1,672	)			44,328
Total available for sale			802,432				658				(11,032	)			792,058

Held to maturity:
State and municipal obligations			60,616				1,446				(36	)			62,026
U.S. GSE residential mortgage-backed securities			11,905				-				(175	)			11,730
U.S. GSE residential collateralized mortgage obligations			55,871				389				(348	)			55,912
U.S. GSE commercial mortgage-backed securities			28,202				158				(350	)			28,010
U.S. GSE commercial collateralized mortgage obligations			33,009				13				(595	)			32,427
Total held to maturity			189,603				2,006				(1,504	)			190,105
Total securities		$	992,035			$	2,664			$	(12,536	)		$	982,163

		December 31, 2016
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
Available for sale:
U.S. GSE securities		$	64,993			$	-			$	(1,344	)		$	63,649
State and municipal obligations			117,292				212				(1,339	)			116,165
U.S. GSE residential mortgage-backed securities			160,446				16				(2,414	)			158,048
U.S. GSE residential collateralized mortgage obligations			373,098				149				(5,736	)			367,511
U.S. GSE commercial mortgage-backed securities			6,337				6				(36	)			6,307
U.S. GSE commercial collateralized mortgage obligations			56,148				-				(956	)			55,192
Other asset backed securities			24,250				-				(1,697	)			22,553
Corporate bonds			32,000				-				(1,703	)			30,297
Total available for sale			834,564				383				(15,225	)			819,722

Held to maturity:
State and municipal obligations			66,666				1,085				(130	)			67,621
U.S. GSE residential mortgage-backed securities			13,443				-				(287	)			13,156
U.S. GSE residential collateralized mortgage obligations			61,639				352				(552	)			61,439
U.S. GSE commercial mortgage-backed securities			28,772				136				(509	)			28,399
U.S. GSE commercial collateralized mortgage obligations			41,717				93				(573	)			41,237
Corporate bonds			11,000				26				-				11,026
Total held to maturity			223,237				1,692				(2,051	)			222,878
Total securities		$	1,057,801			$	2,075			$	(17,276	)		$	1,042,600

The following table summarizes the amortized cost and estimated fair value by contractual maturity of the available for sale and held to maturity investment securities portfolio at September 30, 2017. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		September 30, 2017
						Estimated
(In thousands)		Amortized Cost				Fair Value
Maturity
Available for sale:
Within one year		$	8,897			$	8,900
One to five years			97,886				97,300
Five to ten years			130,905				128,893
Beyond ten years			564,744				556,965
Total		$	802,432			$	792,058

Held to maturity:
Within one year		$	3,537			$	3,534
One to five years			36,367				36,634
Five to ten years			55,308				56,280
Beyond ten years			94,391				93,657
Total		$	189,603			$	190,105

The following tables summarize securities with gross unrealized losses at September 30, 2017 and December 31, 2016, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position:

		September 30, 2017
		Less than 12 months								Greater than 12 months
		Estimated				Gross				Estimated				Gross
		Fair				Unrealized				Fair				Unrealized
(In thousands)		Value				Losses				Value				Losses
Available for sale:
U.S. GSE securities		$	37,659			$	(334	)		$	26,568			$	(432	)
State and municipal obligations			27,585				(146	)			25,204				(323	)
U.S. GSE residential mortgage-backed securities			129,703				(1,162	)			25,682				(608	)
U.S. GSE residential collateralized mortgage obligations			178,035				(2,174	)			114,900				(2,126	)
U.S. GSE commercial mortgage-backed securities			2,455				(17	)			-				-
U.S. GSE commercial collateralized mortgage obligations			25,236				(364	)			25,151				(461	)
Other asset backed securities			-				-				23,037				(1,213	)
Corporate bonds			-				-				30,328				(1,672	)
Total available for sale			400,673				(4,197	)			270,870				(6,835	)

Held to maturity:
State and municipal obligations			2,828				(29	)			1,015				(7	)
U.S. GSE residential mortgage-backed securities			5,326				(57	)			6,404				(118	)
U.S. GSE residential collateralized mortgage obligations			14,488				(183	)			8,941				(165	)
U.S. GSE commercial mortgage-backed securities			12,806				(166	)			5,679				(184	)
U.S. GSE commercial collateralized mortgage obligations			13,785				(109	)			12,955				(486	)
Total held to maturity		$	49,233			$	(544	)		$	34,994			$	(960	)

		December 31, 2016
		Less than 12 months								Greater than 12 months
		Estimated				Gross				Estimated				Gross
		Fair				Unrealized				Fair				Unrealized
(In thousands)		Value				Losses				Value				Losses
Available for sale:
U.S. GSE securities		$	63,649			$	(1,344	)		$	-			$	-
State and municipal obligations			78,883				(1,338	)			240				(1	)
U.S. GSE residential mortgage-backed securities			140,514				(2,409	)			241				(5	)
U.S. GSE residential collateralized mortgage obligations			319,197				(5,221	)			15,627				(515	)
U.S. GSE commercial mortgage-backed securities			2,573				(36	)			-				-
U.S. GSE commercial collateralized mortgage obligations			48,901				(886	)			6,292				(70	)
Other asset backed securities			-				-				22,552				(1,697	)
Corporate bonds			17,834				(1,166	)			12,463				(537	)
Total available for sale			671,551				(12,400	)			57,415				(2,825	)

Held to maturity:
State and municipal obligations			21,867				(130	)			-				-
U.S. GSE residential mortgage-backed securities			13,156				(287	)			-				-
U.S. GSE residential collateralized mortgage obligations			31,297				(455	)			3,873				(97	)
U.S. GSE commercial mortgage-backed securities			12,860				(286	)			5,877				(223	)
U.S. GSE commercial collateralized mortgage obligations			22,666				(372	)			3,790				(201	)
Total held to maturity		$	101,846			$	(1,530	)		$	13,540			$	(521	)

Other-Than-Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) quarterly and more frequently when economic or market conditions warrant. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held to maturity are generally evaluated for OTTI under FASB ASC 320, “Accounting for Certain Investments in Debt and Equity Securities”. In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet these criteria, the amount of impairment is split into two components: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

At September 30, 2017, substantially all of the securities in an unrealized loss position had a fixed interest rate and the cause of the temporary impairment was directly related to changes in interest rates. The Company generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. Other asset backed securities are comprised of student loan backed bonds which are guaranteed by the U.S. Department of Education for 97% to 100% of principal. Additionally, the bonds have credit support of 3% to 5% and have maintained their Aaa Moody’s rating during the time the Bank has owned them. The corporate bonds within the portfolio have all maintained an investment grade rating by either Moody’s or Standard and Poor’s. None of the unrealized losses is related to credit losses. The Company does not have the intent to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2017.

Sales and Calls of Securities

There were $26.7 million of proceeds from sales of securities with gross gains of approximately $0.3 million and gross losses of approximately $0.1 million for the three and nine months ended the September 30, 2017. There were no sales of securities for the three months ended September 30, 2016. There were $264.4 million of proceeds from sales of securities with gross gains of $1.6 million and gross losses of $1.2 million realized for the nine months ended September 30, 2016. There were no proceeds from calls of securities for the three and nine months ended the September 30, 2017. Proceeds from calls of securities were $13.3 million and $66.2 million for the three and nine months ended September 30, 2016, respectively.

Pledged Securities

Securities having a fair value of $522.7 million and $570.1 million at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public deposits and Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) overnight borrowings.

Trading Securities

The Company did not hold any trading securities during the nine months ended September 30, 2017 or the year ended December 31, 2016.

Restricted Securities

The Bank is a member of the FHLB of New York. Members are required to own a particular amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. The Bank is a member of the Atlantic Central Banker’s Bank (“ACBB”) and is required to own ACBB stock. The Bank is also a member of the FRB system and required to own FRB stock. FHLB, ACBB and FRB stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The Bank owned $34.2 million and $34.7 million in FHLB, ACBB and FRB stock at September 30, 2017 and December 31, 2016, respectively. These amounts were reported as restricted securities in the consolidated balance sheets.