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Investment Securities
 6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Investment Securities

Note 4. Investment Securities

 

The Company’s investment securities are classified as available-for-sale and held-to-maturity at June 30, 2016 and December 31, 2015. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of June 30, 2016 and December 31, 2015. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 7 of the Notes to Consolidated Financial Statements for a further discussion.

 

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

 

The following tables present information related to the Company’s investment securities at June 30, 2016 and December 31, 2015 (dollars in thousands):

 

        Gross   Gross      
  Amortized   Unrealized   Unrealized   Fair
June 30, 2016 Cost   Gains   Losses   Value
Investment securities available-for-sale                        
       Federal agency obligations $ 29,785   $ 628   $ (10 )   $ 30,403
       Residential mortgage pass-through securities   45,718     1,326     (14 )     47,030
       Commercial mortgage pass-through securities   2,949     125     -       3,074
       Obligations of U.S. states and political subdivisions   38,085     336     -       38,421
       Trust preferred securities   16,089     506     (268 )     16,327
       Corporate bonds and notes   34,098     1,003     (182 )     34,919
       Asset-backed securities   17,124     -     (412 )     16,712
       Certificates of deposit   1,196     21     -       1,217
       Equity securities   376     16     (11 )     381
       Other securities   19,724     123     (65 )     19,782
              Total securities available-for-sale $       205,144   $ 4,084   $ (962 )   $ 208,266
 
Investment securities held-to-maturity                        
       U.S. Treasury and agency securities $ 28,574   $ 2,373   $ -     $ 30,947
       Federal agency obligations   29,459     825     -       30,284
       Residential mortgage-backed securities   3,147     30     (12 )     3,165
       Commercial mortgage-backed securities   1,301     44     -       1,345
       Obligations of U.S. states and political divisions   115,154     7,661     -       122,815
       Corporate bonds and notes   37,083     1,795     (7 )     38,871
              Total securities held-to-maturity $ 214,718   $       12,728   $ (19 )   $ 227,427
                         
       Total investment securities $ 419,862   $ 16,812   $ (981 )   $ 435,693
 
        Gross   Gross      
  Amortized   Unrealized   Unrealized   Fair
December 31, 2015 Cost   Gains   Losses   Value
Investment securities available-for-sale                        
       Federal agency obligations $ 29,062   $ 142   $ (58 )   $ 29,146
       Residential mortgage pass-through securities   44,155     803     (48 )     44,910
       Commercial mortgage pass-through securities   2,981     -     (9 )     2,972
       Obligations of U.S. states and political subdivisions   8,188     169     -       8,357
       Trust preferred securities   16,088     398     (231 )     16,255
       Corporate bonds and notes   53,566     702     (292 )     53,976
       Asset-backed securities   20,005     18     (298 )     19,725
       Certificates of deposit   1,895     18     (8 )     1,905
       Equity securities   376     21     (23 )     374
       Other securities   18,303     -     (153 )     18,150
              Total securities available-for-sale $ 194,619   $ 2,271   $       (1,120 )   $       195,770
Investment securities held-to-maturity                        
       U.S. Treasury and agency securities $ 28,471   $ 755   $ -     $ 29,226
       Federal agency obligations   33,616     280     (119 )     33,777
       Residential mortgage-backed securities   3,805     11     (6 )     3,810
       Commercial mortgage-backed securities   4,110     27     (2 )     4,135
       Obligations of U.S. states and political divisions   118,015     5,001     (3 )     123,013
       Corporate bonds and notes   36,039     719     (161 )     36,597
              Total securities held-to-maturity $ 224,056   $ 6,793   $ (291 )   $ 230,558
                         
       Total investment securities $ 418,675   $ 9,064   $ (1,411 )   $ 426,328

 

The following table presents information for investment securities at June 30, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

 

  June 30, 2016
  Amortized   Fair
  Cost   Value
  (in thousands)
Investment securities available-for-sale:          
       Due in one year or less $ 2,770   $ 2,792
       Due after one year through five years   18,536     19,095
       Due after five years through ten years   37,235     37,547
       Due after ten years   77,836     78,565
Residential mortgage pass-through securities   45,718     47,030
Commercial mortgage pass-through securities   2,949     3,074
Equity securities   376     381
Other securities   19,724     19,782
       Total $      205,144   $       208,266
Investment securities held-to-maturity:          
       Due in one year or less $ 6,007   $ 6,037
       Due after one year through five years   10,238     10,573
       Due after five years through ten years   84,718     90,673
       Due after ten years   109,307     115,634
Residential mortgage-backed securities   3,147     3,165
Commercial mortgage-backed securities   1,301     1,345
       Total $ 214,718   $ 227,427
           
Total investment securities $ 419,862   $ 435,693

 

Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and six-month periods ended June 30, 2016 and 2015 were as follows:

 

    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands)   2016   2015   2016   2015
Proceeds   $       6,573   $       2,734   $       6,573   $       12,271
Gross gains on sales of investment securities     103     221     103     726
Gross losses on sales of investment securities     -     -     -     -
       Net gains on sales of investment securities     103     221     103     726
       Less: tax provision on net gains     42     90     42     297
 
              Total   $ 61   $ 131   $ 61   $ 429

 

The Company performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (“OTTI”) charges, through earnings, if they have the intent to sell, or more likely than not will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Company does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other-than-temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

 

The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.

 

The Company’s assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

 

Temporarily Impaired Investments

 

The Company does not believe that the unrealized losses, for all securities, which were comprised of 42 and 74 investment securities as of June 30, 2016 and December 31, 2015, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, asset-backed securities, trust preferred securities, mutual funds and equity securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

 

Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Company’s investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Company believes the investment portfolio is prudently diversified.

 

The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.

 

The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. Single issuer corporate trust preferred securities are also included, and in the case of one holding the market valuation loss is largely based upon the floating rate coupon and corresponding market valuation. Neither that trust preferred issuer, nor any other corporate issuers, have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2016.

 

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporary, the Company evaluated the factors cited above, which the Company considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Company’s judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Company’s financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above.

 

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015:

 

    June 30, 2016
    Total   Less than 12 Months   12 Months or Longer
    Fair   Unrealized   Fair   Unrealized   Fair   Unrealized
    Value   Losses   Value   Losses   Value   Losses
    (in thousands)
Investment securities                                          
       available-for-sale:                                          
 
Federal agency obligation   $ 3,140   $ (10 )   $ 2,824   $ (9 )   $ 316   $ (1 )
Residential mortgage                                          
       pass-through securities     2,090     (14 )     1,681     (8 )     409     (6 )
Trust preferred securities     1,309     (268 )     -     -       1,309     (268 )
Corporate bonds and notes     11,145     (182 )     7,290     (72 )     3,855     (110 )
Asset-backed securities     16,513     (412 )     6,988     (177 )     9,525     (235 )
Equity securities     123     (11 )     -     -       123     (11 )
Other securities     5,435     (65 )     -     -       5,435     (65 )
       Total   $       39,755   $         (962 )   $       18,783   $         (266 )   $       20,972   $         (696 )
 
Investment securities                                          
       held-to-maturity:                                          
 
Residential mortgage                                          
       pass-through securities     1,751     (12 )     1,751     (12 )     -     -  
Corporate bonds and notes     2,765     (7 )     -     -       2,765     (7 )
       Total   $ 4,516   $ (19 )   $ 1,751   $ (12 )   $ 2,765   $ (7 )
 
Total temporarily impaired                                          
       securities   $ 44.271   $ (981 )   $ 20,534   $ (278 )   $ 23,737   $ (703 )
    December 31, 2015
    Total   Less than 12 Months   12 Months or Longer
    Fair   Unrealized   Fair   Unrealized   Fair   Unrealized
    Value   Losses   Value   Losses   Value   Losses
    (dollars in thousands)
Investment Securities                                          
       Available-for-Sale:                                          
Federal agency obligation   $        12,260   $ (58 )   $ 12,013   $ (54 )   $ 247   $ (4 )
Residential mortgage                                          
       pass-through securities     9,027     (48 )     9,027     (48 )     -     -  
Commercial mortgage-backed                                          
       securities     2,971     (9 )     2,971     (9 )     -     -  
Trust preferred securities     1,345     (231 )     -     -       1,345     (231 )
Corporate bonds and notes     16,533     (292 )     12,702     (161 )     3,831     (131 )
Asset-backed securities     14,745     (298 )     11,250     (188 )     3,495     (110 )
Certificates of deposit     215     (8 )     215     (8 )     -     -  
Equity securities     123     (23 )     -     -       123     (23 )
Other securities     5,347     (153 )     -     -       5,347     (153 )
Total   $ 62,566   $        (1,120 )   $        48,178   $        (468 )   $        14,388   $        (652 )
Investment Securities                                          
       Held-to-Maturity:                                          
Federal agency obligation     12,554     (119 )     11,783     (109 )     771     (10 )
Residential mortgage                                          
       pass-through securities     2,480     (6 )     2,480     (6 )     -     -  
Commercial mortgage-backed                                          
       securities     1,331     (2 )     1,331     (2 )     -     -  
Obligations of U.S. states                                          
       and political subdivisions     981     (3 )     981     (3 )     -     -  
Corporate bonds and notes     5,536     (161 )     5,536     (161 )     -     -  
Total   $ 22,882   $ (291 )   $ 22,111   $ (281 )   $ 771   $ (10 )
 
Total Temporarily Impaired                                          
       Securities   $ 85,448   $ (1,411 )   $ 70,289   $ (749 )   $ 15,159   $ (662 )
                                                                             

 

Investment securities having a carrying value of approximately $165.6 million and $142.5 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window and Federal Home Loan Bank advances and for other purposes required or permitted by law.

 

As of June 30, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.