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Investment Securities | 9 Months Ended
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Sep. 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 at September 30, 2016 and as available-for-sale and held-to-maturity at 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 September 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. Transfers of debt securities from the held-to-maturity category to the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of the transfer shall be recognized in accumulated other comprehensive income, net of applicable taxes. During the quarter ended September 30, 2016 the Company transferred all securities previously categorized as held-to-maturity to available-for-sale classification. The transfer resulted in an increase of approximately $210 million in amortized cost basis of available-for-sale securities and resulted in a net increase to accumulated other comprehensive income of $7.4 million, net of tax. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition. The following tables present information related to the Company’s investment securities at September 30, 2016 and December 31, 2015 (dollars in thousands):
|  |  |  | Gross |  | Gross |  |  |
| Amortized |  | Unrealized |  | Unrealized |  | Fair
September 30, 2016 | Cost |  | Gains |  | Losses |  | Value
Investment securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
Federal agency obligations | $ | 55,024 |  | $ | 1,084 |  | $ | (9 | ) |  | $ | 56,099
Residential mortgage pass-through securities |  | 62,124 |  |  | 1,292 |  |  | (12 | ) |  |  | 63,404
Commercial mortgage pass-through securities |  | 4,218 |  |  | 151 |  |  | - |  |  |  | 4,369
Obligations of U.S. states and political subdivisions |  | 135,781 |  |  | 5,582 |  |  | (2 | ) |  |  | 141,361
Trust preferred securities |  | 5,574 |  |  | 310 |  |  | (209 | ) |  |  | 5,675
Corporate bonds and notes |  | 37,725 |  |  | 916 |  |  | (348 | ) |  |  | 38,293
Asset-backed securities |  | 15,797 |  |  | 1 |  |  | (296 | ) |  |  | 15,502
Certificates of deposit |  | 973 |  |  | 15 |  |  | - |  |  |  | 988
Equity securities |  | 376 |  |  | 52 |  |  | (3 | ) |  |  | 425
Other securities |  | 12,332 |  |  | 94 |  |  | (83 | ) |  |  | 12,343
Total securities available-for-sale | $ | 329,924 |  | $ | 9,497 |  | $ | (962 | ) |  | $ | 338,459
|  |  |  | 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
|  |  |  | Gross |  | Gross |  |  |  |
| Amortized |  | Unrecognized |  | Unrecognized |  |  | Fair
| Cost |  | Gains |  | Losses |  |  | Value
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 September 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.
| September 30, 2016
| Amortized |  | Fair
| Cost |  | Value
| (in thousands)
Investment securities available-for-sale: |  |  |  |  |
Due in one year or less | $ | 3,886 |  | $ | 3,906
Due after one year through five years |  | 26,238 |  |  | 26,914
Due after five years through ten years |  | 55,486 |  |  | 57,204
Due after ten years |  | 165,264 |  |  | 169,894
Residential mortgage pass-through securities |  | 62,124 |  |  | 63,404
Commercial mortgage pass-through securities |  | 4,218 |  |  | 4,369
Equity securities |  | 376 |  |  | 425
Other securities |  | 12,332 |  |  | 12,343
Total | $ | 329,924 |  | $ | 338,459
Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
(in thousands) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Proceeds |  | $ | 78,680 |  | $ | 32,125 |  | $ | 85,253 |  | $ | 44,397
Gross gains on sales of investment securities |  |  | 4,131 |  |  | 2,067 |  |  | 4,234 |  |  | 2,793
Gross losses on sales of investment securities |  |  | - |  |  | - |  |  | - |  |  | -
Net gains on sales of investment securities |  |  | 4,131 |  |  | 2,067 |  |  | 4,234 |  |  | 2,793
Less: tax provision on net gains |  |  | 1,640 |  |  | 794 |  |  | 1,682 |  |  | 1,091
Total |  | $ | 2,491 |  | $ | 1,273 |  | $ | 2,552 |  | $ | 1,702
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 any of the unrealized losses which were comprised of 36 and 74 investment securities as of September 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 which may contribute to unrealized losses include credit risk, market risk, changes in 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 the investment portfolio including limits on concentrations to any one issuer. The Company believes the investment portfolio is prudently diversified. The unrealized losses included in the tables below are primarily related to changes in interest rates and credit spreads. All of the Company’s investment securities are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. These are largely intermediate duration holdings and, in certain cases, monthly principal payments can further reduce loss exposure resulting from an increase 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 September 30, 2016. In determining whether or not securities are OTTI, 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 September 30, 2016 and December 31, 2015:
| September 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 | $ | 2,685 |  | $ | (9 | ) |  | $ | 1,366 |  | $ | (3 | ) |  | $ | 1,319 |  | $ | (6 | )
Residential mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
pass-through securities |  | 2,978 |  |  | (12 | ) |  |  | 2,596 |  |  | (9 | ) |  |  | 382 |  |  | (3 | )
Obligations of U.S. states |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and political subdivisions |  | 575 |  |  | (2 | ) |  |  | 575 |  |  | (2 | ) |  |  |  |  |  |  |
Trust preferred securities |  | 1,369 |  |  | (209 | ) |  |  | - |  |  | - |  |  |  | 1,369 |  |  | (209 | )
Corporate bonds and notes |  | 13,945 |  |  | (348 | ) |  |  | 5,741 |  |  | (185 | ) |  |  | 8,204 |  |  | (163 | )
Asset-backed securities |  | 14,025 |  |  | (296 | ) |  |  | 3,891 |  |  | (72 | ) |  |  | 10,134 |  |  | (224 | )
Equity securities |  | 134 |  |  | (3 | ) |  |  | - |  |  | - |  |  |  | 134 |  |  | (3 | )
Other securities |  | 5,417 |  |  | (83 | ) |  |  | - |  |  | - |  |  |  | 5,417 |  |  | (83 | )
Total temporarily impaired |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
securities | $ | 41,128 |  | $ | (962 | ) |  | $ | 14,169 |  | $ | (271 | ) |  | $ | 26,959 |  | $ | (691 | )
| 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 $104.2 million and $142.5 million at September 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 September 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.

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