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Securities Available-for-Sale | 9 Months Ended
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Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract] |
Securities Available-for-Sale | Note 4. Securities Available-for-Sale Securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of September 30, 2018 and December 31, 2017. 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. The following table summarizes the amortized cost and fair value of securities available-for-sale at September 30, 2018 and December 31, 2017 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss).
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
|  | Cost |  | Gains |  | Losses |  | Value
September 30, 2018 |  | (dollars in thousands)
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency obligations |  | $ | 48,963 |  | $ | 14 |  | $ | (1,443 | ) |  | $ | 47,534
Residential mortgage pass-through securities |  |  | 196,650 |  |  | 75 |  |  | (6,174 | ) |  |  | 190,551
Commercial mortgage pass-through securities |  |  | 3,953 |  |  | - |  |  | (110 | ) |  |  | 3,843
Obligations of U.S. states and political subdivisions |  |  | 133,564 |  |  | 727 |  |  | (3,903 | ) |  |  | 130,388
Corporate bonds and notes |  |  | 26,305 |  |  | 96 |  |  | (439 | ) |  |  | 25,962
Asset-backed securities |  |  | 10,317 |  |  | 59 |  |  | (13 | ) |  |  | 10,363
Certificates of deposit |  |  | 420 |  |  | 3 |  |  | - |  |  |  | 423
Other securities |  |  | 975 |  |  | - |  |  | - |  |  |  | 975
Total securities available-for-sale |  | $ | 421,147 |  | $ | 974 |  | $ | (12,082 | ) |  | $ | 410,039
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
|  | Cost |  | Gains |  | Losses |  | Value
December 31, 2017 |  | (dollars in thousands)
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency obligations |  | $ | 56,297 |  | $ | 141 |  | $ | (416 | ) |  | $ | 56,022
Residential mortgage pass-through securities |  |  | 183,509 |  |  | 330 |  |  | (1,948 | ) |  |  | 181,891
Commercial mortgage pass-through securities |  |  | 4,054 |  |  | 3 |  |  | (3 | ) |  |  | 4,054
Obligations of U.S. states and political subdivisions |  |  | 130,723 |  |  | 1,739 |  |  | (1,334 | ) |  |  | 131,128
Trust preferred securities |  |  | 4,577 |  |  | 205 |  |  | (111 | ) |  |  | 4,671
Corporate bonds and notes |  |  | 29,801 |  |  | 163 |  |  | (271 | ) |  |  | 29,693
Asset-backed securities |  |  | 12,021 |  |  | 66 |  |  | (37 | ) |  |  | 12,050
Certificates of deposit |  |  | 621 |  |  | 4 |  |  | - |  |  |  | 625
Equity securities |  |  | 11,843 |  |  | 235 |  |  | (350 | ) |  |  | 11,728
Other securities |  |  | 3,422 |  |  | - |  |  | - |  |  |  | 3,422
Total securities available-for-sale |  | $ | 436,868 |  | $ | 2,886 |  | $ | (4,470 | ) |  | $ | 435,284
Effective January 1, 2018, the Company implemented ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” Under ASU 2016-01, equity securities, with certain exceptions, are to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2018, the Company began separately presenting equity securities with readily determinable fair values on the Statements of Condition within the “Equity securities” caption. Net unrealized losses recognized on equity securities with readily determinable fair values for the three and nine months ended as of September 30, 2018 were $157 thousand and $325 thousand, respectively. Investment securities having a carrying value of approximately $157.0 million and $157.8 million at September 30, 2018 and December 31, 2017, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law. As of September 30, 2018 and December 31, 2017, 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. The following table presents information for investments in securities available-for-sale at September 30, 2018, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. Securities not due at a single maturity date are shown separately.
|  | September 30, 2018
|  | Amortized |  | Fair
|  | Cost |  | Value
|  | (dollars in thousands)
Securities available-for-sale: |  |  |  |  |  |
Due in one year or less |  | $ | 4,429 |  | $ | 4,425
Due after one year through five years |  |  | 36,607 |  |  | 36,375
Due after five years through ten years |  |  | 28,135 |  |  | 28,290
Due after ten years |  |  | 150,398 |  |  | 145,580
Residential mortgage pass-through securities |  |  | 196,650 |  |  | 190,551
Commercial mortgage pass-through securities |  |  | 3,953 |  |  | 3,843
Other securities |  |  | 975 |  |  | 975
Total securities available-for-sale |  | $ | 421,147 |  | $ | 410,039
Gross gains and losses from the sales, calls and maturities of securities for periods presented were as follows:
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | (dollars in thousands)
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Proceeds |  | $ | - |  | $ | - |  | $ | - |  | $ | 29,543 |
Gross gains on sales of securities |  |  | - |  |  | - |  |  | - |  |  | 1,596 |
Gross losses on sales of securities |  |  | - |  |  | - |  |  | - |  |  | - |
Net gains on sales of securities |  |  | - |  |  | - |  |  | - |  |  | 1,596 |
Less: tax provision on net gains |  |  | - |  |  | - |  |  | - |  |  | (579 | )
Net gains on sales of securities, after tax |  | $ | - |  | $ | - |  | $ | - |  | $ | 1,017 |
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 Securities The Company does not believe that any of the unrealized losses, which were comprised of 170 and 112 securities as of September 30, 2018 and December 31, 2017, respectively, represent an other-than-temporary impairment (“OTTI”). 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 securities portfolio including limits on concentrations to any one issuer. The Company believes the securities 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 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 OTTI at September 30, 2018. 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 OTTI 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, a 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, 2018 and December 31, 2017:
|  | September 30, 2018
|  | 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 |  | $ | 45,057 |  | $ | (1,443 | ) |  | $ | 21,455 |  | $ | (513 | ) |  | $ | 23,602 |  | $ | (930 | )
Residential mortgage pass-through securities |  |  | 185,442 |  |  | (6,174 | ) |  |  | 106,190 |  |  | (2,491 | ) |  |  | 79,252 |  |  | (3,683 | )
Commercial mortgage pass-through securities |  |  | 3,843 |  |  | (110 | ) |  |  | 3,843 |  |  | (110 | ) |  |  | - |  |  | - |
Obligations of U.S. states and political subdivisions |  |  | 78,481 |  |  | (3,903 | ) |  |  | 33,733 |  |  | (877 | ) |  |  | 44,748 |  |  | (3,026 | )
Corporate bonds and notes |  |  | 15,655 |  |  | (439 | ) |  |  | 11,008 |  |  | (124 | ) |  |  | 4,647 |  |  | (315 | )
Asset-backed securities |  |  | 4,113 |  |  | (13 | ) |  |  | 2,303 |  |  | (8 | ) |  |  | 1,810 |  |  | (5 | )
Total temporarily impaired securities |  | $ | 332,591 |  | $ | (12,082 | ) |  | $ | 178,532 |  | $ | (4,123 | ) |  | $ | 154,059 |  | $ | (7,959 | )
|  | December 31, 2017
|  | 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 |  | $ | 39,813 |  | $ | (416 | ) |  | $ | 28,407 |  | $ | (213 | ) |  | $ | 11,406 |  | $ | (203 | )
Residential mortgage pass-through securities |  |  | 148,574 |  |  | (1,948 | ) |  |  | 117,556 |  |  | (1,146 | ) |  |  | 31,018 |  |  | (802 | )
Commercial mortgage pass-through securities |  |  | 1,198 |  |  | (3 | ) |  |  | 1,198 |  |  | (3 | ) |  |  | - |  |  | - |
Obligations of U.S. states and political subdivisions |  |  | 57,685 |  |  | (1,334 | ) |  |  | 17,909 |  |  | (246 | ) |  |  | 39,776 |  |  | (1,088 | )
Trust preferred securities |  |  | 1,469 |  |  | (111 | ) |  |  | - |  |  | - |  |  |  | 1,469 |  |  | (111 | )
Corporate bonds and notes |  |  | 11,074 |  |  | (271 | ) |  |  | 1,965 |  |  | (21 | ) |  |  | 9,109 |  |  | (250 | )
Asset-backed securities |  |  | 7,428 |  |  | (37 | ) |  |  | 993 |  |  | (2 | ) |  |  | 6,435 |  |  | (35 | )
Equity securities |  |  | 11,116 |  |  | (350 | ) |  |  | - |  |  | - |  |  |  | 11,116 |  |  | (350 | )
Total temporarily impaired securities |  | $ | 278,357 |  | $ | (4,470 | ) |  | $ | 168,028 |  | $ | (1,631 | ) |  | $ | 110,329 |  | $ | (2,839 | )

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