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Investment Securities | 9 Months Ended
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Sep. 30, 2016
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | Investment Securities The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at September 30, 2016 and December 31, 2015 were as follows (in thousands):
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized (Losses) |  | Fair Value
September 30, 2016 |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations & agencies | $ | 48,546 |  |  | $ | 190 |  |  | $ | — |  |  | $ | 48,736 |
Obligations of states and political subdivisions | 155,715 |  |  | 5,297 |  |  | (93 | ) |  | 160,919 |
Mortgage-backed securities: GSE residential | 334,872 |  |  | 6,420 |  |  | (102 | ) |  | 341,190 |
Trust preferred securities | 3,075 |  |  | — |  |  | (1,414 | ) |  | 1,661 |
Other securities | 4,039 |  |  | 87 |  |  | (6 | ) |  | 4,120 |
Total available-for-sale | $ | 546,247 |  |  | $ | 11,994 |  |  | $ | (1,615 | ) |  | $ | 556,626 |
Held-to-maturity: |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations & agencies | $ | 101,679 |  |  | $ | 1,033 |  |  | $ | (64 | ) |  | $ | 102,648 |
December 31, 2015 |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations & agencies | $ | 90,368 |  |  | $ | 41 |  |  | $ | (268 | ) |  | $ | 90,141 |
Obligations of states and political subdivisions | 107,164 |  |  | 3,608 |  |  | (55 | ) |  | 110,717 |
Mortgage-backed securities: GSE residential | 312,132 |  |  | 1,374 |  |  | (1,452 | ) |  | 312,054 |
Trust preferred securities | 3,130 |  |  | — |  |  | (1,224 | ) |  | 1,906 |
Other securities | 4,035 |  |  | 29 |  |  | (34 | ) |  | 4,030 |
Total available-for-sale | $ | 516,829 |  |  | $ | 5,052 |  |  | $ | (3,033 | ) |  | $ | 518,848 |
Held-to-maturity: |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations & agencies | $ | 85,208 |  |  | $ | 743 |  |  | $ | (214 | ) |  | $ | 85,737 |
Trust preferred securities represents one trust preferred pooled security issued by First Tennessee Financial (“FTN”). The unrealized loss of this security, which has a remaining maturity of twenty-one years, is primarily due to its long-term nature, a lack of demand or inactive market for the security, and concerns regarding the underlying financial institutions that have issued the trust preferred security. See the heading “Trust Preferred Securities” for further information regarding this security. Realized gains and losses resulting from sales of securities were as follows during the nine months ended September 30, 2016 and 2015 (in thousands):
| Three months ended September 30, |  | Nine months ended September 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
Gross gains | $ | 466 |  |  | $ | 1 |  |  | $ | 1,130 |  |  | $ | 231 |
Gross losses | — |  |  | — |  |  | — |  |  | — |
The following table indicates the expected maturities of investment securities classified as available-for-sale presented at fair value, and held-to-maturity presented at amortized cost, at September 30, 2016 and the weighted average yield for each range of maturities (dollars in thousands):
| One year or less |  | After 1 through 5 years |  | After 5 through 10 years |  | After ten years |  | Total
Available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 15,531 |  |  | $ | 28,563 |  |  | $ | 4,642 |  |  | $ | — |  |  | $ | 48,736 |
Obligations of state and political subdivisions | 11,722 |  |  | 85,629 |  |  | 61,104 |  |  | 2,464 |  |  | 160,919 |
Mortgage-backed securities: GSE residential | 1,488 |  |  | 321,587 |  |  | 18,115 |  |  | — |  |  | 341,190 |
Trust preferred securities | — |  |  | — |  |  | — |  |  | 1,661 |  |  | 1,661 |
Other securities | — |  |  | 4,010 |  |  | — |  |  | 110 |  |  | 4,120 |
Total available-for-sale investments | $ | 28,741 |  |  | $ | 439,789 |  |  | $ | 83,861 |  |  | $ | 4,235 |  |  | $ | 556,626 |
Weighted average yield | 2.34 | % |  | 2.35 | % |  | 2.63 | % |  | 2.22 | % |  | 2.39 | %
Full tax-equivalent yield | 3.33 | % |  | 2.69 | % |  | 3.99 | % |  | 3.09 | % |  | 2.92 | %
Held to Maturity: |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 72,030 |  |  | $ | 24,570 |  |  | $ | 5,079 |  |  | $ | — |  |  | $ | 101,679 |
Weighted average yield | 1.80 | % |  | 2.11 | % |  | 2.06 | % |  | — | % |  | 1.89 | %
Full tax-equivalent yield | 1.80 | % |  | 2.11 | % |  | 2.06 | % |  | — | % |  | 1.89 | %
The weighted average yields are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 35% tax rate. With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, the book value of which exceeded 10% of stockholders' equity at September 30, 2016. Investment securities carried at approximately $470 million and $404 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law. The following table presents the aging of gross unrealized losses and fair value by investment category as of September 30, 2016 and December 31, 2015 (in thousands):
| Less than 12 months |  | 12 months or more |  | Total
| Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
September 30, 2016 |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Obligations of states and political subdivisions | 13,235 |  |  | (93 | ) |  | — |  |  | — |  |  | 13,235 |  |  | (93 | )
Mortgage-backed securities: GSE residential | 7,381 |  |  | (17 | ) |  | 6,309 |  |  | (85 | ) |  | 13,690 |  |  | (102 | )
Trust preferred securities | — |  |  | — |  |  | 1,661 |  |  | (1,414 | ) |  | 1,661 |  |  | (1,414 | )
Other securities | — |  |  | — |  |  | 1,994 |  |  | (6 | ) |  | 1,994 |  |  | (6 | )
Total | $ | 20,616 |  |  | $ | (110 | ) |  | $ | 9,964 |  |  | $ | (1,505 | ) |  | $ | 30,580 |  |  | $ | (1,615 | )
Held-to-maturity: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 14,928 |  |  | $ | (64 | ) |  | $ | — |  |  | $ | — |  |  | $ | 14,928 |  |  | $ | (64 | )
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 34,942 |  |  | $ | (142 | ) |  | $ | 12,971 |  |  | $ | (126 | ) |  | $ | 47,913 |  |  | $ | (268 | )
Obligations of states and political subdivisions | 3,168 |  |  | (32 | ) |  | 979 |  |  | (23 | ) |  | 4,147 |  |  | (55 | )
Mortgage-backed securities: GSE residential | 164,249 |  |  | (841 | ) |  | 20,011 |  |  | (611 | ) |  | 184,260 |  |  | (1,452 | )
Trust preferred securities | — |  |  | — |  |  | 1,906 |  |  | (1,224 | ) |  | 1,906 |  |  | (1,224 | )
Other securities | 1,966 |  |  | (34 | ) |  | — |  |  | — |  |  | 1,966 |  |  | (34 | )
Total | $ | 204,325 |  |  | $ | (1,049 | ) |  | $ | 35,867 |  |  | $ | (1,984 | ) |  | $ | 240,192 |  |  | $ | (3,033 | )
Held-to-maturity: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 35,845 |  |  | $ | (214 | ) |  | $ | — |  |  | $ | — |  |  | $ | 35,845 |  |  | $ | (214 | )
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At September 30, 2016, there were no available-for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more. At December 31, 2015 there were six available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies with a fair value of $12,971,000 and unrealized losses of $126,000 in a continuous unrealized loss position for twelve months or more. At September 30, 2016 and December 31, 2015 there were no held-to-maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more. Obligations of states and political subdivisions. At September 30, 2016 there were no obligations of states and political subdivisions in a continuous unrealized loss position for twelve months or more. At December 31, 2015, there were two obligations of states and political subdivisions with a fair value of $979,000 and unrealized losses of $23,000 in a continuous unrealized loss position for twelve months or more. Mortgage-backed Securities: GSE Residential. At September 30, 2016 there were nine mortgage-backed securities with a fair value of $6,309,000 and unrealized losses of $85,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2015, there were seven mortgage-backed securities with a fair value of $20,011,000 and unrealized losses of $611,000 in a continuous unrealized loss position for twelve months or more. Trust Preferred Securities. At September 30, 2016, there was one trust preferred security with a fair value of $1,661,000 and unrealized loss of $1,414,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2015, there was one trust preferred security with a fair value of $1,906,000 and unrealized loss of $1,224,000 in a continuous unrealized loss position for twelve months or more. The unrealized loss was primarily due to the long-term nature of the trust preferred security, a lack of demand or inactive market for the security, the impending change to the regulatory treatment of these securities, and concerns regarding the underlying financial institutions that have issued the trust preferred securities. The Company recorded no other-than-temporary impairment (OTTI) for these securities during 2016 or 2015. Because it is not more-likely-than-not that the Company will be required to sell the remaining security before recovery of its new, lower amortized cost basis, which may be maturity, the Company does not consider the remainder of the investment to be other-than-temporarily impaired at September 30, 2016. However, future downgrades or additional deferrals and defaults in this security, could result in additional OTTI and consequently, have a material impact on future earnings. Following are the details for the currently impaired trust preferred security (in thousands):
| Book Value |  | Fair Value |  | Unrealized Gains (Losses) |  | Other-than- temporary Impairment Recorded To-date
PreTSL XXVIII | $ | 3,075 |  |  | $ | 1,661 |  |  | $ | (1,414 | ) |  | $ | (1,111 | )
Other secu rities. At September 30, 2016 there was one other security with a fair value of $1,994,000 and unrealized losses of $6,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2015, there were no corporate bonds in a continuous unrealized loss position for twelve months or more. The Company does not believe any other individual unrealized loss as of September 30, 2016 represents OTTI. However, given the continued disruption in the financial markets, the Company may be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. 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 the period the other-than-temporary impairment is identified. Other-than-temporary Impairment. Upon acquisition of a security, the Company determines whether it is within the scope of the accounting guidance for investments in debt and equity securities or whether it must be evaluated for impairment under the accounting guidance for beneficial interests in securitized financial assets. The Company conducts periodic reviews to evaluate its investment securities to determine whether OTTI has occurred. While all securities are considered, the securities primarily impacted by OTTI evaluation are pooled trust preferred securities. For the pooled trust preferred security currently in the investment portfolio, an extensive review is conducted to determine if any additional OTTI has occurred. The Company utilizes an independent third-party to perform the OTTI evaluation. The Company's management reviews the assumption inputs and methodology with the third-party to obtain an understanding of them and determine if they are appropriate for the evaluation. Economic models are used to project future cash flows for the security based on current assumptions for discount rate, prepayments, default and deferral rates and recoveries. These assumptions are determined based on the structure of the issuance, the specific collateral underlying the security, historical performance of trust preferred securities and general state of the economy. The OTTI test compares the present value of the cash flows from quarter to quarter to determine if there has been an adverse change which could indicate additional OTTI. The discount rate assumption used in the cash flow model is equal to the current yield used to accrete the beneficial interest. The Company’s current trust preferred security investment has a floating rate coupon of 3-month LIBOR plus 90 basis points. Since the estimate of 3-month LIBOR is based on the forward curve on the measurement date, and is therefore variable, the discount assumption for this security is a range of projected coupons over the expected life of the security. The Company considers the likelihood that issuers will prepay their securities which changes the amount of expected cash flows. Factors such as the coupon rates of collateral, economic conditions and regulatory changes, such as the Dodd-Frank Act and Basel III, are considered. The trust preferred security includes collateral issued by financial institutions and insurance companies. To identify bank issuers with a high risk of near term default or deferral, a credit model developed by the third-party is utilized that scores each bank issuer based on 29 different ratios covering capital adequacy, asset quality, earnings, liquidity, the Texas Ratio, and sensitivity to interest rates. To account for longer term bank default risk not captured by the credit model, it is assumed that banks will default at a rate of 2% annually for the first two years of the cash flow projection, and 36 basis points in each year thereafter. To project defaults for insurance issuers, each issuer’s credit rating is mapped to its idealized default rate, which is AM Best’s estimate of the historical default rate for insurance companies with that rating. Lastly, it is assumed that trust preferred securities issued by banks that have already failed will have no recoveries, and that banks projected to default will have recoveries of 10%. Additionally, the 10% recovery assumption, incorporates the potential for cures by banks that are currently in deferral. If the Company determines that a given pooled trust preferred security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings. Credit Losses Recognized on Investments. As described above, the Company’s investment in trust preferred security has experienced fair value deterioration due to credit losses but is not otherwise other-than-temporarily impaired. The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the nine months ended September 30, 2016 and 2015 (in thousands).
| Accumulated Credit Losses
| September 30, 2016 |  | September 30, 2015
Credit losses on trust preferred securities held |  |  |
Beginning of period | $ | 1,111 |  |  | $ | 1,111 |
Additions related to OTTI losses not previously recognized | — |  |  | — |
Reductions due to sales / (recoveries) | — |  |  | — |
Reductions due to change in intent or likelihood of sale | — |  |  | — |
Additions related to increases in previously recognized OTTI losses | — |  |  | — |
Reductions due to increases in expected cash flows | — |  |  | — |
End of period | $ | 1,111 |  |  | $ | 1,111 |

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