Note 4 – Securities

The fair value of securities is as follows:


December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	8,051	$	2	$	(64	)	$	7,989
State and municipal		117,327		324		(1,059	)		116,592
Federal agency collateralized mortgage obligations		139,040		254		(2,099	)		137,195
Federal agency mortgage-backed pools		180,183		251		(3,707	)		176,726
Corporate notes		1,238		91		—			1,329

Total available for sale investment securities	$	445,839	$	922	$	(6,929	)	$	439,831


Held to maturity
State and municipal	$	165,607	$	2,700	$	(2,485	)	$	165,822
Federal agency collateralized mortgage obligations		6,530		31		(71	)		6,490
Federal agency mortgage-backed pools		21,057		897		(180	)		21,774

Total held to maturity investment securities	$	193,194	$	3,628	$	(2,736	)	$	194,086


December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	5,940	$	3	$	(17	)	$	5,926
State and municipal		73,829		1,299		(33	)		75,095
Federal agency collateralized mortgage obligations		157,291		567		(1,655	)		156,203
Federal agency mortgage-backed pools		206,970		2,080		(1,346	)		207,704
Corporate notes		32		22		—			54

Total available for sale investment securities	$	444,062	$	3,971	$	(3,051	)	$	444,982


Held to maturity
U.S. Treasury and federal agencies	$	5,859	$	93	$	—		$	5,952
State and municipal		146,331		5,375		(253	)		151,453
Federal agency collateralized mortgage obligations		9,051		27		(124	)		8,954
Federal agency mortgage-backed pools		26,388		1,141		(185	)		27,344

Total held to maturity investment securities	$	187,629	$	6,636	$	(562	)	$	193,703

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. While these securities are held in the available for sale portfolio and held-to-maturity, Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.

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 net income in the period the other-than-temporary impairment is identified. At December 31, 2016, no individual investment security had an unrealized loss that was determined to be other-than-temporary.

The unrealized losses on the Company’s investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies, federal agency collateralized mortgage obligations, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2016.

The Company elected to transfer 319 available-for-sale (“AFS”) securities with an aggregate fair value of $167.1 million to a classification of held-to-maturity (“HTM”) on April 1, 2014. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding gain of $1.3 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities. The fair value of the transferred AFS securities became the book value of the HTM securities at April 1, 2014, with no unrealized gain or loss at this date. Future reporting periods, with potential changes in market value for these securities, would likely record an unrealized gain or loss for disclosure purposes.

The amortized cost and fair value of securities available for sale and held-to-maturity at December 31, 2016 and December 31, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	December 31, 2016				December 31, 2015
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Available for sale
Within one year	$	7,455	$	7,480	$	7,192	$	7,232
One to five years		37,483		37,479		38,197		38,894
Five to ten years		21,112		20,984		16,807		17,152
After ten years		60,566		59,967		17,605		17,797

		126,616		125,910		79,801		81,075
Federal agency collateralized mortgage obligations		139,040		137,195		157,291		156,203
Federal agency mortgage-backed pools		180,183		176,726		206,970		207,704

Total available for sale investment securities	$	445,839	$	439,831	$	444,062	$	444,982


Held to maturity
Within one year	$	—	$	—	$	—	$	—
One to five years		24,594		25,271		17,815		18,403
Five to ten years		87,645		88,805		106,167		110,026
After ten years		53,368		51,746		28,208		28,976

		165,607		165,822		152,190		157,405
Federal agency collateralized mortgage obligations		6,530		6,490		9,051		8,954
Federal agency mortgage-backed pools		21,057		21,774		26,388		27,344

Total held to maturity investment securities	$	193,194	$	194,086	$	187,629	$	193,703

The following table shows the gross unrealized losses and the fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2016	Value		Losses			Value		Losses			Value		Losses

U.S. Treasury and federal agencies	$	6,987	$	(64	)	$	—	$	—		$	6,987	$	(64	)
State and municipal		142,466		(3,544	)		—		—			142,466		(3,544	)
Federal agency collateralized mortgage obligations		112,414		(1,918	)		10,199		(252	)		122,613		(2,170	)
Federal agency mortgage-backed pools		163,768		(3,887	)		—		—			163,768		(3,887	)

Total temporarily impaired securities	$	425,635	$	(9,413	)	$	10,199	$	(252	)	$	435,834	$	(9,665	)


	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2015	Value		Losses			Value		Losses			Value		Losses

U.S. Treasury and federal agencies	$	5,468	$	(17	)	$	—	$	—		$	5,468	$	(17	)
State and municipal		17,353		(280	)		446		(6	)		17,799		(286	)
Federal agency collateralized mortgage obligations		89,459		(1,124	)		25,428		(655	)		114,887		(1,779	)
Federal agency mortgage-backed pools		113,244		(1,212	)		16,506		(319	)		129,750		(1,531	)

Total temporarily impaired securities	$	225,524	$	(2,633	)	$	42,380	$	(980	)	$	267,904	$	(3,613	)

U.S. Treasury, federal agency, state and municipal

The unrealized losses on the Company’s investments in U.S. Treasury, federal agency and state and municipals were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2016.

Federal agency mortgage-backed pools and collateralized mortgage obligations

The unrealized losses on the Company’s investment in federal agency mortgage backed pools and collateralized mortgage obligations securities were caused by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2016.

Information regarding security proceeds, gross gains and gross losses are presented below.


	Years ended December 31
	2016			2015			2014
Sales of securities available for sale
Proceeds	$	182,549		$	43,051		$	45,228
Gross gains		2,646			254			988
Gross losses		(810	)		(65	)		—

The tax effect of the proceeds from the sale of securities available for sale was $643, $66 and $346 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company pledges securities to secure retail and corporate repurchase agreements to the Federal Reserve for borrowing availability and as settlements for the fair value of swap agreements. At December 31, 2016, the Company had pledged $64.4 million of fair value or $65.1 million of amortized cost, in securities as collateral for $57.1 million in repurchase agreements, $92.5 million of fair value or $92.4 million of amortized cost, in securities as collateral for borrowing availability at the Federal Reserve with no current outstanding borrowings and $16.2 million of fair value or $16.0 million of amortized cost, in securities as collateral for $3.1 million in settlements on the fair value of swap agreements.