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INVESTMENT SECURITIES | 9 Months Ended
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Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract] |
INVESTMENT SECURITIES | 3. INVESTMENT SECURITIES A summary of our investment portfolio is as follows:
(dollars in thousands) | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
September 30, 2018 |  |  |  |  |  |  |  |  |  |  |
Held-to-maturity: |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | $ | 87,356 |  |  | $ | — |  |  | $ | (4,339 | ) |  | $ | 83,017 |
Commercial - U.S. Government-sponsored entities | 65,496 |  |  | — |  |  | (2,047 | ) |  | 63,449 |
Total held-to-maturity securities | $ | 152,852 |  |  | $ | — |  |  | $ | (6,386 | ) |  | $ | 146,466 |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions | $ | 175,495 |  |  | $ | 788 |  |  | $ | (2,731 | ) |  | $ | 173,552 |
Corporate securities | 65,587 |  |  | 23 |  |  | (477 | ) |  | 65,133 |
U.S. Treasury obligations and direct obligations of U.S Government agencies | 34,566 |  |  | — |  |  | (647 | ) |  | 33,919 |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | 763,635 |  |  | 297 |  |  | (29,575 | ) |  | 734,357 |
Commercial - U.S. Government agencies and sponsored entities | 53,618 |  |  | — |  |  | (2,413 | ) |  | 51,205 |
Residential - Non-government agencies | 42,069 |  |  | 132 |  |  | (831 | ) |  | 41,370 |
Commercial - Non-government agencies | 134,914 |  |  | 321 |  |  | (1,769 | ) |  | 133,466 |
Total available-for-sale securities | $ | 1,269,884 |  |  | $ | 1,561 |  |  | $ | (38,443 | ) |  | $ | 1,233,002 |
Equity securities | $ | 712 |  |  | $ | 173 |  |  | $ | — |  |  | $ | 885 |
(dollars in thousands) | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |
Held-to-maturity: |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | $ | 100,279 |  |  | $ | 106 |  |  | $ | (2,222 | ) |  | $ | 98,163 |
Commercial - U.S. Government-sponsored entities | 91,474 |  |  | — |  |  | (436 | ) |  | 91,038 |
Total held-to-maturity securities | $ | 191,753 |  |  | $ | 106 |  |  | $ | (2,658 | ) |  | $ | 189,201 |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions | $ | 178,459 |  |  | $ | 2,041 |  |  | $ | (719 | ) |  | $ | 179,781 |
Corporate securities | 73,772 |  |  | 582 |  |  | (76 | ) |  | 74,278 |
U.S. Treasury obligations and direct obligations of U.S Government agencies | 25,519 |  |  | 60 |  |  | (69 | ) |  | 25,510 |
Mortgage-backed securities: |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | 808,242 |  |  | 2,230 |  |  | (9,789 | ) |  | 800,683 |
Commercial - U.S. Government agencies and sponsored entities | 40,012 |  |  | — |  |  | (287 | ) |  | 39,725 |
Residential - Non-government agencies | 45,679 |  |  | 1,084 |  |  | — |  |  | 46,763 |
Commercial - Non-government agencies | 135,058 |  |  | 2,461 |  |  | (193 | ) |  | 137,326 |
Total available-for-sale securities | $ | 1,306,741 |  |  | $ | 8,458 |  |  | $ | (11,133 | ) |  | $ | 1,304,066 |
Equity securities | $ | 686 |  |  | $ | 139 |  |  | $ | — |  |  | $ | 825 |
The amortized cost and estimated fair value of investment securities at September 30, 2018 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.
| September 30, 2018
(dollars in thousands) | Amortized Cost |  | Fair Value
Held-to-maturity: |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |
Residential - U.S. Government-sponsored entities | $ | 87,356 |  |  | $ | 83,017 |
Commercial - U.S. Government-sponsored entities | 65,496 |  |  | 63,449 |
Total held-to-maturity securities | $ | 152,852 |  |  | $ | 146,466 |
Available-for-sale: |  |  |  |  |
Due in one year or less | $ | 63,878 |  |  | $ | 63,916 |
Due after one year through five years | 103,852 |  |  | 103,115 |
Due after five years through ten years | 50,639 |  |  | 49,629 |
Due after ten years | 57,279 |  |  | 55,944 |
Mortgage-backed securities: |  |  |
Residential - U.S. Government-sponsored entities | 763,635 |  |  | 734,357 |
Commercial - U.S. Government agencies and sponsored entities | 53,618 |  |  | 51,205 |
Residential - Non-government agencies | 42,069 |  |  | 41,370 |
Commercial - Non-government agencies | 134,914 |  |  | 133,466 |
Total available-for-sale securities | $ | 1,269,884 |  |  | $ | 1,233,002 |
Equity securities | $ | 712 |  |  | $ | 885 |
We did not sell any available-for-sale securities during the three and nine months ended September 30, 2018. In the second quarter of 2017, we completed an investment portfolio repositioning strategy designed to enhance potential prospective earnings and improve net interest margin. In connection with the repositioning, we sold $97.7 million in lower-yielding available-for-sale securities, and purchased $97.4 million in higher yielding, longer duration investment securities. The investment securities sold had an average yield of 1.91%. Gross proceeds of the sale of $96.0 million were immediately reinvested back into investment securities with an average yield of 2.57%. The new securities were classified in the available-for-sale portfolio. There were no gross realized gains on the sale of the investment securities. Gross realized losses on the sale of the investment securities were $1.6 million. The specific identification method was used as the basis for determining the cost of all securities sold. We did not sell any available-for-sale securities during the three months ended March 31, 2017 and September 30, 2017. Investment securities of $1.00 billion and $1.08 billion at September 30, 2018 and December 31, 2017, respectively, were pledged to secure public funds on deposit and other long-term debt and short-term borrowings. Provided below is a summary of the 379 and 223 investment securities which were in an unrealized or unrecognized loss position at September 30, 2018 and December 31, 2017, respectively, aggregated by major security type and length of time in a continuous unrealized or unrecognized loss position.
| Less Than 12 Months |  | 12 Months or Longer |  | Total
(dollars in thousands) | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions | $ | 87,069 |  |  | $ | (1,225 | ) |  | $ | 26,654 |  |  | $ | (1,506 | ) |  | $ | 113,723 |  |  | $ | (2,731 | )
Corporate securities | 54,275 |  |  | (301 | ) |  | 5,130 |  |  | (176 | ) |  | 59,405 |  |  | (477 | )
U.S. Treasury obligations and direct obligations of U.S Government agencies | 31,220 |  |  | (602 | ) |  | 2,699 |  |  | (45 | ) |  | 33,919 |  |  | (647 | )
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | 285,808 |  |  | (7,950 | ) |  | 513,681 |  |  | (25,964 | ) |  | 799,489 |  |  | (33,914 | )
Residential - Non-government agencies | 24,690 |  |  | (831 | ) |  | — |  |  | — |  |  | 24,690 |  |  | (831 | )
Commercial - U.S. Government agencies and sponsored entities | 57,509 |  |  | (1,873 | ) |  | 57,145 |  |  | (2,587 | ) |  | 114,654 |  |  | (4,460 | )
Commercial - Non-government agencies | 93,778 |  |  | (1,769 | ) |  | — |  |  | — |  |  | 93,778 |  |  | (1,769 | )
Total temporarily impaired securities | $ | 634,349 |  |  | $ | (14,551 | ) |  | $ | 605,309 |  |  | $ | (30,278 | ) |  | $ | 1,239,658 |  |  | $ | (44,829 | )
| Less Than 12 Months |  | 12 Months or Longer |  | Total
(dollars in thousands) | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions | $ | 53,811 |  |  | $ | (305 | ) |  | $ | 15,403 |  |  | $ | (414 | ) |  | $ | 69,214 |  |  | $ | (719 | )
Corporate securities | — |  |  | — |  |  | 5,307 |  |  | (76 | ) |  | 5,307 |  |  | (76 | )
U.S. Treasury obligations and direct obligations of U.S Government agencies | 10,740 |  |  | (69 | ) |  | — |  |  | — |  |  | 10,740 |  |  | (69 | )
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential - U.S. Government-sponsored entities | 335,883 |  |  | (3,372 | ) |  | 340,219 |  |  | (8,639 | ) |  | 676,102 |  |  | (12,011 | )
Residential - Non-government agencies | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial - U.S. Government-sponsored entities | 130,763 |  |  | (723 | ) |  | — |  |  | — |  |  | 130,763 |  |  | (723 | )
Commercial - Non-government agencies | 28,490 |  |  | (193 | ) |  | — |  |  | — |  |  | 28,490 |  |  | (193 | )
Total temporarily impaired securities | $ | 559,687 |  |  | $ | (4,662 | ) |  | $ | 360,929 |  |  | $ | (9,129 | ) |  | $ | 920,616 |  |  | $ | (13,791 | )
Other-Than-Temporary Impairment ("OTTI") Management evaluates investment securities for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation, to determine whether the unrealized losses on investment securities, or the decline in their value below amortized cost is "other-than-temporary." The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. In conducting this assessment, for securities in an unrealized loss position we evaluate a number of factors including, but not limited to:
• | The length of time and the extent to which fair value has been less than the amortized cost basis;
• | Adverse conditions specifically related to the security, an industry, or a geographic area;
• | The historical and implied volatility of the fair value of the security;
• | The payment structure of the debt security and the likelihood of the issuer being able to make payments;
• | Failure of the issuer to make scheduled interest or principal payments;
• | Any rating changes by a rating agency; and
• | Recoveries or additional declines in fair value subsequent to the balance sheet date.
Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding impairment charge to earnings is recognized for anticipated credit losses. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. The declines in market value were primarily attributable to changes in interest rates and volatility in the credit and financial markets. Because we have no intent to sell securities in an unrealized loss position and it is not more likely than not that we will be required to sell such securities before recovery of its amortized cost basis, we do not consider our investments to be other-than-temporarily impaired. Visa and MasterCard Class B Common Stock As of September 30, 2018, the Company owns 34,631 shares and 11,170 shares of Class B common stock of Visa, Inc. ("Visa") and MasterCard, Inc. ("MasterCard"), respectively. Due to transfer restrictions and the lack of readily determinable fair values of Class B common stock of Visa and MasterCard, the Company chooses to carry the shares on the Company's consolidated balance sheets at zero cost basis.

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