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Note 2: Investments in Debt and Equity Securities
 12 Months Ended
Dec. 31, 2013
Notes  
Note 2: Investments in Debt and Equity Securities

Note 2:      Investments in Debt and Equity Securities

 

 

The amortized cost and fair values of securities classified as available-for-sale were as follows:

 

 

December 31, 2013

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

(In Thousands)

 

 

 

 

 

 

 

U.S. government agencies

$20,000

 

$--

 

$2,745

 

$17,255

Mortgage-backed securities

365,020

 

4,824

 

2,266

 

367,578

Small Business Administration

 

 

 

 

 

 

 

loan pools

43,461

 

1,394

 

--

 

44,855

States and political subdivisions

122,113

 

2,549

 

1,938

 

122,724

Equity securities

847

 

2,022

 

--

 

2,869

 

 

 

 

 

 

 

 

 

$551,441

 

$10,789

 

$6,949

 

$555,281

 

 

December 31, 2012

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

(In Thousands)

 

 

 

 

 

 

 

U.S. government agencies

$30,000

 

$40

 

$--

 

$30,040

Collateralized mortgage obligations

3,939

 

576

 

8

 

4,507

Mortgage-backed securities

582,039

 

14,861

 

814

 

596,086

Small Business Administration

 

 

 

 

 

 

 

loan pools

50,198

 

1,295

 

--

 

51,493

States and political subdivisions

114,372

 

8,506

 

--

 

122,878

Equity securities

847

 

1,159

 

--

 

2,006

 

 

 

 

 

 

 

 

 

$781,395

 

$26,437

 

$822

 

$807,010

 

 

 

Additional details of the Company’s mortgage-backed securities at December 31, 2013, are described as follows:

 

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

(In Thousands)

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

FHLMC fixed

$3,562

 

$328

 

$--

 

$3,890

FHLMC hybrid ARM

15,828

 

959

 

--

 

16,787

Total FHLMC

19,390

 

1,287

 

--

 

20,677

 

 

 

 

 

 

 

 

FNMA fixed

11,590

 

292

 

489

 

11,393

FNMA hybrid ARM

32,967

 

980

 

62

 

33,885

Total FNMA

44,557

 

1,272

 

551

 

45,278

 

 

 

 

 

 

 

 

GNMA fixed

4,671

 

--

 

370

 

4,301

GNMA hybrid ARM

296,402

 

2,265

 

1,345

 

297,322

Total GNMA

301,073

 

2,265

 

1,715

 

301,623

 

 

 

 

 

 

 

 

 

$365,020

 

$4,824

 

$2,266

 

$367,578

 

 

 

 

 

 

 

 

Total fixed

$19,823

 

$620

 

$859

 

$19,584

Total hybrid ARM

345,197

 

4,204

 

1,407

 

347,994

 

 

 

 

 

 

 

 

 

$365,020

 

$4,824

 

$2,266

 

$367,578

 

 

 

The amortized cost and fair value of available-for-sale securities at December 31, 2013, 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.

 

 

 

Amortized

 

Fair

 

Cost

 

Value

(In Thousands)

 

 

 

One year or less

$110

 

$110

After one through five years

1,001

 

984

After five through ten years

9,893

 

10,032

After ten years

174,570

 

173,708

Securities not due on a single maturity date

365,020

 

367,578

Equity securities

847

 

2,869

 

 

 

 

 

$551,441

 

$555,281

 

 

The amortized cost and fair values of securities classified as held to maturity were as follows:

 

 

December 31, 2013

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

(In Thousands)

 

 

 

 

 

 

 

States and political

 

 

 

 

 

 

 

subdivisions

$805

 

$107

 

$--

 

$912

 

 

December 31, 2012

 

 

 

Gross

 

Gross

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

(In Thousands)

 

 

 

 

 

 

 

States and political

 

 

 

 

 

 

 

subdivisions

$920

 

$164

 

$--

 

$1,084

 

 

 

 

The held-to-maturity securities at December 31, 2013, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

Amortized

 

Fair

 

Cost

 

Value

(In Thousands)

 

 

 

After one through five years

$805

 

$912

 

 

 

The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2013 and 2012:

 

 

2013

 

2012

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Cost

 

Value

 

Cost

 

Value

(In Thousands)

 

 

 

 

 

 

 

Public deposits

$228,776

 

$230,318

 

$459,751

 

$473,679

Collateralized borrowing

 

 

 

 

 

 

 

accounts

171,071

 

168,813

 

187,700

 

189,862

Structured repurchase

 

 

 

 

 

 

 

agreements

60,352

 

61,026

 

64,298

 

66,575

Other

1,403

 

1,437

 

3,760

 

3,897

 

 

 

 

 

 

 

 

 

$461,602

 

$461,594

 

$715,509

 

$734,013

 

 

 

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at December 31, 2013 and 2012, was approximately $237.6 million and $106.6 million, respectively, which is approximately 42.7% and 13.2% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.

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 debt securities are temporary.

 

 

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2013 and 2012:

 

 

 

2013

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

Description of Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$20,000

 

$(2,745)

 

$--

 

$--

 

$20,000

 

$(2,745)

Mortgage-backed securities

 

127,901

 

(1,871)

 

39,255

 

(395)

 

167,156

 

(2,266)

States and political subdivisions

 

50,401

 

(1,938)

 

--

 

--

 

50,401

 

(1,938)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$198,302

 

$(6,554)

 

$39,255

 

$(395)

 

$237,557

 

$(6,949)

 

 

 

2012

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

Description of Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage

 

 

 

 

 

 

 

 

 

 

 

 

obligations

 

$--

 

$--

 

$414

 

$(8)

 

$414

 

$(8)

Mortgage-backed securities

 

106,136

 

(814)

 

--

 

--

 

106,136

 

(814)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$106,136

 

$(814)

 

$414

 

$(8)

 

$106,550

 

$(822)

 

 

 

 

Other-than-Temporary Impairment

 

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

 

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model.  For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.  The Company does not currently have securities within the scope of this guidance for beneficial interests in securitized financial assets.

 

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors.  If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an unrealized loss is other than temporary.  The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange.  For nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss.  The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows.  If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

 

During 2013, no securities were determined to have impairment that had become other than temporary.  During 2012, the Company determined that the impairment of a nonagency collateralized mortgage obligation with a book value of $680,000 had become other than temporary.  Consequently, the Company recorded a total of $680,000 of pre-tax charges to income.  During 2011, the Company determined that the impairment of a nonagency collateralized mortgage obligation with a book value of $1.8 million had become other than temporary.  Consequently, the Company recorded a total of $615,000 of pre-tax charges to income.  This was the same nonagency collateralized mortgage obligation that was also determined to be impaired during 2012. 

 

 

 

 

Credit Losses Recognized on Investments

 

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired. 

 

 

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

 

 

Accumulated Credit Losses

 

2013

 

2012

(In Thousands)

 

 

 

Credit losses on debt securities held

 

 

 

  Beginning of year

$4,176

 

$3,598

    Reductions due to final principal payments

(4,176)

 

--

    Additions related to increases in credit losses on debt

 

 

 

      securities for which other-than-temporary

 

 

 

      impairment losses were previously recognized

--

 

680

    Reductions due to sales

--

 

(102)

  End of year

$--

 

$4,176