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Note 6: Investment Securities
 6 Months Ended
Jun. 30, 2014
Notes  
Note 6: Investment Securities

NOTE 6: INVESTMENT SECURITIES

 

 

 

June 30, 2014

 

 

 

Gross

 

Gross

 

 

 

Tax

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Equivalent

 

Cost

 

Gains

 

Losses

 

Value

 

Yield

(In Thousands)

 

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE SECURITIES:

 

 

 

 

 

 

 

 

 

  U.S. government agencies

$20,000

 

$--

 

$1,179

 

$18,821

 

2.00%

  Mortgage-backed securities

373,667

 

5,457

 

1,281

 

377,843

 

1.86

  Collateralized mortgage obligations

39,746

 

6

 

2

 

39,750

 

2.72

  States and political subdivisions

123,922

 

6,020

 

296

 

129,646

 

5.38

  Equity securities

847

 

2,123

 

--

 

2,970

 

--

 

$558,182

 

$13,606

 

$2,758

 

$569,030

 

2.70%

 

 

 

December 31, 2013

 

 

 

Gross

 

Gross

 

 

 

Tax

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Equivalent

 

Cost

 

Gains

 

Losses

 

Value

 

Yield

(In Thousands)

 

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE SECURITIES:

 

 

 

 

 

 

 

 

 

U.S. government agencies

$20,000

 

$--

 

$2,745

 

$17,255

 

2.00%

Mortgage-backed securities

365,020

 

4,824

 

2,266

 

367,578

 

2.04

Small Business Administration

 

 

 

 

 

 

 

 

 

loan pools

43,461

 

1,394

 

--

 

44,855

 

1.34

States and political subdivisions

122,113

 

2,549

 

1,938

 

122,724

 

5.47

Equity securities

847

 

2,022

 

--

 

2,869

 

           --

 

$551,441

 

$10,789

 

$6,949

 

$555,281

 

2.74%

 

 

 

 

June 30, 2014

 

 

 

Gross

 

Gross

 

 

 

Tax

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Equivalent

 

Cost

 

Gains

 

Losses

 

Value

 

Yield

(In Thousands)

 

 

 

 

 

 

 

 

 

HELD-TO-MATURITY SECURITIES:

 

 

 

 

 

 

 

 

 

  States and political subdivisions

$450

 

$54

 

$--

 

$504

 

7.37%

 

 

 

December 31, 2013

 

 

 

Gross

 

Gross

 

 

 

Tax

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Equivalent

 

Cost

 

Gains

 

Losses

 

Value

 

Yield

(In Thousands)

 

 

 

 

 

 

 

 

 

HELD-TO-MATURITY SECURITIES:

 

 

 

 

 

 

 

 

 

States and political subdivisions

$805

 

$107

 

$--

 

$912

 

7.37%

 

 

 

The amortized cost and fair value of available-for-sale securities at June 30, 2014, 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

 

$112

After one through five years

1,164

 

1,167

After five through ten years

8,233

 

8,550

After ten years

134,415

 

138,638

Securities not due on a single maturity date

413,413

 

417,593

Equity securities

847

 

2,970

 

 

 

 

 

$558,182

 

$569,030

 

 

 

The held-to-maturity securities at June 30, 2014, 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

$450

 

$504

 

 

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 June 30, 2014 and December 31, 2013, respectively, was approximately $187.0 million and $237.6 million, which is approximately 32.9% and 42.7% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.

 

Based on an 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 at June 30, 2014.

 

 

 

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 June 30, 2014 and December 31, 2013:

 

 

 

 

 

June 30, 2014

 

 

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

 

$(1,179)

 

$20,000

 

$(1,179)

Mortgage-backed securities

 

41,280

 

(192)

 

83,180

 

(1,089)

 

124,460

 

(1,281)

Collateralized mortgage

 

 

 

 

 

 

 

 

 

 

 

 

obligations

 

22,091

 

(2)

 

--

 

--

 

22,091

 

(2)

State and political

 

 

 

 

 

 

 

 

 

 

 

 

subdivisions

 

3,594

 

(16)

 

16,834

 

(280)

 

20,428

 

(296)

 

 

$66,965

 

$(210)

 

$120,014

 

$(2,548)

 

$186,979

 

$(2,758)

 

 

 

 

December 31, 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)

State and political

 

 

 

 

 

 

 

 

 

 

 

 

subdivisions

 

50,401

 

(1,938)

 

--

 

--

 

50,401

 

(1,938)

 

 

$198,302

 

$(6,554)

 

$39,255

 

$(395)

 

$237,557

 

$(6,949)

 

 

 

Gross gains of $569,000 and $642,000 and gross losses of $-0- and $-0- resulting from sales of available-for-sale securities were realized for the three and six months ended June 30, 2014.  Gross gains of $117,000 and $151,000 and gross losses of $20,000 and $20,000 resulting from sales of available-for-sale securities were realized for the three and six months ended June 30, 2013.  Gains and losses on sales of securities are determined on the specific-identification method.

 

At June 30, 2014, investment securities included $88.5 million of securities acquired in the Valley Bank transaction.  These securities were comprised of $39.8 million of government agency collateralized mortgage obligations, $47.8 million of government agency mortgage-backed securities and $978,000 of securities issued by states and political subdivisions.  The Company sold these securities in July 2014 and recorded a gain of approximately $175,000.  See Note 16 FDIC-Assisted Acquisition for further information on the Valley acquisition.

 

 

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 non-agency 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 the three and six months ended June 30, 2014, no securities were determined to have impairment that was other than temporary. 

 

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

(In Thousands)

 

Credit losses on debt securities held

 

April 1, 2014

$--

Additions related to other-than-temporary losses not previously recognized

--

Additions related to increases in credit losses on debt securities for which

 

other-than-temporary impairment losses were previously recognized

--

Reductions due to final principal payments

--

 

 

June 30, 2014

$--

 

 

Accumulated

 

Credit Losses

(In Thousands)

 

Credit losses on debt securities held

 

April 1, 2013

$4,176

Additions related to other-than-temporary losses not previously recognized

--

Additions related to increases in credit losses on debt securities for which

 

other-than-temporary impairment losses were previously recognized

--

Reductions due to final principal payments

(4,176)

 

 

June 30, 2013

$--

 

 

Accumulated

 

Credit Losses

(In Thousands)

 

Credit losses on debt securities held

 

January 1, 2014

$--

Additions related to other-than-temporary losses not previously recognized

--

Additions related to increases in credit losses on debt securities for which

 

other-than-temporary impairment losses were previously recognized

--

Reductions due to final principal payments

--

 

 

June 30, 2014

$--

 

 

Accumulated

 

Credit Losses

(In Thousands)

 

Credit losses on debt securities held

 

January 1, 2013

$4,176

Additions related to other-than-temporary losses not previously recognized

--

Additions related to increases in credit losses on debt securities for which

 

other-than-temporary impairment losses were previously recognized

--

Reductions due to final principal payments

(4,176)

 

 

June 30, 2013

$--

 

 

 

 

Amounts Reclassified Out of Accumulated Other Comprehensive Income.  Amounts reclassified from accumulated other comprehensive income and the affected line items in the statements of income during the three and six months ended June 30, 2014 and 2013, were as follows: 

 

 

Amounts Reclassified from

 

 

Other Comprehensive Income

 

 

Three Months Ended June 30,

Affected Line Item in

(In Thousands)

2014

 

2013

the Statements of Income

Unrealized gains (losses) on available-

 

 

 

Net realized gains on available-

for-sale securities

$569

 

$97

for-sale securities

 

 

 

 

(Total reclassified amount before tax)

Income Taxes

(199)

 

(34)

Provision for income taxes

Total reclassifications out of accumulated

 

 

 

 

other comprehensive income

$370

 

$63

 

 

 

Amounts Reclassified from

 

 

Other Comprehensive Income

 

 

Six Months Ended June 30,

Affected Line Item in the

 

2014

 

2013

Statements of Income

(In Thousands)

 

 

 

 

Unrealized gains (losses) on available-

 

 

 

Net realized gains on available-

for-sale securities

$642

 

$131

for-sale securities

 

 

 

 

(Total reclassified amount before tax)

Income Taxes

(225)

 

(46)

Provision for income taxes

Total reclassifications out of accumulated

 

 

 

 

other comprehensive income

$417

 

$85