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Investments | 6 Months Ended
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Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments The investment portfolio consists primarily of U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label residential mortgage backed securities (PLRMBS), and obligations of states and political subdivisions securities. As of June 30, 2016, $109,912,000 of these securities were held as collateral for borrowing arrangements, public funds, and for other purposes. The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of $22,770,000 at June 30, 2016 compared to an unrealized gain of $7,474,000 at December 31, 2015. The unrealized gain recorded is net of $9,371,000 and $3,076,000 in tax liabilities as accumulated other comprehensive income within shareholders’ equity at June 30, 2016 and December 31, 2015, respectively. The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands):
|  | June 30, 2016
Available-for-Sale Securities |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 57,408 |  |  | $ | 574 |  |  | $ | (141 | ) |  | $ | 57,841 |
Obligations of states and political subdivisions |  | 212,563 |  |  | 17,810 |  |  | (38 | ) |  | 230,335 |
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 208,082 |  |  | 3,682 |  |  | (397 | ) |  | 211,367 |
Private label residential mortgage backed securities |  | 2,078 |  |  | 1,076 |  |  | — |  |  | 3,154 |
Other equity securities |  | 7,500 |  |  | 204 |  |  | — |  |  | 7,704 |
Total available-for-sale |  | $ | 487,631 |  |  | $ | 23,346 |  |  | $ | (576 | ) |  | $ | 510,401 |
|  | December 31, 2015
Available-for-Sale Securities |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 52,803 |  |  | $ | 315 |  |  | $ | (217 | ) |  | $ | 52,901 |
Obligations of states and political subdivisions |  | 181,785 |  |  | 6,779 |  |  | (296 | ) |  | 188,268 |
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 225,636 |  |  | 1,042 |  |  | (1,419 | ) |  | 225,259 |
Private label residential mortgage backed securities |  | 2,356 |  |  | 1,234 |  |  | — |  |  | 3,590 |
Other equity securities |  | 7,500 |  |  | 36 |  |  | — |  |  | 7,536 |
Total available-for-sale |  | $ | 470,080 |  |  | $ | 9,406 |  |  | $ | (1,932 | ) |  | $ | 477,554 |
|  | December 31, 2015
Held-to-Maturity Securities |  | Amortized Cost |  | Gross Unrecognized Gains |  | Gross Unrecognized Losses |  | Estimated Fair Value
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 31,712 |  |  | $ | 3,431 |  |  | $ | (1 | ) |  | $ | 35,142 |
Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended June 30, 2016 and 2015 are shown below (in thousands):
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
Available-for-Sale Securities |  | 2016 |  | 2015 |  | 2016 |  | 2015
Proceeds from sales or calls |  | $ | 37,690 |  |  | $ | 53,716 |  |  | $ | 63,044 |  |  | $ | 92,647 |
Gross realized gains from sales or calls |  | 426 |  |  | 927 |  |  | 971 |  |  | 1,692 |
Gross realized losses from sales or calls |  | (6 | ) |  | (195 | ) |  | (117 | ) |  | (233 | )
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
Held-to-Maturity Securities |  | 2016 |  | 2015 |  | 2016 |  | 2015
Proceeds from sales or calls |  | $ | — |  |  | $ | — |  |  | $ | 9,257 |  |  | $ | — |
Gross realized gains from sales or calls |  | — |  |  | — |  |  | 696 |  |  | — |
Gross realized losses from sales or calls |  | — |  |  | — |  |  | — |  |  | — |
During 2014, to better manage our interest rate risk, the Company transferred from available-for-sale to held-to-maturity selected municipal securities in our portfolio having a book value of approximately $31 million, a market value of approximately $32 million, and a net unrecognized gain of approximately $163,000. This transfer was completed after careful consideration of our intent and ability to hold these securities to maturity. During the first quarter of 2016, management sold certain investment securities of which management discovered, through the proper operation of the Company’s internal control, that five of the 13 securities sold were previously designated as held-to-maturity (HTM). Through an oversight during the portfolio restructuring analysis related to this transaction, management unintentionally sold these five HTM securities. The book value of the HTM securities sold was $8.5 million. The gain realized on the sale of the HTM securities was $696,000. As such, management was required to reclassify the remaining HTM securities with a fair value of $23.1 million to the AFS designation. At June 30, 2016 and December 31, 2015 the remaining unaccreted balance of these HTM securities associated with the original transfer from AFS to HTM and included in accumulated other comprehensive income was $0 and $64,000, respectively. Losses recognized in 2016 and 2015 were incurred in order to reposition the investment securities portfolio based on the current rate environment. The securities which were sold at a loss were acquired when the rate environment was not as volatile. The securities which were sold were primarily purchased several years ago to serve a purpose in the rate environment in which the securities were purchased. The Company is addressing risks in the security portfolio by selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile. The provision for income taxes includes $351,000 and $601,000 income tax impact from the reclassification of unrealized net gains on securities to realized net gains on securities for the six months ended June 30, 2016 and 2015, respectively. The provision for income taxes includes $173,000 and $301,000 income tax impact from the reclassification of unrealized net gains on available-for-sale securities to realized net gains on available-for-sale securities for the three months ended June 30, 2016 and 2015, respectively. Investment securities, aggregated by investment category, with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows (in thousands):
|  | June 30, 2016
|  | Less than 12 Months |  | 12 Months or More |  | Total
|  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
Available-for-Sale Securities |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 23,396 |  |  | $ | (84 | ) |  | $ | 3,646 |  |  | $ | (57 | ) |  | $ | 27,042 |  |  | $ | (141 | )
Obligations of states and political subdivisions |  | 1,033 |  |  | (38 | ) |  | — |  |  | — |  |  | 1,033 |  |  | (38 | )
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 42,436 |  |  | (244 | ) |  | 11,394 |  |  | (153 | ) |  | 53,830 |  |  | (397 | )
Total available-for-sale |  | $ | 66,865 |  |  | $ | (366 | ) |  | $ | 15,040 |  |  | $ | (210 | ) |  | $ | 81,905 |  |  | $ | (576 | )
|  | December 31, 2015
|  | Less than 12 Months |  | 12 Months or More |  | Total
|  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
Available-for-Sale Securities |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 21,348 |  |  | $ | (125 | ) |  | $ | 3,954 |  |  | $ | (92 | ) |  | $ | 25,302 |  |  | $ | (217 | )
Obligations of states and political subdivisions |  | 40,016 |  |  | (296 | ) |  | — |  |  | — |  |  | 40,016 |  |  | (296 | )
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 124,688 |  |  | (1,109 | ) |  | 16,234 |  |  | (310 | ) |  | 140,922 |  |  | (1,419 | )
Total available-for-sale |  | $ | 186,052 |  |  | $ | (1,530 | ) |  | $ | 20,188 |  |  | $ | (402 | ) |  | $ | 206,240 |  |  | $ | (1,932 | )
|  | December 31, 2015
|  | Less than 12 Months |  | 12 Months or More |  | Total
|  | Fair |  | Unrecognized |  | Fair |  | Unrecognized |  | Fair |  | Unrecognized
Held-to-Maturity Securities |  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 1,053 |  |  | $ | (1 | ) |  | $ | — |  |  | $ | — |  |  | $ | 1,053 |  |  | $ | (1 | )
We periodically evaluate each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings. The discount rate in this analysis is the original yield expected at time of purchase. As of June 30, 2016, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). Management evaluated all individual available-for-sale investment securities with an unrealized loss at June 30, 2016 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at June 30, 2016 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000. Management also analyzed any securities that may have been downgraded by credit rating agencies. For those bonds that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those bonds. For those bonds that were obligations of states and political subdivisions with an investment grade rating by the rating agencies, management also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded during March 2016 that a $136,000 credit related impairment related to one security with a fair value of $2,995,000 and a pre-impairment amortized cost of $3,131,000 existed. The Company recorded an other-than-temporary impairment loss of $136,000 during the six months ended June 30, 2016. There were no OTTI losses recorded during the three months ended June 30, 2016 or during the three or six months ended June 30, 2015. U.S. Government Agencies At June 30, 2016, the Company held 19 U.S. Government agency securities, of which seven were in a loss position for less than 12 months and one was in a loss position or had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies 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 costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2016. Obligations of States and Political Subdivisions At June 30, 2016, the Company held 150 obligations of states and political subdivision securities of which one was in a loss position for less than 12 months and none were in a loss position or had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2016. U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations At June 30, 2016, the Company held 172 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations of which 20 were in a loss position for less than 12 months and 14 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2016. Private Label Residential Mortgage Backed Securities At June 30, 2016, the Company had a total of 17 PLRMBS with a remaining principal balance of $2,078,000 and a net unrealized gain of approximately $1,076,000. None of these securities was recorded with an unrealized loss at June 30, 2016. 12 of these PLRMBS with a remaining principal balance of $1,875,000 had credit ratings below investment grade. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary. Other Equity Securities At June 30, 2016, the Company had one mutual fund equity investment which had an unrealized gain at June 30, 2016. The following tables provide a roll forward for the six month periods ended June 30, 2016 and 2015 of investment securities credit losses recorded in earnings. The beginning balance represents the credit loss component for which OTTI occurred on debt securities in prior periods. Additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred on securities for which OTTI credit losses have been previously recognized.
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
(In thousands) |  | 2016 |  | 2015 |  | 2016 |  | 2015
Beginning balance |  | $ | 883 |  |  | $ | 747 |  |  | $ | 747 |  |  | $ | 747 |
Amounts related to credit loss for which an OTTI charge was not previously recognized |  | — |  |  | — |  |  | 136 |  |  | — |
Increases to the amount related to credit loss for which OTTI was previously recognized |  | — |  |  | — |  |  | — |  |  | — |
Realized gain for securities sold |  | (9 | ) |  | — |  |  | (9 | ) |  | — |
Ending balance |  | $ | 874 |  |  | $ | 747 |  |  | $ | 874 |  |  | $ | 747 |
The amortized cost and estimated fair value of available-for-sale investment securities at June 30, 2016 by contractual maturity is shown below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
|  | June 30, 2016
Available-for-Sale Securities |  | Amortized Cost |  | Estimated Fair Value
Within one year |  | $ | — |  |  | $ | — |
After one year through five years |  | 13,636 |  |  | 14,272 |
After five years through ten years |  | 35,938 |  |  | 38,458 |
After ten years |  | 162,989 |  |  | 177,605 |
|  | 212,563 |  |  | 230,335 |
Investment securities not due at a single maturity date: |  |  |  |  |  |
U.S. Government agencies |  | 57,408 |  |  | 57,841 |
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations |  | 208,082 |  |  | 211,367 |
Private label residential mortgage backed securities |  | 2,078 |  |  | 3,154 |
Other equity securities |  | 7,500 |  |  | 7,704 |
Total available-for-sale |  | $ | 487,631 |  |  | $ | 510,401 |

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -Glossary Debt Security -URI http://asc.fasb.org/extlink&oid=6509901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27290-111563 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6379141&loc=d3e15032-111544 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27232-111563 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -Glossary Equity Security -URI http://asc.fasb.org/extlink&oid=6511694 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62557-112803 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27161-111563 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27357-111563 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27405-111563 + Details
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