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Investments | 3 Months Ended
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Mar. 31, 2014
Investments [Abstract] |
Investments | Note 5 – Investments The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities. The amortized cost of debt securities classified as available-for-sale is adjusted for the amortization of premiums to the first call date, if applicable, or to maturity, and for the accretion of discounts to maturity, or, in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included in interest income from investments. Interest and dividends are included in interest income from investments. Gains and losses on the sale of securities are recorded using the specific identification method. The following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2014 and December 31, 2013:
(in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | OTTI in AOCI
March 31, 2014 |  |  |  |  |  |  |  |  |  |
Available for Sale: |  |  |  |  |  |  |  |  |  |
U.S. Treasuries | $ | 23,500 | $ | 0 | $ | 0* | $ | 23,500 | $ | 0
U.S. government agencies |  | 89,761 |  | 84 |  | 3,880 |  | 85,965 |  | 0
Residential mortgage-backed agencies |  | 113,815 |  | 347 |  | 3,710 |  | 110,452 |  | 0
Commercial mortgage-backed agencies |  | 39,296 |  | 63 |  | 1,021 |  | 38,338 |  | 0
Collateralized mortgage obligations |  | 29,498 |  | 75 |  | 573 |  | 29,000 |  | 0
Obligations of states and political subdivisions |  | 50,629 |  | 1,177 |  | 689 |  | 51,117 |  | 0
Collateralized debt obligations |  | 37,249 |  | 975 |  | 15,131 |  | 23,093 |  | 8,314
Total available for sale | $ | 383,748 | $ | 2,721 | $ | 25,004 | $ | 361,465 | $ | 8,314
* DeMinimus |  |  |  |  |  |  |  |  |  |
Held to Maturity: |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 2,860 | $ | 0 | $ | 416 | $ | 2,444 | $ | 0
December 31, 2013 |  |  |  |  |  |  |  |  |  |
Available for Sale: |  |  |  |  |  |  |  |  |  |
U.S. government agencies | $ | 97,242 | $ | 14 | $ | 5,221 | $ | 92,035 | $ | 0
Residential mortgage-backed agencies |  | 116,933 |  | 334 |  | 4,823 |  | 112,444 |  | 0
Commercial mortgage-backed agencies |  | 31,025 |  | 14 |  | 1,134 |  | 29,905 |  | 0
Collateralized mortgage obligations |  | 30,468 |  | 84 |  | 1,162 |  | 29,390 |  | 0
Obligations of states and political subdivisions |  | 55,505 |  | 895 |  | 1,123 |  | 55,277 |  | 0
Collateralized debt obligations |  | 37,146 |  | 778 |  | 20,386 |  | 17,538 |  | 12,703
Total available for sale | $ | 368,319 | $ | 2,119 | $ | 33,849 | $ | 336,589 | $ | 12,703
Held to Maturity: |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 3,900 | $ | 249 | $ | 559 | $ | 3,590 | $ | 0
Proceeds from sales of securities and the realized gains and losses are as follows:
| Three Months Ended
| March 31,
(in thousands) | 2014 | 2013
Proceeds | $ | 8,585 | $ | 35,136
Realized gains |  | 95 |  | 412
Realized losses |  | 163 |  | 162
The following table shows the Corporation’s securities with gross unrealized los ses and fair values at March 31, 2014 and December 31, 2013, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:
| Less than 12 months | 12 months or more
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
March 31, 2014 |  |  |  |  |  |  |  |
Available for Sale: |  |  |  |  |  |  |  |
U.S. Treasuries | $ | 12,000 | $ | 0* | $ | 0 | $ | 0
U.S. government agencies |  | 34,814 |  | 1,223 |  | 21,417 |  | 2,657
Residential mortgage-backed agencies |  | 22,928 |  | 937 |  | 52,347 |  | 2,773
Commercial mortgage-backed agencies |  | 25,570 |  | 634 |  | 4,732 |  | 387
Collateralized mortgage obligations |  | 20,448 |  | 573 |  | 0 |  | 0
Obligations of states and political subdivisions |  | 10,877 |  | 447 |  | 1,761 |  | 242
Collateralized debt obligations |  | 0 |  | 0 |  | 18,029 |  | 15,131
Total available for sale | $ | 126,637 | $ | 3,814 | $ | 98,286 | $ | 21,190
* DeMinimus |  |  |  |  |  |  |  |
Held to Maturity: |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 0 | $ | 0 | $ | 2,444 | $ | 416
December 31, 2013 |  |  |  |  |  |  |  |
Available for Sale: |  |  |  |  |  |  |  |
U.S. government agencies | $ | 62,962 | $ | 3,154 | $ | 13,996 | $ | 2,067
Residential mortgage-backed agencies |  | 60,781 |  | 1,801 |  | 46,570 |  | 3,022
Commercial mortgage-backed agencies |  | 21,889 |  | 1,134 |  | 0 |  | 0
Collateralized mortgage obligations |  | 21,201 |  | 1,149 |  | 3,051 |  | 13
Obligations of states and political subdivisions |  | 15,422 |  | 1,123 |  | 0 |  | 0
Collateralized debt obligations |  | 0 |  | 0 |  | 16,434 |  | 20,386
Total available for sale | $ | 182,255 | $ | 8,361 | $ | 80,051 | $ | 25,488
Held to Maturity: |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | 0 | $ | 0 | $ | 2,301 | $ | 559
Management systematically evaluates securities for impairment on a quarterly basis. Management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components. The first component is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating other-than-temporary impairment (“OTTI”) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35). Further discussion about the evaluation of securities for impairment can be found in Item 2 of Part I of this report under the heading “Investment Securities”. Management believes that the valuation of certain securities is a critical accounting policy that requires significant estimates in preparation of its consolidated financial statements. Management utilizes an independent third party to prepare both the impairment valuations and fair value determinations for its collateralized debt obligation (“CDO”) portfolio consisting of pooled trust preferred securities. Based on management’s review of the assumptions and results of the third-party review, it does not believe that there were any material differences in the valuations between December 31, 2013 and March 31, 2014. U.S. Government Treasuries - One U.S. government treasury has been in an unrealized loss position for less than 12 months as of March 31, 201 4. There were no U.S. government treasuries in an unrealized loss position for 12 months or more. U.S. Government Agencies - Six U.S. government agencies have been in an unrealized loss position for less than 12 months as of March 31, 2014. There were three U.S. government agencies in an unrealized loss position for 12 months or more. The securities are of the highest investment grade and the Corporation does not intend to sell them, and it is not more likely than not that the Corporation will be required to sell them before recovery of their amortized cost basis, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2014. Residential Mortgage-Backed Agencies - Ten residential mortgage-backed agencies have been in an unrealized loss position for less than 12 months as of March 31, 2014. There were eight residential mortgage-backed agency securities in an unrealized loss position for 12 months or more. The securities are of the highest investment grade and the Corporation does not intend to sell them, and it is not more likely than not that the Corporation will be required to sell the securities before recovery of their amortized cost basis, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2014. Commercial Mortgage-Backed Agencies - Eleven commercial mortgage-backed agencies have been in an unrealized loss position for less than 12 months as of March 31, 2014. There was one commercial mortgage-backed agency security in an unrealized loss position for 12 months or more. The securities are of the highest investment grade and the Corporation does not intend to sell them, and it is not more likely than not that the Corporation will be required to sell the securities before recovery of their amortized cost basis, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2014. Collateralized Mortgage Obligations - Three collateralized mortgage obligation securities at March 31, 2014 were in an unrealized loss position for 12 months or less. The securities are of the highest investment grade and the Corporation does not intend to sell them, and it is not more likely than not that the Corporation will be required to sell the securities before recovery of their amortized cost basis. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2014. There were no collateralized mortgage obligation securities in an unrealized loss position for 12 months or more. Obligations of State and Political Subdivisions - Five securities have been in an unrealized loss position for less than 12 months at March 31, 2014. There were two securities that have been in an unrealized loss position for 12 months or more. These investments are of investment grade as determined by the major rating agencies and management reviews the ratings of the underlying issuers. The bonds continue to perform according to their contractual terms. The Corporation does not intend to sell these investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2014. Collateralized Debt Obligations - The $15.1 million in unrealized losses greater than 12 months at March 31, 2014 relates to 14 pooled trust preferred securities that are included in the CDO portfolio. See Note 9 for a discussion of the methodology used by management to determine the fair values of these securities. Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were no securities that had credit-related non-cash OTTI charges during the first three months of 2014. The unrealized losses on the remaining securities in the portfolio are primarily attributable to continued depression in market interest rates, marketability, liquidity and the current economic environment. The following table present s a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses which have been recognized in earnings for the trust preferred securities in the CDO portfolio held and not intended to be sold for the three months ended March 31, 2014 and 2013:
| Three Months Ended March 31,
(in thousands) | 2014 | 2013
Balance of credit-related OTTI at January 1 | $ | 13,422 | $ | 13,959
Reduction for increases in cash flows expected to be collected |  | (160) |  | (125)
Balance of credit-related OTTI at March 31 | $ | 13,262 | $ | 13,834
The amortized cost and estimated fair value of securities by c ontractual maturity at March 31, 2014 are shown in the following table. Actual maturities may 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.
| March 31, 2014
(in thousands) | Amortized Cost | Fair Value
Contractual Maturity |  |  |  |
Available for sale: |  |  |  |
Due in one year or less | $ | 23,500 | $ | 23,500
Due after one year through five years |  | 30,407 |  | 30,188
Due after five years through ten years |  | 67,845 |  | 67,107
Due after ten years |  | 79,387 |  | 62,880
|  | 201,139 |  | 183,675
Residential mortgage-backed agencies |  | 113,815 |  | 110,452
Commercial mortgage-backed agencies |  | 39,296 |  | 38,338
Collateralized mortgage obligations |  | 29,498 |  | 29,000
| $ | 383,748 | $ | 361,465
Held to Maturity: |  |  |  |
Due after ten years | $ | 2,860 | $ | 2,444

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