Quarterly report pursuant to Section 13 or 15(d)

SECURITIES

v3.8.0.1
SECURITIES
 9 Months Ended
Sep. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
SECURITIES
SECURITIES 

Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):
 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
September 30, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
285,921

 
$
7,582

 
$
(1,304
)
 
$
292,199

Corporate bonds
114,997

 
1,241

 
(816
)
 
115,422

Mortgage-backed securities
546,038

 
4,119

 
(3,253
)
 
546,904

Other securities
13,890

 
—

 
(54
)
 
13,836

Total available for sale securities
$
960,846

 
$
12,942

 
$
(5,427
)
 
$
968,361

 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
274,007

 
$
4,962

 
$
(3,079
)
 
$
275,890

Corporate bonds
123,674

 
892

 
(2,786
)
 
121,780

Mortgage-backed securities
536,031

 
4,626

 
(5,371
)
 
535,286

Other securities
13,885

 
—

 
(77
)
 
13,808

Total available for sale securities
$
947,597

 
$
10,480

 
$
(11,313
)
 
$
946,764


 
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s available for sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
55,319

 
$
(700
)
 
$
9,338

 
$
(604
)
 
$
64,657

 
$
(1,304
)
Mortgage-backed securities
283,466

 
(2,708
)
 
42,481

 
(545
)
 
325,947

 
(3,253
)
Corporate bonds and other securities
21,128

 
(353
)
 
32,674

 
(517
)
 
53,802

 
(870
)
Total available for sale securities
$
359,913

 
$
(3,761
)
 
$
84,493

 
$
(1,666
)
 
$
444,406

 
$
(5,427
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
108,440

 
$
(3,007
)
 
$
588

 
$
(72
)
 
$
109,028

 
$
(3,079
)
Mortgage-backed securities
316,469

 
(4,979
)
 
42,096

 
(392
)
 
358,565

 
(5,371
)
Corporate bonds and other securities
47,388

 
(1,537
)
 
40,468

 
(1,326
)
 
87,856

 
(2,863
)
Total available for sale securities
$
472,297

 
$
(9,523
)
 
$
83,152

 
$
(1,790
)
 
$
555,449

 
$
(11,313
)

 
As of September 30, 2017, there were $84.5 million, or 36 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.7 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2016, there were $83.2 million, or 30 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. The Company has determined that these securities are temporarily impaired as of September 30, 2017 and December 31, 2016 for the reasons set out below:
 
Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
 
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
The following table presents the amortized cost and estimated fair value of available for sale securities as of September 30, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
September 30, 2017
 
December 31, 2016
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
23,387

 
$
23,510

 
$
21,403

 
$
21,517

Due after one year through five years
128,261

 
130,107

 
108,198

 
109,778

Due after five years through ten years
267,492

 
271,830

 
300,552

 
301,888

Due after ten years
541,706

 
542,914

 
517,444

 
513,581

Total securities available for sale
$
960,846

 
$
968,361

 
$
947,597

 
$
946,764


 

For information regarding the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 2017 and December 31, 2016, see Note 6 “Commitments and Contingencies.”

Held to Maturity
The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
 
The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of September 30, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):
 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value (1)
 
Gains
 
(Losses)
 
Fair Value
September 30, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
204,801

 
$
5,111

 
$
(77
)
 
$
209,835

 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
201,526

 
$
1,617

 
$
(828
)
 
$
202,315

 
(1) The carrying value includes $4.0 million as of September 30, 2017 and $5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
5,130

 
$
(53
)
 
$
638

 
$
(24
)
 
$
5,768

 
$
(77
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
92,841

 
$
(747
)
 
$
648

 
$
(81
)
 
$
93,489

 
$
(828
)

 
As of September 30, 2017, there was $638,000, or one issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months and had an unrealized loss of $24,000. As of December 31, 2016, there was $648,000, or one issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months and had an unrealized loss of $81,000. This security is a municipal bond with minimal credit exposure and is credit enhanced with a guarantee from the local school board. For this reason, the Company has determined that this security in a loss position is temporarily impaired as of September 30, 2017 and December 31, 2016. Because the Company does not intend to sell this investment and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the investment before recovery of its amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of held to maturity securities as of September 30, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
September 30, 2017
 
December 31, 2016
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value (1)
 
Estimated
Fair Value
Due in one year or less
$
5,879

 
$
5,902

 
$
4,403

 
$
4,440

Due after one year through five years
41,196

 
41,959

 
28,383

 
28,763

Due after five years through ten years
65,893

 
67,444

 
51,730

 
51,522

Due after ten years
91,833

 
94,530

 
117,010

 
117,590

Total securities held to maturity
$
204,801

 
$
209,835

 
$
201,526

 
$
202,315

 
(1) The carrying value includes $4.0 million as of September 30, 2017 and $5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
For information regarding the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of September 30, 2017 and December 31, 2016, see Note 6 “Commitments and Contingencies.”
 
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At September 30, 2017 and December 31, 2016, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both September 30, 2017 and December 31, 2016. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $27.6 million and $23.8 million for September 30, 2017 and December 31, 2016 and FHLB stock in the amount of $40.9 million and $37.0 million as of September 30, 2017 and December 31, 2016, respectively.
 
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three and nine months ended September 30, 2017, and in accordance with the guidance, no OTTI was recognized.

For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000.  During the quarter ended March 31, 2016, the municipal security was sold.  As a result, the Company recognized an additional loss on sale of the previously written down security.
 
Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 2017 and 2016 (dollars in thousands).
 
 
Three Months Ended
September 30, 2017
 
Nine Months Ended September 30, 2017
Realized gains (losses):
 

 
 

Gross realized gains
$
296

 
$
958

Gross realized losses
(112
)
 
(176
)
Net realized gains
$
184

 
$
782

 
 
 
 
Proceeds from sales of securities
$
39,284

 
$
91,911


 
Three Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2016
Realized gains (losses):
 

 
 

Gross realized gains
$
—

 
$
242

Gross realized losses
—

 
(97
)
Net realized gains
$
—

 
$
145

 
 
 
 
Proceeds from sales of securities
$
2,848

 
$
18,272