Annual report pursuant to Section 13 and 15(d)

SECURITIES

v3.8.0.1
SECURITIES
 12 Months Ended
Dec. 31, 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 December 31, 2017 and 2016 are summarized as follows (dollars in thousands): 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
December 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
295,546

 
$
6,842

 
$
(564
)
 
$
301,824

Corporate bonds
113,625

 
1,131

 
(876
)
 
113,880

Mortgage-backed securities
552,431

 
2,596

 
(6,169
)
 
548,858

Other securities
9,737

 
—

 
(77
)
 
9,660

Total available for sale securities
$
971,339

 
$
10,569

 
$
(7,686
)
 
$
974,222

 
 
 
 
 
 
 
 
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 December 31, 2017 and 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
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
25,790

 
$
(132
)
 
$
16,934

 
$
(432
)
 
$
42,724

 
$
(564
)
Mortgage-backed securities
298,439

 
(3,267
)
 
136,298

 
(2,902
)
 
434,737

 
(6,169
)
Corporate bonds and other securities
10,976

 
(99
)
 
44,408

 
(854
)
 
55,384

 
(953
)
Total available for sale
$
335,205

 
$
(3,498
)
 
$
197,640

 
$
(4,188
)
 
$
532,845

 
$
(7,686
)
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
$
472,297

 
$
(9,523
)
 
$
83,152

 
$
(1,790
)
 
$
555,449

 
$
(11,313
)

 
As of December 31, 2017, there were $197.6 million, or 71 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 $4.2 million and consisted of municipal obligations, mortgage-backed securities, and other securities. 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, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired at December 31, 2017 and 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 AFS securities as of December 31, 2017 and 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.
 
December 31, 2017
 
December 31, 2016
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
25,179

 
$
25,326

 
$
21,403

 
$
21,517

Due after one year through five years
145,276

 
145,980

 
108,198

 
109,778

Due after five years through ten years
223,210

 
226,251

 
300,552

 
301,888

Due after ten years
577,674

 
576,665

 
517,444

 
513,581

Total securities available for sale
$
971,339

 
$
974,222

 
$
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 December 31, 2017 and 2016, see Note 9 "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 December 31, 2017 and 2016 are summarized as follows (dollars in thousands): 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value (1)
 
Gains
 
(Losses)
 
Fair Value
December 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
199,639

 
$
4,014

 
$
(170
)
 
$
203,483

December 31, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
201,526

 
$
1,617

 
$
(828
)
 
$
202,315


(1) The carrying value includes $3.6 million and $5.2 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion, as of December 31, 2017 and 2016, respectively.

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 December 31, 2017 and 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
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
18,896

 
$
(139
)
 
$
1,084

 
$
(31
)
 
$
19,980

 
$
(170
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
92,841

 
$
(747
)
 
$
648

 
$
(81
)
 
$
93,489

 
$
(828
)

 
As of December 31, 2017, there was $1.1 million, or two issues, of individual held to maturity securities that had been in a continuous loss position for more than 12 months and had an unrealized loss of $31,000. 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. Both of the securities in a continuous loss position for more than 12 months at December 31, 2017 are municipal bonds with minimal credit exposure; one is credit enhanced with a guarantee from the local school board. For this reason, the Company has determined that these securities in a loss position are temporarily impaired as of December 31, 2017 and 2016. Because the Company does not intend to sell these 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 held to maturity securities as of December 31, 2017 and 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. 
 
December 31, 2017
 
December 31, 2016
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value (1)
 
Estimated
Fair Value
Due in one year or less
$
3,221

 
$
3,230

 
$
4,403

 
$
4,440

Due after one year through five years
44,289

 
44,601

 
28,383

 
28,763

Due after five years through ten years
79,114

 
80,532

 
51,730

 
51,522

Due after ten years
73,015

 
75,120

 
117,010

 
117,590

Total securities held to maturity
$
199,639

 
$
203,483

 
$
201,526

 
$
202,315

 (1) The carrying value includes $3.6 million and $5.2 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion, as of December 31, 2017 and 2016, respectively.

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 December 31, 2017 and 2016, see Note 9 "Commitments and Contingencies."
  
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and the 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 both December 31, 2017 and 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 December 31, 2017 and 2016. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $27.6 million and $23.8 million for December 31, 2017 and 2016 and FHLB stock in the amount of $47.7 million and $37.0 million as of December 31, 2017 and 2016, respectively.
 
Other-Than-Temporary Impairment
During each quarter and at year end 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 assessments during the year ended December 31, 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 first quarter of 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 years ended December 31, 2017, 2016, and 2015 (dollars in thousands).
 
 
2017
 
2016
 
2015
Realized gains (losses):
 

 
 

 
 

Gross realized gains
$
1,170

 
$
302

 
$
1,597

Gross realized losses
(370
)
 
(97
)
 
(111
)
Net realized gains
$
800

 
$
205

 
$
1,486

Proceeds from sales of securities
$
139,046

 
$
69,516

 
$
101,154