Quarterly report pursuant to Section 13 or 15(d)

SECURITIES

v3.5.0.2
SECURITIES
 6 Months Ended
Jun. 30, 2016
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 June 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
June 30, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
258,968

 
$
13,848

 
$
(30
)
 
$
272,786

Corporate bonds
109,757

 
506

 
(1,684
)
 
108,579

Mortgage-backed securities
545,428

 
10,165

 
(629
)
 
554,964

Other securities
13,285

 
49

 
—

 
13,334

Total available for sale securities
$
927,438

 
$
24,568

 
$
(2,343
)
 
$
949,663

 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
257,740

 
$
10,479

 
$
(140
)
 
$
268,079

Corporate bonds
77,628

 
55

 
(1,704
)
 
75,979

Mortgage-backed securities
544,823

 
6,127

 
(2,779
)
 
548,171

Other securities
11,085

 
—

 
(22
)
 
11,063

Total available for sale securities
$
891,276

 
$
16,661

 
$
(4,645
)
 
$
903,292


 
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s available for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of June 30, 2016 and December 31, 2015. 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
June 30, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
—

 
$
—

 
$
631

 
$
(30
)
 
$
631

 
$
(30
)
Mortgage-backed securities
67,843

 
(266
)
 
42,840

 
(363
)
 
110,683

 
(629
)
Corporate bonds and other securities
11,242

 
(331
)
 
36,250

 
(1,353
)
 
47,492

 
(1,684
)
Total available for sale
$
79,085

 
$
(597
)
 
$
79,721

 
$
(1,746
)
 
$
158,806

 
$
(2,343
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
8,114

 
$
(70
)
 
$
4,950

 
$
(70
)
 
$
13,064

 
$
(140
)
Mortgage-backed securities
287,113

 
(2,442
)
 
21,660

 
(337
)
 
308,773

 
(2,779
)
Corporate bonds and other securities
36,157

 
(751
)
 
19,558

 
(975
)
 
55,715

 
(1,726
)
Total available for sale
$
331,384

 
$
(3,263
)
 
$
46,168

 
$
(1,382
)
 
$
377,552

 
$
(4,645
)

 
As of June 30, 2016, there were $79.7 million, or 21 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, 2015, there were $46.2 million, or 20 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired as of June 30, 2016 and December 31, 2015 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 economic downturn 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 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 June 30, 2016 and December 31, 2015, 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.
 
 
June 30, 2016
 
December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
11,376

 
$
11,512

 
$
8,380

 
$
8,370

Due after one year through five years
101,658

 
104,839

 
65,326

 
66,996

Due after five years through ten years
318,124

 
326,477

 
296,864

 
301,920

Due after ten years
496,280

 
506,835

 
520,706

 
526,006

Total securities available for sale
$
927,438

 
$
949,663

 
$
891,276

 
$
903,292


 
The following table presents 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 June 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
June 30, 2016
 
December 31, 2015
Public deposits
$
183,813

 
$
184,635

Repurchase agreements
122,562

 
126,120

Other purposes (1)
23,540

 
26,546

Total pledged securities
$
329,915

 
$
337,301

 
(1) The "Other purposes" category consists of borrowings, derivatives, and accounts held at the Bank.
 
Held to Maturity
During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The Company transferred these securities to held to maturity to reduce the impact of price volatility on capital and in consideration of changes to the regulatory environment. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer with a remaining balance of $5.9 million as of June 30, 2016.
 
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/(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 June 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value
 
Gains
 
(Losses)
 
Fair Value
June 30, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions (1)
$
202,917

 
$
9,153

 
$
(121
)
 
$
211,949

 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
205,374

 
$
5,748

 
$
(1,685
)
 
$
209,437

 
(1) The carrying value includes $5.9 million 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 (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 June 30, 2016 and December 31, 2015. 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
June 30, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
—

 
$
—

 
$
1,148

 
$
(121
)
 
$
1,148

 
$
(121
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
7,056

 
$
(1,685
)
 
$
—

 
$
—

 
$
7,056

 
$
(1,685
)

 
As of June 30, 2016, there were $1.1 million, or 2 issues, of individual held to maturity securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $121,000 and consisted of municipal obligations. The Company has determined that these securities are temporarily impaired as of June 30, 2016 and December 31, 2015 for the reasons set out below:

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 economic downturn 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.

The following table presents the amortized cost and estimated fair value of held to maturity securities as of June 30, 2016 and December 31, 2015, 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.
 
 
June 30, 2016
 
December 31, 2015
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Due in one year or less
$
857

 
$
857

 
$
1,488

 
$
1,491

Due after one year through five years
18,122

 
18,564

 
4,294

 
4,348

Due after five years through ten years
45,802

 
47,469

 
44,736

 
45,501

Due after ten years
138,136

 
145,059

 
154,856

 
158,097

Total securities held to maturity
$
202,917

 
$
211,949

 
$
205,374

 
$
209,437

 
(1) The carrying value includes $5.9 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
The following table presents the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of June 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
June 30, 2016
 
December 31, 2015
Public deposits
$
211,949

 
$
207,140

Total pledged securities
$
211,949

 
$
207,140


 
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 June 30, 2016 and December 31, 2015, 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 June 30, 2016 and December 31, 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both June 30, 2016 and December 31, 2015 and FHLB stock in the amount of $38.4 million and $28.0 million as of June 30, 2016 and December 31, 2015, 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 quarter ended June 30, 2016, 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 the sale of securities available for sale and the proceeds from the sale of securities during the three and six months ended June 30, 2016 and 2015 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.
 
 
Three Months Ended
June 30, 2016
 
Six Months Ended
June 30, 2016
Realized gains (losses):
 

 
 

Gross realized gains
$
3

 
$
242

Gross realized losses
—

 
(96
)
Net realized gains
$
3

 
$
146

 
 
 
 
Proceeds from sales of securities
$
892

 
$
15,424



 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
Realized gains (losses):
 

 
 

Gross realized gains
$
491

 
$
684

Gross realized losses
(87
)
 
(87
)
Net realized gains
$
404

 
$
597

 
 
 
 
Proceeds from sales of securities
$
45,658

 
$
58,157