3.SECURITIES

 

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2014 and December 31, 2013 are summarized as follows (dollars in thousands):

 

 

 

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.  The FHLB requires the Bank to maintain stock in an amount equal to 4.5% of outstanding borrowings and a specific percentage of the Bank’s total assets.  The Federal Reserve Bank requires the Bank to maintain stock with a par value equal to 6% of its outstanding capital.  Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million and $6.7 million as of September 30, 2014 and December 31, 2013 and FHLB stock in the amount of $24.7 million and $19.3 million as of September 30, 2014 and December 31, 2013, respectively. 

The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired.  These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

 

 

 

As of September  30, 2014, there were $103.5 million, or 75 issues, of individual securities that had been in a continuous loss position for more than 12 months.  Additionally, these securities had an unrealized loss of $2.7 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities.  As of December 31, 2013, there were $34.9 million, or 23 issues, of individual securities that had been in a continuous loss position for more than 12 months.  Additionally, these securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities.

 

The following table presents the amortized cost and estimated fair value of securities as of September 30, 2014 and December 31, 2013, 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.

 

 

 

Securities with a carrying value of $371.1 million and $188.2 million as of September 30, 2014 and December 31, 2013, respectively, were pledged to secure public deposits, repurchase agreements, and for other purposes.

 

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 September  30, 2014, and in accordance with the guidance, no OTTI was recognized.

 

Based on the assessment for the quarter ended September 30, 2011 and in accordance with the guidance, the Company determined that a single issuer trust preferred security incurred credit-related OTTI of $400,000, which was recognized in earnings for the quarter ended September 30, 2011.  During the quarter ended June 30, 2014, the trust preferred security was called at a premium.  As a result, the Company recognized a gain on the call of the previously written down security of $400,000 in the second quarter of 2014.

 

OTTI recognized for the periods presented is summarized as follow (dollars in thousands):