Investment Securities

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 5. Investment Securities

The Corporation’s investment securities are classified as available-for-sale and held-to-maturity at June 30, 2014 and December 31, 2013. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 8 of the Notes to Consolidated Financial Statements for a further discussion.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

The following tables present information related to the Corporation’s investment securities at June 30, 2014 and December 31, 2013.

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	9,608	$	—	$	(136	)	$	9,472
Federal agency obligations		22,643		116		(111	)		22,648
Residential mortgage pass-through securities		44,369		1,563		(13	)		45,919
Commercial mortgage pass-through securities		3,072		—		(51	)		3,021
Obligations of U.S. states and political subdivisions		6,303		200		—			6,503
Trust preferred securities		16,085		490		(239	)		16,336
Corporate bonds and notes		132,401		6,969		(43	)		139,327
Asset-backed securities		15,010		166		—			15,176
Certificates of deposit		2,099		38		(5	)		2,132
Equity securities		376		—		(83	)		293
Mutual funds and money market funds		6,232		—		(100	)		6,132
Total	$	258,198	$	9,542	$	(781	)	$	266,959
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	28,159	$	257	$	—		$	28,416
Federal agency obligations		22,039		166		(19	)		22,186
Residential mortgage pass-through securities		2,049		14		—			2,063
Commercial mortgage pass-through securities		4,341		77		(18	)		4,400
Obligations of U.S. states and political subdivisions		123,646		3,327		(410	)		126,563
Corporate bonds and notes		37,925		950		—			38,875
Total	$	218,159	$	4,791	$	(447	)	$	222,503
Total investment securities	$	476,357	$	14,333	$	(1,228	)	$	489,462

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	14,344	$	—	$	(825	)	$	13,519
Federal agency obligations		20,567		29		(655	)		19,941
Residential mortgage pass-through securities		48,312		791		(229	)		48,874
Commercial mortgage pass-through securities		7,145		3		(157	)		6,991
Obligations of U.S. states and political subdivisions		30,804		711		(55	)		31,460
Trust preferred securities		19,763		150		(510	)		19,403
Corporate bonds and notes		154,182		4,930		(482	)		158,630
Asset-backed securities		15,733		246		—			15,979
Certificates of deposit		2,250		32		(20	)		2,262
Equity securities		376		—		(89	)		287
Mutual funds and money market funds		5,671		68		(15	)		5,724
Total	$	319,147	$	6,960	$	(3,037	)	$	323,070
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	28,056	$	—	$	(1,019	)	$	27,037
Federal agency obligations		15,249		23		(389	)		14,883
Residential mortgage-backed securities		2,246		—		(64	)		2,182
Commercial mortgage-backed securities		4,417		41		(62	)		4,396
Obligations of U.S. states and political subdivisions		127,418		1,303		(3,688	)		125,033
Corporate bonds and notes		37,900		149		(622	)		37,427
Total	$	215,286	$	1,516	$	(5,844	)	$	210,958
Total investment securities	$	534,433	$	8,476	$	(8,881	)	$	534,028

The following table presents information for investment securities available-for-sale at June 30, 2014, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	June 30, 2014
	Amortized Cost		Fair Value
	(in thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	9,384	$	9,499
Due after one year through five years		45,331		46,591
Due after five years through ten years		112,083		117,869
Due after ten years		37,351		37,635
Residential mortgage pass-through securities		44,369		45,919
Commercial mortgage pass-through securities		3,072		3,021
Equity securities		376		293
Mutual funds and money market funds		6,232		6,132
Total	$	258,198	$	266,959
Investment Securities Held-to-Maturity:
Due in one year or less	$	2,052	$	2,054
Due after one year through five years		12,932		13,203
Due after five years through ten years		68,506		69,838
Due after ten years		128,279		130,945
Residential mortgage-backed securities		2,049		2,063
Commercial mortgage pass-through securities		4,341		4,400
Total	$	218,159	$	222,503
Total investment securities	$	476,357	$	489,462

For the six months ended June 30, 2014, proceeds of available-for-sale investment securities sold amounted to approximately $66.7 million.

Gross gains and losses from the sales of investment securities for the three-month and six-month periods ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2014		2013		2014		2013
Gross gains on sales of investment securities	$	579	$	600	$	2,011	$	1,032
Gross losses on sales of investment securities		5		—		22		89
Net gains on sales of investment securities	$	574	$	600	$	1,989	$	943

The following summarizes OTTI charges for the periods indicated.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2014		2013		2014		2013
Other than temporary impairment charges	$	—	$	—	$	—	$	—
Principal losses on a variable rate CMO		—		—		—		24
Total other-than-temporary impairment charges	$	—	$	—	$	—	$	24

The Corporation performs regular analysis on all its investment securities to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record OTTI charges through earnings if they have the intent to sell, or if it is more likely than not that they will be required to sell an impaired debt security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Corporation does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

The Corporation’s assessment of whether an impairment is other than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced a restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed a deteriorating financial condition or sustained significant losses. The Corporation maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could result from credit rating downgrades.

The following table presents detailed information for each trust preferred security held by the Corporation at June 30, 2014 which has at least one rating below investment grade.

Deal Name	Single Issuer or Pooled	Class/ Tranche		Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)			Lowest Credit Rating Assigned	Number of Banks Currently Performing		Deferrals and Defaults as % of Original Collateral	Expected Deferral/Defaults as % of Remaining Performing Collateral
	(dollars in thousands)
Countrywide Capital IV	Single		n/a	$	1,771	$	1,819	$	48		BB+		1	None	None
Countrywide Capital V	Single		n/a		2,747		2,858		111		BB+		1	None	None
Countrywide Capital V	Single		n/a		250		260		10		BB+		1	None	None
Nationsbank Cap Trust III	Single		n/a		1,574		1,335		(239	)	BB+		1	None	None
Morgan Stanley Cap Trust IV	Single		n/a		2,500		2,515		15		BB+		1	None	None
Morgan Stanley Cap Trust IV	Single		n/a		1,743		1,759		16		BB+		1	None	None
Goldman Sachs	Single		n/a		1,000		1,139		139		BB+		1	None	None
Stifel Financial	Single		n/a		4,500		4,651		151		BBB-		1	None	None
Total				$	16,085	$	16,336	$	251

Credit Loss Portion of OTTI Recognized in Earnings on Debt Securities

	Six Months Ended June 30, 2014		Year Ended December 31, 2013
	(in thousands)
Balance of credit-related OTTI at January 1,	$	—	$	4,450
Addition:
Credit losses on investment securities for which other-than-temporary impairment was not previously recognized		—		652
Reduction:
Credit losses on investment securities sold during the period		—		(5,102	)
Balance of credit-related OTTI at period end	$	—	$	—

Temporarily Impaired Investments

For all securities, the Corporation does not believe that the unrealized losses, which were comprised of 81 investment securities as of June 30, 2014, represent an other-than-temporary impairment. The gross unrealized losses of $1.2 million associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, mutual funds and equity securities are not considered to be other than temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Corporation’s investment in any one issuer or industry. The Corporation has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Corporation believes the investment portfolio is prudently diversified.

The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.

The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the corporate debt securities category consists primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers and single issuer corporate trust preferred securities. None of the corporate issuers have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014. Future deterioration in the credit quality of these large financial institution issuers of TRUP debt securities could result in impairment charges in the future.

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporary, the Corporation evaluated the factors cited above, which the Corporation considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Corporation must exercise considerable judgment. Accordingly there can be no assurance that the actual results will not differ from the Corporation’s judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Corporation’s financial position and results of operations. In addition, the value of, and the realization of any loss on an investment security are subject to numerous risks as cited above.

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2014 and December 31, 2013:

	June 30, 2014
	Total					Less than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	9,472	$	(136	)	$	—	$	—		$	9,472	$	(136	)
Federal agency obligations		8,093		(111	)		3,949		(37	)		4,144		(74	)
Residential mortgage pass-through securities		3,698		(13	)		448		(1	)		3,250		(12	)
Commercial mortgage pass-through securities		3,021		(51	)		—		—			3,021		(51	)
Trust preferred securities		1,335		(239	)		—		—			1,335		(239	)
Corporate bonds and notes		7,410		(43	)		5,445		(25	)		1,965		(18	)
Certificates of deposit		217		(5	)		217		(5	)		—		—
Equity securities		294		(83	)		—		—			294		(83	)
Mutual funds and money market funds		5,401		(100	)		4,413		(89	)		988		(11	)
Total		38,941		(781	)		14,472		(157	)		24,469		(624	)
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	—	$	—		$	—	$	—		$	—	$	—
Federal agency obligations		1,757		(19	)		1,757		(19	)		—		—
Residential mortgage pass-through securities		—		—			—		—			—		—
Commercial mortgage pass-through securities		1,409		(18	)		—		—			1,409		(18	)
Obligations of U.S. states and political subdivisions		33,586		(410	)		13,955		(48	)		19,631		(362	)
Total		36,752		(447	)		15,712		(67	)		21,040		(380	)
Total Temporarily Impaired Securities	$	75,693	$	(1,228	)	$	30,184	$	(224	)	$	45,509	$	(1,004	)

	December 31, 2013
	Total					Less than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	13,519	$	(825	)	$	13,519	$	(825	)	$	—	$	—
Federal agency obligation		17,200		(655	)		17,200		(655	)		—		—
Residential mortgage pass-through securities		18,293		(229	)		18,293		(229	)		—		—
Commercial mortgage pass-through securities		2,924		(157	)		2,924		(157	)		—		—
Obligations of U.S. states and political subdivisions		4,199		(55	)		4,199		(55	)		—		—
Trust preferred securities		5,306		(510	)		4,031		(211	)		1,275		(299	)
Corporate bonds and notes		32,498		(482	)		30,533		(448	)		1,965		(34	)
Certificates of deposit		552		(20	)		552		(20	)		—		—
Equity securities		287		(89	)		—		—			287		(89	)
Mutual funds and money market funds		985		(15	)		—		—			985		(15	)
Total		95,763		(3,037	)		91,251		(2,600	)		4,512		(437	)
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	27,037	$	(1,019	)	$	27,037	$	(1,019	)	$	—	$	—
Federal agency obligation		13,492		(389	)		13,197		(388	)		295		(1	)
Residential mortgage pass-through securities		2,182		(64	)		2,182		(64	)		—		—
Commercial mortgage pass-through securities		1,395		(62	)		1,395		(62	)		—		—
Obligations of U.S. states and political subdivisions		66,034		(3,688	)		57,072		(2,957	)		8,962		(731	)
Corporate bonds and notes		27,210		(622	)		27,210		(622	)		—		—
Total		137,350		(5,844	)		128,093		(5,112	)		9,257		(732	)
Total Temporarily Impaired Securities	$	233,113	$	(8,881	)	$	219,344	$	(7,712	)	$	13,769	$	(1,169	)

Investment securities having a carrying value of approximately $140.0 million and $109.3 million at June 30, 2014 and December 31, 2013, respectively, were pledged to secure public deposits, borrowings, and Federal Home Loan Bank advances and for other purposes required or permitted by law.