Investment Securities

9 Months Ended

Sep. 30, 2015

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 Company’s investment securities are classified as available-for-sale and held-to-maturity at September 30, 2015 and December 31, 2014. 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 as of September 30, 2015. 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 Company’s investment securities at September 30, 2015 and December 31, 2014.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	September 30, 2015
	(in thousands)
Investment securities available-for-sale
Federal agency obligations	$	30,474	$	438	$	(7	)	$	30,905
Residential mortgage pass-through securities		46,943		1,162		(14	)		48,091
Commercial mortgage pass-through securities		2,996		59		—			3,055
Obligations of U.S. states and political subdivisions		8,191		191		—			8,382
Trust preferred securities		16,087		385		(150	)		16,322
Corporate bonds and notes		76,049		2,418		(81	)		78,386
Asset-backed securities		21,403		2		(275	)		21,130
Certificates of deposit		1,896		27		(3	)		1,920
Equity securities		376		—		(38	)		338
Other securities		15,715		67		(97	)		15,685
Total	$	220,130	$	4,749	$	(665	)	$	224,214
Investment securities held-to-maturity
U.S. Treasury and agency securities	$	28,419	$	1,328	$	—		$	29,747
Federal agency obligations		35,519		642		(47	)		36,114
Residential mortgage-backed securities		4,240		19		(1	)		4,258
Commercial mortgage-backed securities		4,150		97		—			4,247
Obligations of U.S. states and political subdivisions		118,877		4,470		(46	)		123,301
Corporate bonds and notes		36,016		888		(78	)		36,826
Total	$	227,221	$	7,444	$	(172	)	$	234,493
Total investment securities	$	447,351	$	12,193	$	(837	)	$	458,707

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	December 31, 2014
	(in thousands)
Investment securities available-for-sale
Federal agency obligations	$	32,650	$	217	$	(50	)	$	32,817
Residential mortgage pass-through securities		58,836		1,531		(11	)		60,356
Commercial mortgage pass-through securities		3,042		4		—			3,046
Obligations of U.S. states and political subdivisions		8,201		205		—			8,406
Trust preferred securities		16,086		489		(269	)		16,306
Corporate bonds and notes		119,838		5,950		(11	)		125,777
Asset-backed securities		27,393		140		(31	)		27,502
Certificates of deposit		2,098		27		(2	)		2,123
Equity securities		376		—		(69	)		307
Other securities		12,941		33		(82	)		12,892
Total	$	281,461	$	8,596	$	(525	)	$	289,532
Investment securities held-to-maturity
U.S. Treasury and agency securities	$	28,264	$	920	$	—		$	29,184
Federal agency obligations		27,103		322		(28	)		27,397
Residential mortgage-backed securities		5,955		28		—			5,983
Commercial mortgage-backed securities		4,266		50		—			4,316
Obligations of U.S. states and political subdivisions		120,144		4,512		(60	)		124,596
Corporate bonds and notes		38,950		1,026		(7	)		39,969
Total	$	224,682	$	6,858	$	(95	)	$	231,445
Total investment securities	$	506,143	$	15,454	$	(620	)	$	520,977

The following table presents information for investment securities at September 30, 2015, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	September 30, 2015
	Amortized Cost		Fair Value
	(in thousands)
Investment securities available-for-sale:
Due in one year or less	$	16,296	$	16,443
Due after one year through five years		30,271		31,401
Due after five years through ten years		55,740		56,953
Due after ten years		51,793		52,248
Residential mortgage pass-through securities		46,943		48,091
Commercial mortgage pass-through securities		2,996		3,055
Equity securities		376		338
Other securities		15,715		15,685
Total	$	220,130	$	224,214
Investment securities held-to-maturity:
Due in one year or less	$	—	$	—
Due after one year through five years		13,571		13,888
Due after five years through ten years		76,126		78,980
Due after ten years		129,134		133,120
Residential mortgage-backed securities		4,240		4,258
Commercial mortgage-backed securities		4,150		4,247
Total	$	227,221	$	234,493
Total investment securities	$	447,351	$	458,707

Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and nine-month periods ended September 30, 2015 and 2014 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Proceeds	$	32,125	$	2,303	$	44,397	$	66,738
Gross gains on sales of investment securities		2,067		111		2,793		2,122
Gross losses on sales of investment securities		—		—		—		(22	)
Net gains on sales of investment securities	$	2,067	$	111	$	2,793	$	2,100
Less: tax provision on net gains		794		42		1,091		601
Total	$	1,273	$	69	$	1,702	$	1,499

The Company performs regular analysis on the securities portfolio 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 other-than-temporary impairment (“OTTI”) charges, through earnings, if they have the intent to sell, or more likely than not will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Company 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, less any current period credit loss, 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 Company does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other than temporary, 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 Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.

The Company’s assessment of whether an impairment in the portfolio is other than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

The following table presents detailed information for each single issuer trust preferred security held by the Company at September 30, 2015, of which all but one has at least one rating below investment grade (in thousands):

								Lowest
					Gross			Credit
	Amortized		Fair		Unrealized			Rating
Issuer	Cost		Value		Gain (Loss)			Assigned
Countrywide Capital IV	$	1,771	$	1,804	$	33		BB+
Countrywide Capital V		2,747		2,829		82		BB+
Countrywide Capital V		250		257		7		BB+
Nationsbank Cap Trust III		1,576		1,426		(150	)	BB+
Morgan Stanley Cap Trust IV		2,500		2,537		37		BB
Morgan Stanley Cap Trust IV		1,743		1,775		32		BB
Goldman Sachs		1,000		1,149		149		BB
Stifel Financial		4,500		4,545		45		BBB-
Total	$	16,087	$	16,322	$	235

Temporarily Impaired Investments

The Company does not believe that the unrealized losses, for all securities, which were comprised of 57 and 54 investment securities as of September 30, 2015 and December 31, 2014, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, asset-backed securities, trust preferred 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 Company’s investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Company 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 Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. Single issuer corporate trust preferred securities are also included, and in the case of one holding the market valuation loss is largely based upon the floating rate coupon and corresponding market valuation. Neither that trust preferred issuer, nor any other 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 September 30, 2015.

In determining that the securities giving rise to the previously mentioned unrealized losses were not other than temporary, the Company evaluated the factors cited above, which the Company considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Company’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 Company’s financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is 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 September 30, 2015 and December 31, 2014:

	September 30, 2015
	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:
Federal agency obligation	$	3,743	$	(7	)	$	3,478	$	(5	)	$	265	$	(2	)
Residential mortgage pass-through securities		2,283		(14	)		2,162		(13	)		121		(1	)
Trust preferred securities		1,426		(150	)		—		—			1,426		(150	)
Corporate bonds and notes		8,389		(81	)		6,437		(58	)		1,952		(23	)
Asset-backed securities		19,628		(275	)		18,359		(235	)		1,269		(40	)
Certificates of deposit		220		(3	)		220		(3	)		—		—
Equity securities		338		(38	)		—		—			338		(38	)
Other securities		5,597		(97	)		—		—			5,597		(97	)
Total	$	41,624	$	(665	)	$	30,656	$	(314	)	$	10,968	$	(351	)
Investment securities held-to-maturity:
Federal agency obligation	$	5,443	$	(47	)	$	4,614	$	(47	)	$	829	$	—
Residential mortgage pass-through securities		438		(1	)		391		(1	)		47		—
Obligations of U.S. states and political subdivisions		7,313		(46	)		7,313		(46	)		—		—
Corporate bonds and notes		2,670		(78	)		2,670		(78	)		—		—
Total	$	15,864	$	(172	)	$	14,988	$	(172	)	$	876	$	—
Total temporarily impaired securities	$	57,488	$	(837	)	$	45,644	$	(486	)	$	11,844	$	(351	)

	December 31, 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:
Federal agency obligation	$	6,755	$	(50	)	$	2,770	$	(9	)	$	3,985	$	(41	)
Residential mortgage pass-through securities		5,694		(11	)		5,694		(11	)		—		—
Trust preferred securities		1,307		(269	)		—		—			1,307		(269	)
Corporate bonds and notes		1,961		(11	)		1,961		(11	)		—		—
Asset-backed securities		9,773		(31	)		9,773		(31	)		—		—
Certificates of deposit		369		(2	)		369		(2	)		—		—
Equity securities		307		(69	)		—		—			307		(69	)
Other securities		5,417		(82	)		1,978		(21	)		3,439		(61	)
Total	$	31,583	$	(525	)	$	22,545	$	(85	)	$	9,038	$	(440	)
Investment securities held-to-maturity:
Federal agency obligation	$	3,228	$	(28	)	$	3,228	$	(28	)	$	—	$	—
Obligations of U.S. states and political subdivisions		8,341		(60	)		1,401		(3	)		6,940		(57	)
Corporate bonds and notes		993		(7	)		993		(7	)		—		—
Total	$	12,562	$	(95	)	$	5,622	$	(38	)	$	6,940	$	(57	)
Total temporarily impaired securities	$	44,145	$	(620	)	$	28,167	$	(123	)	$	15,978	$	(497	)

Investment securities having a carrying value of approximately $142.8 million and $224.7 million at September 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window and Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of September 30, 2015 and December 31, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.