Investment Securities

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Note 4. Investment Securities

The Company’s investment securities are classified as available-for-sale and held-to-maturity at March 31, 2016 and December 31, 2015. 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 March 31, 2016. 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 7 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 March 31, 2016 and December 31, 2015 (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2016	Cost		Gains		Losses		Value
Investment securities available-for-sale
Federal agency obligations	$	31,370	$	486	$	(29)	$	31,827
Residential mortgage pass-through securities		47,404		1,162		(21)		48,545
Commercial mortgage pass-through securities		2,965		88		-		3,053
Obligations of U.S. states and political subdivisions		9,642		164		-		9,806
Trust preferred securities		16,089		440		(350)		16,179
Corporate bonds and notes		40,771		873		(256)		41,388
Asset-backed securities		18,682		-		(528)		18,154
Certificates of deposit		1,496		20		-		1,516
Equity securities		376		29		(28)		377
Other securities		20,490		84		(88)		20,486
Total securities available-for-sale	$	189,285	$	3,346	$	(1,300)	$	191,331
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Investment securities held-to-maturity
U.S. Treasury and agency securities	$	28,523	$	1,890	$	-	$	30,413
Federal agency obligations		31,567		700		(8)		33,259
Residential mortgage-backed securities		3,489		28		(15)		3,502
Commercial mortgage-backed securities		1,317		30		-		1,347
Obligations of U.S. states and political divisions		117,416		6,208		-		123,624
Corporate bonds and notes		37,061		1,396		(132)		38,325
Total securities held-to-maturity	$	219,373	$	10,252	$	(155)	$	229,470
Total investment securities	$	408,658	$	13,598	$	(1,455)	$	420,801
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2015	Cost		Gains		Losses		Value
Investment securities available-for-sale
Federal agency obligations	$	29,062	$	142	$	(58)	$	29,146
Residential mortgage pass-through securities		44,155		803		(48)		44,910
Commercial mortgage pass-through securities		2,981		-		(9)		2,972
Obligations of U.S. states and political subdivisions		8,188		169		-		8,357
Trust preferred securities		16,088		398		(231)		16,255
Corporate bonds and notes		53,566		702		(292)		53,976
Asset-backed securities		20,005		18		(298)		19,725
Certificates of deposit		1,895		18		(8)		1,905
Equity securities		376		21		(23)		374
Other securities		18,303		-		(153)		18,150
Total securities available-for-sale	$	194,619	$	2,271	$	(1,120)	$	195,770
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Investment securities held-to-maturity
U.S. Treasury and agency securities	$	28,471	$	755	$	-	$	29,226
Federal agency obligations		33,616		280		(119)		33,777
Residential mortgage-backed securities		3,805		11		(6)		3,810
Commercial mortgage-backed securities		4,110		27		(2)		4,135
Obligations of U.S. states and political divisions		118,015		5,001		(3)		123,013
Corporate bonds and notes		36,039		719		(161)		36,597
Total securities held-to-maturity	$	224,056	$	6,793	$	(291)	$	230,558
Total investment securities	$	418,675	$	9,064	$	(1,411)	$	426,328

The following table presents information for investment securities at March 31, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	March 31, 2016
	Amortized		Fair
	Cost		Value
	(in thousands)
Investment securities available-for-sale:
Due in one year or less	$	10,948	$	10,967
Due after one year through five years		15,800		16,287
Due after five years through ten years		37,582		37,795
Due after ten years		53,720		58,821
Residential mortgage pass-through securities		47,404		48,545
Commercial mortgage pass-through securities		2,965		3,053
Equity securities		376		377
Other securities		20,490		20,486
Total	$	189,285	$	191,331
Investment securities held-to-maturity:
Due in one year or less	$	1,000	$	1,000
Due after one year through five years		14,561		14,907
Due after five years through ten years		85,428		90,182
Due after ten years		113,578		118,532
Residential mortgage pass-through securities		3,489		3,502
Commercial mortgage pass-through securities		1,317		1,347
Total	$	219,373	$	229,470
Total investment securities	$	408,658	$	420,801

Gross gains and losses from the sales, calls and maturities of investment securities for the three months ended March 31, 2016 and 2015 were as follows:

	Three Months Ended
	March 31,
(in thousands)	2016		2015
Proceeds	$	-	$	9,537
Gross gains on sales of investment securities		-		506
Gross losses on sales of investment securities		-		-
Net gains on sales of investment securities		-		506
Less: tax provision on net gains		-		207
Total	$	-	$	299

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 Company will not be required to sell the security before recovery of its amortized cost basis less any current period loss, and the Company 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.

Temporarily Impaired Investments

The Company does not believe that the unrealized losses, for all securities, which were comprised of 46 and 74 investment securities as of March 31, 2016 and December 31, 2015, 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 March 31, 2016.

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 March 31, 2016 and December 31, 2015:

		March 31, 2016
		Total								Less than 12 Months								12 Months or Longer
		Fair			Unrealized					Fair			Unrealized					Fair				Unrealized
		Value			Losses					Value			Losses					Value				Losses
		(in thousands)
Investment securities
available-for-sale:
Federal agency obligation		$	7,070		$		(29)			$	6,836		$			(28)		$		234		$		(1)
Residential mortgage
pass-through securities			7,173				(21)				6,679					(14)				494				(7)
Trust preferred securities			1,227				(350)				-					-				1,227				(350)
Corporate bonds and notes			15,553				(256)				11,727					(118)				3,826				(138)
Asset-backed securities			18,154				(528)				14,825					(417)				3,329				(111)
Equity securities			117				(28)				-					-				117				(28)
Other securities			5,412				(88)				-					-				5,412				(88)
Total		$	54,706		$		(1,300)			$	40,067		$			(577)		$		14,639		$		(723)
Investment securities
held-to-maturity:
Federal agency obligation		$	4,161		$		(8)			$	2,300		$			(6)		$		1,861		$		(2)
Residential mortgage
pass-through securities			1,920				(15)				1,920					(15)				-				-
Corporate bonds and notes			2,632				(131)				2,632					(131)				-				-
Total		$	8,713		$		(154)			$	6,852		$			(152)		$		1,861		$		(2)
Total temporarily impaired
securities		$	63,419		$		(1,454)			$	46,919		$			(729)		$		16,500		$		(725)
	December 31, 2015
	Total								Less than 12 Months								12 Months or Longer
	Fair					Unrealized			Fair					Unrealized			Fair				Unrealized
	Value					Losses			Value					Losses			Value				Losses
	(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligation	$			12,260		$		(58)	$			12,013		$	(54)		$		247		$		(4)
Residential mortgage
pass-through securities				9,027				(48)				9,027			(48)				—				—
Commercial mortgage-backed
securities				2,971				(9)				2,971			(9)				—				—
Trust preferred securities				1,345				(231)				—			—				1,345				(231)
Corporate bonds and notes				16,533				(292)				12,702			(161)				3,831				(131)
Asset-backed securities				14,745				(298)				11,250			(188)				3,495				(110)
Certificates of deposit				215				(8)				215			(8)				—				—
Equity securities				123				(23)				—			—				123				(23)
Other securities				5,347				(153)				—			—				5,347				(153)
Total	$			62,566		$		(1,120)	$			48,178		$	(468)		$		14,388		$		(652)
Investment Securities
Held-to-Maturity:
Federal agency obligation				12,554				(119)				11,783			(109)				771				(10)
Residential mortgage
pass-through securities				2,480				(6)				2,480			(6)				—				—
Commercial mortgage-backed
securities				1,331				(2)				1,331			(2)				—				—
Obligations of U.S. states
and political subdivisions				981				(3)				981			(3)				—				—
Corporate bonds and notes				5,536				(161)				5,536			(161)				—				—
Total	$			22,882		$		(291)	$			22,111		$	(281)		$		771		$		(10)
Total Temporarily Impaired
Securities	$			85,448		$		(1,411)	$			70,289		$	(749)		$		15,159		$		(662)

Investment securities having a carrying value of approximately $155.3 million and $142.5 million at March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, 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.