Investments |
Note 3
– Investments
Investments
available-for-sale
The amortized cost and estimated fair
values of investments available-for-sale at the dates indicated are
presented in the following table:
|
|
At June 30,
2012 |
|
|
At December 31,
2011 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. government agencies |
|
$ |
120,027 |
|
|
$ |
1,593 |
|
|
$ |
- |
|
|
$ |
121,620 |
|
|
$ |
197,816 |
|
|
$ |
2,436 |
|
|
$ |
- |
|
|
$ |
200,252 |
|
State and municipal |
|
|
159,144 |
|
|
|
12,575 |
|
|
|
(13 |
) |
|
|
171,706 |
|
|
|
160,657 |
|
|
|
12,456 |
|
|
|
(2 |
) |
|
|
173,111 |
|
Mortgage-backed |
|
|
488,647 |
|
|
|
20,924 |
|
|
|
(37 |
) |
|
|
509,534 |
|
|
|
551,518 |
|
|
|
18,639 |
|
|
|
(13 |
) |
|
|
570,144 |
|
Corporate debt |
|
|
2,000 |
|
|
|
- |
|
|
|
(5 |
) |
|
|
1,995 |
|
|
|
2,000 |
|
|
|
- |
|
|
|
(22 |
) |
|
|
1,978 |
|
Trust preferred |
|
|
3,554 |
|
|
|
164 |
|
|
|
(415 |
) |
|
|
3,303 |
|
|
|
5,936 |
|
|
|
260 |
|
|
|
(480 |
) |
|
|
5,716 |
|
Total debt securities |
|
|
773,372 |
|
|
|
35,256 |
|
|
|
(470 |
) |
|
|
808,158 |
|
|
|
917,927 |
|
|
|
33,791 |
|
|
|
(517 |
) |
|
|
951,201 |
|
Marketable equity
securities |
|
|
723 |
|
|
|
- |
|
|
|
- |
|
|
|
723 |
|
|
|
100 |
|
|
|
- |
|
|
|
- |
|
|
|
100 |
|
Total investments
available-for-sale |
|
$ |
774,095 |
|
|
$ |
35,256 |
|
|
$ |
(470 |
) |
|
$ |
808,881 |
|
|
$ |
918,027 |
|
|
$ |
33,791 |
|
|
$ |
(517 |
) |
|
$ |
951,301 |
|
Any unrealized losses in the U.S.
government agencies, state and municipal, mortgage-backed or
corporate debt investment securities at June 30, 2012 are the
result of changes in interest rates and are not considered credit
related. These declines are considered temporary in nature and will
decline over time and recover as these securities approach
maturity.
The mortgage-backed portfolio at June
30, 2012 is composed entirely of either the most senior tranches of
GNMA collateralized mortgage obligations ($208.5 million), or GNMA,
FNMA or FHLMC mortgage-backed securities ($301.0 million). The
Company does not intend to sell these securities and has sufficient
liquidity to hold these securities for an adequate period of time,
which may be maturity, to allow for any anticipated recovery in
fair value.
At June 30, 2012, the trust preferred
portfolio consisted of one security backed by a single financial
institution issuer and one pooled trust preferred security. The
fair value of the single issue security was $1.5 million as
determined using broker quotations. The pooled trust preferred
security is backed by debt issued by banks and thrifts, which
totals $2.2 million, with a fair value of $1.8 million. The fair
value of this security was determined by a third party valuation
specialist due to the limited trading activity for this security in
the marketplace.
The specialist used an income valuation
approach technique (present value) that maximizes the use of
relevant observable inputs and minimizes the use of unobservable
inputs. The methodology and significant assumptions employed by the
specialist to determine fair value included:
|
· |
Evaluation of the structural terms
as established in the indenture; |
|
· |
Detailed credit and structural
evaluation for each piece of issuer collateral in the
pool; |
|
· |
Overall default (.30%), recovery and
prepayment (2%)/amortization probabilities by issuers in the
pool; |
|
· |
Identification of adverse conditions
specifically related to the security, industry and geographical
area; |
|
· |
Projection of estimated cash flows
that incorporate default expectations and loss
severities; |
|
· |
Review of historical and implied
volatility of the fair value of the security; |
|
· |
Evaluation of credit risk
concentrations; |
|
· |
Evaluation of the length of time and
the extent to which the fair value has been less than the amortized
cost; and |
|
· |
A discount rate of 12.6% was
established using credit adjusted financial institution spreads for
comparably rated institutions and a liquidity adjustment that
considered the previously noted characteristics. |
As a result of this evaluation, it was
determined that the pooled trust preferred security incurred
credit-related other-than-temporary impairment (“OTTI”)
of $8 thousand, which was recognized in earnings for the quarter
ended June 30, 2012. For the six months ended June 30, 2012 the
OTTI recognized in earnings was $72 thousand. Non-credit related
OTTI on this security, which is not expected to be sold and that
the Company has the ability to hold until maturity, was $0.4
million at June 30, 2012. This non-credit related OTTI was
recognized in other comprehensive income (“OCI”) at
June 30, 2012.
The methodology and significant inputs
used to measure the amount related to credit loss consisted of the
following:
|
· |
Default
rates were developed based on the financial condition of the trust
preferred issuers in the pool and the payment or deferral status.
Conditional default rates were estimated based on the payment
characteristics of the security and the financial condition of the
issuers in the pool. Near term and future defaults are estimated
using third party industry data in addition to a review of key
financial ratios and other pertinent data on the financial
stability of the underlying issuer; |
|
· |
Loss
severity is forecasted based on the type of impairment using
research performed by third parties; |
|
· |
The
security contains one level of subordination below the senior
tranche, with the senior tranche receiving the spread from the
subordinate bonds. Given recent performance, it is not expected
that the senior tranche will receive its full interest and
principal at the bond’s maturity date; |
|
· |
Credit
ratings of the underlying issuers are reviewed in conjunction with
the development of the default rates applied to determine the
credit amounts related to the credit loss; and |
|
· |
Potential prepayments are estimated based on terms
and rates of the underlying trust preferred securities to determine
the impact of excess spread on the credit enhancement, the removal
of the strongest institutions from the underlying pool and any
impact that prepayments might have on diversity and
concentration. |
The following table provides the
activity of OTTI on investment securities due to credit losses
recognized in earnings for the period indicated:
(In thousands) |
|
OTTI Losses |
|
Cumulative
credit losses on investment securities, through January 1,
2012 |
|
$ |
422 |
|
Additions for credit losses not previously recognized |
|
|
72 |
|
Cumulative credit losses on investment securities, through June 30,
2012 |
|
$ |
494 |
|
Gross unrealized losses and fair value
by length of time that the individual available-for-sale securities
have been in an unrealized loss position at the dates indicated are
presented in the following table:
|
|
At June 30, 2012 |
|
|
|
|
|
|
|
|
|
Continuous Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Losses Existing for: |
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
of |
|
|
|
|
|
Less than |
|
|
More than |
|
|
Unrealized |
|
(Dollars in thousands) |
|
securities |
|
|
Fair Value |
|
|
12 months |
|
|
12 months |
|
|
Losses |
|
State and municipal |
|
|
2 |
|
|
$ |
1,176 |
|
|
$ |
13 |
|
|
$ |
- |
|
|
$ |
13 |
|
Mortgage-backed |
|
|
2 |
|
|
|
7,073 |
|
|
|
37 |
|
|
|
- |
|
|
|
37 |
|
Corporate debt |
|
|
1 |
|
|
|
1,995 |
|
|
|
5 |
|
|
|
- |
|
|
|
5 |
|
Trust preferred |
|
|
1 |
|
|
|
1,817 |
|
|
|
- |
|
|
|
415 |
|
|
|
415 |
|
Total |
|
|
6 |
|
|
$ |
12,061 |
|
|
$ |
55 |
|
|
$ |
415 |
|
|
$ |
470 |
|
|
|
At December 31, 2011 |
|
|
|
|
|
|
|
|
|
Continuous Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Losses Existing for: |
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
of |
|
|
|
|
|
Less than |
|
|
More than |
|
|
Unrealized |
|
(Dollars in thousands) |
|
securities |
|
|
Fair Value |
|
|
12 months |
|
|
12 months |
|
|
Losses |
|
State and municipal |
|
|
1 |
|
|
$ |
397 |
|
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
2 |
|
Mortgage-backed |
|
|
3 |
|
|
|
5,081 |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
Corporate
debt |
|
|
1 |
|
|
|
3,326 |
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
Trust preferred |
|
|
1 |
|
|
|
2,467 |
|
|
|
- |
|
|
|
480 |
|
|
|
480 |
|
Total |
|
|
6 |
|
|
$ |
11,271 |
|
|
$ |
37 |
|
|
$ |
480 |
|
|
$ |
517 |
|
The amortized cost and estimated fair
values of investment securities available-for-sale by contractual
maturity at the dates indicated are provided in the following
table. The Company has allocated mortgage-backed securities into
the four maturity groupings reflected in the following table using
the expected average life of the individual securities based on
statistics provided by independent third party industry sources.
Expected maturities will differ from contractual maturities as
borrowers may have the right to prepay obligations with or without
prepayment penalties.
|
|
At June 30, 2012 |
|
|
At December 31, 2011 |
|
|
|
|
|
|
Estimated |
|
|
|
|
|
Estimated |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Due in one year or less |
|
$ |
20,284 |
|
|
$ |
20,381 |
|
|
$ |
65,569 |
|
|
$ |
65,972 |
|
Due after
one year through five years |
|
|
37,844 |
|
|
|
39,045 |
|
|
|
62,993 |
|
|
|
64,656 |
|
Due after
five years through ten years |
|
|
311,158 |
|
|
|
324,495 |
|
|
|
342,813 |
|
|
|
354,238 |
|
Due after ten years |
|
|
404,086 |
|
|
|
424,237 |
|
|
|
446,552 |
|
|
|
466,335 |
|
Total debt securities available for
sale |
|
$ |
773,372 |
|
|
$ |
808,158 |
|
|
$ |
917,927 |
|
|
$ |
951,201 |
|
At June 30, 2012 and December 31, 2011,
investments available-for-sale with a book value of $221.2 million
and $255.4 million, respectively, were pledged as collateral for
certain government deposits and for other purposes as required or
permitted by law. The outstanding balance of no single issuer,
except for U.S. Agencies securities, exceeded ten percent of
stockholders' equity at June 30, 2012 and December 31,
2011.
Investments
held-to-maturity
The amortized cost and estimated fair
values of investments held-to-maturity at the dates indicated are
presented in the following table:
|
|
At June 30, 2012 |
|
|
At December 31, 2011 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. government agencies |
|
$ |
37,576 |
|
|
$ |
37 |
|
|
$ |
(140 |
) |
|
$ |
37,473 |
|
|
$ |
54,983 |
|
|
$ |
406 |
|
|
$ |
- |
|
|
$ |
55,389 |
|
State and
municipal |
|
|
126,904 |
|
|
|
4,883 |
|
|
|
(277 |
) |
|
|
131,510 |
|
|
|
123,075 |
|
|
|
5,244 |
|
|
|
(1 |
) |
|
|
128,318 |
|
Mortgage-backed |
|
|
366 |
|
|
|
47 |
|
|
|
- |
|
|
|
413 |
|
|
|
407 |
|
|
|
53 |
|
|
|
- |
|
|
|
460 |
|
Total investments
held-to-maturity |
|
$ |
164,846 |
|
|
$ |
4,967 |
|
|
$ |
(417 |
) |
|
$ |
169,396 |
|
|
$ |
178,465 |
|
|
$ |
5,703 |
|
|
$ |
(1 |
) |
|
$ |
184,167 |
|
Gross unrealized losses and fair value
by length of time that the individual held-to-maturity securities
have been in a continuous unrealized loss position at the dates
indicated are presented in the following tables:
|
|
At June 30, 2012 |
|
|
|
|
|
|
|
|
|
Continuous Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Losses Existing for: |
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
of |
|
|
|
|
|
Less than |
|
|
More than |
|
|
Unrealized |
|
(Dollars in thousands) |
|
securities |
|
|
Fair Value |
|
|
12 months |
|
|
12 months |
|
|
Losses |
|
U.S. government agencies |
|
|
3 |
|
|
$ |
17,435 |
|
|
$ |
140 |
|
|
$ |
- |
|
|
$ |
140 |
|
State and municipal |
|
|
20 |
|
|
|
20,624 |
|
|
|
277 |
|
|
|
- |
|
|
|
277 |
|
Total |
|
|
23 |
|
|
$ |
38,059 |
|
|
$ |
417 |
|
|
$ |
- |
|
|
$ |
417 |
|
|
|
At December 31, 2011 |
|
|
|
|
|
|
|
|
|
Continuous Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Losses Existing for: |
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
of |
|
|
|
|
|
Less than |
|
|
More than |
|
|
Unrealized |
|
(Dollars in thousands) |
|
securities |
|
|
Fair Value |
|
|
12 months |
|
|
12 months |
|
|
Losses |
|
State and municipal |
|
|
1 |
|
|
$ |
541 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
Total |
|
|
1 |
|
|
$ |
541 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
The Company does not intend to sell
these securities and has sufficient liquidity to hold these
securities for an adequate period of time, which may be maturity,
to allow for any anticipated recovery in fair value, and
substantiates that the unrealized losses in the held-to-maturity
portfolio are considered temporary in nature.
The amortized cost and estimated fair
values of debt securities held-to-maturity by contractual maturity
at the dates indicated are reflected in the following table.
Expected maturities will differ from contractual maturities as
borrowers may have the right to prepay obligations with or without
prepayment penalties.
|
|
At June 30, 2012 |
|
|
At December 31, 2011 |
|
|
|
|
|
|
Estimated |
|
|
|
|
|
Estimated |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Due in one year or less |
|
$ |
11,939 |
|
|
$ |
12,168 |
|
|
$ |
18,860 |
|
|
$ |
19,203 |
|
Due after
one year through five years |
|
|
5,605 |
|
|
|
5,731 |
|
|
|
6,937 |
|
|
|
7,144 |
|
Due after
five years through ten years |
|
|
80,110 |
|
|
|
82,340 |
|
|
|
98,428 |
|
|
|
101,008 |
|
Due after ten years |
|
|
67,192 |
|
|
|
69,157 |
|
|
|
54,240 |
|
|
|
56,812 |
|
Total debt securities
held-to-maturity |
|
$ |
164,846 |
|
|
$ |
169,396 |
|
|
$ |
178,465 |
|
|
$ |
184,167 |
|
At June 30, 2012 and December 31, 2011,
investments held-to-maturity with a book value of $130.3 million
and $58.7 million, respectively, were pledged as collateral for
certain government deposits and for other purposes as required or
permitted by law. The outstanding balance of no single issuer,
except for U.S. Agency securities, exceeded ten percent of
stockholders' equity at June 30, 2012 and December 31,
2011.
Equity securities
Other equity securities at the dates
indicated are presented in the following table:
(In thousands) |
|
June 30, 2012 |
|
|
December 31, 2011 |
|
Federal Reserve Bank stock |
|
$ |
8,292 |
|
|
$ |
7,530 |
|
Federal
Home Loan Bank of Atlanta stock |
|
|
24,724 |
|
|
|
27,328 |
|
Other equities |
|
|
- |
|
|
|
75 |
|
Total equity securities |
|
$ |
33,016 |
|
|
$ |
34,933 |
|
|