Note 4. Securities

The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at September 30, 2016 and December 31, 2015 are as follows (in thousands):


	At September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Investment securities:
U.S. agency obligations	$	2,489	$	8	$	—		$	2,497

Held-to-maturity:
Investment securities:
U.S. agency obligations	$	24,958	$	344	$	—		$	25,302
State and municipal obligations		36,198		123		(23	)		36,298
Corporate debt securities		76,129		254		(7,107	)		69,276
Other investments		8,731		42		(5	)		8,768

Total investment securities		146,016		763		(7,135	)		139,644

Mortgage-backed securities:
FHLMC		136,934		1,370		(272	)		138,032
FNMA		177,693		3,865		(179	)		181,379
GNMA		10,389		146		(7	)		10,528
Other mortgage-backed securities		9,104		40		—			9,144

Total mortgage-backed securities		334,120		5,421		(458	)		339,083

Total held-to-maturity	$	480,136	$	6,184	$	(7,593	)	$	478,727

Total securities	$	482,625	$	6,192	$	(7,593	)	$	481,224


	At December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Investment securities:
U.S. agency obligations	$	29,906	$	23	$	(27	)	$	29,902

Held-to-maturity:
Investment securities:
U.S. agency obligations	$	55,178	$	87	$	(59	)	$	55,206
State and municipal obligations		13,311		18		(3	)		13,326
Corporate debt securities		56,000		—		(8,527	)		47,473

Total investment securities		124,489		105		(8,589	)		116,005

Mortgage-backed securities:
FHLMC		120,116		364		(1,489	)		118,991
FNMA		160,254		3,039		(1,123	)		162,170
GNMA		502		95		—			597

Total mortgage-backed securities		280,872		3,498		(2,612	)		281,758

Total held-to-maturity	$	405,361	$	3,603	$	(11,201	)	$	397,763

Total securities	$	435,267	$	3,626	$	(11,228	)	$	427,665

During the third quarter 2013, the Bank transferred $536.0 million of previously designated available-for-sale securities to a held-to-maturity designation at estimated fair value. The securities transferred had an unrealized net loss of $13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive loss on the consolidated balance sheet, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of the held-to-maturity investment securities at September 30, 2016 and December 31, 2015 are as follows (in thousands):


	September 30, 2016			December 31, 2015
Amortized cost	$	480,136		$	405,361
Net loss on date of transfer from available-for-sale		(13,347	)		(13,347	)
Accretion of net unrealized loss on securities reclassified as held-to-maturity		3,853			2,799

Carrying value	$	470,642		$	394,813

There were $75,000 in realized gains and $87,000 in realized losses on the sale of available-for-sale securities for the nine months ended September 30, 2016. There were no realized gains or losses for the three months ended September 30, 2016. There were no realized gains or losses on the sale of securities for the three and nine months ended September 30, 2015.

The amortized cost and estimated fair value of investment securities at September 30, 2016 by contractual maturity are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At September 30, 2016, corporate debt securities with an amortized cost of $60.5 million and estimated fair value of $53.5 million were callable prior to the maturity date.


September 30, 2016	Amortized Cost		Estimated Fair Value
Less than one year	$	16,654	$	16,671
Due after one year through five years		49,0954		49,584
Due after five years through ten years		19,025		19,223
Due after ten years		55,000		47,895

	$	139,774	$	133,373

Other investments which consist of two open-end funds are excluded from the above table since there are no contractual maturity dates. Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value and unrealized loss of securities available-for-sale and held-to-maturity at September 30, 2016 and December 31, 2015, segregated by the duration of the unrealized loss, are as follows (in thousands):


	At September 30, 2016
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses

Held-to-maturity:
Investment securities:
State and municipal obligations	$	12,117		(22	)	$	277	$	(1	)	$	12,394	$	(23	)
Corporate debt securities		4,003		(2	)		47,895		(7,105	)		51,898		(7,107	)
Other investments		868		(5	)		—		—			868		(5	)

Total investment securities		16,988		(29	)		48,172		(7,106	)		65,160		(7,135	)

Mortgage-backed securities:
FHLMC		10,791		(20	)		29,101		(252	)		39,892		(272	)
FNMA		18,847		(47	)		9,717		(132	)		28,564		(179	)
GNMA		1,466		(7	)		—		—			1,466		(7	)

Total mortgage-backed securities		31,104		(74	)		38,818		(384	)		69,922		(458	)

Total held-to-maturity	$	48,092	$	(103	)	$	86,990	$	(7,490	)	$	135,082	$	(7,593	)


	At December 31, 2015
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Available-for-sale:
Investment securities:
U.S. agency obligations	$	14,937	$	(27	)	$	—	$	—		$	14,937	$	(27	)

Held-to-maturity:
Investment securities:
U.S. agency obligations	$	30,175	$	(43	)	$	5,023	$	(16	)	$	35,198	$	(59	)
State and municipal obligations		2,857		(2	)		639		(1	)		3,496		(3	)
Corporate debt securities		—		—			46,473		(8,527	)		46,473		(8,527	)

Total investment securities		33,032		(45	)		52,135		(8,544	)		85,167		(8,589	)

Mortgage-backed securities:
FHLMC		35,816		(200	)		53,604		(1,289	)		89,420		(1,489	)
FNMA		44,004		(434	)		23,318		(689	)		67,322		(1,123	)

Total mortgage-backed securities		79,820		(634	)		76,922		(1,978	)		156,742		(2,612	)

Total held-to-maturity	$	112,852	$	(679	)	$	129,057	$	(10,522	)	$	241,909	$	(11,201	)

Total securities	$	127,789	$	(706	)	$	129,057	$	(10,522	)	$	256,846	$	(11,228	)

At September 30, 2016, the amortized cost, estimated fair value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):


Security Description	Amortized Cost		Estimated Fair Value		Credit Rating Moody’s/ S&P
BankAmerica Capital	$	15,000	$	12,950		Ba1/BB+
Chase Capital		10,000		8,788		Baa2/BBB-
Wells Fargo Capital		5,000		4,350		A1/BBB+
Huntington Capital		5,000		4,225		Baa2/BB
Keycorp Capital		5,000		4,188		Baa2/BB+
PNC Capital		5,000		4,700		Baa1/BBB-
State Street Capital		5,000		4,500		A3/BBB
SunTrust Capital		5,000		4,194		Baa3/BB+

	$	55,000	$	47,895

At September 30, 2016, the estimated fair value of each of the above corporate debt securities was below cost. However, the estimated fair value of these corporate debt securities has steadily increased over the past several years. These corporate debt securities are issued by other financial institutions with credit ratings ranging from a high of A1 to a low of BB as rated by one of the internationally-recognized credit rating services. These floating-rate corporate debt securities were purchased in 1998 and have paid coupon interest continuously since issuance. Floating-rate corporate debt securities such as these pay a fixed interest rate spread over 90-day LIBOR. Following the purchase of these securities, the required interest rate spread increased for these types of securities causing a decline in the market price. The Company concluded that unrealized losses on these corporate debt securities were only temporarily impaired at September 30, 2016. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions are also considered well-capitalized. Interest rate spreads have now decreased for these types of securities and market prices have improved. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the Company does not have the intent to sell these securities and it is more likely than not that the Company will not be required to sell the securities. The Company has held the securities continuously since 1998 and expects to receive its full principal at maturity in 2028 or prior if called by the issuer. Historically, the Company has not utilized securities sales as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The mortgage-backed securities are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”) or Federal National Mortgage Association (“FNMA”), corporations which are chartered by the United States Government and whose debt obligations are typically rated AA+ by one of the internationally-recognized credit rating services. The Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated fair value of the mortgage-backed securities. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that these securities were only temporarily impaired at September 30, 2016.