Investment Securities

9 Months Ended

Sep. 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 September 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 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 Corporation’s investment securities at September 30, 2014 and December 31, 2013.

	September 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	$	11,517	$	—	$	(132	)	$	11,385
Federal agency obligations		33,110		75		(193	)		32,992
Residential mortgage pass-through securities		58,459		1,332		(100	)		59,691
Commercial mortgage pass-through securities		3,057		—		(41	)		3,016
Obligations of U.S. states and political subdivisions		8,204		225		—			8,429
Trust preferred securities		16,085		465		(236	)		16,314
Corporate bonds and notes		129,550		6,300		(10	)		135,840
Asset-backed securities		21,603		151		(1	)		21,753
Certificates of deposit		2,098		32		(6	)		2,124
Equity securities		376		—		(87	)		289
Mutual funds and money market funds		15,808		—		(139	)		15,669
Total	$	299,867	$	8,580	$	(945	)	$	307,502
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	28,212	$	251	$	—		$	28,463
Federal agency obligations		21,119		112		(74	)		21,157
Residential mortgage pass-through securities		2,616		7		—			2,623
Commercial mortgage pass-through securities		4,304		38		(19	)		4,323
Obligations of U.S. states and political subdivisions		123,379		3,914		(151	)		127,142
Corporate bonds and notes		37,937		762		(14	)		38,685
Total	$	217,567	$	5,084	$	(258	)	$	222,393
Total investment securities	$	517,434	$	13,664	$	(1,203	)	$	529,895

	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 September 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.

	September 30, 2014
	Amortized Cost		Fair Value
	(in thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	14,395	$	14,543
Due after one year through five years		43,153		44,425
Due after five years through ten years		110,494		115,594
Due after ten years		54,125		54,275
Residential mortgage pass-through securities		58,459		59,691
Commercial mortgage pass-through securities		3,057		3,016
Equity securities		376		289
Mutual funds and money market funds		15,808		15,669
Total	$	299,867	$	307,502
Investment Securities Held-to-Maturity:
Due in one year or less	$	7,059	$	7,140
Due after one year through five years		7,907		8,056
Due after five years through ten years		69,114		70,359
Due after ten years		126,567		129,892
Residential mortgage-backed securities		2,616		2,623
Commercial mortgage pass-through securities		4,304		4,323
Total	$	217,567	$	222,393
Total investment securities	$	517,434	$	529,895

For the nine months ended September 30, 2014, proceeds of available-for-sale investment securities sold amounted to approximately $67.0 million.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Gross gains on sales of investment securities	$	111	$	343	$	2,122	$	1,375
Gross losses on sales of investment securities		—		—		22		89
Net gains on sales of investment securities		111		343		2,100		1,286
Less: tax provision on gross gains		42		96		601		353
Gross gains on sales of investments, net of tax	$	69	$	247	$	1,499	$	933

The following summarizes OTTI charges for the periods indicated.

	Three Months Ended				Nine Months Ended
	September 30,				September 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 September 30, 2014 which has at least one rating below investment grade.

Issuer	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	$	1,813		42		BB		1	None	None
Countrywide Capital V	Single	n/a		2,747		2,827		80		BB		1	None	None
Countrywide Capital V	Single	n/a		250		257		7		BB		1	None	None
Nationsbank Cap Trust III	Single	n/a		1,575		1,339		(236	)	BB		1	None	None
Morgan Stanley Cap Trust IV	Single	n/a		2,500		2,517		17		BB		1	None	None
Morgan Stanley Cap Trust IV	Single	n/a		1,742		1,760		18		BB		1	None	None
Goldman Sachs	Single	n/a		1,000		1,137		137		BB		1	None	None
Stifel Financial	Single	n/a		4,500		4,664		164		BBB-		1	None	None
Total			$	16,085	$	16,314		229

Credit Loss Portion of OTTI Recognized in Earnings on Debt Securities

	Nine Months Ended September 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 84 investment securities as of September 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, asset-backed 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 September 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-temporarily impaired, 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 September 30, 2014 and December 31, 2013:

	September 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	$	9,488	$	(132	)	$	4,744	$	(57	)	$	4,744	$	(75	)
Federal agency obligations		22,682		(193	)		18,601		(113	)		4,081		(80	)
Residential mortgage pass-through securities		16,327		(100	)		16,327		(100	)		—		—
Commercial mortgage pass-through securities		3,016		(41	)		—		—			3,016		(41	)
Trust preferred securities		1,338		(236	)		—		—			1,338		(236	)
Corporate bonds and notes		3,002		(10	)		3,002		(10	)		—		—
Asset-backed securities		1,952		(1	)		1,952		(1	)		—		—
Certificates of deposit		216		(6	)		216		(6	)		—		—
Equity securities		289		(87	)		—		—			289		(87	)
Mutual funds and money market funds		11,361		(139	)		10,379		(122	)		982		(17	)
Total		69,671	$	(945	)	$	55,221	$	(409	)	$	14,450	$	(536	)
Investment Securities Held-to-Maturity:
Federal agency obligations	$	8,325	$	(74	)	$	8,325	$	(74	)	$	—	$	—
Commercial mortgage pass-through securities		1,392		(19	)		—		—			1,392		(19	)
Obligations of U.S. states and political subdivisions		14,789		(151	)		3,336		(4	)		11,453		(147	)
Corporate bonds and notes		2,700		(14	)		2,700		(14	)		—		—
Total		27,206		(258	)		14,361		(92	)		12,845		(166	)
Total Temporarily Impaired Securities	$	96,877	$	(1,203	)	$	69,582	$	(501	)	$	27,295	$	(702	)

	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 $232.9 million and $109.3 million at September 30, 2014 and December 31, 2013, 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.

At September 30, 2014 and December 31, 2013, 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.