Note 3 - Investment Securities

12 Months Ended

Dec. 31, 2015

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3. Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at December 31, 2015 and 2014 is as follows:

	At December 31, 2015
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	180,795	$	523	$	(3,173	)	$	178,145
Agency mortgage-backed securities		10,073		176		(78	)		10,171
Municipal securities		22,814		562		(32	)		23,344
Corporate bonds		54,294		135		(300	)		54,129
Asset-backed securities		17,631		-		(626	)		17,005
Trust preferred securities		3,070		-		(1,187	)		1,883
Other securities		115		3		-			118
Total securities available for sale	$	288,792	$	1,399	$	(5,396	)	$	284,795
U.S. Government agencies	$	17,067	$	39	$	(72	)	$	17,034
Collateralized mortgage obligations		146,458		402		(780	)		146,080
Agency mortgage-backed securities		7,732		-		(21	)		7,711
Other securities		1,020		-		-			1,020
Total securities held to maturity	$	172,277	$	441	$	(873	)	$	171,845

	At December 31, 2014
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized mortgage obligations	$	98,626	$	692	$	(96	)	$	99,222
Agency mortgage-backed securities		13,271		564		(33	)		13,802
Municipal securities		15,784		363		(40	)		16,107
Corporate bonds		33,840		621		(34	)		34,427
Asset-backed securities		18,353		152		-			18,505
Trust preferred securities		5,261		-		(2,068	)		3,193
Other securities		115		8		-			123
Total securities available for sale	$	185,250	$	2,400	$	(2,271	)	$	185,379
U.S. Government agencies	$	1	$	-	$	-		$	1
Collateralized mortgage obligations		67,845		531		(144	)		68,232
Other securities		20		-		-			20
Total securities held to maturity	$	67,866	$	531	$	(144	)	$	68,253

The following table presents investment securities by stated maturity at December 31, 2015. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these securities are classified separately with no specific maturity date.

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	7,444	$	7,505	$	-	$	-
After 1 year to 5 years		13,617		13,730		5,070		5,021
After 5 years to 10 years		50,645		49,089		13,017		13,033
After 10 years		26,218		26,155		-		-
Collateralized mortgage obligations		180,795		178,145		146,458		146,080
Agency mortgage-backed securities		10,073		10,171		7,732		7,711
Total	$	288,792	$	284,795	$	172,277	$	171,845

Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

The Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. There were no private label mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) held in the investment securities portfolio as of December 31, 2015 and December 31, 2014. There were also no MBS or CMO securities that were rated “Alt-A” or “sub-prime” as of those dates.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An other-than-temporary impairment (“OTTI”) loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss).

Impairment charges (credit losses) on trust preferred securities for the years ended December 31, 2015, 2014, and 2013 amounted to $3,000, $7,000, and $0, respectively.

At December 31, 2015 and 2014, investment securities in the amount of approximately $209.4 million and $149.0 million, respectively, were pledged as collateral for public deposits and certain other deposits as required by law.

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at December 31, 2015 and 2014 for which a portion of OTTI was recognized in other comprehensive income:

(dollars in thousands)	2015			2014
Beginning Balance, January 1st	$	3,966		$	3,959
Additional credit-related impairment loss on securities for which an other-than-temporary impairment was previously recognized		3			7
Reductions for securities paid off during the period		-			-
Reductions for securities sold during the period		(3,039	)		-
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-			-
Ending Balance, December 31st	$	930		$	3,966

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and 2014:

	At December 31, 2015
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value			Unrealized Losses	Fair Value			Unrealized  Losses	Fair Value			Unrealized  Losses
Collateralized mortgage obligations	$	116,161	$	3,173	$	-	$	-	$	116,161	$	3,173
Agency mortgage-backed securities		2,389		14		5,502		64		7,891		78
Municipal securities		886		15		1,814		17		2,700		32
Corporate bonds		9,583		258		2,952		42		12,535		300
Asset backed securities		17,005		626		-		-		17,005		626
Trust preferred securities		-		-		1,883		1,187		1,883		1,187
Total Available for Sale	$	146,024	$	4,086	$	12,151	$	1,310	$	158,175	$	5,396

	At December 31, 2015
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	11,954	$	72	$	-	$	-	$	11,954	$	72
Collateralized mortgage obligations		68,888		732		15,956		48		84,844		780
Agency mortgage-backed securities		7,711		21		-		-		7,711		21
Total Held to Maturity	$	88,553	$	825	$	15,956	$	48	$	104,509	$	873

	At December 31, 2014
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	17,331	$	96	$	-	$	-	$	17,331	$	96
Agency mortgage-backed securities		3,997		2		1,069		31		5,066		33
Municipal securities		1,298		10		1,395		30		2,693		40
Corporate bonds		4,880		34		-		-		4,880		34
Trust preferred securities		-		-		3,193		2,068		3,193		2,068
Total Available for Sale	$	27,506	$	142	$	5,657	$	2,129	$	33,163	$	2,271

	At December 31, 2014
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized  Losses		Fair Value		Unrealized  Losses		Fair Value		Unrealized  Losses
Collateralized mortgage obligations	$	19,766	$	92	$	9,232	$	52	$	28,998	$	144
Total Held to Maturity	$	19,766	$	92	$	9,232	$	52	$	28,998	$	144

Unrealized losses on securities in the investment portfolio amounted to $6.3 million with a total fair value of $262.7 million as of December 31, 2015 compared to unrealized losses of $2.4 million with a total fair value of $62.2 million as of December 31, 2014. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

The Company held four U.S. Government agency securities, thirty-four collateralized mortgage obligations and seven agency mortgage-backed securities that were in an unrealized loss position at December 31, 2015. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of December 31, 2015.

All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody’s or Standard & Poor’s. In addition the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At December 31, 2015, the investment portfolio included three municipal securities that were in an unrealized loss position. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of any credit deterioration.

At December 31, 2015, the investment portfolio included two asset-backed securities that were in an unrealized loss position. The asset-backed securities held in the investment securities portfolio consist solely of Sallie Mae bonds, collateralized by student loans which are guaranteed by the U.S. Department of Education. Management believes the unrealized losses on these securities were driven by changes in market interest rates and not a result of any credit deterioration. At December 31, 2015, the investment portfolio included four corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of any credit deterioration.

The unrealized losses on the trust preferred securities are primarily the result of the secondary market for such securities becoming inactive and are also considered temporary at this time. The following table provides additional detail on the trust preferred securities held in the portfolio as of December 31, 2015.

(dollars in thousands)	Class / Tranche	Amortized Cost		Fair Value		Unrealized Losses			Lowest Credit Rating Assigned	Number of Banks Currently Performing		Deferrals / Defaults as % of Current Balance			Conditional Default Rates for 2015 and beyond			Cumulative OTTI Life to Date
TPREF Funding II	Class B Notes	$	732	$	416	$	(316	)	C		20		36	%		0.39	%	$	267
TPREF Funding III	Class B2 Notes		1,518		901		(617	)	C		15		32			0.42			483
ALESCO Preferred Funding V	Class C1 Notes		820		566		(254	)	C		40		17			0.32			180
Total		$	3,070	$	1,883	$	(1,187	)			75		28	%				$	930

Proceeds of sales of securities available for sale in 2015 were $11.7 million. Gross gains of $396,000 and gross losses of $288,000 were realized on these sales. The tax provision applicable to the net gains for the year ended December 31, 2015 amounted to $39,000. Included in the 2015 sales activity were the sales of four CDO securities. Proceeds from the sale of the CDO securities totaled $2.0 million. Gross gains of $70,000 and gross losses of $288,000 were realized on these sales. The tax provision applicable to the net losses for the twelve months ended December 31, 2015 amounted to $78,000.Management had previously stated that it did not intend to sell the CDO securities prior to their maturity or the recovery of their cost bases, nor would it be forced to sell these securities prior to maturity or recovery of the cost bases. This statement was made over a period of several years where there was limited trading activity in the pooled trust preferred CDO market resulting in fair market value estimates well below the book values. During 2015, management received several inquiries regarding the availability of the CDO securities and noted an increased level of trading in this type of security. As a result of the increased activity and the level of bids received, management elected to sell the four CDOs resulting in a net loss of $218,000 during 2015 which was offset by gains on sales of agency mortgage- backed securities and corporate bonds. The Bank continues to demonstrate the ability and intent to hold the remaining CDOs until maturity or recovery of the cost bases, but will evaluate future opportunities to sell the remaining CDOs if they arise.

The Company realized gross gains on the sale of securities of $458,000 in 2014. The related sale proceeds amounted to $5.7 million. The tax provision applicable to these gross gains in 2014 amounted to approximately $165,000.

In July 2014, thirteen CMOs with a fair value of $70.1 million that were previously classified as available-for-sale were transferred to the held-to-maturity category. These securities were transferred at fair value. Unrealized losses of $1.2 million associated with the transferred securities will remain in other comprehensive income and be amortized as an adjustment to yield over the remaining life of those securities. At December 31, 2015, there is an approximate unrealized loss of $942,000 remaining to be amortized.