FIRST BUSINESS FINANCIAL SERVICES, INC. - 10-K filing on 2017-03-10

Securities

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	6,298	$	7	$	(10	)	$	6,295
Municipal obligations	8,246		2		(92		)	8,156
Asset-backed securities	1,116		—		(35		)	1,081
Collateralized mortgage obligations - government issued	30,936		423		(146		)	31,213
Collateralized mortgage obligations - government-sponsored enterprises	99,865		252		(969		)	99,148
	$	146,461	$	684	$	(1,252	)	$	145,893



	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	8,047	$	2	$	(32	)	$	8,017
Municipal obligations	4,278		12		(7		)	4,283
Asset-backed securities	1,327		—		(58		)	1,269
Collateralized mortgage obligations - government issued	43,845		814		(116		)	44,543
Collateralized mortgage obligations - government-sponsored enterprises	82,707		145		(416		)	82,436
	$	140,204	$	973	$	(629	)	$	140,548

The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses were as follows:



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises	$	1,497	$	2	$	(5	)	$	1,494
Municipal obligations	21,173		62		(78		)	21,157
Collateralized mortgage obligations - government issued	9,148		17		(38		)	9,127
Collateralized mortgage obligations - government-sponsored enterprises	6,794		6		(58		)	6,742
	$	38,612	$	87	$	(179	)	$	38,520



	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises	$	1,495	$	1	$	(11	)	$	1,485
Municipal obligations	16,038		332		(5		)	16,365
Collateralized mortgage obligations - government issued	11,718		32		(41		)	11,709
Collateralized mortgage obligations - government-sponsored enterprises	8,031		12		(44		)	7,999
	$	37,282	$	377	$	(101	)	$	37,558

U.S. Government agency obligations - government-sponsored enterprises represent securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”). Municipal obligations include securities issued by various municipalities located primarily within the State of Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. Asset-backed securities represent securities issued by the Student Loan Marketing Association (“SLMA”) which are 97% guaranteed by the U.S. Government. Collateralized mortgage obligations - government issued represent securities guaranteed by the Government National Mortgage Association (“GNMA”). Collateralized mortgage obligations - government-sponsored enterprises include securities guaranteed by the FHLMC and the FNMA. For the year ended December 31, 2016, a gain of $10,000 was recorded from the sale of five available-for-sale securities. No sales of available-for-sale securities occurred during the years ended December 31, 2015 and 2014.

At December 31, 2016 and 2015, securities with a fair value of $22.4 million and $23.0 million, respectively, were pledged to secure interest rate swap contracts, outstanding FHLB advances, if any, and additional FHLB availability.

The amortized cost and fair value of securities by contractual maturity at December 31, 2016 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations without call or prepayment penalties.



	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	4,532	$	4,532	$	—	$	—
Due in one year through five years	15,308		15,245		7,111		7,100
Due in five through ten years	66,396		66,710		13,994		13,978
Due in over ten years	60,225		59,406		17,507		17,442
	$	146,461	$	145,893	$	38,612	$	38,520

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments with unrealized losses aggregated by investment category and length of time that individual investments were in a continuous loss position at December 31, 2016 and 2015. At December 31, 2016, the Corporation held 108 available-for-sale securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. At December 31, 2016, the Corporation held seven available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment. Consideration is given to such factors as the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings and an evaluation of the present value of expected future cash flows, if necessary. Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security. Accordingly, no other than temporary impairment was recorded in the Consolidated Statements of Income for the years ended December 31, 2016 and 2015.

A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:



	December 31, 2016
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	1,991	$	10	$	—	$	—	$	1,991	$	10
Municipal obligations	7,207		89		406		3		7,613		92
Asset-backed securities	—		—		1,081		35		1,081		35
Collateralized mortgage obligations - government issued	10,552		130		493		16		11,045		146
Collateralized mortgage obligations - government-sponsored enterprises	54,843		931		1,819		38		56,662		969
	$	74,593	$	1,160	$	3,799	$	92	$	78,392	$	1,252



	December 31, 2015
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. Government agency obligations - government-sponsored enterprises	$	3,536	$	13	$	1,981	$	19	$	5,517	$	32
Municipal obligations	2,403		7		—		—		2,403		7
Asset-backed securities	1,269		58		—		—		1,269		58
Collateralized mortgage obligations - government issued	3,373		19		5,687		97		9,060		116
Collateralized mortgage obligations - government-sponsored enterprises	59,992		373		1,717		43		61,709		416
	$	70,573	$	470	$	9,385	$	159	$	79,958	$	629

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at December 31, 2016 and 2015. At December 31, 2016, the Corporation held 57 held-to-maturity securities that were in an unrecognized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. There were no held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of December 31, 2016. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of the aforementioned factors. Accordingly, no other-than-temporary impairment was recorded in the Consolidated Statements of Income for the years ended December 31, 2016 and 2015.

A summary of unrealized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:



	December 31, 2016
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises	$	1,000	$	5	$	—	$	—	$	1,000	$	5
Municipal obligations	9,472		78		—		—		9,472		78
Collateralized mortgage obligations - government issued	6,980		38		—		—		6,980		38
Collateralized mortgage obligations - government-sponsored enterprises	4,682		58		—		—		4,682		58
	$	22,134	$	179	$	—	$	—	$	22,134	$	179



	December 31, 2015
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
U.S. Government agency obligations - government-sponsored enterprises	$	—	$	—	$	1,000	$	11	$	1,000	$	11
Municipal obligations	436		4		199		1		635		5
Collateralized mortgage obligations - government issued	6,518		$	41	—		—		6,518		41
Collateralized mortgage obligations - government-sponsored enterprises	5,168		44		—		—		5,168		44
	$	12,122	$	89	$	1,199	$	12	$	13,321	$	101