Securities
 12 Months Ended
Dec. 31, 2013
Securities  
Securities

Note 3 Securities

 

Available-for-Sale Securities 

The following tables summarize available-for-sale securities held by the Company at December 31, 2013 and 2012:

 

 

    Available-for-Sale Securities  
December 31, 2013   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
(in thousands)                        
Obligations of U.S. Government sponsored entities   $ 558,130     $ 7,720     $ 9,505     $ 556,345  
Obligations of U.S. states and political subdivisions     68,216       1,193       1,447       67,962  
Mortgage-backed securities – residential, issued by                                
U.S. Government agencies     147,766       2,554       3,642       146,678  
U.S. Government sponsored entities     587,843       8,122       18,493       577,472  
Non-U.S. Government agencies or sponsored entities     306       5       0       311  
U.S. corporate debt securities     5,000       8       375       4,633  
Total debt securities     1,367,261       19,602       33,462       1,353,401  
Equity securities     1,475       0       65       1,410  
Total available-for-sale securities   $ 1,368,736     $ 19,602     $ 33,527     $ 1,354,811  

 

    Available-for-Sale Securities  
December 31, 2012   Amortized Cost1     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
(in thousands)                        
U.S. Treasury securities   $ 1,001     $ 3     $ 0     $ 1,004  
Obligations of U.S. Government sponsored entities     570,871       22,909       2       593,778  
Obligations of U.S. states and political subdivisions     76,803       2,326       73       79,056  
Mortgage-backed securities – residential, issued by                                
U.S. Government agencies     162,853       5,362       548       167,667  
U.S. Government sponsored entities     526,364       15,759       1,768       540,355  
Non-U.S. Government agencies or sponsored entities     4,457       40       143       4,354  
U.S. corporate debt securities     5,009       87       13       5,083  
Total debt securities     1,347,358       46,486       2,547       1,391,297  
Equity securities     2,058       0       15       2,043  
Total available-for-sale securities   $ 1,349,416     $ 46,486     $ 2,562     $ 1,393,340  

 

1 Net of other-than-temporary impairment losses recognized in earnings

 

Held-to-Maturity Securities 

The following tables summarize held-to-maturity securities held by the Company at December 31, 2013 and 2012:

 

  Held-to-Maturity Securities  
December 31, 2013   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
(in thousands)                        
Obligations of U.S. states and political subdivisions   $ 18,980     $ 645     $ 0     $ 19,625  
Total held-to-maturity debt securities   $ 18,980     $ 645     $ 0     $ 19,625  

 

 

Held-to-Maturity Securities

 

    Held-to-Maturity Securities  
December 31, 2012   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value  
(in thousands)                        
Obligations of U.S. states and political subdivisions   $ 24,062     $ 1,101     $ 0     $ 25,163  
Total held-to-maturity debt securities   $ 24,062     $ 1,101     $ 0     $ 25,163  

  

The following table sets forth information with regard to sales transactions of securities available-for-sale:

  

    Year ended December 31,  
(in thousands)   2013     2012     2011  
Proceeds from sales   $ 115,796     $ 217,971     $ 59,666  
Gross realized gains     762       1,268       510  
Gross realized losses     (163 )     (944 )     (114 )
                         
Net gains on sales of available-for-sale securities   $ 599     $ 324     $ 396  

 

There were no sales of held-to-maturity securities in 2013, 2012 and 2011.

 

The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2013:

 

December 31, 2013
Available-for-Sale Securities   Less than 12 Months     12 Months or Longer     Total  
(in thousands)   Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses  
Obligations of U.S. Government sponsored entities   $ 337,967     $ 9,467     $ 1,761     $ 38     $ 339,728     $ 9,505  
Obligations of U.S. states and political subdivisions     21,821       821       6,173       626       27,994       1,447  
                                                 
Mortgage-backed securities – residential,  issued by                                                
U.S. Government agencies     70,052       2,701       14,874       941       84,926       3,642  
U.S. Government sponsored entities     293,945       14,061       76,070       4,432       370,015       18,493  
                                                 
U.S. corporate debt securities     0       0       2,125       375       2,125       375  
Equity Securities     0       0       935       65       935       65  
Total available-for-sale securities   $ 723,785     $ 27,050     $ 101,938     $ 6,477     $ 825,723     $ 33,527  

 

There were no unrealized losses on held-to-maturity securities at December 31, 2013.

 

The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2012:

 

December 31, 2012                                    
Available-for-Sale Securities   Less than 12 Months     12 Months or Longer     Total  
(in thousands)   Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses  
                                     
Obligations of U.S. Government sponsored entities   $ 1,147     $ 2     $ 0     $ 0     $ 1,147     $ 2  
Obligations of U.S. states and political  subdivisions     10,307       73       0       0       10,307       73  
                                                 
Mortgage-backed securities – residential, issued by                                                
U.S. Government agencies     40,022       548       0       0       40,022       548  
U.S. Government sponsored entities     128,365       1,768       0       0       128,365       1,768  
Non-U.S. Government agencies or sponsored entities     833       143       0       0       833       143  
U.S. corporate debt securities     2,487       13       0       0       2,487       13  
Equity securities     985       15       0       0       985       15  
Total available-for-sale securities   $ 184,146     $ 2,562     $ 0     $ 0     $ 184,146     $ 2,562  

 

 

There were no unrealized losses on held-to-maturity securities at December 31, 2012.

 

The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, U.S. government agencies such as Government National Mortgage Association, and non-agencies. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

 

The Company does not intend to sell the investment securities that are in an unrealized loss position until recovery of unrealized losses (which may be until maturity), and it is not more-likely-than not that the Company will be required to sell the investment securities, before recovery of their amortized cost basis, which may be at maturity. Accordingly, as of December 31, 2013, and December 31, 2012, management believes the unrealized losses detailed in the tables above are not other-than-temporary.

 

Ongoing Assessment of Other-Than-Temporary Impairment

 

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis (including any previous OTTI charges) at the reporting date. If impaired, the Company then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value, discounted at the security’s effective rate, of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income provided that the Company does not intend to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.

 

The Company considers the following factors in determining whether a credit loss exists.

 

  1. The length of time and the extent to which the fair value has been less than the amortized cost basis;

 

  2. The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, excess spreads, overcollateralization, protective triggers;

  

  3. Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

 

  4. The level of excess cash flow generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

 

  5. Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

 

During 2013, the Company sold three non-U.S. Government agencies or sponsored entities mortgage backed securities for a gain of approximately $94,000. Prior to 2013, these non-U.S. Government agencies or sponsored entities mortgage backed securities were determined to be other-than-temporarily impaired and the Company did recognize net credit impairment charges to earnings of $441,000 over the life of these securities. Also during 2013, one non-U.S. Government agencies or sponsored entities mortgage backed security was repaid in full. The Company did not recognize any net credit impairment charge to earnings for this security in 2013.

 

The following table summarizes the roll-forward of credit losses on debt securities held by the Company for which a portion of an other-than-temporary impairment is recognized in other comprehensive income:

 

    As of December 31,  
(in thousands)   2013     2012     2011  
Credit losses at beginning of the period   $ 441     $ 245     $ 180  
Credit losses related to securities for which an other-than-temporary impairment was recognized     0       196       65  
Sales of securities for which an other-than-temporary impairment was previously recognized     (441 )     0       0  
Ending balance of credit losses on debt securities held for which a portion of an other-than-temporary impairment was recognized in other comprehensive income   $ 0     $ 441     $ 245  

 

The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

 

    Amortized     Fair  
December 31, 2013 (in thousands)   Cost     Value  
Available-for-sale securities:                
Due in one year or less   $ 25,596     $ 26,017  
Due after one year through five years     263,553       271,303  
Due after five years through ten years     313,245       304,414  
Due after ten years     28,952       27,206  
Total     631,346       628,940  
Mortgage-backed securities     735,915       724,461  
Total available-for-sale debt securities   $ 1,367,261     $ 1,353,401  

 

    Amortized     Fair  
December 31, 2012 (in thousands)   Cost1      Value  
Available-for-sale securities:                
Due in one year or less   $ 39,552     $ 39,990  
Due after one year through five years     355,296       370,933  
Due after five years through ten years     255,795       264,966  
Due after ten years     3,041       3,032  
Total     653,684       678,921  
Mortgage-backed securities     693,674       712,376  
Total available-for-sale debt securities   $ 1,347,358     $ 1,391,297  

1 Net of other-than-temporary impairment losses recognized in earnings.

 

    Amortized     Fair  
December 31, 2013 (in thousands)   Cost     Value  
Held-to-maturity securities:                
Due in one year or less   $ 10,952     $ 11,021  
Due after one year through five years     5,636       6,004  
Due after five years through ten years     1,878       2,051  
Due after ten years     514       549  
Total held-to-maturity debt securities   $ 18,980     $ 19,625  

 

    Amortized     Fair  
December 31, 2012 (in thousands)   Cost     Value  
Held-to-maturity securities:                
Due in one year or less   $ 13,070     $ 13,154  
Due after one year through five years     7,974       8,535  
Due after five years through ten years     2,283       2,619  
Due after ten years     735       855  
Total held-to-maturity debt securities   $ 24,062     $ 25,163  

 

Trading Securities
The following summarizes trading securities, at estimated fair value, as of:

 

(in thousands)   December 31, 2013     December 31, 2012  
             
Obligations of U.S. Government sponsored entities   $ 8,275     $ 11,860  
Mortgage-backed securities – residential, issued by U.S. Government sponsored entities     2,716       4,590  
Total trading securities   $ 10,991     $ 16,450  

 

The decrease in trading securities reflects principal repayments and maturities received during 2013. The pre-tax mark-to-market losses on trading securities in 2013 were $538,000 and $332,000 in 2012, compared to pre-tax net mark-to-market gains of $62,000 in 2011.

 

The Company pledges securities as collateral for public deposits and other borrowings, and sells securities under agreements to repurchase. See “Note 10 - Federal Funds Purchased and Securities Sold Under Agreements to Repurchase” for further discussion. Securities carried of $1.0 billion and $1.0 billion at December 31, 2013 and 2012, respectively, were either pledged or sold under agreements to repurchase.

 

Except for U.S. government securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of shareholders’ equity at December 31, 2013.

 

The Company has equity investments in small business investment companies (“SBIC”) established for the purpose of providing financing to small businesses in market areas served by the Company. As of December 31, 2013 and 2012, these investments totaled $2.4 million and $3.4 million, respectively, and was included in other assets on the Company’s Consolidated Statements of Condition. The investment is accounted for under the equity method of accounting. As of December 31, 2013, the Company reviewed this investment and determined that there was no impairment.

 

The Company also holds non-marketable Federal Home Loan Bank New York (“FHLBNY”) stock, non-marketable Federal Home Loan Bank Pittsburgh (“FHLBPITT”) stock and non-marketable Atlantic Central Bankers Bank (“ACBB”) stock, all of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock, FHLBPITT stock and ACBB stock totaled $17.2 million, $7.7 million and $95,000 at December 31, 2013, respectively. These securities are carried at par, which is also cost. The FHLBNY and FHLBPITT continue to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of FHLBNY and FHLBPITT stock. On December 31, 2013, the entire $2.1 million of the Company’s Federal Reserve Bank stock was redeemed.