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Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Securities

4. Securities

The Company did not hold any trading securities at March 31, 2020 and December 31, 2019. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 16 related to the adoption of Topic 326, we recorded a transition adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt securities.

Allowance for credit losses

The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of three securities, two of which are structured similar to a Commercial owner occupied loan, which is modeled for credit losses similar to Commercial business loans secured by real estate. The other security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero loss expectation. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at March 31, 2020 and is excluded from estimates of credit losses.

The following table summarizes the Company’s portfolio of securities held-to-maturity at March 31, 2020:


								Gross			Gross			Allowance
		Amortized						Unrealized			Unrealized			for Credit
		Cost			Fair Value			Gains			Losses			Losses
		(In thousands)
Securities held-to-maturity:
Municipals		$	50,627		$	51,938		$	1,311		$	—		$	(402)
Total other securities			50,627			51,938			1,311			—			(402)

FNMA			7,929			8,953			1,024			—			—
Total mortgage-backed securities			7,929			8,953			1,024			—			—
Total		$	58,556		$	60,891		$	2,335		$	—		$	(402)

The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2019:


								Gross			Gross
		Amortized						Unrealized			Unrealized
		Cost			Fair Value			Gains			Losses
		(In thousands)
Securities held-to-maturity:
Municipals		$	50,954		$	53,998		$	3,044		$	—
Total other securities			50,954			53,998			3,044			—

FNMA			7,934			8,114			180			—
Total mortgage-backed securities			7,934			8,114			180			—
Total		$	58,888		$	62,112		$	3,224		$	—

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2020:


								Gross			Gross
		Amortized						Unrealized			Unrealized
		Cost			Fair Value			Gains			Losses
		(In thousands)
Securities available for sale:
Corporate		$	130,000		$	111,852		$	—		$	18,148
Municipals			12,743			12,801			58			—
Mutual funds			12,476			12,476			—			—
Collateralized loan obligations			100,361			87,372			—			12,989
Other			1,355			1,355			—			—
Total other securities			256,935			225,856			58			31,137
REMIC and CMO			341,170			348,109			7,329			390
GNMA			602			659			57			—
FNMA			99,676			102,224			2,572			24
FHLMC			37,630			38,564			934			—
Total mortgage-backed securities			479,078			489,556			10,892			414
Total securities available for sale		$	736,013		$	715,412		$	10,950		$	31,551

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2019:


								Gross			Gross
		Amortized						Unrealized			Unrealized
		Cost			Fair Value			Gains			Losses
		(In thousands)
Securities available for sale:
Corporate		$	130,000		$	123,050		$	—		$	6,950
Municipals			12,797			12,916			119			—
Mutual funds			12,216			12,216			—			—
Collateralized loan obligations			100,349			99,137			—			1,212
Other			1,332			1,332			—			—
Total other securities			256,694			248,651			119			8,162
REMIC and CMO			348,236			348,989			2,193			1,440
GNMA			653			704			51			—
FNMA			104,235			104,882			1,073			426
FHLMC			68,476			69,274			871			73
Total mortgage-backed securities			521,600			523,849			4,188			1,939
Total securities available for sale		$	778,294		$	772,500		$	4,307		$	10,101

We did not hold any private issue CMO’s that are collateralized by commercial real estate mortgages at March 31, 2020 and December 31, 2019.

The corporate securities held by the Company at March 31, 2020 and December 31, 2019 are issued by U.S. banking institutions.

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at March 31, 2020, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Amortized
Securities held-to-maturity:		Cost			Fair Value
		(In thousands)
Due in one year or less		$	—		$	—
Due after ten years			50,627			51,938
Total other securities			50,627			51,938
Mortgage-backed securities			7,929			8,953
Total		$	58,556		$	60,891


		Amortized
Securities available for sale:		Cost			Fair Value
		(In thousands)
Due after one year through five years		$	20,000		$	18,276
Due after five years through ten years			127,923			109,510
Due after ten years			96,536			85,594
Total other securities			244,459			213,380
Mutual funds			12,476			12,476
Mortgage-backed securities			479,078			489,556
Total		$	736,013		$	715,412

The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:


		At March 31, 2020
		Total								Less than 12 months						12 months or more
							Unrealized						Unrealized						Unrealized
		Count		Fair Value			Losses			Fair Value			Losses			Fair Value			Losses
		(Dollars in thousands)
Available for sale securities
Corporate		16		$	111,853		$	18,148		$	9,620		$	380		$	102,233		$	17,768
Collateralized loan obligations		13			87,372			12,989			22,521			3,046			64,851			9,943
Total other securities		29			199,225			31,137			32,141			3,426			167,084			27,711

REMIC and CMO		12			67,416			390			64,541			371			2,875			19
FNMA		1			8,812			24			—			—			8,812			24

Total mortgage-backed securities		13			76,228			414			64,541			371			11,687			43
Total		42		$	275,453		$	31,551		$	96,682		$	3,797		$	178,771		$	27,754


		At December 31, 2019
		Total								Less than 12 months						12 months or more
							Unrealized						Unrealized						Unrealized
		Count		Fair Value			Losses			Fair Value			Losses			Fair Value			Losses
		(Dollars in thousands)

Available for sale securities
Corporate		16		$	123,050		$	6,950		$	—		$	—		$	123,050		$	6,950
Collateralized loan obligations		13			99,137			1,212			25,451			108			73,686			1,104
Total other securities		29			222,187			8,162			25,451			108			196,736			8,054

REMIC and CMO		23			120,989			1,440			102,384			1,117			18,605			323
GNMA		1			49			—			49			—			—			—
FNMA		8			67,618			426			19,073			138			48,545			288
FHLMC		1			30,200			73			—			—			30,200			73
Total mortgage-backed securities		33			218,856			1,939			121,506			1,255			97,350			684

Total securities available for sale		62		$	441,043		$	10,101		$	146,957		$	1,363		$	294,086		$	8,738

The Company reviewed each available for sale debt securities that had an unrealized loss at March 31, 2020 to evaluate whether the decline in fair value resulted from credit losses or other factors. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.

In determining the risk of loss for available for sale securities, the Company considered that Mortgage-Backed Securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the issuer of Corporate securities are global systematically important banks, and the tranche of the purchased CLO’s. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review management believes that the unrealized losses have resulted from other factors not deemed credit-related and no allowance for credit loss was recorded.

Accrued interest receivable on available-for-sale debt securities totaled $2.4 million at March 31, 2020 and is excluded from the estimate of credit losses.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended March 31, 2020:


		Mortgage-backed securities			Other securities
		(In thousands)
Beginning balance		$	—		$	—
CECL adoption			—			340
Provision			—			62
Allowance for credit losses - securities		$	—		$	402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $64.6 million in mortgage-backed securities during the three months ended March 31, 2020. The Company did not sell any securities during the three months ended March 31, 2019.

The following table represents the gross gains and gross losses realized from the sale of securities available for sale for the periods indicated:


		For the three months ended
		March 31,
		2020			2019

Gross gains from the sale of securities		$	713		$	—
Gross losses from the sale of securities			(750)			—

Net losses from the sale of securities		$	(37)		$	—