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Investment Securities | 9 Months Ended
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Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract] |
Investment Securities | Investment Securities At September 30, 2020, the Company had $1.10 billion and $446.6 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio. The total number of available for sale and held to maturity debt securities in an unrealized loss position at September 30, 2020 totaled 68, compared with 85 at December 31, 2019. On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The Company did not record an allowance for credit losses on available for sale debt securities as this portfolio consisted primarily of debt securities explicitly or implicitly backed by the U.S. Government for which credit risk is deemed immaterial. The impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolio as well as the economic conditions at future reporting periods. The Company recorded a $70,000 increase to the allowance for credit losses on held to maturity debt securities with a corresponding cumulative effect adjustment to decrease retained earnings by $52,000, net of income taxes. (See Adoption of CECL table below for additional detail.) Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held to maturity debt securities portfolio into the following security types: •Agency obligations; •Mortgage-backed securities; •State and municipal obligations; and •Corporate obligations. All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings from the rating agencies at September 30, 2020 and the Company had one security rated with a triple-B by Moody’s Investors Service. The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL. Available for Sale Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, 2020
|  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
Agency obligations |  | $ | 1,081 |  |  | 4 |  |  | (1) |  |  | 1,084 |
Mortgage-backed securities |  | 903,628 |  |  | 31,407 |  |  | (864) |  |  | 934,171 |
Asset-backed securities |  | 53,018 |  |  | 877 |  |  | (27) |  |  | 53,868 |
State and municipal obligations |  | 69,931 |  |  | 918 |  |  | (331) |  |  | 70,518 |
Corporate obligations |  | 40,216 |  |  | 589 |  |  | (55) |  |  | 40,750 |
|  | $ | 1,067,874 |  |  | 33,795 |  |  | (1,278) |  |  | 1,100,391 |
|  | December 31, 2019
|  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
Mortgage-backed securities |  | $ | 936,196 |  |  | 12,367 |  |  | (1,133) |  |  | 947,430 |
State and municipal obligations |  | 3,907 |  |  | 172 |  |  | — |  |  | 4,079 |
Corporate obligations |  | 25,032 |  |  | 393 |  |  | (15) |  |  | 25,410 |
|  | $ | 965,135 |  |  | 12,932 |  |  | (1,148) |  |  | 976,919 |
The amortized cost and fair value of available for sale debt securities at September 30, 2020, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
|  | September 30, 2020
|  | Amortized cost |  | Fair value
Due in one year or less |  | $ | — |  |  | — |
Due after one year through five years |  | 5,679 |  |  | 5,792 |
Due after five years through ten years |  | 38,089 |  |  | 38,737 |
Due after ten years |  | 66,379 |  |  | 66,739 |
|  | $ | 110,147 |  |  | 111,268 |
Investments which pay principal on a periodic basis totaling $957.7 million at amortized cost and $989.1 million at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. For the three and nine months ended September 30, 2020 and 2019, proceeds from calls on securities in the available for sale debt securities portfolio totaled $13.9 million, with no gain or loss recognized. The following tables present the fair values and gross unrealized losses for available for sale debt securities in an unrealized loss position at September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, 2020
|  | Less than 12 months |  | 12 months or longer |  | Total
|  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
Agency obligations |  | $ | 478 |  |  | (1) |  |  | — |  |  | — |  |  | 478 |  |  | (1) |
Mortgage-backed securities |  | 84,276 |  |  | (835) |  |  | 8,489 |  |  | (29) |  |  | 92,765 |  |  | (864) |
Asset-backed securities |  | 7,624 |  |  | (27) |  |  | — |  |  | — |  |  | 7,624 |  |  | (27) |
State and municipal obligations |  | 34,033 |  |  | (331) |  |  | — |  |  | — |  |  | 34,033 |  |  | (331) |
Corporate obligations |  | 6,938 |  |  | (11) |  |  | 1,981 |  |  | (44) |  |  | 8,919 |  |  | (55) |
|  | $ | 133,349 |  |  | (1,205) |  |  | 10,470 |  |  | (73) |  |  | 143,819 |  |  | (1,278) |
|  | December 31, 2019
|  | Less than 12 months |  | 12 months or longer |  | Total
|  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
Mortgage-backed securities |  | $ | 136,270 |  |  | (629) |  |  | 46,819 |  |  | (504) |  |  | 183,089 |  |  | (1,133) |
Corporate obligations |  | 2,013 |  |  | (15) |  |  | — |  |  | — |  |  | 2,013 |  |  | (15) |
|  | $ | 138,283 |  |  | (644) |  |  | 46,819 |  |  | (504) |  |  | 185,102 |  |  | (1,148) |
The number of available for sale debt securities in an unrealized loss position at September 30, 2020 totaled 55, compared with 50 at December 31, 2019. The increase in the number of securities in an unrealized loss position at September 30, 2020 was due to available for sale debt securities that were brought over from the SB One acquisition. At September 30, 2020, there was one private label mortgage-backed security in an unrealized loss position, with an amortized cost of $17,000 and an unrealized loss of $2,000. Held to Maturity Debt Securities The following tables present the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and the estimated fair value for held to maturity debt securities at September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, 2020
|  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Allowance for credit losses |  | Fair value
Agency obligations |  | $ | 9,100 |  |  | 4 |  |  | (16) |  |  | — |  |  | 9,088 |
Mortgage-backed securities |  | 75 |  |  | 2 |  |  | — |  |  | — |  |  | 77 |
State and municipal obligations |  | 428,532 |  |  | 21,018 |  |  | (35) |  |  | (67) |  |  | 449,448 |
Corporate obligations |  | 8,960 |  |  | 133 |  |  | (4) |  |  | (9) |  |  | 9,080 |
|  | $ | 446,667 |  |  | 21,157 |  |  | (55) |  |  | (76) |  |  | 467,693 |
At September 30, 2020, total amortized cost, net of allowance for credit losses totaled $446.6 million.
|  | December 31, 2019
|  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Allowance for credit losses |  | Fair value
Agency obligations |  | $ | 6,599 |  |  | 11 |  |  | (9) |  |  | — |  |  | 6,601 |
Mortgage-backed securities |  | 118 |  |  | 4 |  |  | — |  |  | — |  |  | 122 |
State and municipal obligations |  | 437,074 |  |  | 14,394 |  |  | (115) |  |  | — |  |  | 451,353 |
Corporate obligations |  | 9,838 |  |  | 58 |  |  | (6) |  |  | — |  |  | 9,890 |
|  | $ | 453,629 |  |  | 14,467 |  |  | (130) |  |  | — |  |  | 467,966 |
The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair value may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and nine months ended September 30, 2020 and 2019. For the three and nine months ended September 30, 2020, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $13.7 million and $39.5 million, respectively. As to these calls of securities, for the three months ended September 30, 2020, there were no gross gains and no gross losses. For the nine months ended September 30, 2020, there were gross gains of $55,000 and no gross losses. For the three and nine months ended September 30, 2019, proceeds from calls of securities in the held to maturity debt securities portfolio totaled $14.4 million and $26.6 million, respectively. As to these calls of securities, there were no of gross gains and no gross losses for the three and nine months ended September 30, 2019. The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2020 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
|  | September 30, 2020
|  | Amortized cost |  | Fair value
Due in one year or less |  | $ | 22,685 |  |  | 22,792 |
Due after one year through five years |  | 130,032 |  |  | 134,202 |
Due after five years through ten years |  | 221,305 |  |  | 234,041 |
Due after ten years |  | 72,569 |  |  | 76,658 |
|  | $ | 446,591 |  |  | 467,693 |
Mortgage-backed securities totaling $75,000 at amortized cost and $77,000 at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Additionally, allowance for credit losses totaling $76,000 is excluded from the table above. The following table illustrates the impact of the January 1, 2020 adoption of CECL on held to maturity debt securities (in thousands):
|  | January 1, 2020
|  | As reported under CECL |  | Prior to CECL |  | Impact of CECL adoption
Held to Maturity Debt Securities |  |  |  |  |  |
Allowance for credit losses on corporate securities |  | $ | 6 |  |  | — |  |  | 6 |
Allowance for credit losses on municipal securities |  | 64 |  |  | — |  |  | 64 |
Allowance for credit losses on held to maturity debt securities |  | $ | 70 |  |  | — |  |  | 70 |
The following tables present the fair values and gross unrealized losses for held to maturity debt securities in an unrealized loss position at September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, 2020 Unrealized Losses
|  | Less than 12 months |  | 12 months or longer |  | Total
|  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
Agency obligations |  | $ | 3,985 |  |  | (16) |  |  | — |  |  | — |  |  | 3,985 |  |  | (16) |
State and municipal obligations |  | 3,552 |  |  | (18) |  |  | 406 |  |  | (17) |  |  | 3,958 |  |  | (35) |
Corporate obligations |  | 1,577 |  |  | (4) |  |  | — |  |  | — |  |  | 1,577 |  |  | (4) |
|  | $ | 9,114 |  |  | (38) |  |  | 406 |  |  | (17) |  |  | 9,520 |  |  | (55) |
|  | December 31, 2019 Unrealized Losses
|  | Less than 12 months |  | 12 months or longer |  | Total
|  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
Agency obligations |  | $ | 3,601 |  |  | (9) |  |  | — |  |  | — |  |  | 3,601 |  |  | (9) |
State and municipal obligations |  | 7,675 |  |  | (42) |  |  | 2,093 |  |  | (73) |  |  | 9,768 |  |  | (115) |
Corporate obligations |  | 3,254 |  |  | (6) |  |  | — |  |  | — |  |  | 3,254 |  |  | (6) |
|  | $ | 14,530 |  |  | (57) |  |  | 2,093 |  |  | (73) |  |  | 16,623 |  |  | (130) |
The number of held to maturity debt securities in an unrealized loss position at September 30, 2020 totaled 13, compared with 35 at December 31, 2019. The decrease in the number of securities in an unrealized loss position at September 30, 2020, was due to lower current market interest rates compared to prevailing market rates at December 31, 2019. Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of September 30, 2020 (in thousands):
|  | September 30, 2020
Total Portfolio |  | AAA |  | AA |  | A |  | BBB |  | Not Rated |  | Total
Agency obligations |  | $ | 9,100 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,100 |
Mortgage-backed securities |  | 75 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 75 |
State and municipal obligations |  | 50,128 |  |  | 313,053 |  |  | 54,217 |  |  | 1,115 |  |  | 10,019 |  |  | 428,532 |
Corporate obligations |  | — |  |  | 2,719 |  |  | 5,816 |  |  | 400 |  |  | 25 |  |  | 8,960 |
|  | $ | 59,303 |  |  | 315,772 |  |  | 60,033 |  |  | 1,515 |  |  | 10,044 |  |  | 446,667 |
|  | December 31, 2019
Total Portfolio |  | AAA |  | AA |  | A |  | BBB |  | Not Rated |  | Total
Agency obligations |  | $ | 6,599 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,599 |
Mortgage-backed securities |  | 118 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 118 |
State and municipal obligations |  | 49,316 |  |  | 330,322 |  |  | 56,317 |  |  | 1,119 |  |  | — |  |  | 437,074 |
Corporate obligations |  | — |  |  | 3,128 |  |  | 6,335 |  |  | 350 |  |  | 25 |  |  | 9,838 |
|  | $ | 56,033 |  |  | 333,450 |  |  | 62,652 |  |  | 1,469 |  |  | 25 |  |  | 453,629 |
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At September 30, 2020, the held to maturity debt securities portfolio was comprised of 13% rated AAA, 71% rated AA, 13% rated A, and less than 2% either below an A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security. At September 30, 2020, the allowance for credit losses on held to maturity debt securities was $76,000, an increase from $70,000 at January 1, 2020, when the Company adopted CECL.

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