Investment Securities

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of March 31, 2020 and December 31, 2019 are summarized in the tables below:


	March 31, 2020 ⁽¹⁾
(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	159,416	$	13,398	$	—	$	172,814


Agency-guaranteed collateralized mortgage obligations	153,952		—		—		153,952
State and political subdivision debt securities ⁽²⁾	15,157		—		—		15,157
Collateralized mortgage obligations	5,566		—		—		5,566
Corporate notes ⁽³⁾	356,027		1,471		(8,634)		348,864

Available for sale debt securities	$	690,118	$	14,869	$	(8,634)	696,353
Interest-only GNMA securities ⁽⁴⁾							15,276
Equity securities ⁽⁵⁾							1,028
Total investment securities, at fair value							$	712,657


	December 31, 2019
(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	273,252	$	5,069	$	—	$	278,321

Corporate notes ⁽³⁾	284,639		14,238		—		298,877
Available for sale debt securities	$	557,891	$	19,307	$	—	577,198
Interest-only GNMA securities ⁽⁴⁾							16,272
Equity securities ⁽⁵⁾							2,406
Total investment securities, at fair value							$	595,876

(1)Accrued interest on AFS debt securities totaled $4.7 million at March 31, 2020 and is included in accrued interest receivable on the consolidated balance sheet.

(2)Includes both taxable and non-taxable municipal securities.

(3)Includes corporate securities issued by domestic bank holding companies.

(4)Reported at fair value with fair value changes recorded in non-interest income based on a fair value option election.

(5)Includes equity securities issued by a foreign entity.

On June 28, 2019, Customers obtained ownership of certain interest-only GNMA securities that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code private sale transaction. In connection with the acquisition of the interest-only GNMA securities, Customers recognized a pre-tax loss of $7.5 million for the three months ended June 30, 2019 for the shortfall in the fair value of the interest-only GNMA securities compared to its credit exposure to this commercial mortgage warehouse customer. Upon acquisition, Customers elected the fair value option for these interest-only GNMA securities. The fair value of these securities at March 31, 2020 was $15.3 million.

During the three months ended March 31, 2020 and 2019, Customers recognized unrealized losses of $1.4 million and unrealized gains of $2 thousand, respectively, on its equity securities. These unrealized gains and losses are reported as unrealized gain (loss) on investment securities within non-interest income on the consolidated statements of income.

For the three months ended March 31, 2020, realized gains from sales of available-for-sale securities were $4.0 million. Proceeds from these sales were received in April 2020. There were no sales during the three months ended March 31, 2019.

These gains (losses) were determined using the specific identification method and were reported as gain (loss) on sale of investment securities within non-interest income on the consolidated statements of income.

The following table shows debt securities by stated maturity. Debt securities backed by mortgages and interest-only GNMA securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these debt securities are classified separately with no specific maturity date:


	March 31, 2020
(amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	11,885	$	11,885
Due after one year through five years	57,611		57,723
Due after five years through ten years	282,528		275,182
Due after ten years	19,160		19,231
Agency-guaranteed residential mortgage-backed securities	159,416		172,814
Agency-guaranteed collateralized mortgage obligations	153,952		153,952
Collateralized mortgage obligations	5,566		5,566
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities	—		15,276

Total debt securities	$	690,118	$	711,629

Gross unrealized losses and fair value of Customers' available for sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2020 were as follows:



	March 31, 2020
	Less Than 12 Months						12 Months or More						Total
(amounts in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale debt securities:


Corporate notes	249,946		8,634		—		—		249,946		8,634

Total	$	249,946	$	8,634	$	—	$	—	$	249,946	$	8,634

At March 31, 2020, there were 13 available for sale debt securities with unrealized losses in the less-than-twelve-month category and no available for sale debt securities with unrealized losses in the twelve-month-or-more category. The unrealized losses on the corporate notes relate to securities with no company specific concentration. The unrealized losses were principally due to changes in market interest rates that resulted in a negative impact on the respective notes' fair value. All amounts related to the corporate notes are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell these securities, and it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis. At December 31, 2019, there were no available for sale debt securities in an unrealized loss position.

At March 31, 2020 and December 31, 2019, Customers Bank had pledged investment securities aggregating $20.0 million and $20.4 million in fair value, respectively, as collateral against its borrowings primarily with an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

At March 31, 2020 and December 31, 2019, no securities holding of any one issuer, other than the U.S. Government and its agencies, amounted to greater than 10% of shareholders' equity.