Investments

12 Months Ended

Dec. 31, 2020

INVESTMENTS

The aggregate carrying and approximate fair values of investment securities follow (in thousands). Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable financial instruments.


	December 31, 2020								December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale:
U.S. Treasuries and U.S.
government agencies	$	—	$	—	$	—	$	—	$	500	$	2	$	—	$	502
Obligations of states and
political subdivisions	266,483		11,467		139		277,811		112,393		4,800		6		117,187
Mortgage-backed securities:
U.S. government agencies	815,682		34,807		105		850,384		631,637		12,292		1,825		642,104
Private label	9,976		916		—		10,892		10,896		589		—		11,485
Trust preferred securities	4,557		—		457		4,100		4,781		27		347		4,461
Corporate securities	31,465		2,146		1		33,610		31,669		500		43		32,126
Total Debt Securities	1,128,163		49,336		702		1,176,797		791,876		18,210		2,221		807,865
Certificates of deposit held for investment	1,992		—		—		1,992		2,241		—		—		2,241
Total Securities
Available-for-Sale	$	1,130,155	$	49,336	$	702	$	1,178,789	$	794,117	$	18,210	$	2,221	$	810,106


Securities held-to-maturity:
Mortgage-backed securities:
U.S. government agencies	$	—	$	—	$	—	$	—	$	49,036	$	1,562	—		$	50,598
Total Securities
Held-to-Maturity	$	—	$	—	$	—	$	—	$	49,036	$	1,562	$	—	$	50,598

Effective January 1, 2020, the Company reclassified its held-to-maturity securities as available-for-sale utilizing the transition guidance under ASU 2019-04, and the unrealized gains/losses on these investments has been recorded through Other Comprehensive Income.

The Company's other investment securities include marketable and non-marketable equity securities. At December 31, 2020 and 2019, the Company held $11.8 million and $12.6 million, respectively, in marketable equity securities. Marketable equity securities mainly consist of investments made by the Company in equity positions of various community banks. Included within this portfolio are ownership positions in the following community bank holding companies: First National Corporation ("FXNC") (4%) and Eagle Financial Services, Inc. ("EFSI") (1.5%). Changes in the fair value of the marketable equity securities are recorded in "unrealized (losses) gains recognized on equity securities still held" in the consolidated statements of income. The Company's non-marketable securities consist of securities with limited marketability, such as stock in the Federal Reserve Bank ("FRB") or the Federal Home Loan Bank ("FHLB"). At December 31, 2020 and 2019, the Company held $15.5 million and $15.9 million, respectively, in non-marketable equity securities. These securities are carried at cost due to the restrictions placed on their transferability.

The Company's mortgage-backed U.S. government agency securities consist of both residential and commercial securities, all of which are guaranteed by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), or Ginnie Mae ("GNMA"). At December 31, 2020 and 2019, there were no securities of any non-governmental issuer whose aggregate carrying value or estimated fair value exceeded 10% of shareholders' equity.

Certain investment securities owned by the Company were in an unrealized loss position (i.e., amortized cost basis exceeded the estimated fair value of the securities) as of December 31, 2020 and 2019. The following table shows the gross unrealized losses and fair value of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	December 31, 2020
	Less Than Twelve Months				Twelve Months or Greater				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Securities available-for-sale:
Obligations of states and political subdivisions	$	10,578	$	139	$	—	$	—	$	10,578	$	139
Mortgage-backed securities:
U.S. Government agencies	62,412		105		35		—		62,447		105
Trust preferred securities	—		—		4,100		457		4,100		457
Corporate securities	488		1		—		—		488		1
Total available-for-sale	$	73,478	$	245	$	4,135	$	457	$	77,613	$	702


	December 31, 2019
	Less Than Twelve Months				Twelve Months or Greater				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Securities available-for-sale:
Obligations of states and political subdivisions	$	230	$	—	$	1,439	$	6	$	1,669	$	6
Mortgage-backed securities:
U.S. Government agencies	123,289		1,247		34,746		578		158,035		1,825
Trust preferred securities	4,200		347		—		—		4,200		347
Corporate securities	11,248		43		—		—		11,248		43
Total available-for-sale	$	138,967	$	1,637	$	36,185	$	584	$	175,152	$	2,221

There were no held-to-maturity securities in an unrealized loss position as of December 31, 2019.

As of December 31, 2020, management does not intend to sell any securities that are in an unrealized loss position and it is not more than likely that it will be required to sell the securities before the recovery of the amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage related securities, general financial market uncertainty and unprecedented market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date. As of December 31, 2020, management believes the unrealized losses detailed in the table above are temporary and no allowance for credit losses for available-for-sale securities has been recognized in the Company’s consolidated income statement. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss will be recognized in net income in the period the other-than-temporary impairment is identified, while any noncredit loss will be recognized in other comprehensive income. During the years ended December 31, 2020, 2019 and 2018, the Company had no credit-related net investment impairment losses.

The amortized cost and estimated fair value of debt securities at December 31, 2020, by contractual maturity, is shown in the following table (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.


	Cost		Estimated Fair Value
Securities Available-for-Sale
Due in one year or less	$	5,211	$	5,307
Due after one year through five years	32,776		34,499
Due after five years through ten years	276,898		293,388
Due after ten years	813,278		843,603
	$	1,128,163	$	1,176,797

Gross gains and gross losses realized by the Company from investment security transactions are summarized in the table below (in thousands):


	For the year ended December 31,
	2020		2019		2018

Gross unrealized gains recognized on equity securities still held	$	223	$	888	$	208
Gross unrealized losses recognized on equity securities still held	(1,086)		—		(298)
Net unrealized (losses) gains recognized on equity securities still held	$	(863)	$	888	$	(90)

Gross realized gains	$	139	$	226	$	—
Gross realized losses	(77)		(157)		—
Net realized investment security gains	$	62	$	69	$	—

During January 2020, the Company sold the entirety of its Visa Inc. Class B common shares (86,605) in a cash transaction which resulted in a pre-tax gain of $17.8 million. The carrying value of the Visa Class B shares on the Company’s balance sheet was $0, as City National had no historical cost basis in the shares.

The carrying value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated $644 million and $518 million at December 31, 2020 and 2019, respectively.