Securities

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

The amortized cost, estimated fair value, and allowance for credit losses of debt securities available-for-sale and held-to-maturity at March 31, 2020, and December 31, 2019, are as follows (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
At March 31, 2020
Debt securities available-for-sale:
Investment securities:
U.S. government and agency obligations	$	149,261	$	4,051	$	(4	)	$	153,308
State and municipal obligations	25		—		—			25
Total investment securities	149,286		4,051		(4		)	153,333
Mortgage-backed securities - FNMA	397		8		—			405
Total debt securities available-for-sale	$	149,683	$	4,059	$	(4	)	$	153,738

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Allowance for Credit Losses
At March 31, 2020
Debt securities held-to-maturity:
Investment securities:
U.S. government and agency obligations	$	6,238	$	54	$	—		$	6,292	$	—
State and municipal obligations	232,167		3,014		(425		)	234,756		(35		)
Corporate debt securities	82,277		510		(8,568		)	74,219		(1,651		)
Total investment securities	320,682		3,578		(8,993		)	315,267		(1,686		)
Mortgage-backed securities:
FHLMC	198,263		5,835		(30		)	204,068		—
FNMA	240,839		7,604		(165		)	248,278		—
GNMA	104,891		2,027		(416		)	106,502		—
SBA	6,108		9		(46		)	6,071		—
CMO	49,904		—		(1,508		)	48,396		(843		)
Total mortgage-backed securities	600,005		15,475		(2,165		)	613,315		(843		)
Total debt securities held-to-maturity	$	920,687	$	19,053	$	(11,158	)	$	928,582	$	(2,529	)
Total debt securities	$	1,070,370	$	23,112	$	(11,162	)	$	1,082,320	$	(2,529	)

There was no allowance for credit losses on debt securities available-for-sale at March 31, 2020.



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
At December 31, 2019
Debt securities available-for-sale:
Investment securities:
U.S. government and agency obligations	$	149,120	$	1,408	$	(93	)	$	150,435
State and municipal obligations	25		—		—			25
Total investment securities	149,145		1,408		(93		)	150,460
Mortgage-backed securities - FNMA	495		5		—			500
Total debt securities available-for-sale	$	149,640	$	1,413	$	(93	)	$	150,960

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2019
Debt securities held-to-maturity:
Investment securities:
U.S. government and agency obligations	$	4,984	$	14	$	—		$	4,998
State and municipal obligations	124,430		1,537		(208		)	125,759
Corporate debt securities	79,547		833		(2,421		)	77,959
Total investment securities	208,961		2,384		(2,629		)	208,716
Mortgage-backed securities:
FHLMC	206,985		2,221		(524		)	208,682
FNMA	244,428		2,680		(493		)	246,615
GNMA	110,661		939		(212		)	111,388
SBA	1,940		—		(51		)	1,889
Total mortgage-backed securities	564,014		5,840		(1,280		)	568,574
Total debt securities held-to-maturity	$	772,975	$	8,224	$	(3,909	)	$	777,290
Total debt securities	$	922,615	$	9,637	$	(4,002	)	$	928,250

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the three months ended March 31, 2020 (in thousands):



	Investment securities			Mortgage-backed securities
Allowance for credit losses
Beginning balance	$	—		$	—
Impact of CECL adoption	(1,268		)	—
Provision for credit loss expense	(418		)	(843		)
Total ending allowance balance	$	(1,686	)	$	(843	)

During the third quarter 2013, the Bank transferred $536.0 million of previously designated available-for-sale securities to a held-to-maturity designation at estimated fair value. The securities transferred had an unrealized net loss of $13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive loss on the consolidated balance sheet, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of the debt securities held-to-maturity at March 31, 2020, and December 31, 2019, is as follows (in thousands):



	March 31, 2020			December 31, 2019
Amortized cost	$	920,687		$	772,975
Net loss on date of transfer from available-for-sale	(13,347		)	(13,347		)
Allowance for credit loss	(2,529		)	—
Accretion of net unrealized loss on securities reclassified as held-to-maturity	9,444			9,245
Carrying value	$	914,255		$	768,873

There were no realized gains or losses for the three months ended March 31, 2020 and March 31, 2019, respectively.

The amortized cost and estimated fair value of investment securities at March 31, 2020 by contractual maturity are shown below (in thousands). Actual maturities may differ from contractual maturities in instances where issuers have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2020, corporate debt securities with an amortized cost of $57.0 million and estimated fair value of $49.0 million were callable prior to the maturity date.



March 31, 2020	Amortized Cost		Estimated Fair Value
Less than one year	$	82,453	$	82,780
Due after one year through five years	199,795		204,837
Due after five years through ten years	77,653		70,576
Due after ten years	110,067		110,407
	$	469,968	$	468,600

Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value of securities pledged as required security for deposits and for other purposes amounted to $455.6 million and $475.6 million, at March 31, 2020 and December 31, 2019, respectively, including $92.6 million and $81.4 million at March 31, 2020 and December 31, 2019, respectively, pledged as collateral for securities sold under agreements to repurchase.

At March 31, 2020, there were no holdings of securities of any one issuer, other than the US government and its agencies, in an amount greater than 10% of shareholders’ equity.

The estimated fair value and unrealized losses of debt securities available-for-sale and held-to-maturity at March 31, 2020 and December 31, 2019, segregated by the duration of the unrealized losses, are as follows (in thousands):



	At March 31, 2020
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Debt securities available-for-sale:
Investment securities - U.S. government and agency obligations	$	4,900	$	(4	)	$	—	$	—		$	4,900	$	(4	)
Total debt securities available-for-sale	4,900		(4		)	—		—			4,900		(4		)
Debt securities held-to-maturity:
Investment securities:
U.S. government and agency obligations	—		—			—		—			—		—
State and municipal obligations	38,712		(247		)	8,532		(178		)	47,244		(425		)
Corporate debt securities	20,259		(1,528		)	31,292		(7,040		)	51,551		(8,568		)
Total investment securities	58,971		(1,775		)	39,824		(7,218		)	98,795		(8,993		)
Mortgage-backed securities:
FHLMC	1,653		(22		)	1,772		(8		)	3,425		(30		)
FNMA	20,857		(154		)	444		(11		)	21,301		(165		)
GNMA	15,906		(266		)	7,222		(150		)	23,128		(416		)
SBA	—		—			1,763		(46		)	1,763		(46		)
CMO	48,396		(1,508		)	—		—			48,396		(1,508		)
Total mortgage-backed securities	86,812		(1,950		)	11,201		(215		)	98,013		(2,165		)
Total debt securities held-to-maturity	145,783		(3,725		)	51,025		(7,433		)	196,808		(11,158		)
Total debt securities	$	150,683	$	(3,729	)	$	51,025	$	(7,433	)	$	201,708	$	(11,162	)

	At December 31, 2019
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Debt securities available-for-sale:
Investment securities - U.S. government and agency obligations	$	25,021	$	(54	)	$	22,451	$	(39	)	$	47,472	$	(93	)
Total debt securities available-for-sale	25,021		(54		)	22,451		(39		)	47,472		(93		)
Debt securities held-to-maturity:
Investment securities:
State and municipal obligations	7,308		(58		)	14,531		(150		)	21,839		(208		)
Corporate debt securities	9,727		(213		)	37,628		(2,208		)	47,355		(2,421		)
Total investment securities	17,035		(271		)	52,159		(2,358		)	69,194		(2,629		)
Mortgage-backed securities:
FHLMC	6,329		(29		)	38,641		(495		)	44,970		(524		)
FNMA	13,682		(59		)	38,568		(434		)	52,250		(493		)
GNMA	30,268		(93		)	19,828		(119		)	50,096		(212		)
SBA	—		—			1,889		(51		)	1,889		(51		)
Total mortgage-backed securities	50,279		(181		)	98,926		(1,099		)	149,205		(1,280		)
Total debt securities held-to-maturity	67,314		(452		)	151,085		(3,457		)	218,399		(3,909		)
Total debt securities	$	92,335	$	(506	)	$	173,536	$	(3,496	)	$	265,871	$	(4,002	)

At March 31, 2020, the amortized cost, estimated fair value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):



Security Description	Amortized Cost		Estimated Fair Value		Credit Rating Moody’s/ S&P
Chase Capital	$	10,000	$	8,300	Baa1/BBB-
Wells Fargo Capital	5,000		4,200		A1/BBB
Huntington Capital	5,000		3,850		Baa2/BB+
Keycorp Capital	5,000		4,100		Baa2/BB+
PNC Capital	5,000		4,010		Baa1/BBB-
State Street Capital	3,332		2,732		A3/BBB
SunTrust Capital	5,000		4,100		Not Rated/BBB-
	$	38,332	$	31,292

At March 31, 2020, the estimated fair value of each of the above corporate debt securities was below cost. The Company concluded that these corporate debt securities were only temporarily impaired at March 31, 2020. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the Company does not intend to sell these corporate debt securities and it is more likely than not that the Company will not be required to sell the securities. Historically, the Company has not utilized securities sales as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The mortgage-backed securities are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”), or the Small Business Administration (“SBA”), corporations which are chartered by the United States Government and whose debt obligations are typically rated AA+ by one of the internationally-recognized credit rating services. The Company considers the unrealized losses to be the result of changes in interest rates, and not credit quality, which over time can have both a positive and negative impact on the estimated fair value of the mortgage-backed securities. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that these securities were only temporarily impaired at March 31, 2020.

The Company monitors the credit quality of debt securities held-to-maturity on a quarterly basis through the use of credit ratings. The following table summarized the amortized cost of debt securities held-to-maturity at March 31, 2020, aggregated by credit quality indicator (in thousands):



	AAA		AA		A		BBB		BB		Total
As of March 31, 2020
Investment securities:
U.S. government and agency obligations	$	—	$	6,238	$	—	$	—	$	—	$	6,238
State and municipal obligations	41,863		135,634		49,366		5,304		—		232,167
Corporate debt securities	—		1,493		17,450		52,803		10,531		82,277
Total investment securities	41,863		143,365		66,816		58,107		10,531		320,682
Mortgage-backed securities:
CMO	16,924		32,980		—		—		—		49,904
Total mortgage-backed securities	16,924		32,980		—		—		—		49,904
Total debt securities held-to-maturity	$	58,787	$	176,345	$	66,816	$	58,107	$	10,531	$	370,586

A debt security is considered to be past due once it is 30 days past due under the terms of the agreement. At March 31, 2020, there were no debt securities that were past due, on nonaccrual, or past due over 89 days and still accruing.