Securities

9 Months Ended

Sep. 30, 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 September 30, 2020, and December 31, 2019, are as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
At September 30, 2020
Debt securities available-for-sale:
Investment securities:
U.S. government and agency obligations	$	158,778	$	3,653	$	(3)	$	162,428	$	—
State and municipal obligations	2,402		—		—		2,402		—
Corporate debt securities	4,500		61		—		4,561		—
Total investment securities	165,680		3,714		(3)		169,391		—
Mortgage-backed securities - FNMA	240		3		—		243		—
Total debt securities available-for-sale	$	165,920	$	3,717	$	(3)	$	169,634	$	—



Debt securities held-to-maturity:
Investment securities:
U.S. government and agency obligations	$	4,997	$	14	$	—	$	5,011	$	—
State and municipal obligations	214,865		9,375		(225)		224,015		(33)
Corporate debt securities	72,289		1,700		(3,867)		70,122		(1,579)
Total investment securities	292,151		11,089		(4,092)		299,148		(1,612)
Mortgage-backed securities:
FHLMC	202,329		6,093		(135)		208,287		—
FNMA	245,524		7,799		(141)		253,182		—
GNMA	82,230		2,457		(16)		84,671		—
SBA	5,634		—		(60)		5,574		—
CMO	49,745		1,811		—		51,556		(781)
Total mortgage-backed securities	585,462		18,160		(352)		603,270		(781)
Total debt securities held-to-maturity	$	877,613	$	29,249	$	(4,444)	$	902,418	$	(2,393)
Total debt securities	$	1,043,533	$	32,966	$	(4,447)	$	1,072,052	$	(2,393)

There was no allowance for credit losses on debt securities available-for-sale at September 30, 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



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 nine months ended September 30, 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	(344)		(781)



Total ending allowance balance	$	(1,612)	$	(781)

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 September 30, 2020, and December 31, 2019, is as follows (in thousands):


	September 30, 2020		December 31, 2019
Amortized cost	$	877,613	$	772,975
Net loss on date of transfer from available-for-sale	(13,347)		(13,347)
Allowance for credit loss	(2,393)		—
Accretion of net unrealized loss on securities reclassified as held-to-maturity	9,815		9,245
Carrying value	$	871,688	$	768,873

During the three and nine months ended September 30, 2020 there were $244,000 of realized gains on debt securities. There were no realized gains or losses on debt securities for the three and nine months ended September 30, 2019.

During the three and nine months ended September 30, 2020, there were $0 and $53,000, respectively, of realized losses on equity securities. There were no realized gains or losses on equity securities in the three and nine months ended September 30, 2019. The realized and unrealized gains or losses on equity securities for the three and nine months ended September 30, 2020 and September 30, 2019 are shown in the table below (in thousands).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) gain on equity investments	$	(3,576)	$	89	$	(3,273)	$	330
Less: Net losses recognized on equity securities sold	—		—		(53)		—
Unrealized (loss) gain recognized on equity securities still held	$	(3,576)	$	89	$	(3,220)	$	330

The amortized cost and estimated fair value of investment securities at September 30, 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 September 30, 2020, corporate debt securities with an amortized cost of $38.5 million and estimated fair value of $39.8 million were callable prior to the maturity date.


September 30, 2020	Amortized Cost		Estimated Fair Value
Less than one year	$	95,990	$	96,765
Due after one year through five years	180,827		186,965
Due after five years through ten years	78,064		75,630
Due after ten years	102,950		109,180
	$	457,831	$	468,540

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 $456.6 million and $475.6 million, at September 30, 2020 and December 31, 2019, respectively, which includes $148.1 million and $81.4 million at September 30, 2020 and December 31, 2019, respectively, pledged as collateral for securities sold under agreements to repurchase.

At September 30, 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 stockholders’ equity.

The estimated fair value and unrealized losses of debt securities available-for-sale and held-to-maturity at September 30, 2020 and December 31, 2019, segregated by the duration of the unrealized losses, are as follows (in thousands):


	At September 30, 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	$	17,060	$	(3)	$	—	$	—	$	17,060	$	(3)

Total debt securities available-for-sale	17,060		(3)		—		—		17,060		(3)
Debt securities held-to-maturity:
Investment securities:

State and municipal obligations	$	3,635	$	(42)	$	7,383	$	(183)	$	11,018	$	(225)
Corporate debt securities	9,429		(434)		34,899		(3,433)		44,328		(3,867)
Total investment securities	13,064		(476)		42,282		(3,616)		55,346		(4,092)
Mortgage-backed securities:
FHLMC	31,267		(127)		965		(8)		32,232		(135)
FNMA	39,572		(127)		485		(14)		40,057		(141)
GNMA	6,008		(14)		228		(2)		6,236		(16)
SBA	3,850		(11)		1,724		(49)		5,574		(60)
CMO	—		—		—		—		—		—
Total mortgage-backed securities	80,697		(279)		3,402		(73)		84,099		(352)
Total debt securities held-to-maturity	93,761		(755)		45,684		(3,689)		139,445		(4,444)
Total debt securities	$	110,821	$	(758)	$	45,684	$	(3,689)	$	156,505	$	(4,447)

	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 September 30, 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	$	9,205	Baa1/BBB-
Wells Fargo Capital	5,000		4,495		A1/BBB-
Huntington Capital	5,000		4,432		Baa2/BB+
Keycorp Capital	5,000		4,513		Baa2/BB+
PNC Capital	5,000		4,577		Baa1/BBB-
SunTrust Capital	5,000		4,670		Not Rated/BBB-
State Street Capital	3,332		3,007		A3/BBB






	$	38,332	$	34,899

At September 30, 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 September 30, 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. Additionally, there are private label commercial mortgage-backed securities with credit ratings from multiple credit rating services ranging between Aaa and Aa2. 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 September 30, 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 September 30, 2020, aggregated by credit quality indicator (in thousands):



	AAA		AA		A		BBB		BB		Total
As of September 30, 2020
Investment securities:
U.S. government and agency obligations	$	—	$	4,997	$	—	$	—	$	—	$	4,997
State and municipal obligations	35,280		128,128		46,390		5,067		—		214,865
Corporate debt securities	—		1,495		11,960		47,502		11,332		72,289
Total investment securities	35,280		134,620		58,350		52,569		11,332		292,151
Mortgage-backed securities:




CMO	16,909		32,836		—		—		—		49,745
Total mortgage-backed securities	16,909		32,836		—		—		—		49,745
Total debt securities held-to-maturity	$	52,189	$	167,456	$	58,350	$	52,569	$	11,332	$	341,896

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