Debt Securities Available-for-Sale

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

The following is a comparative summary of mortgage-backed and other debt securities available-for-sale at June 30, 2020, and December 31, 2019 (in thousands):


	June 30, 2020
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)	$	278,065	$	11,163	$	75	$	289,153
Real estate mortgage investment conduits (REMICs):
GSE	646,257		7,878		126		654,009
Non-GSE	48		—		1		47
	924,370		19,041		202		943,209
Other debt securities:
Municipal bonds	253		1		—		254

Corporate bonds	92,631		1,395		—		94,026
	92,884		1,396		—		94,280
Total debt securities available-for-sale	$	1,017,254	$	20,437	$	202	$	1,037,489


	December 31, 2019
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	324,080	$	6,081	$	754	$	329,407
REMICs:
GSE	643,816		2,076		2,225		643,667
Non-GSE	53		—		—		53
	967,949		8,157		2,979		973,127
Other debt securities:
Municipal bonds	296		3		—		299
Corporate bonds	163,725		1,214		13		164,926
	164,021		1,217		13		165,225
Total debt securities available-for-sale	$	1,131,970	$	9,374	$	2,992	$	1,138,352

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at June 30, 2020 (in thousands):


Available-for-sale	Amortized cost		Estimated fair value
Due in one year or less	$	42,195	$	42,513
Due after one year through five years	50,689		51,767


	$	92,884	$	94,280

Contractual maturities for mortgage-backed securities are not included above, as expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

Certain debt securities available-for-sale are pledged or encumbered to secure borrowings under Pledge Agreements and Repurchase Agreements and for other purposes required by law. At June 30, 2020, the fair value of debt securities available-for-sale that were pledged to secure borrowings and deposits was $584.2 million.

For the three months ended June 30, 2020, the Company had gross proceeds of $12.6 million on sales of debt securities available-for-sale, with gross realized gains of $74,000 related to sales of securities and gross realized losses of $1,000 related to calls of securities. For the six months ended June 30, 2020, the Company had gross proceeds of $12.6 million on sales of debt securities available-for-sale, with gross realized gains of $74,000 related to sales of securities and gross realized losses of $14,000 related to calls of securities. For the three and six months ended June 30, 2019, the Company had gross proceeds of $5.2 million and $34.4 million, respectively, on sales of debt securities available-for-sale, with gross realized gains of $59,000 and $214,000, respectively, and no gross realized losses. The Company recognized net gains of $1.6 million and net losses of $366,000 on its trading securities portfolio during the three and six months ended June 30, 2020, respectively, and net gains of $343,000 and $1.4 million, during the three and six months ended June 30, 2019, respectively.

Gross unrealized losses on mortgage-backed and other debt securities available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020, and December 31, 2019, were as follows (in thousands):


	June 30, 2020
	Less than 12 months						12 months or more						Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	—	$	—	$	75	$	543	$	75	$	543
REMICs:
GSE	112		31,767		14		13,281		126		45,048
Non-GSE	—		—		1		47		1		47
Other debt securities:
Municipal bonds	—		125		—		—		—		125

Total	$	112	$	31,892	$	90	$	13,871	$	202	$	45,763


	December 31, 2019
	Less than 12 months						12 months or more						Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	25	$	3,404	$	729	$	55,184	$	754	$	58,588
REMICs:
GSE	950		197,634		1,275		54,555		2,225		252,189
Non-GSE	—		—		—		53		—		53
Other debt securities:

Corporate bonds	—		—		13		15,586		13		15,586
Total	$	975	$	201,038	$	2,017	$	125,378	$	2,992	$	326,416

The Company held 12 pass-through mortgage-backed securities issued or guaranteed by GSEs, four REMIC mortgage-backed securities issued or guaranteed by GSEs, and one REMIC mortgage-backed security not issued or guaranteed by a GSE, that were in a continuous unrealized loss position of twelve months or greater at June 30, 2020. There were 10 REMIC mortgage-backed securities issued or guaranteed by GSEs, and two municipal bonds that were in an unrealized loss position of less than twelve months at June 30, 2020. All securities referred to above were rated investment grade at June 30, 2020. Management evaluated these securities and concluded that the declines in fair value relate to the general interest rate environment and are considered temporary. The securities cannot be prepaid in a manner that would result in the Company not

receiving substantially all of its amortized cost. The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.

The fair values of our debt securities available-for-sale could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest, which may result in other-than-temporary impairment in the future. The Company did not recognize any other-than-temporary impairment charges during the three and six months ended June 30, 2020, or June 30, 2019. Equity Securities At June 30, 2020 and December 31, 2019, equity securities totaled $1.3 million and $3.3 million, respectively. Equity securities consist of money market mutual funds, recorded at fair value of $214,000 and $250,000 at June 30, 2020 and December 31, 2019, respectively, and an investment in a private Small Business Administration (“SBA”) Loan Fund recorded at net asset value of $1.1 and $3.1 million at June 30, 2020 and December 31, 2019, respectively. As the SBA Loan Fund operates as a private fund, its shares are not publicly traded and therefore have no readily determinable market value. The investment in the fund is recorded at net asset value as a practical expedient for reporting fair value.