Debt Securities Available-for-Sale

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

The following is a comparative summary of mortgage-backed securities and other debt securities available-for-sale at September 30, 2022, and December 31, 2021 (in thousands):


	September 30, 2022
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
U.S. Government agency securities	$	76,150	$	—	$	(4,310)	$	71,840
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises ("GSEs")	502,503		1		(47,913)		454,591
Real estate mortgage investment conduits ("REMICs"):
GSE	296,702		—		(14,533)		282,169

	799,205		1		(62,446)		736,760
Other debt securities:
Municipal bonds	26		—		—		26

Corporate bonds	201,705		9		(8,109)		193,605

	201,731		9		(8,109)		193,631
Total debt securities available-for-sale	$	1,077,086	$	10	$	(74,865)	$	1,002,231


	December 31, 2021
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
U.S. Government agency securities	$	2,344	$	—	$	(54)	$	2,290
Mortgage-backed securities:
Pass-through certificates:
GSE	579,035		5,233		(2,862)		581,406
REMICs:
GSE	390,755		2,398		(1,443)		391,710

	969,790		7,631		(4,305)		973,116
Other debt securities:
Municipal bonds	71		1		—		72
Corporate bonds	233,311		192		(744)		232,759

	233,382		193		(744)		232,831
Total debt securities available-for-sale	$	1,205,516	$	7,824	$	(5,103)	$	1,208,237

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2022 (in thousands):


Available-for-sale	Amortized cost		Estimated fair value
Due in one year or less	$	159,695	$	153,951
Due after one year through five years	117,037		110,507
Due after five years through ten years	1,149		1,013

	$	277,881	$	265,471

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 September 30, 2022 and December 31, 2021, the fair value of debt securities available-for-sale that were pledged to secure borrowings and deposits was $552.5 million and $522.1 million, respectively.

For the three months ended September 30, 2022, the Company had no sales of debt securities available-for-sale, and no gross realized gains or losses. For the nine months ended September 30, 2022, the Company had gross proceeds of $41.5 million on sales and calls of debt securities available-for-sale, with gross realized gains of $264,000 related to the sales of securities and no gross realized losses. For the three months ended September 30, 2021, the Company had gross proceeds of $112.5 million on sales of debt securities available-for-sale, with gross realized gains of $370,000 and no gross realized losses. For the nine months ended September 30, 2021, the Company had gross proceeds of $208.0 million on sales and calls of debt securities available-for-sale, with gross realized gains of $976,000 related to sales of securities and no gross realized losses. The Company recognized net losses of $426,000 and $2.8 million on its trading securities portfolio during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2021, the Company recognized net losses of $75,000 and net gains of $1.1 million, respectively, on its trading securities portfolio.

Gross unrealized losses on mortgage-backed securities 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 September 30, 2022 and December 31, 2021, were as follows (in thousands):


	September 30, 2022
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
U.S. Government agency securities	$	(4,174)	$	70,826	$	(136)	$	1,014	$	(4,310)	$	71,840
Mortgage-backed securities:
Pass-through certificates:
GSE	(35,357)		353,695		(12,556)		100,734		(47,913)		454,429
REMICs:
GSE	(7,643)		199,686		(6,890)		82,483		(14,533)		282,169

Other debt securities:
Corporate bonds	(4,311)		129,617		(3,798)		46,201		(8,109)		175,818


Total	$	(51,485)	$	753,824	$	(23,380)	$	230,432	$	(74,865)	$	984,256


	December 31, 2021
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
U.S. Government agency securities	$	—	$	—	$	(54)	$	2,290	$	(54)	$	2,290
Mortgage-backed securities:
Pass-through certificates:
GSE	(2,543)		417,291		(318)		14,625		(2,861)		431,916
REMICs:
GSE	(1,350)		125,725		(94)		4,413		(1,444)		130,138

Other debt securities:

Corporate bonds	(744)		146,853		—		—		(744)		146,853
Total	$	(4,637)	$	689,869	$	(466)	$	21,328	$	(5,103)	$	711,197

The Company held 23 pass-through mortgage-backed securities issued or guaranteed by GSEs, 31 REMIC mortgage-backed securities issued or guaranteed by GSEs, six corporate bonds, and one U.S. Government agency security that were in a continuous unrealized loss position of twelve months or greater at September 30, 2022. There were 102 pass-through mortgage-backed securities issued or guaranteed by GSEs, 55 REMIC mortgage-backed securities issued or guaranteed by GSEs, 23 corporate bonds and four U.S. Government agency securities that were in an unrealized loss position of less than twelve months at September 30, 2022. All securities referred to above were rated investment grade at September 30, 2022.

Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. In performing an assessment of whether any decline in fair value is due to a credit loss, the Company considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level such as credit deterioration of the issuer or collateral underlying the security. In assessing the impairment, the Company compares the present value of cash flows expected to be collected with the amortized cost basis of the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. The Company did not recognize any allowance for credit losses on its available-for-sale debt securities as of September 30, 2022 or December 31, 2021.

The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. The Company also assesses its intent to sell the securities (as well as the likelihood of a near-term recovery). If the Company intends to sell an available for sale debt security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.

The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivable associated with debt securities available-for-sale totaled $2.4 million and $2.5 million, respectively, at September 30, 2022 and December 31, 2021 was reported in accrued interest receivable on the consolidated balance sheets.

Equity SecuritiesAt September 30, 2022, and December 31, 2021, equity securities totaled $8.6 million and $5.3 million, respectively. Equity securities consisted of money market mutual funds recorded at fair value of $1.0 million and $328,000 at September 30, 2022 and December 31, 2021, respectively, and an investment in a private SBA loan fund (the “SBA Loan Fund”) recorded at net asset value of $7.5 million and $5.0 million at September 30, 2022 and December 31, 2021, 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 SBA Loan Fund was recorded at net asset value as a practical expedient for reporting fair value.