Investments

9 Months Ended

Sep. 30, 2020

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.


	September 30, 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	255,677		8,369		744		263,302		112,393		4,800		6		117,187
Mortgage-backed securities:
U.S. government agencies	804,912		38,459		138		843,233		631,637		12,292		1,825		642,104
Private label	10,375		1,002		—		11,377		10,896		589		—		11,485
Trust preferred securities	4,554		—		662		3,892		4,781		27		347		4,461
Corporate securities	31,515		1,859		20		33,354		31,669		500		43		32,126
Total Debt Securities	1,107,033		49,689		1,564		1,155,158		791,876		18,210		2,221		807,865
Certificates of deposit held for investment	2,241		—		—		2,241		2,241		—		—		2,241
Total Securities Available-for-Sale	$	1,109,274	$	49,689	$	1,564	$	1,157,399	$	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 will be recorded through Other Comprehensive Income.

The Company's other investment securities include marketable and non-marketable equity securities. At September 30, 2020 and December 31, 2019, the Company held $10.9 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 gains (losses) 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 September 30, 2020 and December 31, 2019, the Company held $15.6 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 September 30, 2020 and December 31, 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 September 30, 2020 and December 31, 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):


	September 30, 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	$	55,480	$	744	$	—	$	—	$	55,480	$	744
Mortgage-backed securities:
U.S. Government agencies	62,156		138		36		—		62,192		138
Trust preferred securities	—		—		3,892		662		3,892		662
Corporate securities	469		20		—		—		469		20
Total available-for-sale	$	118,105	$	902	$	3,928	$	662	$	122,033	$	1,564


	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.

The Company incurred no credit-related investment impairment losses in either the nine months ended September 30, 2020 or September 30, 2019.

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary would be reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition, capital strength, and near-term (within 12 months) prospects of the issuer, including any specific events which may influence the operations of the issuer, such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; (iii) the historical volatility in the market value of the investment and/or the liquidity or illiquidity of the investment; (iv) adverse conditions specifically related to the security, an industry, or a geographic area; and (v) the intent to sell the investment security and if it’s more likely than not that the Company will not have to sell the security before recovery of its cost basis.

As of September 30, 2020, management does not intend to sell any impaired security and it is not more than likely that it will be required to sell any impaired security before the recovery of its 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 September 30, 2020, management believes the unrealized losses detailed in the table above are temporary and therefore no allowance for credit losses has been recognized on the Company’s securities.

The amortized cost and estimated fair value of debt securities at September 30, 2020, by contractual maturity, are 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.


	Amortized Cost		Estimated Fair Value
Available-for-Sale Debt Securities
Due in one year or less	$	2,261	$	2,270
Due after one year through five years	16,269		16,817
Due after five years through ten years	288,225		305,691
Due after ten years	800,278		830,380
Total	$	1,107,033	$	1,155,158

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Gross realized gains on securities sold	$	—	$	116	$	133	$	226
Gross realized losses on securities sold	—		(156)		(77)		(157)
Net investment security (losses) gains	$	—	$	(40)	$	56	$	69

Gross unrealized gains recognized on equity securities still held	$	461	$	14	$	170	$	255
Gross unrealized losses recognized on equity securities still held	—		(228)		(1,868)		(282)
Net unrealized gains (losses) recognized on equity securities still held	$	461	$	(214)	$	(1,698)	$	(27)

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 the Company 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 $618 million and $519 million at September 30, 2020 and December 31, 2019, respectively.