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Securities
 6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Securities Securities
Adoption of Topic 326
Effective January 1, 2020, the Corporation adopted the provisions of Topic 326 using the modified retrospective method. Therefore, prior period comparative information has not been adjusted and continues to be reported under GAAP in effect prior to the adoption of Topic 326. There was no ACL on available for sale debt securities recognized upon the adoption of Topic 326.

Accounting Policy Updates
Effective January 1, 2020, the Corporation has modified its accounting policy for the assessment of available for sale debt securities for impairment. The updated policy is detailed below.

The Corporation has made an accounting policy election to exclude accrued interest from the amortized cost basis of debt securities and reports accrued interest separately in other assets in the Unaudited Consolidated Balance Sheets. The Corporation also excludes accrued interest from the estimate of credit losses. Accrued interest receivable on available for sale debt securities totaled $2.7 million and $2.9 million, respectively, as of June 30, 2020 and December 31, 2019.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2020 and 2019.

For available for sale debt securities in an unrealized loss position, management first assesses whether the Corporation intends to sell, or if it is likely that the Corporation will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit losses charge to earnings. For debt securities available for sale that do not meet either these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers both quantitative and qualitative factors.

A substantial portion of available for sale debt securities held by the Corporation are obligations issued by U.S. government agency and U.S. government-sponsored enterprises, including mortgage-backed securities. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and have a long history of no credit losses. For these securities, management takes into consideration the long history of no credit losses and other factors to assess the risk of nonpayment even if the U.S. government were to default. As such, the Corporation utilized a zero credit loss estimate for these securities. For available for sale debt securities that are not guaranteed by U.S. government agencies and U.S. government-sponsored enterprises, such as individual name issuer trust preferred debt securities and corporate bonds, management utilizes a third party credit modeling tool based on observable market data, which assists management in identifying
any potential credit risk associated with its available for sale debt securities. This model estimates probability of default, loss given default and exposure at default for each security. In addition, qualitative factors are also considered, including the extent to which fair value is less than amortized cost, changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If a credit loss exists based on the results of this assessment, an ACL (contra asset) is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is considered market-related and is recognized in other comprehensive income, net of taxes.

Changes in the ACL on available for sale debt securities are recorded as provision for (or reversal of) credit losses. Losses are charged against the ACL when management believes the uncollectibility of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Available for Sale Debt Securities
The following table presents the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities and fair value of securities by major security type and class of security:
(Dollars in thousands)
 
June 30, 2020
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Allowance for Credit Losses
 
Fair Value
Available for Sale Debt Securities:
 
 
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$155,270

 

$1,368

 

$—

 

$—

 

$156,638

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
740,104

 
20,985

 
(33
)
 
—

 
761,056

Individual name issuer trust preferred debt securities
13,332

 
—

 
(1,603
)
 
—

 
11,729

Corporate bonds
11,147

 
—

 
(2,124
)
 
—

 
9,023

Total available for sale debt securities

$919,853

 

$22,353

 

($3,760
)
 

$—

 

$938,446


The following table presents the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of securities by major security type and class of security:
(Dollars in thousands)
 
December 31, 2019
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Available for Sale Debt Securities:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$157,255

 

$626

 

($233
)
 

$157,648

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
713,553

 
8,491

 
(2,964
)
 
719,080

Individual name issuer trust preferred debt securities
13,324

 
—

 
(745
)
 
12,579

Corporate bonds
11,141

 
—

 
(958
)
 
10,183

Total available for sale debt securities

$895,273

 

$9,117

 

($4,900
)
 

$899,490



As of June 30, 2020 and December 31, 2019, debt securities with a fair value of $353.1 million and $431.9 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRB’s discount window, certain public deposits and for other purposes. See Note 7 for additional disclosure on FHLB borrowings.

The schedule of maturities of available for sale debt securities is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments.  All other debt securities are included based on contractual maturities.  Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands)
Available for Sale
June 30, 2020
Amortized Cost
 
Fair Value
Due in one year or less

$108,361

 

$111,419

Due after one year to five years
320,989

 
329,271

Due after five years to ten years
315,206

 
319,219

Due after ten years
175,297

 
178,537

Total debt securities

$919,853

 

$938,446


Included in the above table are debt securities with an amortized cost balance of $178.4 million and a fair value of $176.0 million at June 30, 2020 that are callable at the discretion of the issuers.  Final maturities of the callable securities range from 3 years to 17 years, with call features ranging from 1 month to 1 year.

The following table summarizes amounts relating to sales of securities:
 
 
 
 
 
 
 
 
(Dollars in thousands)
Three Months
 
Six Months
For the periods ended June 30,
2020
 
2019
 
2020
 
2019
Proceeds from sales

$—

 

$9,920

 

$—

 

$9,920

 
 
 
 
 
 
 
 
Gross realized gains

$—

 

$—

 

$—

 

$—

Gross realized losses
—

 
(80
)
 
—

 
(80
)
Net realized losses on securities

$—

 

($80
)
 

$—

 

($80
)


Assessment of Available for Sale Debt Securities for Impairment
Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer.  Management evaluates both qualitative and quantitative factors to assess whether an impairment exists. For the accounting policy on the assessment of available for sale debt securities for impairment that was in effect prior to the adoption of Topic 326 on January 1, 2020, see Note 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses on securities has not been recorded at June 30, 2020, segregated by length of time the securities have been in a continuous unrealized loss position:
(Dollars in thousands)
Less than 12 Months
 
12 Months or Longer
 
Total
June 30, 2020
#
 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
2

 

$10,612


($33
)
 
—

 

$—


$—

 
2

 

$10,612


($33
)
Individual name issuer trust preferred debt securities
—

 
—

—

 
5

 
11,729

(1,603
)
 
5

 
11,729

(1,603
)
Corporate bonds
—

 
—

—

 
3

 
9,023

(2,124
)
 
3

 
9,023

(2,124
)
Total
2

 

$10,612


($33
)
 
8

 

$20,752


($3,727
)
 
10

 

$31,364


($3,760
)

The following tables summarize temporarily impaired securities, segregated by length of time the securities have been in a continuous unrealized loss position:
(Dollars in thousands)
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2019
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
Obligations of U.S. government-sponsored enterprises
3

 

$20,364


($136
)
 
3

 

$49,902


($97
)
 
6

 

$70,266


($233
)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
4

 
41,150

(56
)
 
23

 
216,804

(2,908
)
 
27

 
257,954

(2,964
)
Individual name issuer trust preferred debt securities
—

 
—

—

 
5

 
12,579

(745
)
 
5

 
12,579

(745
)
Corporate bonds
—

 
—

—

 
3

 
10,183

(958
)
 
3

 
10,183

(958
)
Total
7

 

$61,514


($192
)
 
34

 

$289,468


($4,708
)
 
41

 

$350,982


($4,900
)

Further deterioration in credit quality of the underlying issuers of the securities, deterioration in the condition of the financial services industry, worsening of the current economic environment, or additional declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as credit losses, and the Corporation may incur write-downs.

Obligations of U.S. Government Agency and U.S. Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities
The gross unrealized losses on U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, were primarily attributable to relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2020. Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, no allowance for credits losses on securities was recorded at June 30, 2020.

Individual Name Issuer Trust Preferred Debt Securities
Included in debt securities in an unrealized loss position at June 30, 2020 were five trust preferred securities issued by four individual companies in the banking sector.  Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Management reviewed the collectibility of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information.  As of June 30, 2020, individual name issuer trust preferred debt securities with an amortized cost of $2.0 million and unrealized losses of $254 thousand were rated below investment grade by Standard & Poors, Inc. (“S&P”).  Another individual name issuer trust preferred security with an amortized cost of $2.0 million and an unrealized loss of $245 thousand as of June 30, 2020 was downgraded by S&P to a rating of BB+ (below investment grade) on July  22, 2020. We noted no additional downgrades to below investment grade between June 30, 2020 and the filing date of this report.  Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not material changes in the credit quality of the issuers of the debt securities.  Management expects to recover the entire amortized cost basis of these securities.  Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity.  Therefore, no allowance for credit losses on securities was recorded at June 30, 2020.

Corporate Bonds
At June 30, 2020, the Corporation had three corporate bond holdings with unrealized losses totaling $2.1 million. These investment grade corporate bonds were issued by large corporations in the financial services industry. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2020.
Management reviewed the collectibility of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information. Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity.  Therefore, no allowance for credit losses was recorded at June 30, 2020.