Securities

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Securities

4.     Securities

The Company did not hold any trading securities at June 30, 2020 and December 31, 2019. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

Allowance for credit losses

The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of three securities, two of which are structured similar to a commercial owner occupied loan, which is modeled for credit losses similar to commercial business loans secured by real estate. The other security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero loss expectation. At June 30^th, 2020, we have one active forbearance for held-to-maturity securities with an outstanding balance of $20.9 million. During the time this security is in forbearance, it is considered current and as such, continues to accrue interest at its original contractual terms. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at June 30, 2020 and is excluded from estimates of credit losses.

The following table summarizes the Company’s portfolio of securities held-to-maturity at June 30, 2020:

					Gross		Gross		Allowance
	Amortized				Unrealized		Unrealized		for Credit
	Cost		Fair Value		Gains		Losses		Losses
	(In thousands)
Securities held-to-maturity:
Municipals	$	50,480	$	52,532	$	2,214	$	162	$	(402)
Total other securities		50,480		52,532		2,214		162		(402)
FNMA		7,924		9,126		1,202		—		—
Total mortgage-backed securities		7,924		9,126		1,202		—		—
Total	$	58,404	$	61,658	$	3,416	$	162	$	(402)

The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2019:

					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses
	(In thousands)
Securities held-to-maturity:
Municipals	$	50,954	$	53,998	$	3,044	$	—
Total other securities		50,954		53,998		3,044		—
FNMA		7,934		8,114		180		—
Total mortgage-backed securities		7,934		8,114		180		—
Total	$	58,888	$	62,112	$	3,224	$	—

The following table summarizes the Company’s portfolio of securities available for sale at June 30, 2020:

					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses
	(In thousands)
Securities available for sale:
Corporate	$	130,000	$	120,764	$	229	$	9,465
Municipals		3,704		3,712		8		—
Mutual funds		12,639		12,639		—		—
Collateralized loan obligations		100,372		94,620		—		5,752
Other		1,068		1,068		—		—
Total other securities		247,783		232,803		237		15,217
REMIC and CMO		241,196		248,682		7,510		24
GNMA		572		628		56		—
FNMA		143,000		145,871		3,018		147
FHLMC		46,699		47,326		639		12
Total mortgage-backed securities		431,467		442,507		11,223		183
Total securities available for sale	$	679,250	$	675,310	$	11,460	$	15,400

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2019:

					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses
	(In thousands)
Securities available for sale:
Corporate	$	130,000	$	123,050	$	—	$	6,950
Municipals		12,797		12,916		119		—
Mutual funds		12,216		12,216		—		—
Collateralized loan obligations		100,349		99,137		—		1,212
Other		1,332		1,332		—		—
Total other securities		256,694		248,651		119		8,162
REMIC and CMO		348,236		348,989		2,193		1,440
GNMA		653		704		51		—
FNMA		104,235		104,882		1,073		426
FHLMC		68,476		69,274		871		73
Total mortgage-backed securities		521,600		523,849		4,188		1,939
Total securities available for sale	$	778,294	$	772,500	$	4,307	$	10,101

We did not hold any private issue CMO’s that are collateralized by commercial real estate mortgages at June 30, 2020 and December 31, 2019.

The corporate securities held by the Company at June 30, 2020 and December 31, 2019 are issued by U.S. banking institutions.

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at June 30, 2020, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized
Securities held-to-maturity:	Cost		Fair Value
	(In thousands)
Due in one year or less	$	—	$	—
Due after ten years		50,480		52,532
Total other securities		50,480		52,532
Mortgage-backed securities		7,924		9,126
Total	$	58,404	$	61,658

	Amortized
Securities available for sale:	Cost		Fair Value
	(In thousands)
Due after one year through five years	$	45,000	$	43,154
Due after five years through ten years		102,927		94,656
Due after ten years		87,217		82,354
Total other securities		235,144		220,164
Mutual funds		12,639		12,639
Mortgage-backed securities		431,467		442,507
Total	$	679,250	$	675,310

The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:

	At June 30, 2020
	Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Held-to-maturity securities
Municipals	1	$	20,464	$	162	$	20,464	$	162	$	—	$	—
Total other securities	1		20,464		162		20,464		162		—		—
Total securities held-to-maturity	1	$	20,464	$	162	$	20,464	$	162	$	—	$	—
Available for sale securities
Corporate	14	$	110,535	$	9,465	$	—	$	—	$	110,535	$	9,465
Collateralized loan obligations	13		94,620		5,752		12,602		819		82,018		4,933
Total other securities	27		205,155		15,217		12,602		819		192,553		14,398
REMIC and CMO	2		7,818		24		7,818		24		—		—
FNMA	2		40,161		147		31,434		119		8,727		28
FHLMC	1		14,524		12		14,524		12		—		—
Total mortgage-backed securities	5		62,503		183		53,776		155		8,727		28
Total securities available for sale	32	$	267,658	$	15,400	$	66,378	$	974	$	201,280	$	14,426

	At December 31, 2019
	Total					Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Available for sale securities
Corporate	16	$	123,050	$	6,950	$	—	$	—	$	123,050	$	6,950
Collateralized loan obligations	13		99,137		1,212		25,451		108		73,686		1,104
Total other securities	29		222,187		8,162		25,451		108		196,736		8,054
REMIC and CMO	23		120,989		1,440		102,384		1,117		18,605		323
GNMA	1		49		—		49		—		—		—
FNMA	8		67,618		426		19,073		138		48,545		288
FHLMC	1		30,200		73		—		—		30,200		73
Total mortgage-backed securities	33		218,856		1,939		121,506		1,255		97,350		684
Total securities available for sale	62	$	441,043	$	10,101	$	146,957	$	1,363	$	294,086	$	8,738

The Company reviewed each available for sale debt security that had an unrealized loss at June 30, 2020 and December 31, 2019. At June 30, 2020, the Company evaluated whether the decline in fair value of a debt security resulted from credit losses or other factors under ASC 326. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.

In determining the risk of loss for available for sale securities, the Company considered that mortgage-backed securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the issuer of Corporate securities are global systematically important banks, and the tranche of the purchased CLO’s. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review, management believes that the unrealized losses have resulted from other factors not deemed credit-related and no allowance for credit loss was recorded.

Accrued interest receivable on available-for-sale debt securities totaled $1.8 million at June 30, 2020 and is excluded from the estimate of credit losses.

Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 16 related to the adoption of Topic 326, we recorded a transition adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt securities.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the three months ended June 30, 2020:

	Mortgage-backed securities		Other securities
	(In thousands)
Beginning balance	$	—	$	402
Provision		—		—
Allowance for credit losses - securities	$	—	$	402

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for the six months ended June 30, 2020:

	Mortgage-backed securities		Other securities
	(In thousands)
Beginning balance	$	—	$	—
CECL adoption		—		340
Provision		—		62
Allowance for credit losses - securities	$	—	$	402

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company sold $66.2 million and $130.8 million in mortgage-backed securities during the three and six months ended June 30, 2020, respectively. The Company sold $26.4 million in mortgage-backed securities during the three and six months ended June 30, 2019.

The following table represents the gross gains and gross losses realized from the sale of securities available for sale for the periods indicated:

	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)
Gross gains from the sale of securities	$	763	$	423	$	1,476	$	423
Gross losses from the sale of securities		(817)		(438)		(1,567)		(438)
Net losses from the sale of securities	$	(54)	$	(15)	$	(91)	$	(15)