Securities

6 Months Ended

Jun. 30, 2020

Securities

Securities

5. Securities

The fair value of trading securities is summarized as follows (in thousands).

	June 30,		December 31,
	2020		2019
U.S. Treasury securities	$	50,487	$	—
U.S. government agencies:
Bonds		33,115		24,680
Residential mortgage-backed securities		135,653		331,601
Commercial mortgage-backed securities		2,114		2,145
Collateralized mortgage obligations		236,139		191,154
Corporate debt securities		52,536		36,973
States and political subdivisions		127,955		93,117
Unit investment trusts		—		3,468
Private-label securitized product		6,342		2,992
Other		3,696		3,446
Totals	$	648,037	$	689,576

In addition to the securities shown above, the Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligations may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheets, had a value of $55.3 million and $43.8 million at June 30, 2020 and December 31, 2019, respectively.

The amortized cost and fair value of available for sale and held to maturity securities are summarized as follows (in thousands).

	Available for Sale
	Amortized		Unrealized		Unrealized
June 30, 2020	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Bonds	$	61,915	$	1,315	$	—	$	63,230
Residential mortgage-backed securities		535,874		17,015		(181)		552,708
Commercial mortgage-backed securities		18,685		846		—		19,531
Collateralized mortgage obligations		400,298		9,088		(252)		409,134
States and political subdivisions		44,324		2,421		—		46,745
Totals	$	1,061,096	$	30,685	$	(433)	$	1,091,348

	Available for Sale
	Amortized		Unrealized		Unrealized
December 31, 2019	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Bonds	$	84,590	$	1,049	$	(64)	$	85,575
Residential mortgage-backed securities		430,514		6,662		(147)		437,029
Commercial mortgage-backed securities		11,488		543		—		12,031
Collateralized mortgage obligations		333,256		3,175		(815)		335,616
States and political subdivisions		39,969		1,273		—		41,242
Totals	$	899,817	$	12,702	$	(1,026)	$	911,493

	Held to Maturity
	Amortized		Unrealized		Unrealized
June 30, 2020	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Residential mortgage-backed securities	$	15,693	$	846	$	—	$	16,539
Commercial mortgage-backed securities		159,608		10,945		—		170,553
Collateralized mortgage obligations		96,413		2,431		—		98,844
States and political subdivisions		71,484		2,151		(29)		73,606
Totals	$	343,198	$	16,373	$	(29)	$	359,542

	Held to Maturity
	Amortized		Unrealized		Unrealized
December 31, 2019	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Bonds	$	24,020	$	10	$	(35)	$	23,995
Residential mortgage-backed securities		17,776		295		—		18,071
Commercial mortgage-backed securities		161,624		2,810		(655)		163,779
Collateralized mortgage obligations		113,894		226		(904)		113,216
States and political subdivisions		69,012		1,013		(156)		69,869
Totals	$	386,326	$	4,354	$	(1,750)	$	388,930

Additionally, the Company had unrealized net gains of $0.1 million and $0.1 million at June 30, 2020 and December 31, 2020, respectively, from equity securities with fair values of $0.1 million and $0.2 million held at June 30, 2020 and December 31, 2019, respectively. The Company recognized nominal net gains and net losses during the three and six months ended June 30, 2020 and 2019, respectively, due to changes in the fair value of equity securities still held at the balance sheet date. During the three and six months ended June 30, 2020 and 2019, net gains recognized from equity securities sold were nominal.

Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).

	June 30, 2020					December 31, 2019
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Available for Sale
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	1	$	5,000	$	—	2	$	24,937	$	64
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		5,000		—	2		24,937		64
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	2		25,819		181	37		36,187		87
Unrealized loss for twelve months or longer	—		—		—	2		13,683		58
	2		25,819		181	39		49,870		145
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	1		9,967		2
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	1		9,967		2
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	2		7,981		20	15		94,545		446
Unrealized loss for twelve months or longer	12		53,162		232	13		46,217		369
	14		61,143		252	28		140,762		815
States and political subdivisions:
Unrealized loss for less than twelve months	—		—		—	—		—		—
Unrealized loss for twelve months or longer	—		—		—	1		487		—
	—		—		—	1		487		—
Total available for sale:
Unrealized loss for less than twelve months	5		38,800		201	55		165,636		599
Unrealized loss for twelve months or longer	12		53,162		232	16		60,387		427
	17	$	91,962	$	433	71	$	226,023	$	1,026

	June 30, 2020					December 31, 2019
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—	$	—	$	—	2	$	9,665	$	35
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	2		9,665		35
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	8		44,610		656
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	8		44,610		656
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	—		—		—	4		23,904		287
Unrealized loss for twelve months or longer	—		—		—	8		59,560		617
	—		—		—	12		83,464		904
States and political subdivisions:
Unrealized loss for less than twelve months	13		4,169		29	38		15,996		124
Unrealized loss for twelve months or longer	—		—		—	4		1,099		31
	13		4,169		29	42		17,095		155
Total held to maturity:
Unrealized loss for less than twelve months	13		4,169		29	52		94,175		1,102
Unrealized loss for twelve months or longer	—		—		—	12		60,659		648
	13	$	4,169	$	29	64	$	154,834	$	1,750

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and equity securities, at June 30, 2020 are shown by contractual maturity below (in thousands).

	Available for Sale				Held to Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	6,056	$	6,065	$	452	$	456
Due after one year through five years		58,432		60,042		987		996
Due after five years through ten years		20,229		20,987		7,068		7,313
Due after ten years		21,522		22,881		62,977		64,841
		106,239		109,975		71,484		73,606
Residential mortgage-backed securities		535,874		552,708		15,693		16,539
Collateralized mortgage obligations		400,298		409,134		96,413		98,844
Commercial mortgage-backed securities		18,685		19,531		159,608		170,553
	$	1,061,096	$	1,091,348	$	343,198	$	359,542

The Company recognized net gains of $13.5 million and $2.5 million from its trading portfolio during the three months ended June 30, 2020 and 2019, respectively and $20.5 million and $10.7 million during the six months ended June 30, 2020 and 2019, respectively. In addition, the Hilltop Broker-Dealers realized net gains from structured product trading activities of $20.8 million and $30.4 million during the three months ended June 30, 2020 and 2019, respectively, and $42.2 million and $55.7 million during the six months ended June 30, 2020 and 2019, respectively. The Company had nominal other realized gains on securities during the three months ended June 30, 2020 and other realized gains on securities of $0.2 million during the six months ended June 30, 2020. All such realized gains and losses are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $610.2 million and $576.0 million (with a fair value of $633.1 million and $583.6 million, respectively) at June 30, 2020 and December 31, 2019, respectively, were pledged by the Bank to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law. Substantially all of these pledged securities were included in the available for sale and held to maturity securities portfolios at June 30, 2020 and December 31, 2019.

Mortgage-backed securities and collateralized mortgage obligations consist primarily of Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA and FHLMC securities are fully guaranteed by those respective United States government-sponsored enterprises, and conditionally guaranteed by the full faith and credit of the United States.

Allowance for Credit Losses for Available for Sale Securities and Held to Maturity Securities

The Company has evaluated available for sale debt securities that are in an unrealized loss position and has determined that any declines in value are unrelated to credit loss and are related to changes in market interest rates since purchase. In addition, as of June 30, 2020, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis and therefore,no allowance was recognized on the debt securities portfolio at June 30, 2020. None of the available for sale debt securities held were past due at June 30, 2020.