Investment Securities

9 Months Ended

Sep. 30, 2020

Note 5. Investment Securities

In March 2020, the Company transferred the four securities previously comprising its held-to-maturity securities portfolio to available-for-sale. The interest rates for these securities utilize the London Inter-bank Offered Rate (LIBOR) as a benchmark and were permitted to be transferred by a provision of ASU 2020-04, to maximize management and accounting flexibility as a result of the phase-out of LIBOR. The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities classified as available-for-sale and held-to-maturity at September 30, 2020 and December 31, 2019 are summarized as follows (in thousands):



Available-for-sale	September 30, 2020
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 46,040	$ 2,477	$ (140)	$ 48,377
Asset-backed securities *	239,961	28	(1,810)	238,179
Tax-exempt obligations of states and political subdivisions	4,041	255	-	4,296
Taxable obligations of states and political subdivisions	49,847	4,315	-	54,162
Residential mortgage-backed securities	275,764	10,043	(106)	285,701
Collateralized mortgage obligation securities	165,147	4,103	(37)	169,213
Commercial mortgage-backed securities	370,673	17,648	(5,040)	383,281
Corporate debt securities	85,074	464	(3,844)	81,694
	$ 1,236,547	$ 39,333	$ (10,977)	$ 1,264,903


	September 30, 2020
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
* Asset-backed securities as shown above	cost	gains	losses	value
Federally insured student loan securities	$ 29,238	$ 7	$ (365)	$ 28,880
Collateralized loan obligation securities	210,723	21	(1,445)	209,299
	$ 239,961	$ 28	$ (1,810)	$ 238,179



Available-for-sale	December 31, 2019
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 52,415	$ 672	$ (177)	$ 52,910
Asset-backed securities *	244,751	132	(534)	244,349
Tax-exempt obligations of states and political subdivisions	5,174	144	-	5,318
Taxable obligations of states and political subdivisions	58,258	1,992	-	60,250
Residential mortgage-backed securities	335,068	2,629	(1,101)	336,596
Collateralized mortgage obligation securities	221,109	1,826	(208)	222,727
Commercial mortgage-backed securities	394,852	3,836	(146)	398,542
	$ 1,311,627	$ 11,231	$ (2,166)	$ 1,320,692


	December 31, 2019
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
* Asset-backed securities as shown above	cost	gains	losses	value
Federally insured student loan securities	$ 33,852	$ 10	$ (323)	$ 33,539
Collateralized loan obligation securities	210,899	122	(211)	210,810
	$ 244,751	$ 132	$ (534)	$ 244,349



Held-to-maturity	December 31, 2019
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
Other debt securities - single issuers	$ 9,219	$ -	$ (2,067)	$ 7,152
Other debt securities - pooled	75,168	682	-	75,850
	$ 84,387	$ 682	$ (2,067)	$ 83,002

Investments in Federal Home Loan Bank (FHLB) and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $1.4 million and $5.3 million, respectively, at September 30, 2020 and December 31, 2019. The amount of FHLB stock required to be held is based on the amount of borrowings, and after such borrowings, the stock may be redeemed.

The amortized cost and fair value of the Company’s investment securities at September 30, 2020, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-for-sale
	Amortized	Fair
	cost	value
Due before one year	$ 2,186	$ 2,214
Due after one year through five years	153,599	162,951
Due after five years through ten years	224,146	231,236
Due after ten years	856,616	868,502
	$ 1,236,547	$ 1,264,903

At September 30, 2020 and December 31, 2019, no investment securities were encumbered through pledging.

Fair values of available-for-sale securities are based on the fair market values supplied by a third-party market data provider, or where such third-party market data is not available, fair values are based on discounted cash flows. The third-party market data provider uses a pricing matrix which it creates daily, taking into consideration actual trade data, projected prepayments, and when relevant, projected credit defaults and losses.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at September 30, 2020 (dollars in thousands):



Available-for-sale		Less than 12 months		12 months or longer		Total
	Number of securities	Fair Value	Unrealized losses	Fair Value	Unrealized losses	Fair Value	Unrealized losses
Description of Securities
U.S. Government agency securities	4	$ 538	$ (2)	$ 6,043	$ (138)	$ 6,581	$ (140)
Asset-backed securities	34	168,437	(1,293)	55,437	(517)	223,874	(1,810)
Residential mortgage-backed securities	11	5,101	(42)	8,042	(64)	13,143	(106)
Collateralized mortgage obligation securities	8	7,225	(36)	3,626	(1)	10,851	(37)
Commercial mortgage-backed securities	4	61,677	(5,023)	10,021	(17)	71,698	(5,040)
Corporate debt securities	1	-	-	6,157	(3,844)	6,157	(3,844)
Total temporarily impaired
investment securities	62	$ 242,978	$ (6,396)	$ 89,326	$ (4,581)	$ 332,304	$ (10,977)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2019 (dollars in thousands):



Available-for-sale		Less than 12 months		12 months or longer		Total
	Number of securities	Fair Value	Unrealized losses	Fair Value	Unrealized losses	Fair Value	Unrealized losses
Description of Securities
U.S. Government agency securities	5	$ 12,214	$ (44)	$ 3,986	$ (133)	$ 16,200	$ (177)
Asset-backed securities	28	115,909	(275)	56,427	(260)	172,336	(535)
Residential mortgage-backed securities	64	58,682	(114)	73,311	(987)	131,993	(1,101)
Collateralized mortgage obligation securities	22	37,387	(85)	18,136	(123)	55,523	(208)
Commercial mortgage-backed securities	4	35,095	(129)	3,162	(16)	38,257	(145)
Total temporarily impaired
investment securities	123	$ 259,287	$ (647)	$ 155,022	$ (1,519)	$ 414,309	$ (2,166)



Held-to-maturity		Less than 12 months		12 months or longer		Total
	Number of securities	Fair Value	Unrealized losses	Fair Value	Unrealized losses	Fair Value	Unrealized losses
Description of Securities
Corporate and other debt securities:
Single issuers	1	$ -	$ -	$ 7,152	$ (2,067)	$ 7,152	$ (2,067)
Total temporarily impaired
investment securities	1	$ -	$ -	$ 7,152	$ (2,067)	$ 7,152	$ (2,067)

The Company owns one single issuer trust preferred security issued by an insurance company. The security is not rated by any bond rating service. At September 30, 2020, it had a book value of $10.0 million and a fair value of $6.2 million.

The Company has evaluated the securities in the above tables as of September 30, 2020 and has concluded that none of these securities required an allowance for credit loss. The Company evaluates whether an allowance for credit loss is required by considering primarily the following factors: (a) the extent to which the fair value is less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that the securities that are in an unrealized loss position are in a loss position because of changes in market interest rates after the securities were purchased. The Company’s unrealized loss for other debt securities, which include one single issuer trust preferred security, is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level. As a result of its review, the Company concluded that an allowance was not required to recognize credit losses.