SECURITIES

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

The amortized cost and fair value of AFS debt securities for the current period are as follows. There was no ACL in the AFS portfolio during the nine months ended September 30, 2020. Accrued interest receivable on AFS debt securities totaled $5.8 million at September 30, 2020 and is excluded from the estimate of credit losses and recorded separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.

TABLE 3.1


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities AFS:
September 30, 2020
U.S. Treasury	$	300	$	—	$	—	$	300
U.S. government agencies	161		—		(1)		160
U.S. government-sponsored entities	135		2		—		137
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,057		39		—		1,096
Agency collateralized mortgage obligations	941		35		—		976

Commercial mortgage-backed securities	396		20		—		416
States of the U.S. and political subdivisions (municipals)	14		—		—		14
Other debt securities	2		—		—		2
Total debt securities AFS	$	3,006	$	96	$	(1)	$	3,101

The amortized cost and fair value of debt securities AFS for December 31, 2019 are as follows:

TABLE 3.2


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities AFS:
December 31, 2019

U.S. government agencies	$	152	$	—	$	(1)	$	151
U.S. government-sponsored entities	225		1		—		226
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,310		7		(3)		1,314
Agency collateralized mortgage obligations	1,234		10		(4)		1,240

Commercial mortgage-backed securities	341		6		(2)		345
States of the U.S. and political subdivisions (municipals)	11		—		—		11
Other debt securities	2		—		—		2
Total debt securities AFS	$	3,275	$	24	$	(10)	$	3,289

The amortized cost and fair value of HTM debt securities for the current period are presented in the table below. The ACL for the HTM municipal bond portfolio was $0.05 million at September 30, 2020. Accrued interest receivable on HTM debt securities totaled $12.2 million at September 30, 2020 and is excluded from the estimate of credit losses and recorded separately in other assets in the Consolidated Balance Sheets.

TABLE 3.3


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
September 30, 2020
U.S. Treasury	$	1	$	—	$	—	$	1
U.S. government agencies	1		—		—		1
U.S. government-sponsored entities	160		1		—		161
Residential mortgage-backed securities:
Agency mortgage-backed securities	811		32		—		843
Agency collateralized mortgage obligations	571		19		—		590

Commercial mortgage-backed securities	278		12		—		290
States of the U.S. and political subdivisions (municipals)	1,144		42		—		1,186
Total debt securities HTM	$	2,966	$	106	$	—	$	3,072

The amortized cost and fair value of HTM debt securities for December 31, 2019 are as follows:

TABLE 3.4


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
December 31, 2019
U.S. Treasury	$	1	$	—	$	—	$	1
U.S. government agencies	1		—		—		1
U.S. government-sponsored entities	175		—		—		175
Residential mortgage-backed securities:
Agency mortgage-backed securities	949		8		(2)		955
Agency collateralized mortgage obligations	721		5		(6)		720

Commercial mortgage-backed securities	308		3		(2)		309
States of the U.S. and political subdivisions (municipals)	1,120		26		(2)		1,144
Total debt securities HTM	$	3,275	$	42	$	(12)	$	3,305

There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2020 or 2019.

As of September 30, 2020, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 3.5


	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	343	$	343	$	142	$	143
Due after one year but within five years	107		108		41		41
Due after five years but within ten years	69		69		144		148
Due after ten years	93		93		979		1,017
	612		613		1,306		1,349
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,057		1,096		811		843
Agency collateralized mortgage obligations	941		976		571		590

Commercial mortgage-backed securities	396		416		278		290
Total debt securities	$	3,006	$	3,101	$	2,966	$	3,072

Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.

Following is information relating to securities pledged:

TABLE 3.6


(dollars in millions)	September 30, 2020			December 31, 2019
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	5,427		$	4,494
As collateral for short-term borrowings	390			285
Securities pledged as a percent of total securities	95.9		%	72.8		%

At September 30, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in any amount greater than 10% of stockholders’ equity.

Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by surety type and length of continuous loss position:

TABLE 3.7


	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
September 30, 2020
U.S. Treasury	1	$	100	$	—	—	$	—	$	—	1	$	100	$	—
U.S. government agencies	1	13		—		17	74		(1)		18	87		(1)

Residential mortgage-backed securities:

Agency collateralized mortgage obligations	2	5		—		—	—		—		2	5		—



Other debt securities	—	—		—		1	2		—		1	2		—
Total	4	$	118	$	—	18	$	76	$	(1)	22	$	194	$	(1)
	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
December 31, 2019
U.S. government agencies	5	$	48	$	—	15	$	61	$	(1)	20	$	109	$	(1)
U.S. government-sponsored entities	—	—		—		6	130		—		6	130		—
Residential mortgage-backed securities:
Agency mortgage-backed securities	13	200		(1)		24	314		(2)		37	514		(3)
Agency collateralized mortgage obligations	11	323		(1)		32	205		(3)		43	528		(4)

Commercial mortgage-backed securities	3	114		(2)		—	—		—		3	114		(2)

Other debt securities	—	—		—		1	2		—		1	2		—
Total temporarily impaired debt securities AFS	32	$	685	$	(4)	78	$	712	$	(6)	110	$	1,397	$	(10)

We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2020. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the movement of interest rates. We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.

Credit Quality Indicators

We use credit ratings to help evaluate the credit quality of our HTM municipal bond portfolio. The ratings are updated quarterly with the last update on September 30, 2020. The remainder of the HTM portfolio is backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA and we have designated these securities as having zero expected credit loss, and therefore, are not subject to an estimate of expected credit loss under CECL.

Our municipal bond portfolio with a carrying amount of $1.2 billion as of September 30, 2020 is highly rated with an average rating of AA and 100% of the portfolio rated A or better, while 99% have stand-alone ratings of A or better. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 67% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.5 million. In addition to the strong stand-alone ratings, 63% of the municipalities have some formal credit enhancement insurance that strengthens the creditworthiness of their issue. Management reviews the credit profile of each issuer on a quarterly basis.

The credit analysis on the municipal bond portfolio is completed on each bond using:

•The bond’s credit rating;

•Credit enhancements that improve the bond’s credit rating, for example insurance; and

•Moody’s U.S. Bond Defaults and Recoveries, 1970-2019.

By using these components, we derive the expected credit loss on the general obligation bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing PD adjustment as derived through our assessment of the loan portfolio.

For the year-to-date period ending September 30, 2020, we had a provision expense of $0.01 million, with no charge-offs or recoveries. The ACL on the HTM portfolio as of September 30, 2020 was $0.05 million. No other securities portfolios had an ACL. At September 30, 2020, there were no securities that were past due or on non-accrual.