Securities

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Marketable Securities [Table Text Block]

SECURITIES

Investment securities are classified at the time of purchase as available for sale, held to maturity, trading, or equity. Classification is constantly re-evaluated for consistency with corporate goals and objectives. Trading and equity securities are recorded at fair value with subsequent changes in fair value recorded in earnings. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity or trading are classified as available for sale and recorded at fair value, with changes in fair value excluded from earnings and reported in other comprehensive income, net of related tax. Purchase premiums and discounts are recognized in interest income, using the interest method, to arrive at periodic interest income at a constant effective yield, thereby reflecting the securities market yield. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Accrued interest receivable balances are excluded from the amortized cost of held to maturity securities and the fair value of available for sale securities and are included within Other Assets on the consolidated balance sheet. Management has elected not to measure an allowance for credit losses on these balances as the Company employs a timely write-off policy. It is the Company's policy that a security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent, and interest earned but not collected for a security placed on non-accrual is reversed against interest income.

Allowance for Credit Losses - Available for Sale Securities

The Company's available for sale securities are carried at fair value. For available for sale securities in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income. For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, Management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.

Allowance for Credit Losses - Held to Maturity Securities

The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held to maturity portfolio into the following major security types: U.S. Government Agency, U.S. Treasury, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations, Small Business Administration Pooled Securities, and Single Issuer Trust Preferred Securities. Securities in the Company's held to maturity portfolio are primarily guaranteed by either the U.S. Federal Government or other government sponsored agencies with a long history of no credit losses. As a result, Management has determined these securities to have a zero loss expectation and therefore does not estimate an allowance for credit losses on these securities.

Trading Securities

The Company had trading securities of $2.5 million and $2.2 million as of June 30, 2020 and December 31, 2019, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s nonqualified 401(k) Restoration Plan and Nonqualified Deferred Compensation Plan.

Equity Securities

The Company had equity securities of $20.8 million and $21.3 million as of June 30, 2020 and December 31, 2019, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans.

The following table represents a summary of the gains and losses that relate to equity securities for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30				June 30
	2020		2019		2020		2019
Net gains (losses) recognized during the period on equity securities	$	1,386	$	444	(415	)	1,351
Less: net gains recognized during the period on equity securities sold during the period	—		3		6		6
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	1,386	$	441	(421	)	1,345

Available for Sale Securities

The following table summarizes the amortized cost, allowance for credit losses, and fair value of available for sale securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:

	June 30, 2020											December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. government agency securities	$	22,475	$	1,870	$	—		$	—	$	24,345	$	32,473	$	642	$	—		$	33,115
Agency mortgage-backed securities	237,219		11,588		(2		)	—		248,805		243,548		3,456		(4		)	247,000
Agency collateralized mortgage obligations	77,036		3,776		—			—		80,812		87,305		1,225		(19		)	88,511
State, county, and municipal securities	1,126		21		—			—		1,147		1,377		19		—			1,396
Single issuer trust preferred securities issued by banks	489		—		(44		)	—		445		488		5		—			493
Pooled trust preferred securities issued by banks and insurers	1,438		—		(452		)	—		986		1,488		—		(374		)	1,114
Small business administration pooled securities	60,558		3,419		—			—		63,977		54,024		771		—			54,795
Total available for sale securities	$	400,341	$	20,674	$	(498	)	$	—	$	420,517	$	420,703	$	6,118	$	(397	)	$	426,424

The Company did not record an allowance for estimated credit losses on any available for sale securities during the three and six months ended June 30, 2020. Excluded from the table above is accrued interest on available for sale securities of $1.3 million as of June 30, 2020, which is included within Other Assets on the consolidated balance sheet. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities during the three and six months ended June 30, 2020. No securities held by the Company were delinquent on contractual payments as of June 30, 2020, nor were any securities placed on non-accrual status during the three or six months then ended.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of securities available for sale during the three or six months ended June 30, 2020, and therefore no gains or losses were realized during the periods presented. The Company realized losses of $1.5 million on sales of securities available for sale during the three and six months ended June 30, 2019.

The following table shows the gross unrealized losses and fair value of the Company’s available for sale securities which are in an unrealized loss position, and for which the Company has not recorded an allowance for credit losses as of June 30, 2020. These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position:

	June 30, 2020
		Less than 12 months					12 months or longer					Total
	# of  holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Agency mortgage-backed securities	1	386		(2		)	—		—			386		(2		)
Single issuer trust preferred securities issued by banks and insurers	1	445		(44		)	—		—			445		(44		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			986		(452		)	986		(452		)
Total impaired available for sale securities	3	$	831	$	(46	)	$	986	$	(452	)	$	1,817	$	(498	)

The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. As a result, the Company did not recognize an allowance for credit losses on these investments during the three or six months ended June 30, 2020. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at June 30, 2020:

• Agency Mortgage-Backed Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.

• Single Issuer Trust Preferred Securities: This portfolio consists of one security, which is investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuers, including regulatory capital ratios of the issuers.

• Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Held to Maturity Securities

The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:

	June 30, 2020											December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. government agency securities	$	—	$	—	$	—		$	—	$	—	$	12,874	$	123	$	—		$	12,997
U.S. Treasury securities	4,025		94		—			—		4,119		4,032		21		—			4,053
Agency mortgage-backed securities	431,901		21,135		—			—		453,036		397,414		8,445		(57		)	405,802
Agency collateralized mortgage obligations	264,675		10,360		—			—		275,035		293,662		4,501		(849		)	297,314
Single issuer trust preferred securities issued by banks	1,500		—		(2		)	—		1,498		1,500		—		(10		)	1,490
Small business administration pooled securities	28,925		1,441		—			—		30,366		31,324		338		(55		)	31,607
Total held to maturity securities	$	731,026	$	33,030	$	(2	)	$	—	$	764,054	$	740,806	$	13,428	$	(971	)	$	753,263

The Company did not record an allowance for estimated credit losses on any held to maturity securities during the three and six months ended June 30, 2020. Excluded from the table above is accrued interest on held to maturity securities of $1.8 million as of June 30, 2020, which is included within Other Assets on the consolidated balance sheet. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities during the three and six months ended June 30, 2020. No securities held by the Company were delinquent on contractual payments as of June 30, 2020, nor were any securities placed on non-accrual status during the three and six months then ended.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities during the three and six months ended June 30, 2020 and 2019, and therefore no gains or losses were realized during the periods presented.

The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of June 30, 2020, all held to maturity securities held by the Company were rated investment grade or higher.

The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of June 30, 2020 is presented below:

	Due in one year or less				Due after one year to five years				Due after five to ten years				Due after ten years				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale securities
U.S. government agency securities	$	—	$	—	$	10,002	$	10,333	$	12,473	$	14,012	$	—	$	—	$	22,475	$	24,345
Agency mortgage-backed securities	—		—		71,734		74,553		40,590		43,562		124,895		130,690		237,219		248,805
Agency collateralized mortgage obligations	—		—		—		—		—		—		77,036		80,812		77,036		80,812
State, county, and municipal securities	250		250		686		690		190		207		—		—		1,126		1,147
Single issuer trust preferred securities issued by banks	—		—		—		—		—		—		489		445		489		445
Pooled trust preferred securities issued by banks and insurers	—		—		—		—		—		—		1,438		986		1,438		986
Small business administration pooled securities	—		—		—		—		—		—		60,558		63,977		60,558		63,977
Total available for sale securities	$	250	$	250	$	82,422	$	85,576	$	53,253	$	57,781	$	264,416	$	276,910	$	400,341	$	420,517
Held to maturity securities
U.S. Treasury securities	$	1,001	$	1,026	$	3,024	$	3,093	$	—	$	—	$	—	$	—	$	4,025	$	4,119
Agency mortgage-backed securities	8,565		8,635		1,678		1,729		47,890		50,340		373,768		392,332		431,901		453,036
Agency collateralized mortgage obligations	—		—		—		—		—		—		264,675		275,035		264,675		275,035
Single issuer trust preferred securities issued by banks	—		—		—		—		1,500		1,498		—		—		1,500		1,498
Small business administration pooled securities	—		—		—		—		—		—		28,925		30,366		28,925		30,366
Total held to maturity securities	$	9,566	$	9,661	$	4,702	$	4,822	$	49,390	$	51,838	$	667,368	$	697,733	$	731,026	$	764,054
Total	$	9,816	$	9,911	$	87,124	$	90,398	$	102,643	$	109,619	$	931,784	$	974,643	$	1,131,367	$	1,184,571

Included in the table above are $4.1 million of callable securities at June 30, 2020.

The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $431.8 million and $375.5 million at June 30, 2020 and December 31, 2019, respectively.

At June 30, 2020 and December 31, 2019, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.

Under previous accounting guidance, the Company reviewed both available for sale and held to maturity securities for other-than-temporary-impairment ("OTTI"). However, in accordance with the newly adopted CECL standard, the Company now utilizes separate impairment models for held to maturity and available for sale securities for purposes of estimating credit losses. The following table shows the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company had not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019:

	December 31, 2019
		Less than 12 months					12 months or longer					Total
	# of  holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Agency mortgage-backed securities	12	34,009		(59		)	243		(2		)	34,252		(61		)
Agency collateralized mortgage obligations	17	48,476		(215		)	37,382		(653		)	85,858		(868		)
Single issuer trust preferred securities issued by banks and insurers	1	—		—			1,490		(10		)	1,490		(10		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			1,114		(374		)	1,114		(374		)
Small business administration pooled securities	1	7,349		(55		)	—		—			7,349		(55		)
Total temporarily impaired securities	32	$	89,834	$	(329	)	$	40,229	$	(1,039	)	$	130,063	$	(1,368	)

The Company did not intend to sell these investments and therefore determined, based upon available evidence, that it was more likely than not that the Company would not be required to sell each security before the recovery of its amortized cost basis. As a result, the Company did not consider these investments to be OTTI and accordingly, there was no OTTI recorded and no cumulative credit related component of OTTI for the year ended December 31, 2019.