Note 6 - Investment Securities

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 6: Investment Securities

A summary of the amortized cost and market value of securities available for sale, securities held to maturity, and equity securities as of September 30, 2022 and December 31, 2021 is as follows:

	September 30, 2022
(dollars in thousands)	Amortized Cost		Gross Unrealized / Unrecognized Gains		Gross Unrealized / Unrecognized Losses			Fair Value
Available for sale
U.S. Government agencies	$	19,806	$	-	$	(1,411	)	$	18,395
Collateralized mortgage obligations		388,019		-		(67,004	)		321,015
Agency mortgage-backed securities		510,269		10		(94,257	)		416,022
Municipal securities		52,128		1		(6,356	)		45,773
Corporate bonds		232,842		635		(35,161	)		198,316
Investment securities available for sale	$	1,203,064	$	646	$	(204,189	)	$	999,521
Held to maturity
U.S. Government agencies	$	52,788	$	-	$	(4,764	)	$	48,024
Collateralized mortgage obligations		374,421		32		(67,589	)		306,864
Agency mortgage-backed securities		1,135,167		-		(222,509	)		912,658
Investment securities held to maturity	$	1,562,376	$	32	$	(294,862	)	$	1,267,546
Equity securities (1)								$	6,627

(1) Equity securities consist of investments in non-cumulative preferred stock.

	December 31, 2021
(dollars in thousands)	Amortized Cost		Gross Unrealized / Unrecognized Gains		Gross Unrealized / Unrecognized Losses			Fair Value
Available for sale
U.S. Government agencies	$	25,671	$	-	$	(743	)	$	24,928
Collateralized mortgage obligations		375,570		989		(5,010	)		371,549
Agency mortgage-backed securities		446,740		254		(5,511	)		441,483
Municipal securities		6,596		344		-			6,940
Corporate bonds		232,395		1,480		(3,409	)		230,466
Investment securities available for sale	$	1,086,972	$	3,067	$	(14,673	)	$	1,075,366
Held to maturity
U.S. Government agencies	$	66,438	$	1,549	$	-		$	67,987
Collateralized mortgage obligations		400,424		4,607		(8,803	)		396,228
Agency mortgage-backed securities		1,193,430		2,295		(12,580	)		1,183,145
Investment securities held to maturity	$	1,660,292	$	8,451	$	(21,383	)	$	1,647,360
Equity securities (1)								$	9,173

(1) Equity securities consist of investments in non-cumulative preferred stock.

The following table presents investment securities by stated maturity as of September 30, 2022. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	35,899	$	29,762	$	-	$	-
After 1 year to 5 years		95,090		89,803		52,788		48,024
After 5 years to 10 years		67,549		60,572		-		-
After 10 years		106,238		82,347		-		-
Collateralized mortgage obligations		388,019		321,015		374,421		306,864
Agency mortgage-backed securities		510,269		416,022		1,135,167		912,658
Total investment securities	$	1,203,064	$	999,521	$	1,562,376	$	1,267,546

The Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. Equity securities consist of investments in non-cumulative preferred stock. There were no private label mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) held in the investment securities portfolio as of September 30, 2022 or December 31, 2021. There was also no MBS or CMO securities that were rated “Alt-A” or “sub-prime” as of those dates.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis. The adoption of CECL on January 1, 2022 resulted in no impact to the held-to-maturity securities portfolio, as the Company’s entire portfolio consists of securities guaranteed by various agencies or government-sponsored enterprises and carries no risk of nonpayment.

The Company evaluates investment securities that are in an unrealized/unrecognized loss position on a quarterly basis and more frequently when warranted in order to determine if the decline in fair value is below the amortized cost of the asset. Accounting standards require the evaluation of the discounted cash flows when estimating expected credit losses to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale. There were no credit-related impairment charges recognized in net income during the nine months ended September 30, 2022 or the year ended December 31, 2021.

The following tables show the fair value and gross unrealized/unrecognized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized/unrecognized loss position as of September 30, 2022 and December 31, 2021:

	September 30, 2022
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	-	$	-	$	18,396	$	1,411	$	18,396	$	1,411
Collateralized mortgage obligations		155,546		23,587		165,469		43,417		321,015		67,004
Agency mortgage-backed securities		193,757		39,579		221,572		54,678		415,329		94,257
Municipal securities		44,747		6,356		-		-		44,747		6,356
Corporate bonds		100,336		14,864		89,344		20,297		189,680		35,161
Investment Securities Available for Sale	$	494,386	$	84,386	$	494,781	$	119,803	$	989,167	$	204,189

	September 30, 2022
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
U.S. Government agencies	$	48,025	$	4,764	$	-	$	-	$	48,025	$	4,764
Collateralized mortgage obligations		125,412		14,609		177,469		52,980		302,881		67,589
Agency mortgage-backed securities		349,870		76,429		562,788		146,080		912,658		222,509
Investment Securities Held to Maturity	$	523,307	$	95,802	$	740,257	$	199,060	$	1,263,564	$	294,862

	December 31, 2021
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	-	$	-	$	24,928	$	743	$	24,928	$	743
Collateralized mortgage obligations		188,416		2,982		57,708		2,028		246,124		5,010
Agency mortgage-backed securities		365,859		4,896		39,928		615		405,787		5,511
Municipal securities		-		-		-		-		-		-
Corporate bonds		154,436		2,281		33,351		1.128		187,787		3,409
Investment Securities Available for Sale	$	708,711	$	10,159	$	155,915	$	4,514	$	864,626	$	14,673

	December 31, 2021
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
U.S. Government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Collateralized mortgage obligations		183,376		6,719		81,994		2,084		265,370		8,803
Agency mortgage-backed securities		899,231		10,815		61,756		1,765		960,987		12,580
Investment Securities Held to Maturity	$	1,082,607	$	17,534	$	143,750	$	3,849	$	1,226,357	$	21,383

Unrealized/unrecognized losses on securities in the investment portfolio amounted to $499.1 million with a total fair value of $2.3 billion as of September 30, 2022 compared to unrealized/unrecognized losses of $36.1 million with a total fair value of $2.1 billion as of December 31, 2021. The Company believes the unrealized/unrecognized losses presented in the tables above are primarily related to market interest rates or limited trading activity in a particular type of security rather than the underlying credit quality of the issuers. The Company does not currently intend to sell or believe it will be required to sell securities in an unrealized/unrecognized loss position prior to maturity or recovery of the amortized cost bases.

The Company held 17 U.S. Government agency securities, 103 collateralized mortgage obligations and 103 agency mortgage-backed securities that were in an unrealized/unrecognized loss position as of September 30, 2022. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of losses related to credit factors on any of these securities and believes the unrealized/unrecognized losses are due to fluctuations in fair values resulting from changes in market interest rates as of September 30, 2022.

All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody’s or Standard & Poor’s. In addition, the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. As of September 30, 2022, the investment portfolio included 15 municipal securities that were in an unrealized loss position.

On September 30, 2022, the investment portfolio included 22 corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration.

Proceeds associated with the sale of securities available for sale during the three and nine months ended September 30, 2022 were each $34.1 million. The tax provision applicable to the net loss of $46,000 for the three and nine months ended September 30, 2022 each amounted to $12,000. There were no proceeds from the sale of securities during the three or nine months ended September 30, 2021.

There was no allowance for credit losses recorded for debt securities available for sale at either September 30, 2022 or December 31, 2021. Additionally, for the three and nine months ended September 30, 2022 and 2021, there was no credit-related investment impairment losses recognized.