Note 4 - Securities Available for Sale

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

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

(4) Securities Available for Sale

All of Bancorp’s securities are classified as AFS. Amortized cost, unrealized gains and losses, and fair value of these securities follow:

(in thousands)	Amortized		Unrealized
December 31, 2019	cost		Gains		Losses			Fair value
U.S. Treasury and other U.S. government obligations	$	49,887	$	10	$	-		$	49,897
Government sponsored enterprise obligations		208,933		1,189		(178	)		209,944
Mortgage backed securities - government agencies		193,574		1,243		(956	)		193,861
Obligations of states and political subdivisions		16,919		117		—			17,036
Total securities available for sale	$	469,313	$	2,559	$	(1,134	)	$	470,738
December 31, 2018
Government sponsored enterprise obligations	$	264,234	$	156	$	(3,351	)	$	261,039
Mortgage backed securities - government agencies		149,748		282		(3,753	)		146,277
Obligations of states and political subdivisions		29,760		107		(188	)		29,679
Total securities available for sale	$	443,742	$	545	$	(7,292	)	$	436,995

At December 31, 2019 and 2018, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

There were no gains or losses on sales or calls of securities for the years ended December 31, 2019 and 2018. In 2017, a corporate equity security was sold for a loss of $263,000 and a security was called with a $31,000 pre-payment penalty realized.

Securities acquired from KSB, totaling $12 million, were sold immediately following the acquisition with no gain or loss realized in the income statement.

A summary of securities AFS by contractual maturity follows:

(in thousands)	Amortized cost		Fair value
Due within 1 year	$	129,251	$	129,311
Due after 1 year but within 5 years		32,124		32,208
Due after 5 years but within 10 years		6,162		6,219
Due after 10 years		108,202		109,139
Mortgage backed securities - government agencies		193,574		193,861
Total securities available for sale	$	469,313	$	470,738

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without prepayment penalties. The investment portfolio includes MBSs, which are guaranteed by agencies such as FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral.

Securities with a carrying value of $403 million and $355 million were pledged at December 31, 2019 and 2018, to secure accounts of commercial depositors in cash management accounts, public deposits, and uninsured cash balances for WM&T accounts.

Securities with unrealized losses at December 31, 2019 and 2018, aggregated by investment category and length of time securities have been in a continuous unrealized loss position follows:

	Less than 12 months					12 months or more					Total
(in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2019	value		losses			value		losses			value		losses
Government sponsored enterprise obligations	$	16,503	$	(107	)	$	11,492	$	(71	)	$	27,995	$	(178	)
Mortgage-backed securities - government agencies		81,664		(496	)		32,453		(460	)		114,117		(956	)
Total temporarily impaired securities	$	98,167	$	(603	)	$	43,945	$	(531	)	$	142,112	$	(1,134	)
December 31, 2018
Government sponsored enterprise obligations	$	96,740	$	(38	)	$	149,320	$	(3,313	)	$	246,060	$	(3,351	)
Mortgage-backed securities - government agencies		3,108		(5	)		120,848		(3,748	)		123,956		(3,753	)
Obligations of states and political subdivisions		814		(1	)		17,639		(187	)		18,453		(188	)
Total temporarily impaired securities	$	100,662	$	(44	)	$	287,807	$	(7,248	)	$	388,469	$	(7,292	)

Applicable dates for determining when securities are in an unrealized loss position are December 31, 2019 and 2018. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past twelve months, but is not in the “Less than 12 months” category above.

Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in value below amortized cost is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.

Unrealized losses on Bancorp’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is due to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach maturity and/or the interest rate environment returns to conditions similar to when these securities were purchased. These investments consist of 54 and 117 separate investment positions as of December 31, 2019 and 2018. Because management does not intend to sell the securities, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost, which may be at maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

FHLB stock represents an investment held by Bancorp which is not readily marketable and is carried at cost adjusted for identified impairment. Impairment is evaluated on an annual basis as of September 30th. No impairment has been recorded in the past and not future impairment is expected. Holdings of FHLB stock are required for access to FHLB advances.