Note 3 - Available for Sale Debt Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

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

(3) Available for Sale Debt Securities

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

(in thousands)			Unrealized					Allowance
March 31, 2020	Amortized cost		Gains		Losses			for Credit Losses		Fair value
Government sponsored enterprise obligations	$	203,401	$	2,647	$	(125	)	$	—	$	205,923
Mortgage backed securities - government agencies		219,811		6,766		(5	)		—		226,572
Obligations of states and political subdivisions		13,234		84		—			—		13,318
Total available for sale debt securities	$	436,446	$	9,497	$	(130	)	$	—	$	445,813
December 31, 2019
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 available for sale debt securities	$	469,313	$	2,559	$	(1,134	)	$	—	$	470,738

At March 31, 2020 and December 31, 2019, 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 three-month periods ending March 31, 2020 and 2019. Securities acquired in the May 1, 2019, acquisition totaling $12 million, were sold immediately following the acquisition with no gain or loss realized in the income statement.

Accrued interest on AFS debt securities totaled $1.5 million and $1.6 million at March 31, 2020 and December 31, 2019 and was included in other assets in the consolidated balance sheets.

A summary of AFS debt securities by contractual maturity follows:

(in thousands)	Amortized cost		Fair value
Due within 1 year	$	76,966	$	77,108
Due after 1 year but within 5 years		31,054		31,618
Due after 5 years but within 10 years		5,482		5,583
Due after 10 years		103,133		104,932
Mortgage backed securities - government agencies		219,811		226,572
Total securities available for sale	$	436,446	$	445,813

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 MBS’s, 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 $384 million and $403 million were pledged at March 31, 2020 and December 31, 2019, to secure accounts of commercial depositors in cash management accounts, public funds and uninsured cash balances for WM&T accounts.

AFS debt securities with unrealized loss position for which an ACL has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position follow:

	Less than 12 months					12 months or more					Total
(in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2020	value		losses			value		losses			value		losses
Government sponsored enterprise obligations	$	26,339	$	(92	)	$	1,480	$	(33	)	$	27,819	$	(125	)
Mortgage-backed securities - government agencies		1,033		(5	)		—		—			1,033		(5	)
Total temporarily impaired securities	$	27,372	$	(97	)	$	1,480	$	(33	)	$	28,852	$	(130	)
December 31, 2019
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	)

Applicable dates for determining when securities are in an unrealized loss position are March 31, 2020 and December 31, 2019. As such, it is possible that a security had a market value lower than its amortized cost on other days during the past 12 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 consisted of 7 and 54 separate investment positions as of March 31, 2020 and December 31, 2019. 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 March 31, 2020.

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 in the fourth quarter and more often if market conditions warrant. Holdings of FHLB stock are required for access to FHLB advances.