Note 3 - Investment Securities

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

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

(3) Investment Securities

Debt securities purchased in which Bancorp has the intent and ability to hold to their maturity are classified HTM securities. All other investment securities are classified as either AFS securities or other securities.

AFS Debt Securities

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of Bancorp’s AFS debt securities portfolio:

(in thousands)	Amortized		Unrealized
March 31, 2022	cost		Gains		Losses			Fair value
U.S. Treasury and other U.S. Government obligations	$	121,819	$	-	$	(5,481	)	$	116,338
Government sponsored enterprise obligations		126,467		525		(2,341	)		124,651
Mortgage backed securities - government agencies		820,452		137		(61,176	)		759,413
Obligations of states and political subdivisions		150,824		36		(7,025	)		143,835
Other		6,253		-		(135	)		6,118
Total available for sale debt securities	$	1,225,815	$	698	$	(76,158	)	$	1,150,355
December 31, 2021
U.S. Treasury and other U.S. Government obligations	$	123,753	$	-	$	(1,252	)	$	122,501
Government sponsored enterprise obligations		132,760		2,497		(236	)		135,021
Mortgage backed securities - government agencies		857,283		2,495		(13,154	)		846,624
Obligations of states and political subdivisions		75,488		289		(702	)		75,075
Other		1,095		-		(18	)		1,077
Total available for sale debt securities	$	1,190,379	$	5,281	$	(15,362	)	$	1,180,298

HTM Debt Securities

The following table summarizes the amortized cost, unrecognized gains and losses, and fair value of Bancorp’s HTM debt securities portfolio:

(in thousands)	Carrying		Unrecognized
March 31, 2022	value		Gains		Losses			Fair value
U.S. Treasury and other U.S. Government obligations	$	277,491	$	-	$	(1,922	)	$	275,569
Government sponsored enterprise obligations		27,996		17		(195	)		27,818
Mortgage backed securities - government agencies		242,704		7		(10,291	)		232,420
Obligations of states and political subdivisions		-		-		-			-
Other		-		-		-			-
Total held to maturity debt securities	$	548,191	$	24	$	(12,408	)	$	535,807

Bancorp elected to classify a portion of securities purchased and acquired during the first quarter as HTM for general capital purposes. No debt securities were classified as HTM at December 31, 2021.

All investment securities classified as HTM by Bancorp as of March 31, 2022 are obligations of the U.S. Government and/or are issued by U.S. Government-sponsored agencies and have an implicit or explicit government guarantee. Therefore, no ACL has been for Bancorp’s HTM securities as of March 31, 2022.

Further, as of March 31, 2022, none of Bancorp’s HTM securities were in non-accrual or past due status.

Debt Securities by Contractual Maturity

A summary of AFS and HTM debt securities by contractual maturity as of March 31, 2022 follows:

	AFS Debt Securities				HTM Debt Securities
(in thousands)	Amortized cost		Fair value		Carrying value		Fair value
Due within one year	$	8,688	$	8,668	$	60,025	$	60,024
Due after one year but within five years		160,345		154,123		217,974		216,038
Due after five years but within 10 years		56,839		54,292		26,679		26,515
Due after 10 years		179,491		173,859		809		810
Mortgage backed securities - government agencies		820,452		759,413		242,704		232,420
Total available for sale debt securities	$	1,225,815	$	1,150,355	$	548,191	$	535,807

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, 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.

At March 31, 2022 and December 31, 2021, 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.

Accrued interest on the AFS and HTM securities portfolios totaled $3 million and $1 million at March 31, 2022, respectively, and was included on the consolidated balance sheets. Accrued interest on the AFS securities portfolio totaled $3 million at December 31, 2021, and was included in the consolidated balance sheets. There were no securities classified as HTM at December 31, 2021.

AFS debt securities totaling $247 million were acquired on March 7, 2022, as a result of the CB acquisition, a portion of which were classified as HTM at acquisition. Shortly after acquisition, three securities with a total fair value of $2 million were sold, resulting in a loss on the sale of $92,000, which was recorded as a fair value adjustment through goodwill during the first quarter.

Securities with a carrying value of $1.1 billion and $879 million were pledged at March 31, 2022 and December 31, 2021, respectively, to secure accounts of commercial depositors in cash management accounts, public deposits and uninsured cash balances for WM&T accounts. The increase between December 31, 2021 and March 31, 2022 was the result of relationships added through the CB acquisition.

Based on an evaluation of available information including security type, counterparty credit quality, past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability, Bancorp has concluded that it expects to receive all contractual cash flows from each security held in its AFS and HTM debt securities portfolio. As such, no allowance or impairment is recorded with respect to investment securities as of March 31, 2022.

Unrealized Loss Analysis on AFS Debt Securities

AFS debt securities with unrealized losses at March 31, 2022 and December 31, 2021, 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
March 31, 2022	value		losses			value		losses			value		losses
U.S. Treasury and other U.S. Government obligations	$	116,338	$	(5,481	)	$	-	$	-		$	116,338	$	(5,481	)
Government sponsored enterprise obligations		94,099		(2,334	)		243		(7	)		94,342		(2,341	)
Mortgage-backed securities - government agencies		482,129		(33,441	)		263,942		(27,735	)		746,071		(61,176	)
Obligations of states and political subdivisions		122,102		(6,923	)		903		(102	)		123,005		(7,025	)
Other securities		6,118		(135	)		-		-			6,118		(135	)
Total	$	820,786	$	(48,314	)	$	265,088	$	(27,844	)	$	1,085,874	$	(76,158	)
December 31, 2021
U.S. Treasury and other U.S. Government obligations	$	122,501	$	(1,252	)	$	-	$	-		$	122,501	$	(1,252	)
Government sponsored enterprise obligations		23,789		(223	)		447		(13	)		24,236		(236	)
Mortgage-backed securities - government agencies		615,130		(10,027	)		102,637		(3,127	)		717,767		(13,154	)
Obligations of states and political subdivisions		46,493		(686	)		484		(16	)		46,977		(702	)
Other securities		957		(18	)		-		-			957		(18	)
Total	$	808,870	$	(12,206	)	$	103,568	$	(3,156	)	$	912,438	$	(15,362	)

Applicable dates for determining when securities are in an unrealized loss position are March 31, 2022 and December 31, 2021. 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.

For AFS debt securities with an unrealized loss position, Bancorp evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit-related is recognized in AOCI, net of tax. Credit-related impairment is recognized as an a ACL for AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if Bancorp intends to sell an impaired AFS debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.

In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, Bancorp considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. 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 attributable 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 448 and 227 separate investment positions as of March 31, 2022 and December 31, 2021, respectively. There were no credit related factors underlying unrealized losses on AFS debt securities at March 31, 2022 and December 31, 2021.