Quarterly report pursuant to Section 13 or 15(d)

SECURITIES

v3.23.1
SECURITIES
3 Months Ended
Mar. 31, 2023
Securities [Abstract]  
SECURITIES

2. SECURITIES

Available for Sale

The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with no securities past due or on non-accrual as of March 31, 2023 and December 31, 2022.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of March 31, 2023 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

March 31, 2023

 

  

 

  

 

  

  

U.S. government and agency securities

$

69,474

$

$

(6,900)

$

62,574

Obligations of states and political subdivisions

 

650,328

 

20

 

(127,251)

 

523,097

Corporate and other bonds (1)

 

171,899

 

 

(19,893)

 

152,006

Commercial MBS

 

 

Agency

220,617

 

156

 

(37,729)

183,044

Non-agency

80,239

 

 

(2,636)

77,603

Total commercial MBS

300,856

 

156

 

(40,365)

260,647

Residential MBS

Agency

1,394,464

 

57

 

(207,355)

1,187,166

Non-agency

71,552

 

 

(6,358)

65,194

Total residential MBS

1,466,016

 

57

 

(213,713)

1,252,360

Other securities

 

1,681

 

 

 

1,681

Total AFS securities

$

2,660,254

$

233

$

(408,122)

$

2,252,365

(1) Other bonds include asset-backed securities.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 2022 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

December 31, 2022

U.S. government and agency securities

$

70,196

$

$

(8,253)

$

61,943

Obligations of states and political subdivisions

959,999

 

137

 

(152,701)

 

807,435

Corporate and other bonds (1)

 

243,979

 

 

(17,599)

 

226,380

Commercial MBS

 

 

Agency

250,186

 

75

 

(39,268)

210,993

Non-agency

99,412

 

 

(4,244)

95,168

Total commercial MBS

349,598

 

75

 

(43,512)

306,161

Residential MBS

Agency

1,510,110

 

81

 

(233,961)

1,276,230

Non-agency

68,815

 

 

(6,812)

62,003

Total residential MBS

1,578,925

 

81

 

(240,773)

1,338,233

Other securities

 

1,664

 

 

 

1,664

Total AFS securities

$

3,204,361

$

293

$

(462,838)

$

2,741,816

(1) Other bonds include asset-backed securities.

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands).

Less than 12 months

More than 12 months

Total

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

Value

Losses

Value(2)

Losses

Value

Losses

March 31, 2023

 

 

 

 

 

 

U.S. government and agency securities

$

$

$

62,541

$

(6,900)

$

62,541

$

(6,900)

Obligations of states and political subdivisions

25,482

(1,225)

490,011

(126,026)

515,493

(127,251)

Corporate and other bonds(1)

 

62,443

 

(3,586)

 

87,163

 

(16,307)

 

149,606

 

(19,893)

Commercial MBS

 

Agency

21,945

(3,119)

150,711

(34,610)

172,656

(37,729)

Non-agency

77,603

(2,636)

77,603

(2,636)

Total commercial MBS

21,945

(3,119)

228,314

(37,246)

250,259

(40,365)

Residential MBS

Agency

110,848

(5,385)

1,061,695

(201,971)

1,172,543

(207,356)

Non-agency

14,615

(138)

50,580

(6,219)

65,195

(6,357)

Total residential MBS

125,463

(5,523)

1,112,275

(208,190)

1,237,738

(213,713)

Total AFS securities

$

235,333

$

(13,453)

$

1,980,304

$

(394,669)

$

2,215,637

$

(408,122)

December 31, 2022

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

2,594

$

(166)

$

59,269

$

(8,087)

$

61,863

$

(8,253)

Obligations of states and political subdivisions

588,668

(86,895)

187,375

(65,806)

776,043

(152,701)

Corporate and other bonds(1)

 

206,861

 

(15,019)

 

17,121

 

(2,580)

 

223,982

 

(17,599)

Commercial MBS

 

Agency

73,362

(7,024)

127,193

(32,244)

200,555

(39,268)

Non-agency

66,618

(2,231)

28,550

(2,013)

95,168

(4,244)

Total commercial MBS

139,980

(9,255)

155,743

(34,257)

295,723

(43,512)

Residential MBS

Agency

328,590

(27,769)

929,581

(206,192)

1,258,171

(233,961)

Non-agency

18,939

(1,288)

43,064

(5,524)

62,003

(6,812)

Total residential MBS

347,529

(29,057)

972,645

(211,716)

1,320,174

(240,773)

Total AFS securities

$

1,285,632

$

(140,392)

$

1,392,153

$

(322,446)

$

2,677,785

$

(462,838)

(1) Other bonds include asset-backed securities.

(2) Comprised of 752 and 363 individual securities as of March 31, 2023 and December 31, 2022, respectively.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at March 31, 2023 and December 31, 2022 and concluded no impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

Additionally, the majority of the Company’s MBS are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a 20% simplified supervisory formula approach rating.

In the first quarter of 2023, the Company executed a balance sheet repositioning strategy and sold AFS securities with a total book value of $505.7 million at a pre-tax loss of $13.4 million and used the net proceeds to reduce existing high costing FHLB borrowings. The deleverage strategy provides the Company with improved liquidity, enhanced tangible common equity, and additional run rate earnings.

The following table presents the amortized cost and estimated fair value of AFS securities as of March 31, 2023 and December 31, 2022, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2023

December 31, 2022

    

Amortized

    

Estimated

    

Amortized

    

Estimated

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$

52,594

$

51,912

$

42,447

$

41,735

Due after one year through five years

 

122,772

 

113,380

 

158,063

 

152,523

Due after five years through ten years

 

204,347

 

180,610

 

343,303

 

312,935

Due after ten years

 

2,280,541

 

1,906,463

 

2,660,548

 

2,234,623

Total AFS securities

$

2,660,254

$

2,252,365

$

3,204,361

$

2,741,816

Refer to Note 7 "Commitments and Contingencies" within this Item 1 of this Quarterly Report for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2023 and December 31, 2022.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. The Company’s HTM securities were all current, with no securities past due or on non-accrual at March 31, 2023 and December 31, 2022.

The Company reports HTM securities on the Company’s Consolidated Balance Sheets at carrying value. Carrying value is amortized cost, which includes any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS securities to HTM securities.

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of March 31, 2023 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

Fair Value

March 31, 2023

 

  

 

  

 

  

  

U.S. government and agency securities

$

684

$

$

(50)

$

634

Obligations of states and political subdivisions

702,749

6,078

(26,903)

681,924

Corporate and other bonds(1)

5,033

(37)

4,996

Commercial MBS

 

Agency

28,925

(4,953)

23,972

Non-agency

27,068

57

(224)

26,901

Total commercial MBS

55,993

57

(5,177)

50,873

Residential MBS

Agency

42,302

(5,606)

36,696

Non-agency

48,657

51

(732)

47,976

Total residential MBS

90,959

51

(6,338)

84,672

Total HTM securities

$

855,418

$

6,186

$

(38,505)

$

823,099

(1) Other bonds include asset-backed securities.

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2022 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

    

Fair Value

December 31, 2022

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

687

$

$

(56)

$

631

Obligations of states and political subdivisions

705,990

2,218

(35,957)

672,251

Corporate and other bonds(1)

5,159

(10)

5,149

Commercial MBS

Agency

29,025

(4,873)

24,152

Non-agency

13,736

(126)

13,610

Total commercial MBS

42,761

(4,999)

37,762

Residential MBS

Agency

42,699

(6,427)

36,272

Non-agency

50,436

(614)

49,822

Total residential MBS

93,135

(7,041)

86,094

Total HTM securities

$

847,732

$

2,218

$

(48,063)

$

801,887

(1) Other bonds include asset-backed securities.

Credit Quality Indicators & Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was insignificant at March 31, 2023 and December 31, 2022. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

The following table presents the amortized cost of HTM securities as of March 31, 2023 and December 31, 2022 by security type and credit rating (dollars in thousands):

    

U.S. Government and Agency

    

Obligations of states and political

    

Corporate and other

    

Mortgage-backed

    

Total HTM

securities

subdivisions

bonds

securities

securities

March 31, 2023

Credit Rating:

 

 

 

AAA/AA/A

$

$

701,567

$

$

10,211

$

711,778

BBB/BB/B

1,182

1,182

Not Rated - Agency(1)

684

71,227

71,911

Not Rated - Non-Agency(2)

 

 

5,033

65,514

70,547

Total

$

684

$

702,749

$

5,033

$

146,952

$

855,418

December 31, 2022

Credit Rating:

 

 

 

AAA/AA/A

$

$

704,803

$

$

2,702

$

707,505

BBB/BB/B

1,187

1,187

Not Rated - Agency(1)

687

71,725

72,412

Not Rated - Non-Agency(2)

 

 

5,159

61,469

66,628

Total

$

687

$

705,990

$

5,159

$

135,896

$

847,732

(1) Generally considered not to have credit risk given the government guarantees associated with these agencies.

(2) Non-agency mortgage-backed and asset-backed securities have limited credit risk, supported by most receiving a 20% simplified supervisory formula approach rating.

The following table presents the amortized cost and estimated fair value of HTM securities as of March 31, 2023 and December 31, 2022, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2023

December 31, 2022

    

Carrying

    

Estimated

    

Carrying

    

Estimated

Value

Fair Value

Value

Fair Value

Due in one year or less

$

2,051

$

2,044

$

2,010

$

2,006

Due after one year through five years

 

36,675

 

36,745

 

35,044

 

35,014

Due after five years through ten years

 

28,128

 

28,355

 

19,941

 

20,239

Due after ten years

 

788,564

 

755,955

 

790,737

 

744,628

Total HTM securities

$

855,418

$

823,099

$

847,732

$

801,887

Refer to Note 7 "Commitments and Contingencies" within this Item 1 of this Quarterly Report for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of March 31, 2023 and December 31, 2022.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the FRB and the FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At March 31, 2023 and December 31, 2022, restricted stock consists of FRB stock in the amount of $67.0 million, respectively, and FHLB stock in the amount of $20.6 million and $53.2 million, respectively.

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three months ended March 31, 2023 and 2022 (dollars in thousands):

    

Three Months Ended

    

Three Months Ended

March 31, 2023

March 31, 2022

Realized (losses) gains(1):

 

  

 

  

Gross realized gains

$

1,346

$

Gross realized losses

 

(14,746)

 

Net realized losses

$

(13,400)

$

Proceeds from sales of securities

$

558,466

$

(1) Includes (losses) gains on sales and calls of securities.