SECURITIES

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL in the AFS portfolio at September 30, 2022 and December 31, 2021. Accrued interest receivable on AFS debt securities totaled $9.1 million and $7.3 million at September 30, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.

TABLE 4.1


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities AFS:
September 30, 2022
U.S. Treasury	$	279	$	—	$	(23)	$	256
U.S. government agencies	116		1		—		117
U.S. government-sponsored entities	284		—		(23)		261
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,427		—		(147)		1,280
Agency collateralized mortgage obligations	1,158		—		(136)		1,022

Commercial mortgage-backed securities	442		—		(35)		407
States of the U.S. and political subdivisions (municipals)	33		—		(4)		29
Other debt securities	21		—		(1)		20
Total debt securities AFS	$	3,760	$	1	$	(369)	$	3,392


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities AFS:
December 31, 2021
U.S. Treasury	$	205	$	—	$	(1)	$	204
U.S. government agencies	154		1		—		155
U.S. government-sponsored entities	194		—		(2)		192
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,342		19		(4)		1,357
Agency collateralized mortgage obligations	1,192		11		(17)		1,186

Commercial mortgage-backed securities	294		5		(2)		297
States of the U.S. and political subdivisions (municipals)	33		—		—		33
Other debt securities	2		—		—		2
Total debt securities AFS	$	3,416	$	36	$	(26)	$	3,426

The amortized cost and fair value of HTM debt securities are presented in the table below. The ACL for the HTM portfolio was $0.12 million and $0.05 million at September 30, 2022 and December 31, 2021, respectively. Accrued interest receivable on HTM debt securities totaled $11.9 million and $12.3 million at September 30, 2022 and December 31, 2021, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of HTM debt securities.

TABLE 4.2


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
September 30, 2022

U.S. government agencies	$	1	$	—	$	—	$	1

Residential mortgage-backed securities:
Agency mortgage-backed securities	1,183		—		(143)		1,040
Agency collateralized mortgage obligations	992		—		(117)		875

Commercial mortgage-backed securities	668		—		(50)		618
States of the U.S. and political subdivisions (municipals)	971		—		(160)		811
Other debt securities	5		—		(1)		4
Total debt securities HTM	$	3,820	$	—	$	(471)	$	3,349


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
December 31, 2021
U.S. Treasury	$	1	$	—	$	—	$	1
U.S. government agencies	1		—		—		1

Residential mortgage-backed securities:
Agency mortgage-backed securities	1,191		15		(5)		1,201
Agency collateralized mortgage obligations	930		5		(12)		923

Commercial mortgage-backed securities	323		3		(2)		324
States of the U.S. and political subdivisions (municipals)	1,017		39		—		1,056

Total debt securities HTM	$	3,463	$	62	$	(19)	$	3,506

There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2022 or 2021. Unrealized losses on the AFS and HTM portfolios are due to the increase in market interest rates with 85.8% backed or sponsored by the U.S. government as of September 30, 2022.

As of September 30, 2022, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 4.3


	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	14	$	14	$	1	$	1
Due after one year but within five years	577		530		31		29
Due after five years but within ten years	96		94		152		136
Due after ten years	46		45		793		650
	733		683		977		816
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,427		1,280		1,183		1,040
Agency collateralized mortgage obligations	1,158		1,022		992		875

Commercial mortgage-backed securities	442		407		668		618
Total debt securities	$	3,760	$	3,392	$	3,820	$	3,349

Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.

Following is information relating to securities pledged:

TABLE 4.4


(dollars in millions)	September 30, 2022			December 31, 2021
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	6,534		$	5,660
As collateral for short-term borrowings	363			392
Securities pledged as a percent of total securities	95.6		%	87.9		%

Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of time in a continuous loss position:

TABLE 4.5


	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
September 30, 2022
U.S. Treasury	5	$	212	$	(17)	1	$	44	$	(6)	6	$	256	$	(23)
U.S. government agencies	2	17		—		8	4		—		10	21		—
U.S. government-sponsored entities	11	195		(14)		3	66		(9)		14	261		(23)
Residential mortgage-backed securities:
Agency mortgage-backed securities	112	961		(94)		9	315		(53)		121	1,276		(147)
Agency collateralized mortgage obligations	59	658		(68)		14	364		(68)		73	1,022		(136)

Commercial mortgage-backed securities	18	345		(26)		3	62		(9)		21	407		(35)
States of the U.S. and political subdivisions (municipals)	9	20		(2)		5	9		(2)		14	29		(4)
Other debt securities	7	16		(1)		1	2		—		8	18		(1)
Total	223	$	2,424	$	(222)	44	$	866	$	(147)	267	$	3,290	$	(369)
	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
December 31, 2021
U.S. Treasury	3	$	151	$	(1)	—	$	—	$	—	3	$	151	$	(1)
U.S. government agencies	3	22		—		9	8		—		12	30		—
U.S. government-sponsored entities	3	99		(1)		1	24		(1)		4	123		(2)
Residential mortgage-backed securities:
Agency mortgage-backed securities	13	599		(4)		—	—		—		13	599		(4)
Agency collateralized mortgage obligations	23	659		(15)		3	68		(2)		26	727		(17)

Commercial mortgage-backed securities	5	125		(2)		—	—		—		5	125		(2)
States of the U.S. and political subdivisions (municipals)	10	24		—		—	—		—		10	24		—
Other debt securities	—	—		—		1	2		—		1	2		—
Total	60	$	1,679	$	(23)	14	$	102	$	(3)	74	$	1,781	$	(26)

We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2022. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the

movement of interest rates and does not reflect any expected credit losses. We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.

Credit Quality Indicators

We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on an annual basis, and more frequently as needed. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.

Our municipal bond portfolio, with a carrying amount of $1.0 billion as of September 30, 2022 is highly rated with an average rating of AA and 100% of the portfolio having an A or better rating. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 61% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.5 million. In addition to the strong stand-alone ratings, 61% of the municipal bonds have some formal credit enhancement (e.g., insurance) that strengthens the creditworthiness of the bond.

The ACL on the HTM municipal bond portfolio is calculated on each bond using:

•The bond’s underlying credit rating, time to maturity and exposure amount;

•Credit enhancements that improve the bond’s credit rating (e.g., insurance); and

•Moody’s U.S. Bond Defaults and Recoveries, 1970-2021 study.

By using these components, we derive the expected credit loss on the HTM general obligation municipal bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.

Our corporate bond portfolio, with a carrying amount of $25.6 million as of September 30, 2022 primarily consists of subordinated debentures of banks within our footprint. The average holding size of the securities in the corporate bond portfolio is $2.3 million.

The ACL on the HTM corporate bond portfolio is calculated using:

•The bond’s credit rating, time to maturity and exposure amount;

•Moody’s Annual Default Study, 02/08/2022; and

•Most recent financial statements.

By using these components, we derive the expected credit loss on the HTM corporate bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our bank-wide loan portfolio forecast adjustment as derived through our assessment of the Bank's loan portfolio as a proxy for our corporate bond portfolio.

For the year-to-date periods ending September 30, 2022 and 2021, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.12 million, consisting of $0.06 million relating to the municipal bond portfolio and $0.06 million relating to other debt securities, as of September 30, 2022 and $0.05 million relating to the municipal bond portfolio as of December 31, 2021. The AFS securities portfolios did not have an ACL at September 30, 2022 or December 31, 2021. At September 30, 2022 and December 31, 2021, there were no securities that were past due or on non-accrual.