Fewer banks sell securities at a loss in Q2 2023

US banks continued to sell securities at a loss during the second quarter, though the pace of sales slowed significantly.

The industry recognized just $595,000 in losses on held-to-maturity (HTM) securities in the second quarter, down significantly from $40.2 million in the previous quarter. Realized losses on available-for-sale (AFS) securities also fell but not as dramatically. US banks recognized $1.28 billion in losses on AFS securities in the second quarter, down from $2.2 billion in the linked quarter but still above the year-ago quarter when they recognized $282 million in losses.

The banks that sold securities at a loss in the quarter did so for strategic reasons, not for liquidity.

None of the top 20 US banks by most realized losses recorded losses on HTM securities in the second quarter.

JPMorgan Chase & Co. again recorded the largest realized loss at $900.0 million after selling US Treasurys and mortgage-backed securities during the quarter. Bank of America Corp. recorded the second-largest loss at $195.0 million after selling some AFS securities and putting the proceeds in cash, CFO Alastair Borthwick said during the company's second-quarter earnings call.

The losses at those two banks represented the bulk of the industry's $1.28 billion in aggregate realized AFS securities losses in the quarter.

Renasant Corp., which realized losses on AFS securities of $22.4 million in the second quarter, used the proceeds from the sale to shrink its balance sheet by paying down wholesale borrowings, President and COO Kevin Chapman said during the company's second-quarter earnings presentation.

"What we liked about this trade was that we would de-lever the balance sheet, reduce indebtedness and give us more flexibility in the balance sheet," Chapman said.

The sale will also benefit future earnings because "we essentially sold securities that were yielding about 2.9%, and we took those monies and paid down advances that were costing us roughly 5.5%. So the breakeven calculation [is] roughly two years, plus or minus, but [we're] very pleased with the execution that we got and the impact that it had on the balance sheet," Chapman added.

Pinnacle Financial Partners Inc. realized $10.0 million in losses after it sold AFS securities to "neutralize" the impact of a sale leaseback it conducted in the quarter, CFO Harold Carpenter said during the company's second-quarter earnings call.

Banner Corp. realized losses of $4.5 million in the second quarter after it sold $127 million in AFS securities during the quarter, and it will consider selling more during the third quarter depending on market conditions, Rob Butterfield, CFO of the company's bank subsidiary Banner Bank, said during the company's second-quarter earnings call.

"I would expect Q3 to look very similar to what we saw in Q1 and Q2," Butterfield said. "To see a larger sale activity, I think we would need to see rates come down."