Securities

9 Months Ended

Sep. 30, 2023

Investments, Debt and Equity Securities [Abstract]

Debt securities

The amortized cost, gross unrealized gains and losses and estimated fair value of investment and mortgage-backed AFS and HTM securities as of September 30, 2023 and December 31, 2022 are reflected in the tables below (in thousands):


	September 30, 2023
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
U.S. Treasury	$	224,174	$	35	$	—	$	224,209

State and political subdivisions	822,753		14		114,224		708,543
Corporate bonds and other	14,550		19		1,173		13,396

MBS: (1)
Residential	399,943		305		20,861		379,387
Commercial	11,100		—		1,075		10,025
Total	$	1,472,520	$	373	$	137,333	$	1,335,560




HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,038,934	$	—	$	225,921	$	813,013
Corporate bonds and other	146,540		313		15,280		131,573
MBS: (1)
Residential	91,954		1		11,305		80,650
Commercial	30,458		—		3,264		27,194
Total	$	1,307,886	$	314	$	255,770	$	1,052,430


	December 31, 2022
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:


State and political subdivisions	$	1,039,453	$	956	$	75,557	$	964,852
Corporate bonds and other	8,692		26		14		8,704

MBS: (1)
Residential	328,400		250		13,623		315,027
Commercial	11,329		50		948		10,431
Total	$	1,387,874	$	1,282	$	90,142	$	1,299,014





HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,037,556	$	3,969	$	163,283	$	878,242
Corporate bonds and other	152,552		575		7,993		145,134
MBS: (1)
Residential	93,796		21		8,343		85,474
Commercial	42,825		—		2,519		40,306
Total	$	1,326,729	$	4,565	$	182,138	$	1,149,156

(1) All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs.

From time to time, we transfer securities from AFS to HTM due to overall balance sheet strategies. We did not transfer any securities from AFS to HTM during the nine months ended September 30, 2023. We transferred securities from AFS to HTM with an estimated fair value of $1.25 billion during the year ended December 31, 2022. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $115.6 million ($91.3 million, net of tax) at September 30, 2023 and $121.5 million ($96.0 million, net of tax) at December 31, 2022. Any net unrealized gain or loss on the transferred securities included in AOCI at the time of transfer will be amortized over the remaining life of the underlying security as an adjustment to the yield on those securities. Securities transferred with losses included in

AOCI continue to be included in management’s assessment for impairment for each individual security. We transferred these securities due to overall balance sheet strategies, and our management has the current intent and ability to hold these securities until maturity.

Investment securities and MBS with carrying values of $2.48 billion and $1.82 billion were pledged as of September 30, 2023 and December 31, 2022, respectively, to collateralize FHLB borrowings, borrowings from the FRDW, including from the BTFP, repurchase agreements and public fund deposits, for potential liquidity needs or other purposes as required by law.

The following tables present the fair value and unrealized losses on AFS and HTM investment securities and MBS, if applicable, for which an allowance for credit losses has not been recorded as of September 30, 2023 and December 31, 2022, segregated by major security type and length of time in a continuous loss position (in thousands):


	September 30, 2023
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:


State and political subdivisions	$	115,067	$	6,434	$	591,566	$	107,790	$	706,633	$	114,224
Corporate bonds and other	12,500		1,166		689		7		13,189		1,173

MBS:
Residential	157,854		2,226		191,521		18,635		349,375		20,861
Commercial	2,178		43		7,847		1,032		10,025		1,075
Total	$	287,599	$	9,869	$	791,623	$	127,464	$	1,079,222	$	137,333

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	186,212	$	13,551	$	626,801	$	212,370	$	813,013	$	225,921
Corporate bonds and other	13,595		1,425		111,451		13,855		125,046		15,280
MBS:
Residential	523		2		80,024		11,303		80,547		11,305
Commercial	—		—		27,194		3,264		27,194		3,264
Total	$	200,330	$	14,978	$	845,470	$	240,792	$	1,045,800	$	255,770

	December 31, 2022
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
AVAILABLE FOR SALE
Investment securities:


State and political subdivisions	$	859,270	$	68,683	$	26,620	$	6,874	$	885,890	$	75,557
Corporate bonds and other	3,678		14		—		—		3,678		14

MBS:
Residential	306,294		13,623		—		—		306,294		13,623
Commercial	5,613		318		2,545		630		8,158		948
Total	$	1,174,855	$	82,638	$	29,165	$	7,504	$	1,204,020	$	90,142

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	426,382	$	66,898	$	323,385	$	96,385	$	749,767	$	163,283
Corporate bonds and other	125,250		6,660		12,738		1,333		137,988		7,993
MBS:
Residential	80,801		7,799		3,932		544		84,733		8,343
Commercial	40,306		2,519		—		—		40,306		2,519
Total	$	672,739	$	83,876	$	340,055	$	98,262	$	1,012,794	$	182,138

For those AFS debt securities in an unrealized loss position (i) where management has the intent to sell or (ii) where it will more-likely-than-not be required to sell the security before the recovery of its amortized cost basis, we recognize the loss in earnings. For those AFS debt securities in an unrealized loss position that do not meet either of these criteria, management assesses whether the decline in fair value has resulted from credit-related factors, using both qualitative and quantitative criteria. Determining the allowance under the credit loss method requires the use of a discounted cash flow method to assess the credit losses. Any credit-related impairment will be recognized in allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Noncredit-related temporary impairment, the portion of the impairment relating to factors other than credit (such as changes in market interest rates), is recognized in other comprehensive income, net of tax.

As of September 30, 2023 and December 31, 2022, we did not have an allowance for credit losses on our AFS securities, based on our consideration of the qualitative factors associated with each security type in our AFS portfolio. The unrealized losses on our investment and MBS are due to changes in interest rates and spreads and other market conditions. At September 30, 2023, we had 585 AFS debt securities in an unrealized loss position. Our state and political subdivisions are highly rated municipal securities with a long history of no credit losses. Our AFS MBS are highly rated securities which are either explicitly or implicitly backed by the U.S. Government through its agencies which are highly rated by major ratings agencies and also have a long history of no credit losses. Our corporate bonds and other investment securities consist of investment grade bonds and private placement bonds.

We assess the likelihood of default and the potential amount of default when assessing our HTM securities for credit losses. We utilize term structures and, due to no prior loss exposure on our state and political subdivision securities or our corporate securities, we currently apply a third-party average loss given default rate to model these securities. We elected to use the specific identification method to model our HTM securities which aligns with our third-party fair value measurement process. The model determined any expected credit loss over the life of these securities to be insignificant. Management further evaluated the remote expectation of loss, along with the qualitative factors associated with these securities and concluded that, due to the securities being highly rated municipals and investment grade corporates and private placement bonds with a long history of no credit losses, no credit loss should be recognized for these securities for the three and nine months ended September 30, 2023 or 2022.

The accrued interest receivable on our debt securities is excluded from the credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of September 30, 2023, accrued interest receivable on AFS and HTM debt securities totaled $10.8 million and $8.5 million, respectively. As of December 31, 2022, accrued interest receivable on AFS and HTM debt securities totaled $16.9 million and $13.6 million, respectively. No HTM debt securities were past-due or on nonaccrual status as of September 30, 2023 or December 31, 2022.

The following table reflects interest income recognized on securities for the periods presented (in thousands):



	Three Months Ended September 30,
	2023		2022
U.S. Treasury	$	3,784	$	44

State and political subdivisions	16,940		14,666

Corporate bonds and other	1,765		1,668
MBS	4,426		4,770
Total interest income on securities	$	26,915	$	21,148



	Nine Months Ended September 30,
	2023		2022
U.S. Treasury	$	8,307	$	271

State and political subdivisions	50,940		41,786
Corporate bonds and other	5,363		4,385
MBS	12,585		12,025
Total interest income on securities	$	77,195	$	58,467

There was a $5.6 million net realized loss as a result of sales from the AFS securities portfolio for the nine months ended September 30, 2023, which consisted of $7.0 million in realized losses and $1.4 million in realized gains. There was a $3.8 million net realized loss as a result of sales from the AFS securities portfolio for the nine months ended September 30, 2022, which consisted of $4.4 million in realized losses and $584,000 in realized gains. There were no sales from the HTM portfolio

during the three and nine months ended September 30, 2023 or 2022. We calculate realized gains and losses on sales of securities under the specific identification method.

Expected maturities on our securities may differ from contractual maturities because issuers may have the right to call or prepay obligations. MBS are presented in total by category since MBS are typically issued with stated principal amounts and are backed by pools of mortgages that have loans with varying maturities. The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the security holder. The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.

The amortized cost and estimated fair value of AFS and HTM securities at September 30, 2023, are presented below by contractual maturity (in thousands):


	September 30, 2023
	Amortized Cost		Fair Value
AVAILABLE FOR SALE
Investment securities:
Due in one year or less	$	224,385	$	224,420
Due after one year through five years	4,266		4,193
Due after five years through ten years	33,991		32,127
Due after ten years	798,835		685,408
	1,061,477		946,148
MBS:	411,043		389,412
Total	$	1,472,520	$	1,335,560


	September 30, 2023
	Amortized Cost		Fair Value
HELD TO MATURITY
Investment securities:
Due in one year or less	$	15,962	$	15,281
Due after one year through five years	4,861		4,684
Due after five years through ten years	140,605		125,451
Due after ten years	1,024,046		799,170
	1,185,474		944,586
MBS:	122,412		107,844
Total	$	1,307,886	$	1,052,430

Equity Investments

Equity investments on our consolidated balance sheets include Community Reinvestment Act funds with a readily determinable fair value as well as equity investments without readily determinable fair values. At September 30, 2023 and December 31, 2022, we had equity investments recorded in our consolidated balance sheets of $9.5 million and $11.2 million, respectively.

Any realized and unrealized gains and losses on equity investments are reported in income. Equity investments without readily determinable fair values are recorded at cost less impairment, if any. For the three months ended September 30, 2023, there was no gain or loss on the sale of equity securities. For the nine months ended September 30, 2023, there was a net gain on the sale of equity securities of $5.1 million.

The following is a summary of unrealized and realized gains and losses on equity investments recognized in other noninterest income in the consolidated statements of income during the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net gains (losses) recognized during the period on equity investments	$	(163)	$	(230)	$	4,895	$	(696)
Less: Net gains recognized during the period on equity investments sold during the period	—		—		5,058		—
Unrealized gains (losses) recognized during the reporting period on equity investments held at the reporting date	$	(163)	$	(230)	$	(163)	$	(696)

Equity investments are assessed quarterly for other-than-temporary impairment. Based upon that evaluation, management does not consider any of our equity investments to be other-than-temporarily impaired at September 30, 2023.

FHLB Stock

Our FHLB stock, which has limited marketability, is carried at cost and is assessed quarterly for other-than-temporary impairment. Based upon evaluation by management at September 30, 2023, our FHLB stock was not impaired and thus was not considered to be other-than-temporarily impaired.