Securities

9 Months Ended

Sep. 30, 2024

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, 2024 and December 31, 2023 are reflected in the tables below (in thousands):


	September 30, 2024
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
U.S. Treasury	$	174,076	$	91	$	—	$	174,167

State and political subdivisions	468,836		135		32,044		436,927
Corporate bonds and other	14,626		147		414		14,359

MBS: (1)
Residential	770,310		10,016		2,233		778,093
Commercial	5,249		81		439		4,891
Total	$	1,433,097	$	10,470	$	35,130	$	1,408,437




HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,040,876	$	8,810	$	110,543	$	939,143
Corporate bonds and other	131,456		157		10,387		121,226
MBS: (1)
Residential	86,321		19		5,493		80,847
Commercial	29,750		—		1,443		28,307
Total	$	1,288,403	$	8,986	$	127,866	$	1,169,523


	December 31, 2023
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
AVAILABLE FOR SALE	Cost		Gains		Losses		Fair Value
Investment securities:
U.S. Treasury	$	139,706	$	19	$	—	$	139,725

State and political subdivisions	603,913		362		35,530		568,745
Corporate bonds and other	14,569		31		507		14,093

MBS: (1)
Residential	569,039		3,202		3,258		568,983
Commercial	5,240		44		536		4,748
Total	$	1,332,467	$	3,658	$	39,831	$	1,296,294





HELD TO MATURITY
Investment securities:
State and political subdivisions	$	1,039,440	$	10,070	$	126,233	$	923,277
Corporate bonds and other	146,712		488		15,738		131,462
MBS: (1)
Residential	90,619		13		7,263		83,369
Commercial	30,282		—		2,228		28,054
Total	$	1,307,053	$	10,571	$	151,462	$	1,166,162

(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 and our intent and ability to hold these securities until maturity. We did not transfer any securities from AFS to HTM during the nine months ended September 30, 2024 or the year ended December 31, 2023. The remaining net unamortized, unrealized loss on the transferred securities included in AOCI in the accompanying balance sheets totaled $107.3 million ($84.8 million, net of tax) at September 30, 2024 and $113.5 million ($89.7 million, net of tax) at December 31, 2023. 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.

Investment securities and MBS with carrying values of $2.10 billion and $2.28 billion were pledged as of September 30, 2024 and December 31, 2023, respectively, to collateralize 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. At September 30, 2024 and December 31, 2023, the amount of excess collateral at the FRDW was $352.6 million and $213.1 million, respectively.

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, 2024 and December 31, 2023, segregated by major security type and length of time in a continuous loss position (in thousands):


	September 30, 2024
	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	$	—	$	—	$	414,965	$	32,044	$	414,965	$	32,044
Corporate bonds and other	2,926		74		6,377		340		9,303		414

MBS:
Residential	19,843		63		34,116		2,170		53,959		2,233
Commercial	—		—		2,552		439		2,552		439
Total	$	22,769	$	137	$	458,010	$	34,993	$	480,779	$	35,130

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	22,229	$	224	$	737,971	$	110,319	$	760,200	$	110,543
Corporate bonds and other	6,137		143		107,409		10,244		113,546		10,387
MBS:
Residential	—		—		80,287		5,493		80,287		5,493
Commercial	—		—		28,307		1,443		28,307		1,443
Total	$	28,366	$	367	$	953,974	$	127,499	$	982,340	$	127,866

	December 31, 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	$	26,371	$	297	$	516,520	$	35,233	$	542,891	$	35,530
Corporate bonds and other	8,103		319		5,071		188		13,174		507

MBS:
Residential	150,865		549		36,864		2,709		187,729		3,258
Commercial	—		—		2,484		536		2,484		536
Total	$	185,339	$	1,165	$	560,939	$	38,666	$	746,278	$	39,831

HELD TO MATURITY
Investment securities:
State and political subdivisions	$	16,549	$	123	$	713,499	$	126,110	$	730,048	$	126,233
Corporate bonds and other	9,956		1,135		114,787		14,603		124,743		15,738
MBS:
Residential	—		—		82,747		7,263		82,747		7,263
Commercial	—		—		28,054		2,228		28,054		2,228
Total	$	26,505	$	1,258	$	939,087	$	150,204	$	965,592	$	151,462

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. During the three months ended September 30, 2024, we recognized an impairment loss of $868,000 for AFS securities which were sold subsequent to September 30, 2024. 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, 2024 and December 31, 2023, 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. We had 271 AFS debt securities in an unrealized loss position at September 30, 2024. 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 primarily 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. As of September 30, 2024, two bonds were rated below investment grade. The model determined any expected credit loss over the life of these securities to be insignificant. Management further evaluated the remote expectation of loss on the remainder of the HTM portfolio, along with the qualitative factors associated with these securities and concluded that, due to the securities being highly rated municipals and primarily investment grade corporates, 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, 2024 or 2023.

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, 2024, accrued interest receivable on AFS and HTM debt securities totaled $8.4 million and $8.2 million, respectively. As of December 31, 2023, accrued interest receivable on AFS and HTM debt securities totaled $15.4 million and $13.7 million, respectively. No HTM debt securities were past-due or on nonaccrual status as of September 30, 2024 or December 31, 2023.

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



	Three Months Ended September 30,
	2024		2023
U.S. Treasury	$	2,315	$	3,784

State and political subdivisions	12,994		16,940

Corporate bonds and other	1,654		1,765
MBS	11,976		4,426
Total interest income on securities	$	28,939	$	26,915



	Nine Months Ended September 30,
	2024		2023
U.S. Treasury	$	6,404	$	8,307

State and political subdivisions	41,151		50,940
Corporate bonds and other	5,182		5,363
MBS	33,179		12,585
Total interest income on securities	$	85,916	$	77,195

There was a $2.5 million net realized loss as a result of sales from the AFS securities portfolio for the nine months ended September 30, 2024, which consisted of $6.1 million in realized losses and $88,000 in realized gains, offset by a net gain of $3.5 million on the unwinding of fair value hedges on municipal securities in the AFS securities portfolio. In addition, during the

three months ended September 30, 2024, we recorded an impairment charge of $868,000 consisting of a loss of $685,000 on the sale of approximately $10.0 million of AFS municipal securities and a loss of $183,000 on the unwind of the related fair value hedges, sold on October 1, 2024. 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 were no sales from the HTM portfolio during the three and nine months ended September 30, 2024 or 2023. 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, 2024, are presented below by contractual maturity (in thousands):


	September 30, 2024
	Amortized Cost		Fair Value
AVAILABLE FOR SALE
Investment securities:
Due in one year or less	$	176,356	$	176,436
Due after one year through five years	1,797		1,810
Due after five years through ten years	25,600		25,193
Due after ten years	453,785		422,014
	657,538		625,453
MBS:	775,559		782,984
Total	$	1,433,097	$	1,408,437


	September 30, 2024
	Amortized Cost		Fair Value
HELD TO MATURITY
Investment securities:
Due in one year or less	$	4,118	$	4,087
Due after one year through five years	11,920		11,695
Due after five years through ten years	141,206		131,105
Due after ten years	1,015,088		913,482
	1,172,332		1,060,369
MBS:	116,071		109,154
Total	$	1,288,403	$	1,169,523

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, 2024 and December 31, 2023, we had equity investments recorded in our consolidated balance sheets of $9.7 million.

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 and nine months ended September 30, 2024, there was no gain or loss on the sale of equity securities.

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,
	2024		2023		2024		2023
Net gains (losses) recognized during the period on equity investments	$	191	$	(163)	$	112	$	4,895
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	$	191	$	(163)	$	112	$	(163)

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, 2024.

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, 2024, our FHLB stock was not impaired and thus was not considered to be other-than-temporarily impaired.