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Investment Securities

9 Months Ended

Sep. 30, 2023

Investment Securities

Investment Securities

NOTE 3 Investment Securities

The following tables present amortized cost, gross unrealized gains and losses, allowance for credit losses, and fair value of the available-for-sale investment securities and the amortized cost, gross unrealized gains and losses and fair value of held-to-maturity securities as of September 30, 2023 and December 31, 2022:


		September 30, 2023
		Amortized			Unrealized			Unrealized			Allowance for			Fair
(dollars in thousands)		Cost			Gains			Losses			Credit Losses			Value
Available-for-sale
U.S. Treasury and agencies		$	2,679		$	9		$	(23)		$	—		$	2,665
Mortgage backed securities
Residential agency			656,845			—			(135,222)			—			521,623
Commercial			66,980			—			(8,295)			—			58,685
Asset backed securities			27			—			—			—			27
Corporate bonds			69,495			—			(12,494)			—			57,001
Total available-for-sale investment securities			796,026			9			(156,034)			—			640,001
Held-to-maturity
Obligations of state and political agencies			130,088			—			(18,651)			115			111,437
Mortgage backed securities
Residential agency			173,398			—			(36,596)			103			136,802
Total held-to-maturity investment securities			303,486			—			(55,247)			218			248,239
Total investment securities		$	1,099,512		$	9		$	(211,281)		$	218		$	888,240


		December 31, 2022
		Amortized			Unrealized			Unrealized			Allowance for			Fair
(dollars in thousands)		Cost			Gains			Losses			Credit Losses			Value
Available-for-sale
U.S. Treasury and agencies		$	3,518		$	19		$	(17)			N/A		$	3,520
Mortgage backed securities
Residential agency			705,845			2			(118,168)			N/A			587,679
Commercial			70,669			—			(7,111)			N/A			63,558
Asset backed securities			34			—			—			N/A			34
Corporate bonds			69,501			—			(6,968)			N/A			62,533
Total available-for-sale investment securities			849,567			21			(132,264)			N/A			717,324
Held-to-maturity
Obligations of state and political agencies			137,787			—			(17,736)			N/A			120,051
Mortgage backed securities
Residential agency			184,115			—			(33,254)			N/A			150,861
Total held-to-maturity investment securities			321,902			—			(50,990)			N/A			270,912
Total investment securities		$	1,171,469		$	21		$	(183,254)			N/A		$	988,236

The adequacy of the allowance for credit losses on investment securities is assessed at the end of each quarter. The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position as of September 30, 2023, represent a credit loss impairment. As of September 30, 2023, and December 31, 2022, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Total gross unrealized losses were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

The allowance for credit losses on held-to-maturity debt securities is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable supportable forecasts. Using a probability of default and loss on given default analysis an allowance for credit losses was established in the amount of $218 thousand as of September 30, 2023.

Accrued interest receivable on available-for-sale investment securities and held-to-maturity investment securities is recorded in accrued interest receivable and is excluded from the estimate of credit losses. As of September 30, 2023, the accrued interest receivable on available-for-sale investment securities and held-to-maturity investment securities totaled $2.4 million and $1.0 million, respectively. As of December 31, 2022, the accrued interest receivable on available-for-sale investment securities and held-to-maturity investment securities totaled $1.9 million and $1.5 million, respectively.

The following table presents investment securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2023:


		September 30, 2023
		Less than 12 Months						Over 12 Months						Total
		Unrealized			Fair			Unrealized			Fair			Unrealized			Fair
(dollars in thousands)		Losses			Value			Losses			Value			Losses			Value
Available-for-sale
U.S. Treasury and agencies		$	—		$	—		$	(23)		$	389		$	(23)		$	389
Mortgage backed securities
Residential agency			(9)			577			(135,213)			484,451			(135,222)			485,028
Commercial			—			—			(8,295)			58,684			(8,295)			58,684
Asset backed securities			—			7			—			19			—			26
Corporate bonds			—			—			(12,494)			57,001			(12,494)			57,001
Total available-for-sale investment securities		$	(9)		$	584		$	(156,025)		$	600,544		$	(156,034)		$	601,128

Gross unrealized losses on investment securities and the fair value of the related securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2022, were as follows:


		December 31, 2022
		Less than 12 Months						Over 12 Months						Total
		Unrealized			Fair			Unrealized			Fair			Unrealized			Fair
(dollars in thousands)		Losses			Value			Losses			Value			Losses			Value
Available-for-sale
U.S. Treasury and agencies		$	(17)		$	509		$	—		$	—		$	(17)		$	509
Mortgage backed securities
Residential agency			(10,457)			79,693			(107,711)			507,418			(118,168)			587,111
Commercial			(4,835)			50,437			(2,276)			13,120			(7,111)			63,557
Asset backed securities			—			32			—			2			—			34
Corporate bonds			(4,452)			48,048			(2,516)			14,484			(6,968)			62,532
Total available-for-sale investment securities			(19,761)			178,719			(112,503)			535,024			(132,264)			713,743
Held-to-maturity
Obligations of state and political agencies			(3,336)			18,788			(14,400)			98,762			(17,736)			117,550
Mortgage backed securities
Residential agency			—			—			(33,254)			150,861			(33,254)			150,861
Total held-to-maturity investment securities			(3,336)			18,788			(47,654)			249,623			(50,990)			268,411
Total investment securities		$	(23,097)		$	197,507		$	(160,157)		$	784,647		$	(183,254)		$	982,154

Unrealized losses on available-for-sale investment securities have not been recognized into income because the issuers’ bonds are of high credit quality. Furthermore, the Company does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The issuers continue to make timely principal and interest payments on their bonds. The Company expects that it could see a continued increase in unrealized losses if the Federal Reserve continues to raise interest rates.

The following table presents amortized cost and fair value of available-for-sale investment securities and the carrying value and fair value of held-to-maturity investment securities as of September 30, 2023, by contractual maturity:


		Held-to-maturity						Available-for-sale
		Carrying			Fair			Amortized			Fair
(dollars in thousands)		Value			Value			Cost			Value
Due within one year or less		$	5,981		$	5,875		$	—		$	—
Due after one year through five years			51,009			45,878			17,119			15,706
Due after five years through ten years			60,325			49,427			80,670			66,779
Due after 10 years			12,773			10,257			41,392			35,893
			130,088			111,437			139,181			118,378
Mortgage-backed securities
Residential agency			173,398			136,802			656,845			521,623
Total investment securities		$	303,486		$	248,239		$	796,026		$	640,001

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities with a total carrying value of $381.4 million and $260.7 million were pledged as of September 30, 2023 and December 31, 2022, respectively, to secure public deposits and for other purposes required or permitted by law.

The company had no sales or calls of available-for-sale investment securities, for the three and nine months ended September 30, 2023 and 2022.

Proceeds from the call of held-to-maturity investment securities, for the three and nine months ended September 30, 2023 and 2022, are displayed in the table below:


		Three months ended						Nine months ended
		September 30,						September 30,
(dollars in thousands)		2023			2022			2023			2022
Proceeds		$	116		$	101		$	242		$	827
Realized gains			—			—			—			—
Realized losses			—			—			—			—

As of September 30, 2023 and December 31, 2022, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines, or FHLB, stock was as follows:


		September 30,			December 31,
(dollars in thousands)		2023			2022
Federal Reserve		$	4,623		$	4,595
FHLB			25,316			19,362

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these

litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of September 30, 2023, the conversion ratio was 1.5902. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,010 Class A equivalents) that the Company owned as of September 30, 2023 and December 31, 2022, were carried at a zero cost basis.