INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2023

Investments, Debt and Equity Securities [Abstract]

The following table summarizes the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale as of March 31, 2023 and December 31, 2022.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at March 31, 2023
U.S. Treasury	$	2,114	$	—	$	32	$	2,082
U.S. Government-sponsored agency securities	117,746		5		15,153		102,598
State and municipal	1,322,500		562		139,326		1,183,736
U.S. Government-sponsored mortgage-backed securities	584,576		—		90,971		493,605
Corporate obligations	12,991		—		804		12,187

Total available for sale	$	2,039,927	$	567	$	246,286	$	1,794,208


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2022
U.S. Treasury	$	2,501	$	—	$	42	$	2,459
U.S. Government-sponsored agency securities	119,154		—		17,192		101,962
State and municipal	1,530,048		438		178,726		1,351,760
U.S. Government-sponsored mortgage-backed securities	608,630		1		100,358		508,273
Corporate obligations	13,014		—		807		12,207

Total available for sale	$	2,273,347	$	439	$	297,125	$	1,976,661

The following table summarizes the amortized cost, gross unrealized gains and losses, approximate fair value and allowance for credit losses on investment securities held to maturity as of March 31, 2023 and December 31, 2022.


	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to maturity at March 31, 2023
U.S. Government-sponsored agency securities	$	388,273	$	—	$	388,273	$	—	$	61,813	$	326,460
State and municipal	1,114,874		245		1,114,629		1,778		166,679		949,973
U.S. Government-sponsored mortgage-backed securities	758,779		—		758,779		—		102,068		656,711
Foreign investment	1,500		—		1,500		—		43		1,457
Total held to maturity	$	2,263,426	$	245	$	2,263,181	$	1,778	$	330,603	$	1,934,601


	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to maturity at December 31, 2022
U.S. Government-sponsored agency securities	$	392,246	$	—	$	392,246	$	—	$	69,147	$	323,099
State and municipal	1,117,552		245		1,117,307		647		197,064		921,135
U.S. Government-sponsored mortgage-backed securities	776,074		—		776,074		—		113,915		662,159
Foreign investment	1,500		—		1,500		—		28		1,472
Total held to maturity	$	2,287,372	$	245	$	2,287,127	$	647	$	380,154	$	1,907,865

Accrued interest on investment securities available for sale and held to maturity at March 31, 2023 and December 31, 2022 of $24.6 million and $29.5 million, respectively, are included in the Interest Receivable line on the Corporation's Consolidated Condensed Balance Sheets. The total amount of accrued interest is excluded from the amortized cost of available for sale and held to maturity securities presented above.

In determining the allowance for credit losses on investment securities available for sale that are in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through the income statement. For investment securities available for sale that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities available for sale from the estimate of credit losses. Investment securities available for sale are charged off against the allowance or, in the absence of any allowance, written down through the income statement when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Corporation did not record an allowance for credit losses on its investment securities available for sale as the unrealized losses were attributable to changes in interest rates, not credit quality.

The allowance for credit losses on investment securities held to maturity is a contra asset-valuation account that is deducted from the amortized cost basis of investment securities held to maturity to present the net amount expected to be collected. Investment securities held to maturity are charged off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in the income statement as a component of the provision for credit loss. The Corporation measures expected credit losses on investment securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Corporation has made the accounting policy election to exclude accrued interest receivable on investment securities held to maturity from the estimate of credit losses. With regard to U.S. Government-sponsored agency and mortgage-backed securities, all these securities are issued by a U.S. government-sponsored entity and have an implicit or explicit government guarantee; therefore, no allowance for credit losses has been recorded for these securities. With regard to securities issued by states and municipalities and other investment securities held to maturity, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Historical loss rates associated with securities having similar grades as those in the Corporation's portfolio have been insignificant. Furthermore, as of March 31, 2023, there were no past due principal and interest payments associated with these securities. At CECL adoption, an allowance for credit losses of $245,000 was recorded on the state and municipal securities classified as held to maturity based on applying the long-term historical credit loss rate, as published by Moody’s, for similarly rated securities. The balance of the allowance for credit losses remained unchanged at $245,000 as of March 31, 2023.

On a quarterly basis, the Corporation monitors the credit quality of investment securities held to maturity through the use of credit ratings. The following table summarizes the amortized cost of investment securities held to maturity at March 31, 2023, aggregated by credit quality indicator.


	Held to Maturity
	State and municipal		Other		Total
Credit Rating:
Aaa	$	108,774	$	70,583	$	179,357
Aa1	156,209		—		156,209
Aa2	183,736		—		183,736
Aa3	135,167		—		135,167
A1	131,421		—		131,421
A2	10,170		—		10,170
A3	10,120		—		10,120

Non-rated	379,277		1,077,969		1,457,246
Total	$	1,114,874	$	1,148,552	$	2,263,426

The following tables summarize, as of March 31, 2023 and December 31, 2022, investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time in a continuous unrealized loss position.


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Investment securities available for sale at March 31, 2023
U.S. Treasury	$	737	$	8	$	957	$	24	$	1,694	$	32
U.S. Government-sponsored agency securities	36,595		2,204		65,197		12,949		101,792		15,153
State and municipal	290,254		13,634		823,441		125,692		1,113,695		139,326
U.S. Government-sponsored mortgage-backed securities	54,013		2,801		439,588		88,170		493,601		90,971
Corporate obligations	11,253		708		904		96		12,157		804
Total investment securities available for sale	$	392,852	$	19,355	$	1,330,087	$	226,931	$	1,722,939	$	246,286


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Investment securities available for sale at December 31, 2022
U.S. Treasury	$	2,459	$	42	$	—	$	—	$	2,459	$	42
U.S. Government-sponsored agency securities	48,940		4,973		53,022		12,219		101,962		17,192
State and municipal	1,177,104		150,096		108,652		28,630		1,285,756		178,726
U.S. Government-sponsored mortgage-backed securities	182,700		16,910		325,455		83,448		508,155		100,358
Corporate obligations	12,176		807		—		—		12,176		807
Total investment securities available for sale	$	1,423,379	$	172,828	$	487,129	$	124,297	$	1,910,508	$	297,125

The following table summarizes investment securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security type and the number of securities in the portfolio for the periods indicated.


	Gross Unrealized Losses		Number of Securities
Investment securities available for sale at March 31, 2023
U.S. Treasury	$	32	3
U.S. Government-sponsored agency securities	15,153		15
State and municipal	139,326		765
U.S. Government-sponsored mortgage-backed securities	90,971		173
Corporate obligations	804		10
Total investment securities available for sale	$	246,286	966


	Gross Unrealized Losses		Number of Securities
Investment securities available for sale at December 31, 2022
U.S. Treasury	$	42	5
U.S. Government-sponsored agency securities	17,192		16
State and municipal	178,726		946
U.S. Government-sponsored mortgage-backed securities	100,358		177
Corporate obligations	807		10
Total investment securities available for sale	$	297,125	1,154

The unrealized losses in the Corporation’s investment portfolio were the result of changes in interest rates and not credit quality. As a result, the Corporation expects to recover the amortized cost basis over the term of the securities. The Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.

Certain investment securities available for sale are reported in the financial statements at an amount less than their historical cost as indicated in the table below.


	March 31, 2023			December 31, 2022
Investments available for sale reported at less than historical cost:
Historical cost	$	1,969,225		$	2,207,633
Fair value	1,722,939			1,910,508
Gross unrealized losses	$	246,286		$	297,125
Percent of the Corporation's investments available for sale	96.0		%	96.7		%

In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy. The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor classified these securities based upon these inputs. From these discussions, the Corporation’s management is comfortable that the classifications are proper. The Corporation has gained trust in the data for two reasons: (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time. Fair value of securities classified as Level 3 in the valuation hierarchy was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

The amortized cost and fair value of investment securities available for sale and held to maturity at March 31, 2023 and December 31, 2022, by contractual maturity are shown below. 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. Securities not due at a single maturity are shown separately.


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at March 31, 2023
Due in one year or less	$	1,861	$	1,854	$	12,168	$	12,225
Due after one through five years	21,853		20,346		112,941		105,185
Due after five through ten years	118,743		113,564		120,969		114,725
Due after ten years	1,312,894		1,164,839		1,258,569		1,045,755
	1,455,351		1,300,603		1,504,647		1,277,890
U.S. Government-sponsored mortgage-backed securities	584,576		493,605		758,779		656,711

Total investment securities	$	2,039,927	$	1,794,208	$	2,263,426	$	1,934,601


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at December 31, 2022
Due in one year or less	$	2,822	$	2,809	$	13,697	$	13,749
Due after one through five years	11,694		11,265		80,697		76,453
Due after five through ten years	169,729		161,211		147,078		135,027
Due after ten years	1,480,472		1,293,103		1,269,826		1,020,477
	1,664,717		1,468,388		1,511,298		1,245,706
U.S. Government-sponsored mortgage-backed securities	608,630		508,273		776,074		662,159

Total investment securities	$	2,273,347	$	1,976,661	$	2,287,372	$	1,907,865

Securities with a carrying value of approximately $1.9 billion and $941.3 million were pledged at March 31, 2023 and December 31, 2022, respectively, to secure certain deposits and securities sold under repurchase agreements, and for other purposes as permitted or required by law. Pledged securities increased from December 31, 2022 as a result of the Corporation pledging additional securities to the Discount Window at the Federal Reserve Bank to be used as an alternative funding source, if needed.

The book value of securities pledged and available under agreements to repurchase amounted to $205.6 million at March 31, 2023 and $196.7 million at December 31, 2022.

Gross gains and losses on the sales and redemptions of investment securities available for sale for the three months ended March 31, 2023 and 2022 are shown below.


	Three Months Ended March 31,
		2023		2022
Sales and redemptions of investment securities available for sale:
Gross gains		$	12	$	578
Gross losses		(1,583)		(12)

Net gains (losses) on sales and redemptions of investment securities available for sale		$	(1,571)	$	566