Investment Securities

9 Months Ended

Sep. 30, 2022

3 - INVESTMENT SECURITIES

The following tables set forth the amortized cost and estimated fair values of the Bank’s AFS investment securities at the dates indicated.



	September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value
State and municipals	$	322,278	$	70	$	(29,075)	$	293,273
Pass-through mortgage securities		179,220		—		(34,162)		145,058
Collateralized mortgage obligations		137,138		—		(20,353)		116,785
Corporate bonds		119,000		—		(9,895)		109,105
	$	757,636	$	70	$	(93,485)	$	664,221

	December 31, 2021
State and municipals	$	315,747	$	11,600	$	(176)	$	327,171
Pass-through mortgage securities		187,494		54		(4,591)		182,957
Collateralized mortgage obligations		109,254		67		(3,239)		106,082
Corporate bonds		119,000		—		(892)		118,108
	$	731,495	$	11,721	$	(8,898)	$	734,318

At September 30, 2022 and December 31, 2021, investment securities with a carrying value of $395.2 million and $425.0 million, respectively, were pledged as collateral to secure public deposits, borrowed funds and derivative liabilities.

There were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity at September 30, 2022 and December 31, 2021.

There was no allowance for credit losses associated with the investment securities portfolio at September 30, 2022 or December 31, 2021.

Securities With Unrealized Losses. The following tables set forth securities with unrealized losses presented by the length of time the securities have been in a continuous unrealized loss position.



	September 30, 2022
	Less than				12 Months
	12 Months				or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in thousands)	Value		Loss		Value		Loss		Value		Loss
State and municipals	$	256,859	$	(24,416)	$	8,361	$	(4,659)	$	265,220	$	(29,075)
Pass-through mortgage securities		13,731		(1,863)		131,326		(32,299)		145,057		(34,162)
Collateralized mortgage obligations		43,663		(1,338)		73,122		(19,015)		116,785		(20,353)
Corporate bonds		81,000		(7,000)		28,105		(2,895)		109,105		(9,895)
Total temporarily impaired	$	395,253	$	(34,617)	$	240,914	$	(58,868)	$	636,167	$	(93,485)

	December 31, 2021
State and municipals	$	18,429	$	(176)	$	—	$	—	$	18,429	$	(176)
Pass-through mortgage securities		179,575		(4,529)		1,641		(62)		181,216		(4,591)
Collateralized mortgage obligations		99,305		(3,239)		—		—		99,305		(3,239)
Corporate bonds		87,620		(380)		30,488		(512)		118,108		(892)
Total temporarily impaired	$	384,929	$	(8,324)	$	32,129	$	(574)	$	417,058	$	(8,898)

State and Municipals

At September 30, 2022, approximately $265.2 million of state and municipal bonds had an unrealized loss of $29.1 million. Each of the state and municipal bonds are considered high investment grade and rated Aa2/AA- or higher. The decline in value is attributable to changes in interest rates and illiquidity and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Pass-through Mortgage Securities

At September 30, 2022, approximately $145.1 million of pass-through mortgage securities had an unrealized loss of $34.2 million. These securities were issued by U.S. government and government-sponsored agencies and are considered high investment grade. The decline in fair value is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Collateralized Mortgage Obligations

At September 30, 2022, approximately $116.8 million of collateralized mortgage obligations had an unrealized loss of $20.4 million. These securities were issued by U.S. government and government-sponsored agencies and are considered high investment grade. The decline in fair value is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

Corporate Bonds

At September 30, 2022, approximately $109.1 million of corporate bonds had an unrealized loss of $9.9 million. The corporate bonds represent senior unsecured debt obligations of six of the largest U.S. based financial institutions, including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo. Each of the corporate bonds has a stated maturity of ten years and matures in 2028. The bonds reprice quarterly based on the ten year constant maturity swap rate.

Each of the financial institutions is considered upper medium investment grade and rated A3 or higher. The unrealized loss is attributable to changes in credit spreads and interest rates and the illiquid nature of the securities. The Bank does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Each of these financial

institutions has diversified revenue streams, is well capitalized and continues to make timely interest payments. Management evaluates the quarterly financial statements of each company to determine if full payment of principal and interest is in doubt and does not believe there is any impairment at September 30, 2022.

Sales of AFS Securities. Sales of AFS securities were as follows:



	Nine Months Ended				Three Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Proceeds	$	—	$	54,192	$	—	$	—

Gains	$	—	$	622	$	—	$	—
Losses		—		(16)		—		—
Net gain	$	—	$	606	$	—	$	—

Income tax expense related to the net realized gains for the nine months ended September 30, 2021 was $187,000.

Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities, and corporate bonds at September 30, 2022 based on the earlier of their stated maturity or, if applicable, their pre-refunded date. The remaining securities in the Bank’s investment securities portfolio are mortgage-backed securities, consisting of pass-through mortgage securities and collateralized mortgage obligations. Although these securities are expected to have substantial periodic repayments, they are reflected in the table below in aggregate amounts.



(in thousands)	Amortized Cost		Fair Value
Within one year	$	14,996	$	14,905
After 1 through 5 years		86,418		84,054
After 5 through 10 years		209,402		194,397
After 10 years		130,462		109,022
Mortgage-backed securities		316,358		261,843
	$	757,636	$	664,221