Investment Securities

9 Months Ended

Sep. 30, 2022

Investment Securities

Investment Securities

NOTE 4 Investment Securities

The following tables present amortized cost, gross unrealized gain and losses, and fair value of the available-for-sale investment securities and the amortized cost, net unrealized gains, carrying value, gross unrealized gains and losses and fair value of for held-to-maturity as of September 30, 2022 and December 31, 2021:

	September 30, 2022
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale
U.S. Treasury and agencies	$	3,826	$	26	$	(19)	$	3,833
Mortgage backed securities
Residential agency		721,170		6		(124,187)		596,989
Commercial		72,584		—		(7,301)		65,283
Asset backed securities		35		—		—		35
Corporate bonds		69,528		—		(6,558)		62,970
Total available-for-sale investment securities		867,143		32		(138,065)		729,110
Held-to-maturity
Obligations of state and political agencies		138,664		—		(18,836)		119,828
Mortgage backed securities
Residential agency		187,746		—		(34,268)		153,478
Total held-to-maturity investment securities		326,410		—		(53,104)		273,306
Total investment securities	$	1,193,553	$	32	$	(191,169)	$	1,002,416

	December 31, 2021
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale
U.S. Treasury and agencies	$	5,028	$	75	$	—	$	5,103
Mortgage backed securities
Residential agency		717,781		1,213		(11,837)		707,157
Commercial		88,362		2,674		(123)		90,913
Asset backed securities		52		2		—		54
Corporate bonds		49,035		1,398		(11)		50,422
Total available-for-sale investment securities		860,258		5,362		(11,971)		853,649
Held-to-maturity
Obligations of state and political agencies		144,543		1,110		(349)		145,304
Mortgage backed securities
Residential agency		207,518		—		(3,145)		204,373
Total held-to-maturity investment securities		352,061		1,110		(3,494)		349,677
Total investment securities	$	1,212,319	$	6,472	$	(15,465)	$	1,203,326

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 September 30, 2022 and December 31, 2021, were as follows:

	September 30, 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	$	(19)	$	529	$	—	$	—	$	(19)	$	529
Mortgage backed securities
Residential agency		(60,983)		325,016		(63,204)		271,347		(124,187)		596,363
Commercial		(5,425)		54,666		(1,876)		10,618		(7,301)		65,284
Asset backed securities		—		22		—		2		—		24
Corporate bonds		(6,558)		62,945		—		—		(6,558)		62,945
Total available-for-sale investment securities		(72,985)		443,178		(65,080)		281,967		(138,065)		725,145
Held-to-maturity
Obligations of state and political agencies		(16,300)		94,902		(2,536)		24,926		(18,836)		119,828
Mortgage backed securities
Residential agency		—		—		(34,268)		153,478		(34,268)		153,478
Total held-to-maturity investment securities		(16,300)		94,902		(36,804)		178,404		(53,104)		273,306
Total investment securities	$	(89,285)	$	538,080	$	(101,884)	$	460,371	$	(191,169)	$	998,451

	December 31, 2021
	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	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage backed securities
Residential agency		(10,156)		554,811		(1,681)		55,082		(11,837)		609,893
Commercial		(123)		17,470		—		—		(123)		17,470
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(11)		5,989		—		—		(11)		5,989
Total available-for-sale investment securities		(10,290)		578,270		(1,681)		55,084		(11,971)		633,354
Held-to-maturity
Obligations of state and political agencies		(349)		53,210		—		—		(349)		53,210
Mortgage backed securities
Residential agency		(3,145)		204,373		—		—		(3,145)		204,373
Total held-to-maturity investment securities		(3,494)		257,583		—		—		(3,494)		257,583
Total investment securities	$	(13,784)	$	835,853	$	(1,681)	$	55,084	$	(15,465)	$	890,937

For all of the above investment securities, the unrealized losses were due to changes in interest rates, and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their maturity dates. The Company expects that it could see a continued increase in unrealized losses if the Federal Reserve continues to raise interest rates. The Company evaluates securities for other-than-temporary impairment, or OTTI, on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, consideration is given to the severity and duration of the impairment; the financial condition and near-term prospects of the issuer, which for debt securities, considers external credit ratings and recent downgrades; and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value.

For the three and nine months ended September 30, 2022 and 2021, the Company did not recognize OTTI losses on its investment securities.

The following table presents amortized cost and fair value of available-for-sale and carrying value and fair value of held-to-maturity investment securities as of September 30, 2022, 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	$	6,808	$	6,742	$	11	$	11
Due after one year through five years		40,702		37,102		21,421		19,957
Due after five years through ten years		69,679		58,557		89,695		81,580
Due after 10 years		209,221		170,905		756,016		627,562
Total investment securities	$	326,410	$	273,306	$	867,143	$	729,110

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 $264.1 million and $192.8 million were pledged as of September 30, 2022 and December 31, 2021, respectively, to secure public deposits and for other purposes required or permitted by law.

Proceeds from the sale or call of available-for-sale investment securities, for the three and nine months ended September 30, 2022 and 2021, are displayed in the table below:

	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands)	2022		2021		2022		2021
Proceeds	$	—	$	—	$	—	$	13,189
Realized gains		—		—		—		114
Realized losses		—		—		—		—

Proceeds from the call of held-to-maturity investment securities, for the three and nine months ended September 30, 2022 and 2021, are displayed in the table below:

	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands)	2022		2021		2022		2021
Proceeds	$	101	$	348	$	827	$	1,763
Realized gains		—		11		—		11
Realized losses		—		—		—		—

As of September 30, 2022 and December 31, 2021, 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)	2022		2021
Federal Reserve	$	4,616	$	2,675
FHLB		15,554		3,806

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, 2022, the conversion ratio was 1.6059. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,119 Class A equivalents) that the Company owned as of September 30, 2022 and December 31, 2021, were carried at a zero cost basis.