Investments

9 Months Ended

Sep. 30, 2022

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of September 30, 2022 and December 31, 2021 are as follows:



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
September 30, 2022	cost		gains		losses		value
U.S. Treasury	$	92,305	$	—	$	(12,396)	$	79,909
Municipal		203,370		24		(34,133)		169,261
Corporate		26,311		—		(1,689)		24,622
Agency mortgage & asset-backed		169,537		38		(12,555)		157,020
Non-Agency mortgage & asset-backed		65,471		2		(4,253)		61,220
Total	$	556,994	$	64	$	(65,026)	$	492,032



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2021	cost		gains		losses		value
U.S. Treasury	$	84,896	$	88	$	(698)	$	84,286
Municipal		206,501		7,148		(1,422)		212,227
Corporate		24,794		333		(188)		24,939
Agency mortgage & asset-backed		178,614		1,157		(2,086)		177,685
Non-Agency mortgage & asset-backed		30,912		34		(272)		30,674
Total	$	525,717	$	8,760	$	(4,666)	$	529,811

At September 30, 2022 and December 31, 2021, the fair value of debt securities pledged to secure public funds and trust deposits totaled $222.7 million and $160.3 million, respectively. The Bank has no investment in a single issuer that exceeds 10% of shareholders’ equity, except for securities issued by the U.S. Treasury and U.S. government sponsored entities.

The amortized cost and estimated fair value of debt securities at September 30, 2022, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities. Securities not due at a single maturity date are presented separately.



(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	3,971	$	3,942
Due after one year through five years		14,689		14,121
Due after five years through ten years		150,057		130,188
Due after ten years		153,269		125,541
		321,986		273,792
Mortgage & asset-backed		235,008		218,240
	$	556,994	$	492,032

The composition of the net realized gains (losses) on debt securities for the three and nine months ended are as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Proceeds	$	1,000	$	—	$	1,082	$	16,060
Gross gains realized		—		—		—		169
Gross losses realized		(15)		—		(34)		(78)
Net (losses) gains realized	$	(15)	$	—	$	(34)	$	91

Tax benefit (provision) on net (losses) gains realized	$	3	$	—	$	7	$	(19)

Impairment:

The debt securities portfolio contained 599 securities with $475.4 million of temporarily impaired fair value and $65.0 million in unrealized losses at September 30, 2022. The total unrealized loss position has increased $60.1 million since year-end 2021 due to an increase in market interest rates.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment. In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par; and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The municipal bond portfolio, which has the largest unrealized loss, is well diversified geographically (201 issuers) and is comprised primarily of general obligation bonds (64%). Many municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is in the states of Texas (14%), California (11%), Pennsylvania (11%), and Michigan (10%). The average rating of the municipal portfolio from Moody’s is AA. No municipal bonds are rated below investment grade. The impairment identified on debt securities and subject to assessment at September 30, 2022, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of September 30, 2022 and December 31, 2021:



	September 30, 2022
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count

U.S. Treasury	$	16,836	$	(1,864)	11	$	63,073	$	(10,532)	19	$	79,909	$	(12,396)	30
Municipal		132,404		(22,568)	167		34,527		(11,565)	49		166,931		(34,133)	216
Corporate		15,560		(1,053)	31		7,412		(636)	15		22,972		(1,689)	46
Agency mortgage & asset-backed		67,183		(3,158)	158		80,796		(9,397)	89		147,979		(12,555)	247
Non-Agency mortgage & asset-backed		45,802		(2,962)	47		11,762		(1,291)	13		57,564		(4,253)	60
Total temporarily impaired	$	277,785	$	(31,605)	414	$	197,570	$	(33,421)	185	$	475,355	$	(65,026)	599



	December 31, 2021
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count

U.S. Treasury	$	76,383	$	(698)	21	$	—	$	—	—	$	76,383	$	(698)	21
Municipal		38,997		(910)	44		15,404		(512)	16		54,401		(1,422)	60
Corporate		8,954		(132)	17		1,694		(56)	3		10,648		(188)	20
Agency mortgage & asset-backed		96,923		(1,669)	94		15,991		(417)	18		112,914		(2,086)	112
Non-Agency mortgage & asset-backed		15,215		(215)	11		1,964		(57)	3		17,179		(272)	14
Total temporarily impaired	$	236,472	$	(3,624)	187	$	35,053	$	(1,042)	40	$	271,525	$	(4,666)	227

The following table represents the cumulative credit losses on debt securities recognized in earnings for:



	Nine Months Ended
(Dollars in thousands)	September 30,
	2022		2021
Balance of cumulative credit-related OTTI at January 1	$	257	$	272
Decreases for previously recognized credit losses on securities that paid off or sold		(257)		(15)
Balance of credit-related OTTI at September 30	$	—	$	257

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At September 30, 2022 and December 31, 2021, this investment was reported at fair value of $435 thousand and $481 thousand, respectively, with changes in value reported through income.