Investment Securities

6 Months Ended

Jun. 30, 2023

Investment Securities [Abstract]

Investment Securities

Note 4 – Investment Securities

On January 1, 2023, the Company adopted ASC 326, which made changes to accounting for available for sale debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell a security prior to maturity. In addition, ASC 326 requires an allowance for credit losses to be recorded on held to maturity debt securities measured at amortized cost. All securities information presented as of June 30, 2023 is in accordance with ASC 326. All securities information presented as of December 31, 2022 or a prior date is presented in accordance with previously applicable GAAP. For further discussion on the Corporation’s accounting policies and policy elections related to the accounting standard update refer to Note 2.

The following table summarizes the activity in the ACL on held-to-maturity securities:

	Three Months Ended		Six Months Ended
(Dollars in thousands)	June 30, 2023		June 30, 2023
Provision for credit losses - HTM Debt Securities	$	—	$	163

The ACL for held-to-maturity securities was initially determined to be immaterial as of the date of adoption of ASC 326. Upon re-estimation in the first quarter of 2023, an ACL of $163 thousand was recorded based on the results of our evaluation at March 31, 2023. Based on the Company’s current period re-evaluation, no provision for credit losses was recorded for the three months ended June 30, 2023.

The following tables provide information on the amortized cost and estimated fair values of debt securities.

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Available-for-sale securities:
June 30, 2023
U.S. Government agencies	$	21,465	$	5	$	3,408	$	18,062
Mortgage-backed		66,367		—		8,188		58,179
Other debt securities		2,014		—		186		1,828
Total	$	89,846	$	5	$	11,782	$	78,069
December 31, 2022
U.S. Government agencies	$	21,798	$	5	$	3,625	$	18,178
Mortgage-backed		72,183		2		8,666		63,519
Other debt securities		2,018		—		128		1,890
Total	$	95,999	$	7	$	12,419	$	83,587

No available for sale securities were sold during the three and six months ended June 30, 2023 and 2022.

			Gross		Gross		Estimated		Allowance
	Amortized		Unrealized		Unrealized		Fair		for credit
(Dollars in thousands)	Cost		Gains		Losses		Value		losses
Held-to-maturity securities:
June 30, 2023
U.S. Government agencies	$	144,882	$	—	$	13,035	$	131,847	$	—
Mortgage-backed		379,779		—		49,407		330,372		—
States and political subdivisions		1,472		39		30		1,481		—
Other debt securities		11,000		—		1,404		9,596		163
Total	$	537,133	$	39	$	63,876	$	473,296	$	163
December 31, 2022
U.S. Government agencies	$	148,097	$	—	$	13,601	$	134,496	$	—
Mortgage-backed		398,884		—		50,464		348,420		—
States and political subdivisions		1,474		35		28		1,481		—
Other debt securities		11,000		—		770		10,230		—
Total	$	559,455	$	35	$	64,863	$	494,627	$	—

Equity securities with an aggregate fair value of $1.2 million at June 30, 2023 and $1.2 million at December 31, 2022 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled $(3) thousand for the six months ended June 30, 2023 and $(108) thousand for the six months ended June 30, 2022, respectively.

Credit Quality Information

The Company monitors the credit quality of held-to-maturity securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services. Credit ratings express opinions about the credit quality of a security, and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade held-to-maturity securities at June 30, 2023 or December 31, 2022. Held-to-maturity securities that are not rated are agency mortgage-backed securities sponsored by US government agencies, as well as direct obligations of the agencies, with the remainder being subordinated debt of other financial institutions.

The following table shows the amortized cost of held-to-maturity securities based on their lowest publicly available credit rating as of June 30, 2023.

		June 30, 2023
		Investment Grade
(Dollars in thousands)		Aaa		Aa1		A3		Baa1		Baa2		Baa3		NR		Total
U.S. Government agencies	$	137,359	$	—	$	—	$	—	$	—	$	—	$	7,523	$	144,882
Mortgage-backed		—		—		—		—		—		—		379,779		379,779
States and political subdivisions		—		1,472		—		—		—		—		—		1,472
Other debt securities		—		—		4,000		4,000		500		500		2,000		11,000
Total Held-to Maturity Securities	$	137,359	$	1,472	$	4,000	$	4,000	$	500	$	500	$	389,302	$	537,133

The following tables provide information about gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2023 and December 31, 2022.

	Less than				More than
	12 Months				12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
June 30, 2023
Available-for-sale securities:
U.S. Government agencies	$	952	$	5	$	16,705	$	3,403	$	17,657	$	3,408
Mortgage-backed		1,128		29		57,051		8,159		58,179		8,188
Other debt securities		—		—		1,828		186		1,828		186
Total	$	2,080	$	34	$	75,584	$	11,748	$	77,664	$	11,782

	Less than				More than
	12 Months				12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
December 31, 2022
Available-for-sale securities:
U.S. Government agencies	$	1,165	$	4	$	16,585	$	3,621	$	17,750	$	3,625
Mortgage-backed		29,125		2,409		34,167		6,257		63,292		8,666
Other debt securities		1,890		128		—		—		1,890		128
Total	$	32,180	$	2,541	$	50,752	$	9,878	$	82,932	$	12,419
Held-to-maturity securities:
U.S. Government agencies	$	67,332	$	2,786	$	67,163	$	10,815	$	134,495	$	13,601
Mortgage-backed		148,771		9,402		199,649		41,062		348,420		50,464
States and political subdivisions		780		28		—		—		780		28
Other debt securities		8,091		409		2,139		361		10,230		770
Total	$	224,974	$	12,625	$	268,951	$	52,238	$	493,925	$	64,863

There were one hundred sixteen available-for-sale debt securities with a fair value below the amortized cost basis, with unrealized losses totaling $11.8 million as of June 30, 2023.  The Company concluded that a credit loss does not exist in its available-for-sale securities portfolio as of June 30, 2023, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-back securities are issued by either US government agencies or US government sponsored enterprises.  Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the US government, that investors in such mortgage-backed securities will receive timely principal and interest payments.

All held-to-maturity and available for sale securities were current with no securities past due or on nonaccrual as of June 30, 2023.

The Company has securities which have been pledged as collateral for obligations to federal, state, and local government agencies, and other purpose as required or permitted by law, or sold under agreements to repurchase. At June 30, 2023 the amortized cost of pledged available-for-sale securities was $65.5 million and $166.2 million of pledged held to maturity securities. The comparable amounts for December 31, 2022 were $83.3 million and $19.2 million, respectively.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at June 30, 2023.

	Available for sale				Held to maturity
	Amortized				Amortized
(Dollars in thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	30	$	30	$	1,019	$	1,009
Due after one year through five years		8,771		8,345		123,636		114,964
Due after five years through ten years		36,753		32,325		58,643		52,809
Due after ten years		44,292		37,369		353,835		304,514
Total	$	89,846	$	78,069	$	537,133	$	473,296

The maturity dates for debt securities are determined using contractual maturity dates.