Investment Securities

9 Months Ended

Sep. 30, 2023

Note 2—Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows:

Available-for-Sale Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value
As of September 30, 2023
U.S. Government-sponsored securities	$	3,614	$	15	$	20	$	3,609
Mortgage-backed securities⁽¹⁾		120,588		7		28,477		92,118
Collateralized mortgage obligations⁽¹⁾		579		-		16		563
Corporate securities		10,034		-		141		9,893
Other		310		-		-		310
Total available-for-sale securities	$	135,125	$	22	$	28,654	$	106,493

⁽¹⁾All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Available-for-Sale Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value
As of December 31, 2022
U.S. Treasury notes	$	4,989	$	-	$	25	$	4,964
U.S. Government-sponsored securities		4,430		21		24		4,427
Mortgage-backed securities⁽¹⁾		162,314		9		29,795		132,528
Collateralized mortgage obligations⁽¹⁾		1,085		-		31		1,054
Corporate securities		10,043		-		462		9,581
Other		310		-		-		310
Total available-for-sale securities	$	183,171	$	30	$	30,337	$	152,864

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows:

Held-to-Maturity Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value		Allowance for Credit Losses
As of September 30, 2023
Mortgage-backed securities⁽¹⁾	$	673,924	$	-	$	170,743	$	503,181	$	-
Collateralized mortgage obligations⁽¹⁾		75,507		-		17,676		57,831		-
Municipal securities		76,584		1		974		75,611		450
Total held-to-maturity securities	$	826,015	$	1	$	189,393	$	636,623	$	450

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

Held-to-Maturity Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value		Allowance for Credit Losses
As of December 31, 2022
Mortgage-backed securities⁽¹⁾	$	702,858	$	29	$	141,121	$	561,766	$	-
Collateralized mortgage obligations⁽¹⁾		80,186		-		15,701		64,485		-
Municipal securities		62,302		49		209		62,142		393
Total held-to-maturity securities	$	845,346	$	78	$	157,031	$	688,393	$	393

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities 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. With regard to residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed or pre-refunded by the issuers.

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The following tables show the gross unrealized losses for available-for-sale securities, for which an allowance for credit losses has not been recorded, that are less than 12 months and 12 months or more:

	September 30, 2023
	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale Securities
U.S. Government-sponsored securities	$	223	$	1	$	1,121	$	19	$	1,344	$	20
Mortgage-backed securities⁽¹⁾		4,930		231		86,461		28,246		91,391		28,477
Collateralized mortgage obligations⁽¹⁾		-		-		563		16		563		16
Corporate securities		-		-		9,893		141		9,893		141
Total available-for-sale securities	$	5,153	$	232	$	98,038	$	28,422	$	103,191	$	28,654

⁽¹⁾All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

					December 31, 2022
	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale Securities
U.S. Treasury notes	$	4,964	$	25	$	-	$	-	$	4,964	$	25
U.S. Government-sponsored securities		378		1		1,326		23		1,704		24
Mortgage-backed securities⁽¹⁾		35,117		1,639		96,589		28,156		131,706		29,795
Collateralized Mortgage Obligations⁽¹⁾		1,054		31		-		-		1,054		31
Corporate securities		-		-		9,581		462		9,581		462
Total available-for-sale securities	$	41,513	$	1,696	$	107,496	$	28,641	$	149,009	$	30,337

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

As of September 30, 2023, the Company held 179 available-for-sale securities of which 13 were in an unrealized loss position for less than twelve months and 143 securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company does not have the intent to sell these securities and it is more likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be impaired. Management evaluates the available-for-sale securities in an unrealized loss position, relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

The following table presents the activity in the allowance for credit losses for held-to-maturity securities by major type:

	September 30, 2023
(Dollars in thousands)	Municipal securities		Mortgage-backed securities		Collateralized Mortgage obligations		Total
Allowance for credit losses - securities
Beginning Balance	$	393	$	-	$	-	$	393
Provision for credit losses		57		-		-		57
Ending Balance	$	450	$	-	$	-	$	450

	December 31, 2022
(Dollars in thousands)	Municipal securities		Mortgage- backed securities		Collateralized Mortgage obligations		Total
Allowance for credit losses - securities
Beginning Balance	$	393	$	-	$	-	$	393
Provision for credit losses		-		-		-		-
Ending Balance	$	393	$	-	$	-	$	393

The amortized cost and estimated fair values of investment securities at September 30, 2023 by contractual final maturity are shown in the following table:

	Available-for-Sale				Held-to-Maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities maturing in:
One year or less	$	387	$	386	$	450	$	450
After one year through five years		17,771		17,321		16,910		16,335
After five years through ten years		6,561		6,121		24,031		21,844
After ten years		110,406		82,665		784,624		597,994
Total	$	135,125	$	106,493	$	826,015	$	636,623

Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The Company monitors the credit quality of those held-to-maturity securities not issued by the U.S. government or one of its agencies or government sponsored entities, through the use of credit ratings. Credit ratings are reviewed and updated quarterly. The following table summarizes the amortized cost of held-to-maturity municipal securities by credit rating at September 30, 2023:

	Held-to-Maturity
	Amortized Cost
(Dollars in thousands)	AAA/AA/A		BBB/BB/B		Not Rated		Total
September 30, 2023
Municipal securities	$	19,381	$	393	$	56,810	$	76,584
Total	$	19,381	$	393	$	56,810	$	76,584

As of September 30, 2023, there were no past due principal or interest payments associated with held-to-maturity municipal securities.

Proceeds from sales and calls of investment securities were as follows:

(Dollars in thousands)	Gross Proceeds		Gross Gains		Gross Losses
Nine months ended September 30, 2023	$	30,482	$	-	$	5,686
Nine months ended September 30, 2022	$	31,394	$	2	$	2,987

Pledged Securities

As of September 30, 2023, investment securities carried at $757.2 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) borrowings, and other government agency deposits as required by law. This amount was $478.7 million at December 31, 2022.