Investments

3 Months Ended

Mar. 31, 2023

Schedule of Investments [Abstract]

Investments

4. Investments

A summary of investment securities available-for-sale and held-to-maturity is as follows:

(Dollars in thousands)	As of March 31, 2023
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Available-for-sale:
U. S. treasury securities	$	127,880	$	-	$	(6,121	)	$	121,759
U. S. federal agency obligations		2,001		-		(8	)		1,993
Municipal obligations, tax exempt		130,326		161		(2,206	)		128,281
Municipal obligations, taxable		78,164		113		(4,809	)		73,468
Agency mortgage-backed securities		178,259		169		(13,759	)		164,669
Total available-for-sale	$	516,630	$	443	$	(26,903	)	$	490,170

	As of March 31, 2023
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Held-to-maturity:
Other	$	3,467	$	-	$	(318	)	$	3,149
Total held-to-maturity	$	3,467	$	-	$	(318	)	$	3,149

	As of December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Available-for-sale:
U. S. treasury securities	$	130,684	$	-	$	(7,573	)	$	123,111
U. S. federal agency obligations		2,002		-		(14	)		1,988
Municipal obligations, tax exempt		130,848		59		(3,645	)		127,262
Municipal obligations, taxable		73,520		14		(6,290	)		67,244
Agency mortgage-backed securities		185,451		172		(15,922	)		169,701
Total available-for-sale	$	522,505	$	245	$	(33,444	)	$	489,306

	As of December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Held-to-maturity:
Other	$	3,524	$	5	$	(77	)	$	3,452
Total held-to-maturity	$	3,524	$	5	$	(77	)	$	3,452

The amortized cost of the above held-to-maturity investments has been further reduced by the allowance for credit losses of $91,000 at March 31, 2023.

The tables above show that some of the securities in the available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of March 31, 2023 and December 31, 2022. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.

			As of March 31, 2023
(Dollars in thousands)			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-sale:	securities		value		losses			value		losses			value		losses
U.S. treasury securities		66	$	17,306	$	(465	)	$	104,452	$	(5,656	)	$	121,758	$	(6,121	)
U.S. federal agency obligations		1		1,993		(8	)		-		-			1,993		(8	)
Municipal obligations, tax exempt		222		43,274		(314	)		55,701		(1,892	)		98,975		(2,206	)
Municipal obligations, taxable		108		40,834		(1,557	)		24,672		(3,252	)		65,506		(4,809	)
Agency mortgage-backed securities		100		35,877		(937	)		118,322		(12,822	)		154,199		(13,759	)
Total for available-for-sale		497	$	139,284	$	(3,281	)	$	303,147	$	(23,623	)	$	442,431	$	(26,904	)
Held-to-maturity:
Other		7	$	3,149	$	(318	)	$	-	$	-		$	3,149	$	(318	)
Total held-to-maturity		7		3,149		(318	)		-		-			3,149		(318	)

			As of December 31, 2022
			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-sale:	securities		value		losses			value		losses			value		losses
U.S. treasury securities		67	$	85,988	$	(4,591	)	$	37,123	$	(2,982	)	$	123,111	$	(7,573	)
U.S. federal agency obligations		1		1,988		(14	)		-		-			1,988		(14	)
Municipal obligations, tax exempt		274		107,262		(3,020	)		8,495		(625	)		115,757		(3,645	)
Municipal obligations, taxable		108		54,746		(5,006	)		7,571		(1,284	)		62,317		(6,290	)
Agency mortgage-backed securities		100		78,971		(4,550	)		79,882		(11,372	)		158,853		(15,922	)
Total for available-for-sale		550		328,955		(17,181	)		133,071		(16,263	)		462,026		(33,444	)
Held-to-maturity:
Other		6	$	3,009	$	(77	)	$	-	$	-		$	3,009	$	(77	)
Total held-to-maturity		6		3,009		(77	)		-		-			3,009		(77	)

The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury. The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of March 31, 2023 and December 31, 2022.

The Company’s U.S. federal agency portfolio consists of securities issued by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Bank (“FHLB”). The receipt of principal and interest on U.S. federal agency obligations is guaranteed by the respective government-sponsored agency guarantor, such that the Company believes that its U.S. federal agency obligations do not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the U.S. federal agency obligations identified in the tables above were temporarily impaired as of March 31, 2023 and December 31, 2022.

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of March 31, 2023, the Company did not intend to sell and it was more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of March 31, 2023 and December 31, 2022.

The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of March 31, 2023 and December 31, 2022.

The United States (US) is currently near its debt ceiling limit and is projected to exhaust funds by June 1, 2023 unless the debt ceiling is increased or suspended. A default by the US government could negatively impact the fair value of the Company’s available-for-sale investment securities and potentially decrease market liquidity for these investment securities.

The Company’s other investment securities portfolio consists of seven subordinated debentures issued by financial institutions. These investment securities were acquired in the Freedom Bank acquisition and classified as held-to-maturity. The securities were issued in 2021 and 2022 with a 10 year maturity and a fixed rate for five years. The securities are callable after the end of the fixed rate term. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the other securities identified in the tables above were temporarily impaired as of March 31, 2023 and December 31, 2022.

The following table provides information on the Company’s allowance for credit losses related to held-to-maturity investment securities.

(dollar in thousands)
Balance at January 1, 2023	$	-
Impact of adopting ASC 326		72
Provision for credit losses		19
Balance at March 31, 2023	$	91

The table below sets forth amortized cost and fair value of investment securities at March 31, 2023. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

(Dollars in thousands)	Amortized		Estimated
Available-for-sale:	cost		fair value
Due in less than one year	$	25,401	$	25,096
Due after one year but within five years		281,185		265,879
Due after five years but within ten years		155,835		147,293
Due after ten years		54,209		51,902
Total available-for-sale	$	516,630	$	490,170
Held-to-maturity:
Due after one year but within five years		3,467		3,149
Total held-to-maturity	$	3,467	$	3,149

The Company did not record any sales of available-for-sale securities during the three months ended March 31, 2023 and 2022.

Securities with carrying values of $424.2 million and $420.8 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at March 31, 2023 and December 31, 2022, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.