Investment Securities

6 Months Ended

Jun. 30, 2023

Note 5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities classified as available-for-sale at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands):



Available-for-sale	June 30, 2023
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
U.S. Government agency securities	$	37,328	$	8	$	(2,040)	$	35,296
Asset-backed securities⁽¹⁾		338,211		—		(6,376)		331,835
Tax-exempt obligations of states and political subdivisions		5,200		15		(71)		5,144
Taxable obligations of states and political subdivisions		43,899		30		(1,668)		42,261
Residential mortgage-backed securities		179,181		96		(11,838)		167,439
Collateralized mortgage obligation securities		39,827		—		(2,040)		37,787
Commercial mortgage-backed securities		161,886		—		(13,538)		148,348
Corporate debt securities		10,000		—		(1,700)		8,300
	$	815,532	$	149	$	(39,271)	$	776,410


	June 30, 2023
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
⁽¹⁾Asset-backed securities as shown above	cost		gains		losses		value
Federally insured student loan securities	$	7,217	$	—	$	(83)	$	7,134
Collateralized loan obligation securities		330,994		—		(6,293)		324,701
	$	338,211	$	—	$	(6,376)	$	331,835



Available-for-sale	December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
U.S. Government agency securities	$	29,859	$	17	$	(1,495)	$	28,381
Asset-backed securities⁽¹⁾		343,885		—		(9,876)		334,009
Tax-exempt obligations of states and political subdivisions		3,560		—		(61)		3,499
Taxable obligations of states and political subdivisions		45,668		52		(1,709)		44,011
Residential mortgage-backed securities		150,135		148		(10,463)		139,820
Collateralized mortgage obligation securities		43,858		—		(2,075)		41,783
Commercial mortgage-backed securities		179,977		—		(13,164)		166,813
Corporate debt securities		10,000		—		(2,300)		7,700
	$	806,942	$	217	$	(41,143)	$	766,016


	December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
⁽¹⁾Asset-backed securities as shown above	cost		gains		losses		value
Federally insured student loan securities	$	8,488	$	—	$	(144)	$	8,344
Collateralized loan obligation securities		335,397		—		(9,732)		325,665
	$	343,885	$	—	$	(9,876)	$	334,009

Investments in Federal Home Loan Bank (“FHLB”) stock, Atlantic Central Bankers Bank (“ACBB”) stock, and Federal Reserve Bank stock are recorded at cost and amounted to $20.2 million at June 30, 2023 and $12.6 million at December 31, 2022. At each of those dates, ACBB stock amounted to $40,000. The Bank’s conversion to a national charter required the purchase of $11.0 million of Federal

Reserve Bank stock in September 2022. The amount of FHLB stock required to be held is based on the amount of borrowings, and after repayment thereof, the stock may be redeemed.

The amortized cost and fair value of the Company’s investment securities at June 30, 2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-for-sale
	Amortized		Fair
	cost		value
Due before one year	$	10,563	$	10,418
Due after one year through five years		148,916		141,773
Due after five years through ten years		259,023		250,743
Due after ten years		397,030		373,476
	$	815,532	$	776,410

In 2020, the Company began pledging loans to collateralize its line of credit with the FHLB, as described in “Note 6. Loans.” The Company had no securities pledged against that line at June 30, 2023 and December 31, 2022. There were no gross realized gains on sales of securities for the six months ended June 30, 2023 and the year ended December 31, 2022. Realized losses on securities sales were $4,000 and $6,000, respectively, for the six months ended June 30, 2023 and the year ended December 31, 2022.

Fair values of available-for-sale securities are based on the fair market values supplied by a third-party market data provider, or where such third-party market data is not available, fair values are based on discounted cash flows. The third-party market data provider uses a pricing matrix which it creates daily, taking into consideration actual trade data, projected prepayments, and when relevant, projected credit defaults and losses.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at June 30, 2023 (dollars in thousands):



Available-for-sale		Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	15	$	14,776	$	(514)	$	19,111	$	(1,526)	$	33,887	$	(2,040)
Asset-backed securities	55		—		—		331,835		(6,376)		331,835		(6,376)
Tax-exempt obligations of states and
political subdivisions	4		2,055		(20)		1,109		(51)		3,164		(71)
Taxable obligations of states and
political subdivisions	26		4,958		(154)		34,522		(1,514)		39,480		(1,668)
Residential mortgage-backed securities	139		39,836		(1,603)		118,626		(10,235)		158,462		(11,838)
Collateralized mortgage obligation securities	22		114		(7)		37,673		(2,033)		37,787		(2,040)
Commercial mortgage-backed securities	40		1,027		(45)		147,321		(13,493)		148,348		(13,538)
Corporate debt securities	1		—		—		8,300		(1,700)		8,300		(1,700)
Total unrealized loss position
investment securities	302	$	62,766	$	(2,343)	$	698,497	$	(36,928)	$	761,263	$	(39,271)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2022 (dollars in thousands):



Available-for-sale		Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	12	$	19,523	$	(1,461)	$	2,269	$	(34)	$	21,792	$	(1,495)
Asset-backed securities	55		125,938		(3,027)		208,071		(6,849)		334,009		(9,876)
Tax-exempt obligations of states and
political subdivisions	4		3,499		(61)		—		—		3,499		(61)
Taxable obligations of states and
political subdivisions	26		39,710		(1,709)		—		—		39,710		(1,709)
Residential mortgage-backed securities	135		101,685		(6,198)		28,843		(4,265)		130,528		(10,463)
Collateralized mortgage obligation securities	22		41,456		(2,057)		327		(18)		41,783		(2,075)
Commercial mortgage-backed securities	43		124,953		(7,683)		41,860		(5,481)		166,813		(13,164)
Corporate debt securities	1		—		—		7,700		(2,300)		7,700		(2,300)
Total unrealized loss position
investment securities	298	$	456,764	$	(22,196)	$	289,070	$	(18,947)	$	745,834	$	(41,143)

The Company owns one single issuer trust preferred security issued by an insurance company. The security is not rated by any bond rating service. At June 30, 2023, this security had a book value of $10.0 million and a fair value of $8.3 million. This security is presented in the corporate debt securities classification in the tables above.

The Company has evaluated the securities in the above tables as of June 30, 2023 and has concluded that none of these securities required an allowance for credit losses (“ACL”). The Company previously evaluated the securities in the above tables as of December 31, 2022 and concluded that none of these securities required an ACL. The Company evaluates whether an ACL is required by considering primarily the following factors: (a) the extent to which the fair value is less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that the securities that are in an unrealized loss position are in a loss position because of changes in market interest rates after the securities were purchased. The Company’s unrealized loss for corporate debt securities, resulted from one single issuer trust preferred security, and is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level.