Investment Securities

6 Months Ended

Jun. 30, 2023

Investment Securities

Investment Securities

Note 4—Investment Securities

Debt Securities

The following tables summarize the amortized cost and fair value of debt securities available for sale at June 30, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss:

	June 30, 2023
	Amortized		Gross Unrealized				Fair
	Cost		Gain		Loss		Value
Available for sale:
U.S. Treasury and Agency securities	$	176,768	$	13	$	(6,709)	$	170,072
Mortgage-backed securities		38,883		—		(4,373)		34,510
Collateralized mortgage obligations		143,987		79		(14,284)		129,782
Collateralized debt obligations		155		—		(11)		144
Total	$	359,793	$	92	$	(25,377)	$	334,508

	December 31, 2022
	Amortized		Gross Unrealized				Fair
	Cost		Gain		Loss		Value
Available for sale:
U.S. Treasury and Agency securities	$	175,878	$	17	$	(7,458)	$	168,437
Mortgage-backed securities		41,388		—		(4,655)		36,733
Collateralized mortgage obligations		153,066		4		(14,829)		138,241
Collateralized debt obligations		157		—		(10)		147
Total	$	370,489	$	21	$	(26,952)	$	343,558

Investment securities with a fair value of $107,515 were pledged as collateral on the FHLB borrowings at June 30, 2023. Additionally, investment securities with a fair value of $62,557 were held by the FRB as collateral for available borrowings under the Bank Term Funding Program.

Accrued interest receivable on available for sale debt securities totaled $861 and $808 at June 30, 2023 and December 31, 2022, respectively.

The mortgage-backed securities, and a majority of the collateralized mortgage obligations are issued and/or guaranteed by a U.S. government agency (Government National Mortgage Association) or a U.S. government-sponsored enterprise (Federal Home Loan Mortgage Corporation (“Freddie Mac”) or Federal National Mortgage Association (“Fannie Mae”)). The fair value of the private-label collateralized mortgage obligations was $338 and $353 at June 30, 2023 and December 31, 2022, respectively.

No securities of any single issuer, other than debt securities issued by the U.S. government, government agency and government-sponsored enterprises, were in excess of 10% of total shareholders’ equity as of June 30, 2023 and December 31, 2022.

Information pertaining to the sales of available for sale debt securities for the three and six months ended June 30, 2023 and 2022 is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Proceeds from the sale of debt securities	$	—	$	—	$	2,977	$	—
Gross realized gains	$	—	$	—	$	1	$	—
Gross realized losses		—		—		(3)		—
Total net realized losses	$	—	$	—	$	(2)	$	—

The income tax expense related to the net realized losses was $1 for the six months ended June 30, 2023.

The amortized cost and fair value of U.S. Treasury and Agency securities at June 30, 2023 are shown by contractual maturity in the table below. Mortgage-backed securities, collateralized mortgage obligations and collateralized debt obligations are disclosed separately as the expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
U.S. Treasury and Agency securities:
Due less than one year	$	97,419	$	96,169
Due after one year through five years		79,349		73,903
Mortgage-backed securities		38,883		34,510
Collateralized mortgage obligations		143,987		129,782
Collateralized debt obligations		155		144
Total	$	359,793	$	334,508

The following table summarizes available for sale debt securities, at fair value, in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 2023 and December 31, 2022, aggregated by major security type and length of time the individual debt securities have been in a continuous unrealized loss position:

	June 30, 2023
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and Agency securities	$	39,572	$	(323)	$	107,487	$	(6,386)	$	147,059	$	(6,709)
Mortgage-backed securities		5,628		(167)		28,882		(4,206)		34,510		(4,373)
Collateralized mortgage obligations		23,891		(678)		94,351		(13,606)		118,242		(14,284)
Collateralized debt obligations		—		—		144		(11)		144		(11)
Total	$	69,091	$	(1,168)	$	230,864	$	(24,209)	$	299,955	$	(25,377)

	December 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and Agency securities	$	100,815	$	(2,839)	$	44,605	$	(4,619)	$	145,420	$	(7,458)
Mortgage-backed securities		5,792		(139)		30,941		(4,516)		36,733		(4,655)
Collateralized mortgage obligations		69,088		(3,169)		64,715		(11,660)		133,803		(14,829)
Collateralized debt obligations		—		—		147		(10)		147		(10)
Total	$	175,695	$	(6,147)	$	140,408	$	(20,805)	$	316,103	$	(26,952)

As of June 30, 2023, the debt securities portfolio consisted of 32 debt securities, with 27 debt securities in an unrealized loss position. For debt securities in an unrealized loss position, the Company has both the intent and ability to hold these investments and, based on current conditions, the Company does not believe it is likely that it will be required to sell these debt securities prior to recovery of the amortized cost. As the Company had the intent and the ability to hold the debt securities in an unrealized loss position at June 30, 2023, each security with an unrealized loss position was further assessed to determine if a credit loss exists.

The Company’s debt, mortgage-backed securities and the majority of the collateralized mortgage obligations are issued by the U.S. government, its agencies and government-sponsored enterprises. The Company has a long history with no credit losses from issuers of U.S. government, its agencies and government-sponsored enterprises. Also, the Company’s available for sale debt securities are explicitly or implicitly fully guaranteed by the U.S. government. As a result, management does not expect any credit losses on its available for sale debt securities. Accordingly, the Company has not recorded an allowance for credit losses for its available for sale debt securities at June 30, 2023. Similarly, for the same reasons noted above, as of December 31, 2022, the Company determined that the unrealized losses in these securities were due to non-credit-related factors, including changes in interest rates and other market conditions.

Equity Securities

Equity securities consist of an investment in a qualified community reinvestment act investment fund, which is a publicly-traded mutual fund and an investment in the common equity of Pacific Coast Banker’s Bank, a thinly traded restricted stock. At June 30, 2023 and December 31, 2022, equity securities totaled $4,640 and $4,642, respectively.

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in non-interest income in the condensed consolidated statements of operations. At June 30, 2023 and December 31, 2022, equity securities with readily determinable fair values were $4,394 and $4,396, respectively. The following is a summary of unrealized and realized gains and losses recognized in the condensed consolidated statements of operations:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net loss recorded during the period on equity securities	$	(71)	$	(170)	$	—	$	(406)
Less: net gains (loss) recorded during the period on equity securities sold during the period		—		—		—		—
Unrealized loss recorded during the period on equity securities held at the reporting date	$	(71)	$	(170)	$	—	$	(406)

The Company has elected to account for its investment in a thinly traded, restricted stock using the measurement alternative for equity securities without readily determinable fair values, resulting in the investment carried at cost based on no evidence of impairment or observable trading activity during the six months ended June 30, 2023 and 2022. The investment was reported at $246 at June 30, 2023 and December 31, 2022.