Investment Securities

9 Months Ended

Sep. 30, 2023

Investment Securities

Investment Securities

Note 2— Investment Securities

Available-for-Sale

Each of the securities in the Company’s available-for-sale investment portfolio is either covered by the explicit or implied guarantee of the United States government or one of its agencies or rated investment grade or higher. All available-for-sale securities were current with no securities past due or on nonaccrual as of September 30, 2023 or December 31, 2022.

The following tables summarize the amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses at September 30, 2023 and December 31, 2022, respectively.

	September 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		(Losses)		Value
Available-for-sale
U.S. Treasuries	$	44,765	$	—	$	(2,571)	$	42,194
U.S. government and federal agencies		13,821		—		(940)		12,881
Corporate bonds		3,000		—		(594)		2,406
Collateralized mortgage obligations		41,486		—		(7,964)		33,522
Tax-exempt municipal		1,380		—		(224)		1,156
Taxable municipal		607		—		(27)		580
Mortgage-backed		85,726		—		(9,381)		76,345
Total Available-for-sale Securities	$	190,785	$	—	$	(21,701)	$	169,084

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		(Losses)		Value
Available-for-sale
U.S. Treasuries	$	63,480	$	—	$	(4,270)	$	59,210
U.S. government and federal agencies		38,748		—		(3,988)		34,760
Corporate bonds		3,000		—		(386)		2,614
Collateralized mortgage obligations		44,732		—		(6,258)		38,474
Tax-exempt municipal		4,993		—		(348)		4,645
Taxable municipal		608		—		(29)		579
Mortgage-backed		238,652		—		(21,358)		217,294
Total Available-for-sale Securities	$	394,213	$	—	$	(36,637)	$	357,576

During the three months ended September 30, 2023, the Company sold available-for-sale securities with a total par value of $161.2 million resulting in a gross pre-tax loss of $17.1 million. During the nine months ended September 30, 2023, the Company sold available-for-sale securities with a total par value of $173.2 million resulting in a gross pre-tax loss of $17.3 million. The Company did not sell or recognize any gain or loss for any securities for the three or nine months ended September 30, 2022.

Available-for-sale securities having a market value of $87.7 million and $83.4 million at September 30, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and for other purposes required by law. These securities had an amortized cost of $95.4 million and $91.0 million at September 30, 2023 and December 31, 2022, respectively.

The following tables summarize the fair value of securities available-for-sale at September 30, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized losses. Management uses the valuations as of month-end in determining when securities are

in an unrealized loss position. Therefore, a security’s market value could have exceeded its amortized cost on other days during the prior twelve-month period.

	September 30, 2023
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Available-for-sale
U.S. Treasuries	$	—	$	—	$	42,194	$	(2,571)	$	42,194	$	(2,571)
U.S. government and federal agencies		—		—		12,881		(940)		12,881		(940)
Corporate bonds		—		—		2,406		(594)		2,406		(594)
Collateralized mortgage obligations		—		—		33,522		(7,964)		33,522		(7,964)
Tax-exempt municipal		—		—		1,156		(224)		1,156		(224)
Taxable municipal		—		—		580		(27)		580		(27)
Mortgage-backed		—		—		76,345		(9,381)		76,345		(9,381)
Total Available-for-sale Securities	$	—	$	—	$	169,084	$	(21,701)	$	169,084	$	(21,701)

	December 31, 2022
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Available-for-sale
U.S. Treasuries	$	31,261	$	(1,194)	$	27,949	$	(3,076)	$	59,210	$	(4,270)
U.S. government and federal agencies		16,107		(1,078)		18,653		(2,910)		34,760		(3,988)
Corporate bonds		2,614		(386)		—		—		2,614		(386)
Collateralized mortgage obligations		16,746		(1,143)		21,728		(5,115)		38,474		(6,258)
Tax-exempt municipal		4,645		(348)		—		—		4,645		(348)
Taxable municipal		337		(2)		242		(27)		579		(29)
Mortgage-backed		145,795		(9,612)		71,499		(11,746)		217,294		(21,358)
Total Available-for-sale Securities	$	217,505	$	(13,763)	$	140,071	$	(22,874)	$	357,576	$	(36,637)

The Company had 158 and 98 securities in an unrealized loss position for 12 months or longer as of September 30, 2023 and December 31, 2022, respectively. The Company has evaluated available-for-sale securities in an unrealized loss position for credit related impairment at September 30, 2023 and December 31, 2022 and concluded no impairment existed based on a combination of factors, which included: (1) the securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the par value of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis. As such, there was no allowance for credit losses on available-for-sale securities at September 30, 2023.

The table below summarizes the contractual maturities of our available-for-sale investment securities as of September 30, 2023. Issuers may have the right to call or prepay certain obligations and as such, the expected maturities of our securities may differ from the scheduled contractual maturities presented below.

	September 30, 2023
	Amortized		Fair
(Dollars in thousands)	Cost		Value
Available-for-sale
Due in one year or less	$	14,322	$	14,055
Due after one year through five years		54,845		51,453
Due after five years through ten years		56,992		51,886
Due after ten years		64,626		51,690
Total Available-for-sale Securities	$	190,785	$	169,084

In the prevailing rate environments as of September 30, 2023 and December 31, 2022, the Company’s available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 3.2 years and 3.8 years, respectively.

Held-to-Maturity

Each of the securities in the Company’s held-to-maturity investment portfolio is either covered by the explicit or implied guarantee of the United States government or one of its agencies or rated investment grade or higher. All held-to-maturity securities were current with no securities past due or on nonaccrual as of September 30, 2023 or December 31, 2022.

The following tables summarize the amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized losses at September 30, 2023 and December 31, 2022, respectively.

	September 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
U.S. Treasuries	$	6,001	$	—	$	(873)	$	5,128
U.S. government and federal agencies		35,463		—		(6,743)		28,720
Collateralized mortgage obligations		19,773		—		(4,920)		14,853
Taxable municipal		6,061		—		(1,409)		4,652
Mortgage-backed		29,049		—		(6,669)		22,380
Total Held-to-maturity Securities	$	96,347	$	—	$	(20,614)	$	75,733

	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
U.S. Treasuries	$	6,000	$	—	$	(840)	$	5,160
U.S. government and federal agencies		35,551		—		(6,135)		29,416
Collateralized mortgage obligations		21,275		—		(4,227)		17,048
Taxable municipal		6,073		—		(1,364)		4,709
Mortgage-backed		30,516		—		(5,688)		24,828
Total Held-to-maturity Securities	$	99,415	$	—	$	(18,254)	$	81,161

Held-to-maturity securities having a market value of $34.2 million and $31.0 million at September 30, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and for other purposes required by law. These securities had an amortized cost of $42.3 million and $37.7 million at September 30, 2023 and December 31, 2022, respectively.

The following table summarizes the fair value of securities held-to-maturity at December 31, 2022 and the corresponding amounts of gross unrealized losses. Management uses the valuations as of month-end in determining when securities are in an unrealized loss position. Therefore, a security’s market value could have exceeded its amortized cost on other days during the prior twelve-month period.

	December 31, 2022
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Held-to-maturity
U.S. Treasuries	$	—	$	—	$	5,160	$	(840)	$	5,160	$	(840)
U.S. government and federal agencies		—		—		29,416		(6,135)		29,416		(6,135)
Collateralized mortgage obligations		—		—		17,048		(4,227)		17,048		(4,227)
Taxable municipal		—		—		4,709		(1,364)		4,709		(1,364)
Mortgage-backed		825		(159)		24,003		(5,529)		24,828		(5,688)
Total Held-to-maturity Securities	$	825	$	(159)	$	80,336	$	(18,095)	$	81,161	$	(18,254)

The Company evaluates the credit risk of its held-to-maturity securities on at least a quarterly basis. The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a PD/LGD methodology primarily using security-level credit ratings. The primary indicators of credit quality for the Company’s held-to-maturity portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company’s held-to-maturity securities with credit risk were comprised of municipal bonds and had a credit rating of AA or better as of September 30, 2023. All other held-to-maturity securities are covered by the explicit or implied guarantee of the United States government or one of its agencies. The Company did not have an allowance for credit losses on held-to-maturity securities as of September 30, 2023 or upon adoption of ASC 326.

The table below summarizes the contractual maturities of our held-to-maturity investment securities as of September 30, 2023. Issuers may have the right to call or prepay certain obligations and as such, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below.

	September 30, 2023
	Amortized		Fair
(Dollars in thousands)	Cost		Value
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years		20,163		17,117
Due after five years through ten years		24,465		19,496
Due after ten years		51,719		39,120
Total Held-to-maturity Securities	$	96,347	$	75,733

In the prevailing rate environments as of September 30, 2023 and December 31, 2022, the Company’s held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 7.0 years and 7.3 years, respectively.

Restricted Securities

The table below summarizes the carrying amount of restricted securities as of September 30, 2023 and December 31, 2022.

(Dollars in thousands)	September 30, 2023		December 31, 2022
Federal Reserve Bank Stock	$	3,306	$	3,292
Federal Home Loan Bank Stock		1,641		1,073
Community Bankers’ Bank Stock		60		60
Total Restricted Securities	$	5,007	$	4,425

Equity Securities

The Company held equity securities with readily determinable fair values totaling $2.4 million and $2.1 million at September 30, 2023 and December 31, 2022, respectively. These securities consist of mutual funds held in a trust and were obtained for the purpose of economically hedging changes in the Company’s nonqualified deferred compensation liability. Changes in the fair value of these securities are reflected in earnings. A loss of $(60) thousand and $(107) thousand were recorded in non-interest income in the Consolidated Statements of Income for the three months ended September 30, 2023 and September 30, 2022, respectively. A gain of $112 thousand and a loss of $(498) thousand were recorded in non-interest income in the Consolidated Statements of Income for the nine months ended September 30, 2023 and September 30, 2022, respectively.