INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2022

Investments in Securities

Investments in Securities

NOTE 5: INVESTMENT SECURITIES

Held-to-maturity securities (“HTM”), which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income over the security’s estimated life. Prepayments are anticipated for certain mortgage-backed securities. Premiums on callable securities are amortized to their earliest call date.

Available-for-sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in non-interest income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity. Premiums and discounts are amortized and accreted, respectively, to interest income over the estimated life of the security. Prepayments are anticipated for certain mortgage-backed and Small Business Administration (SBA) securities. Premiums on callable securities are amortized to their earliest call date.

During the three months ended March 31, 2022, the Company transferred, at fair value, $226.5 million of securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related net unrealized gross gains were $1.0 million; $775,000 (net of income taxes) remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities. No gains or losses on these securities were recognized at the time of transfer. As of June 30, 2022, the net unrealized gross gains remaining were $323,000; net of income taxes, these unrealized gains were $249,000.

The amortized cost and fair values of securities were as follows:

	June 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	336,176	$	18	$	24,000	$	312,194
Agency collateralized mortgage obligations		82,992		—		7,718		75,274
States and political subdivisions		67,548		151		2,337		65,362
Small Business Administration securities		69,530		—		2,888		66,642
	$	556,246	$	169	$	36,943	$	519,472

	June 30, 2022
					Amortized		Gross		Gross
	Amortized		Fair Value		Carrying		Unrealized		Unrealized		Fair
	Cost		Adjustment		Value		Gains		Losses		Value
	(In Thousands)
HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	80,331	$	3,583	$	83,914	$	—	$	6,476	$	77,438
Agency collateralized mortgage obligations		128,435		(3,242)		125,193		—		8,916		116,277
States and political subdivisions		6,265		(18)		6,247		—		709		5,538
	$	215,031	$	323	$	215,354	$	—	$	16,101	$	199,253

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	219,624	$	10,561	$	744	$	229,441
Agency collateralized mortgage obligations		204,332		2,443		2,498		204,277
States and political subdivisions		38,440		1,618		43		40,015
Small Business Administration securities		26,802		497		—		27,299
	$	489,198	$	15,119	$	3,285	$	501,032

No securities were classified as held-to-maturity at December 31, 2021.

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Carrying Value		Value
	(In Thousands)
One year or less	$	—	$	—	$	—	$	—
After one through two years		—		—		—		—
After two through three years		—		—		—		—
After three through four years		—		—		—		—
After four through five years		2,289		2,297		—		—
After five through fifteen years		14,524		14,358		2,576		2,253
After fifteen years		50,736		48,709		3,670		3,284
Securities not due on a single maturity date		488,697		454,108		209,108		193,716
	$	556,246	$	519,472	$	215,354	$	199,253

Certain available-for-sale investments in debt securities are reported in the financial statements at an amount less than their amortized cost. Total fair value of these investments at June 30, 2022 and December 31, 2021, was approximately $493.8 million and $173.9 million, respectively, which was approximately 95.1% and 34.7% of the Company’s total available-for-sale investment portfolio. A high percentage of the unrealized losses were related to the Company’s mortgage-backed securities, collateralized mortgage obligations and Small Business Administration (SBA) securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies. The Company’s state and political subdivisions securities are investments in insured fixed rate municipal bonds for which the issuers continue to make timely principal and interest payments under the contractual terms of the securities.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes any declines in fair value for these debt securities are temporary.

	June 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	303,739	$	(24,000)	$	—	$	—	$	303,739	$	(24,000)
Agency collateralized mortgage obligations		64,794		(5,116)		10,479		(2,602)		75,273		(7,718)
States and political subdivisions securities		48,137		(2,337)		—		—		48,137		(2,337)
Small Business Administration securities		66,642		(2,888)		—		—		66,642		(2,888)
	$	483,312	$	(34,341)	$	10,479	$	(2,602)	$	493,791	$	(36,943)

	June 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities	$	69,001	$	(4,925)	$	8,437	$	(1,551)	$	77,438	$	(6,476)
Agency collateralized mortgage obligations		109,116		(8,439)		7,161		(477)		116,277		(8,916)
States and political subdivisions securities		3,227		(417)		2,311		(292)		5,538		(709)
	$	181,344	$	(13,781)	$	17,909	$	(2,320)	$	199,253	$	(16,101)

	December 31, 2021
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$	47,769	$	(388)	$	10,583	$	(356)	$	58,352	$	(744)
Agency collateralized mortgage obligations		92,727		(1,588)		16,298		(910)		109,025		(2,498)
States and political subdivisions securities		6,537		(43)		—		—		6,537		(43)
	$	147,033	$	(2,019)	$	26,881	$	(1,266)	$	173,914	$	(3,285)

There were no sales of available for sale securities during the three months ended June 30, 2022. Available-for-sale securities totaling $4.9 million were sold during the six months ended June 30, 2022, resulting in the recognition of a $7,000 gain during the period. There were no sales of available-for-sale securities during the three or six months ended June 30, 2021. Gains and losses on sales of securities are determined on the specific-identification method.

Allowance for Credit Losses. On January 1, 2021, the Company began evaluating all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. All of the mortgage-backed, collateralized mortgage, and SBA securities held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Likewise, the Company has not experienced historical losses on these types of securities. Accordingly, no allowance for credit losses has been recorded for these securities.

Regarding securities issued by state and political subdivisions, management considers the following when evaluating these securities: (i) current 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) updated financial information of the issuer, (v) internal forecasts and (vi) whether such securities provide insurance or other credit enhancement or are pre-refunded by the issuers. These securities are highly rated by major rating agencies and have a long history of no credit losses. Likewise, the Company has not experienced historical losses on these types of securities. Accordingly, no allowance for credit losses has been recorded for these securities.