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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2023

INVESTMENT SECURITIES

INVESTMENT SECURITIES

3. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of AFS debt securities and the corresponding amounts of related gross unrealized gains and losses recognized in AOCI:


					Gross			Gross			Allowance
		Amortized			Unrealized			Unrealized			for			Fair
June 30, 2023 (in thousands)		Cost			Gains			Losses			Credit Losses			Value

U.S. Treasury securities and U.S. Government agencies		$	431,450		$	—		$	(24,093)		$	—		$	407,357
Private label mortgage-backed security			671			1,317			—			—			1,988
Mortgage-backed securities - residential			183,843			13			(17,569)			—			166,287
Collateralized mortgage obligations			24,222			30			(1,505)			—			22,747
Corporate bonds			2,012			13			—			—			2,025
Trust preferred security			3,770			—			(24)			—			3,746
Total available-for-sale debt securities		$	645,968		$	1,373		$	(43,191)		$	—		$	604,150


					Gross			Gross			Allowance
		Amortized			Unrealized			Unrealized			for			Fair
December 31, 2022 (in thousands)		Cost			Gains			Losses			Credit Losses			Value

U.S. Treasury securities and U.S. Government agencies		$	436,333		$	1		$	(25,193)		$	—		$	411,141
Private label mortgage-backed security			843			1,284			—			—			2,127
Mortgage-backed securities - residential			189,312			16			(17,455)			—			171,873
Collateralized mortgage obligations			22,774			21			(1,427)			—			21,368
Corporate bonds			10,000			1			—			—			10,001
Trust preferred security			3,741			114			—			—			3,855
Total available-for-sale debt securities		$	663,003		$	1,437		$	(44,075)		$	—		$	620,365

Held-to-Maturity Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of HTM debt securities and the corresponding amounts of related gross unrecognized gains and losses:


					Gross			Gross						Allowance
		Amortized			Unrecognized			Unrecognized			Fair			for
June 30, 2023 (in thousands)		Cost			Gains			Losses			Value			Credit Losses

U.S. Treasury securities and U.S. Government agencies		$	90,000		$	—		$	(725)		$	89,275		$	—
Mortgage-backed securities - residential			26			—			(1)			25			—
Collateralized mortgage obligations			6,845			50			(134)			6,761			—
Corporate bonds			4,980			25			—			5,005			(10)
Obligations of state and political subdivisions			125			—			(1)			124			—
Total held-to-maturity debt securities		$	101,976		$	75		$	(861)		$	101,190		$	(10)


					Gross			Gross						Allowance
		Amortized			Unrecognized			Unrecognized			Fair			for
December 31, 2022 (in thousands)		Cost			Gains			Losses			Value			Credit Losses

U.S. Treasury securities and U.S. Government agencies		$	75,000		$	106		$	—		$	75,106		$	—
Mortgage-backed securities - residential			27			—			(1)			26			—
Collateralized mortgage obligations			7,270			54			(148)			7,176			—
Corporate bonds			4,974			—			(49)			4,925			(10)
Obligations of state and political subdivisions			125			—			(1)			124			—
Total held-to-maturity debt securities		$	87,396		$	160		$	(199)		$	87,357		$	(10)

Sales of Available-for-Sale Debt Securities

During the three and six months ended June 30, 2023 and 2022, there were no material gains or losses on sales or calls of AFS debt securities.

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity as of June 30, 2023 follow. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


		Available-for-Sale						Held-to-Maturity
		Debt Securities						Debt Securities
		Amortized			Fair			Amortized			Fair
June 30, 2023 (in thousands)		Cost			Value			Cost			Value

Due in one year or less		$	139,768		$	136,180		$	125		$	125
Due from one year to five years			293,694			273,202			94,980			94,279
Due from five years to ten years			—			—			—			—
Due beyond ten years			3,770			3,746			—			—
Private label mortgage-backed security			671			1,988			—			—
Mortgage-backed securities - residential			183,843			166,287			26			25
Collateralized mortgage obligations			24,222			22,747			6,845			6,761
Total debt securities		$	645,968		$	604,150		$	101,976		$	101,190

Unrealized-Loss Analysis on Debt Securities

The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of June 30, 2023 and December 31, 2022, aggregated by investment category and length of time in a continuous unrealized loss position:


		Less than 12 months						12 months or more						Total
					Unrealized						Unrealized						Unrealized
June 30, 2023 (in thousands)		Fair Value			Losses			Fair Value			Losses			Fair Value			Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies		$	218,670		$	(7,852)		$	188,687		$	(16,241)		$	407,357		$	(24,093)
Mortgage-backed securities - residential			63,616			(6,546)			101,546			(11,023)			165,162			(17,569)
Collateralized mortgage obligations			8,551			(525)			12,550			(980)			21,101			(1,505)
Trust preferred security			3,746			(24)			—			—			3,746			(24)
Total available-for-sale debt securities		$	294,583		$	(14,947)		$	302,783		$	(28,244)		$	597,366		$	(43,191)


		Less than 12 months						12 months or more						Total
					Unrealized						Unrealized						Unrealized
December 31, 2022 (in thousands)		Fair Value			Losses			Fair Value			Losses			Fair Value			Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies		$	229,372		$	(7,139)		$	171,676		$	(18,054)		$	401,048		$	(25,193)
Mortgage-backed securities - residential			105,274			(7,434)			65,520			(10,021)			170,794			(17,455)
Collateralized mortgage obligations			20,418			(1,426)			6			(1)			20,424			(1,427)
Total available-for-sale debt securities		$	355,064		$	(15,999)		$	237,202		$	(28,076)		$	592,266		$	(44,075)

As of June 30, 2023, the Bank’s security portfolio consisted of 197 securities, 179 of which were in an unrealized loss position.

As of December 31, 2022, the Bank’s security portfolio consisted of 179 securities, 163 of which were in an unrealized loss position.

As of June 30, 2023 and December 31, 2022, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Private Label Mortgage-Backed Security

The Bank owns one private label mortgage-backed security with a total carrying value of $2 million as of June 30, 2023. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage-backed security under Footnote 11 “Fair Value” in this section of the filing.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

As of June 30, 2023, with the exception of the $2 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of June 30, 2023 and December 31, 2022, there were gross unrealized losses of $19.1 million and $18.9 million related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

Roll-forward of the Allowance for Credit Losses on Debt Securities

The table below presents a roll-forward for the three months ended June 30, 2023 and 2022 of the ACLS on AFS and HTM debt securities:


			ACLS Roll-forward
			Three Months Ended June 30,
			2023														2022
			Beginning						Charge-						Ending			Beginning						Charge-						Ending
(in thousands)			Balance			Provision			offs			Recoveries			Balance			Balance			Provision			offs			Recoveries			Balance

Available-for-Sale Securities:
Corporate Bonds			$	3		$	(3)		$	—		$	—		$	—		$	—		$	30		$	—		$	—		$	30
Held-to-Maturity Securities:
Corporate Bonds				10			—			—			—			10			40			10			—			—			50

Total			$	13		$	(3)		$	—		$	—		$	10		$	40		$	40		$	—		$	—		$	80


			ACLS Roll-forward
			Six Months Ended June 30,
			2023															2022
			Beginning						Charge-						Ending			Beginning						Charge-						Ending
(in thousands)			Balance			Provision			offs			Recoveries			Balance			Balance			Provision			offs			Recoveries			Balance

Available-for-Sale Securities:
Corporate Bonds			$	—		$	—		$	—		$	—		$	—		$	—		$	30		$	—		$	—		$	30
Held-to-Maturity Securities:
Corporate Bonds				10			—			—			—			10			47			3			—			—			50

Total			$	10		$	—		$	—		$	—		$	10		$	47		$	33		$	—		$	—		$	80

The Company’s ACLS on its HTM corporate bonds during the three and six months ended June 30, 2023 remained unchanged from December 31, 2022.

There were no HTM debt securities on nonaccrual or past due 90 days or more as of June 30, 2023 and December 31, 2022. All of the Company’s HTM corporate bonds were rated investment grade as of June 30, 2023 and December 31, 2022.

There were no HTM debt securities considered collateral dependent as of June 30, 2023 and December 31, 2022.

Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $2 million and $2 million as of June 30, 2023 and December 31, 2022. Accrued interest receivable on HTM debt securities totaled $398,000 and $92,000 as of June 30, 2023 and December 31, 2022.

Pledged Debt Securities

Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and debt securities held for other purposes, as required or permitted by law, were as follows:


(in thousands)		June 30, 2023			December 31, 2022

Amortized cost		$	97,400		$	236,047
Fair value			92,450			217,562
Carrying amount			92,450			217,562

Equity Securities

The carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values were as follows:


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
June 30, 2023 (in thousands)		Cost			Gains			Losses			Value

Freddie Mac preferred stock		$	—		$	122		$	—		$	122
Total equity securities with readily determinable fair values		$	—		$	122		$	—		$	122


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
December 31, 2022 (in thousands)		Cost			Gains			Losses			Value

Freddie Mac preferred stock		$	—		$	111		$	—		$	111
Total equity securities with readily determinable fair values		$	—		$	111		$	—		$	111

For equity securities with readily determinable fair values, the gross realized and unrealized gains and losses recognized in the Company’s consolidated statements of income were as follows:


		Gains (Losses) Recognized on Equity Securities
		Three Months Ended June 30, 2023									Three Months Ended June 30, 2022
(in thousands)		Realized			Unrealized			Total			Realized			Unrealized			Total

Freddie Mac preferred stock		$	—		$	15		$	15		$	—		$	25		$	25
Community Reinvestment Act mutual fund			—			—			—			(97)			—			(97)
Total equity securities with readily determinable fair value		$	—		$	15		$	15		$	(97)		$	25		$	(72)


		Gains (Losses) Recognized on Equity Securities
		Six Months Ended June 30, 2023									Six Months Ended June 30, 2022
(in thousands)		Realized			Unrealized			Total			Realized			Unrealized			Total

Freddie Mac preferred stock		$	—		$	10		$	10		$	—		$	19		$	19
Community Reinvestment Act mutual fund			—			—			—			(209)			—			(209)
Total equity securities with readily determinable fair value		$	—		$	10		$	10		$	(209)		$	19		$	(190)