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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2023

INVESTMENT SECURITIES

INVESTMENT 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.

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


		September 30, 2023
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value

		(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities		$	314,632		$	—		$	54,143		$	260,489
Agency collateralized mortgage obligations			86,687			—			13,553			73,134
States and political subdivisions			59,273			10			6,893			52,390
Small Business Administration securities			71,628			—			9,693			61,935
		$	532,220		$	10		$	84,282		$	447,948


		September 30, 2023
								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		$	72,927		$	2,581		$	75,508		$	—		$	12,340		$	63,168
Agency collateralized mortgage obligations			117,593			(2,583)			115,010			—			17,195			97,815
States and political subdivisions			6,200			(2)			6,198			—			1,091			5,107
		$	196,720		$	(4)		$	196,716		$	—		$	30,626		$	166,090


		December 31, 2022
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value

		(In Thousands)
AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities		$	327,266		$	—		$	40,784		$	286,482
Agency collateralized mortgage obligations			90,205			—			11,731			78,474
States and political subdivisions securities			60,667			119			3,291			57,495
Small Business Administration securities			75,076			—			6,935			68,141
		$	553,214		$	119		$	62,741		$	490,592


		December 31, 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		$	73,891		$	3,015		$	76,906		$	—		$	9,820		$	67,086
Agency collateralized mortgage obligations			122,247			(2,885)			119,362			—			14,129			105,233
States and political subdivisions			6,239			(12)			6,227			—			781			5,446
		$	202,377		$	118		$	202,495		$	—		$	24,730		$	177,765

The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2023, 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			245			245			—			—
After four through five years			944			929			—			—
After five through fifteen years			9,715			9,087			3,249			2,699
After fifteen years			48,369			42,129			2,949			2,408
Securities not due on a single maturity date			472,947			395,558			190,518			160,983
		$	532,220		$	447,948		$	196,716		$	166,090

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 September 30, 2023 and December 31, 2022, was approximately $446.7 million and $472.0 million, respectively, which is approximately 99.7% and 96.2% 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 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. Held-to-maturity investments in debt securities are reported in the financial statements at their amortized cost at September 30, 2023 and December 31, 2022, which was $196.7 million and $202.5 million, respectively. Total fair value of these investments at September 30, 2023 and December 31, 2022 was approximately $166.1 million and $177.8 million, respectively. Held-to-maturity investment securities are evaluated for potential losses under ASU 2016-13. The Company continually assesses its liquidity sources, both on-balance sheet and off-balance sheet, and believes at September 30, 2023, that it has ample liquidity sources to fund its ongoing operations. The Company has the intent and ability to hold these held-to-maturity securities until they are fully repaid.

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 of these debt securities are not credit-related.

The following table shows the Company’s available-for-sale and held-to-maturity securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022:


		September 30, 2023
		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		$	1		$	—		$	260,488		$	(54,143)		$	260,489		$	(54,143)
Agency collateralized mortgage obligations			8,236			(1,061)			64,898			(12,492)			73,134			(13,553)
States and political subdivisions securities			14,242			(1,387)			36,902			(5,506)			51,144			(6,893)
Small Business Administration securities			7,622			(466)			54,313			(9,227)			61,935			(9,693)
		$	30,101		$	(2,914)		$	416,601		$	(81,368)		$	446,702		$	(84,282)

HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities		$	—		$	—		$	63,168		$	(12,340)		$	63,168		$	(12,340)
Agency collateralized mortgage obligations			—			—			97,815			(17,195)			97,815			(17,195)
States and political subdivisions securities			—			—			5,107			(1,091)			5,107			(1,091)
		$	—		$	—		$	166,090		$	(30,626)		$	166,090		$	(30,626)


		December 31, 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		$	221,562		$	(27,597)		$	64,918		$	(13,187)		$	286,480		$	(40,784)
Agency collateralized mortgage obligations			28,537			(3,262)			40,642			(8,469)			69,179			(11,731)
States and political subdivisions securities			60,473			(5,224)			7,667			(1,711)			68,140			(6,935)
Small Business Administration securities			44,455			(2,913)			3,753			(378)			48,208			(3,291)
		$	355,027		$	(38,996)		$	116,980		$	(23,745)		$	472,007		$	(62,741)

HELD-TO-MATURITY SECURITIES:
Agency mortgage-backed securities		$	59,218		$	(7,766)		$	7,868		$	(2,054)		$	67,086		$	(9,820)
Agency collateralized mortgage obligations			61,055			(6,411)			44,178			(7,718)			105,233			(14,129)
States and political subdivisions securities			900			(101)			4,546			(680)			5,446			(781)
		$	121,173		$	(14,278)		$	56,592		$	(10,452)		$	177,765		$	(24,730)

There were no sales of available-for-sale securities during the three or nine months ended September 30, 2023. Available-for-sale securities totaling $5.1 million were sold during the three months ended September 30, 2022, resulting in the recognition of a $31,000 gain during the period. Available-for-sale securities totaling $10.2 million were sold during the nine months ended September 30, 2022, resulting in the recognition of a $38,000 gain during the period. 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 as of September 30, 2023 were 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 historically has not experienced losses on these types of securities. Accordingly, no allowance for credit losses has been recorded for these securities.