INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2023

Investments, Debt and Equity Securities [Abstract]

At September 30, 2023 and December 31, 2022, all investment securities were classified as AFS. The following table summarizes amortized cost, fair value and ACL of investment securities, and the corresponding amounts of gross unrealized gains and losses recognized in AOCI, and the allowance for credit losses at September 30, 2023 and December 31, 2022:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
September 30, 2023
U.S. Treasury securities	$	20,060	$	—	$	2,917	$	—	$	17,143
U.S. Government Agencies	4,149		173		—		—		4,322

States and political subdivisions	223,807		—		35,690		—		188,117
GSE residential MBSs	62,395		—		5,044		—		57,351
GSE commercial MBSs	4,413		365		—		—		4,778
GSE residential CMOs	80,693		—		8,656		—		72,037

Non-agency CMOs	43,772		274		5,067		—		38,979


Asset-backed	113,813		447		1,945		—		112,315
Other	120		—		—		—		120
Totals	$	553,222	$	1,259	$	59,319	$	—	$	495,162
December 31, 2022
U.S. Treasury securities	$	20,070	$	—	$	2,779	n/a		$	17,291
U.S. Government Agencies	4,907		228		—		n/a		5,135

States and political subdivisions	225,825		19		28,430		n/a		197,414
GSE residential MBSs	63,778		—		4,376		n/a		59,402

GSE residential CMOs	75,446		—		7,068		n/a		68,378

Non-agency CMOs	42,298		243		2,783		n/a		39,758


Asset-backed	130,577		—		4,604		n/a		125,973
Other	377		—		—		n/a		377
Totals	$	563,278	$	490	$	50,040	n/a		$	513,728

The following table summarizes investment securities with unrealized losses aggregated by major investment security type and the length of time in a continuous unrealized loss position. For these investment securities, no ACL was recorded at September 30, 2023 and no cumulative OTTI expense was recorded at December 31, 2022.


	Less Than 12 Months					12 Months or More					Total
	# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses
September 30, 2023
U.S. Treasury securities	—	$	—	$	—	3	$	17,143	$	2,917	3	$	17,143	$	2,917

States and political subdivisions	10	4,147		294		41	183,970		35,396		51	188,117		35,690
GSE residential MBSs	—	—		—		15	57,351		5,044		15	57,351		5,044
GSE residential CMOs	5	16,044		581		14	55,993		8,075		19	72,037		8,656
Non-agency CMOs	1	6,024		512		4	15,868		4,555		5	21,892		5,067



Asset-backed	1	892		7		15	77,377		1,938		16	78,269		1,945
Totals	17	$	27,107	$	1,394	92	$	407,702	$	57,925	109	$	434,809	$	59,319
December 31, 2022
U.S. Treasury securities	—	$	—	$	—	3	$	17,291	$	2,779	3	$	17,291	$	2,779


States and political subdivisions	29	135,579		13,809		17	60,102		14,621		46	195,681		28,430
GSE residential MBSs	5	26,100		925		10	33,302		3,451		15	59,402		4,376
GSE residential CMOs	8	28,732		1,884		9	39,646		5,184		17	68,378		7,068
Non-agency CMOs	4	26,555		1,135		2	8,639		1,648		6	35,194		2,783



Asset-backed	17	78,873		2,432		5	47,100		2,172		22	125,973		4,604
Totals	63	$	295,839	$	20,185	46	$	206,080	$	29,855	109	$	501,919	$	50,040

The Company is required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance requires the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuer. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. Under the CECL standard, if the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, which is limited by the amount that the fair value is less than the amortized cost basis. Any additional amount of loss would be due to non-credit factors and is recorded in AOCI, net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in AOCI, net of taxes, on the consolidated statements of financial condition. Prior to implementation of the CECL standard, unrealized losses caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach.

The Company did not record an ACL on the AFS securities at September 30, 2023 or upon implementation of CECL on January 1, 2023. As of both periods, the Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit. In addition, the Company maintains that it has the intent and ability to hold these AFS securities until the amortized cost is recovered and it is more likely than not that any of AFS securities in an unrealized loss position would not be required to be sold. At September 30, 2023 and December 31, 2022, unrealized losses were higher than prior periods due to market uncertainty resulting from inflation and higher interest rates from the time of the security purchase.

U.S. Treasury Securities. The unrealized losses presented in the table above have been caused by an increase in rates from the time these securities were purchased. Management considers the full faith and credit of the U.S. government in determining whether declines in fair value are due to credit factors. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at September 30, 2023.

States and Political Subdivisions. The unrealized losses presented in the table above have been caused by a widening of spreads and/or a rise in interest rates from the time these securities were purchased. Management considers the investment rating, the state of the issuer of the security and other credit support in determining whether declines in fair value are due to credit factors. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at September 30, 2023.

GSE Residential CMOs and GSE Residential MBS. The unrealized losses presented in the table above have been caused by a widening of spreads and a rise in interest rates from the time these securities were purchased. The contractual terms of these securities do not permit the issuer to settle the securities at a price less than its par value basis. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at September 30, 2023.

Non-Agency CMOs. The unrealized losses presented in the table above were caused by a widening of spreads and a rise in interest rates from the time the securities were purchased. Management considers the investment rating and other credit support in determining whether declines in fair value are due to credit factors. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at September 30, 2023.

Asset-backed. The unrealized losses presented in the table above were caused by a widening of spreads and a rise in the interest rates from the time the securities were purchased. Management considers the investment rating and other credit support in determining whether declines in fair value are due to credit factors. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which

may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at September 30, 2023.

The following table summarizes amortized cost and fair value of investment securities by contractual maturity at September 30, 2023. 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 shown separately.


	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years	31,439		27,291
Due after five years through ten years	56,845		49,216
Due after ten years	159,852		133,195
CMOs and MBSs	191,273		173,145
Asset-backed	113,813		112,315
Totals	$	553,222	$	495,162

The following table summarizes proceeds from sales of investment securities and gross gains and gross losses for the three and nine months ended September 30, 2023 and 2022:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Proceeds from sale of investment securities	$	19,900	$	—	$	19,900	$	3,075
Gross gains	2		—		2		25
Gross losses	—		14		10		17

During the three and nine months ended September 30, 2023, the Company recorded net investment security gains of $2 thousand and net investment security losses of $8 thousand primarily from mark-to-market losses on an equity security, respectively, compared to net losses of $14 thousand and net gains of $8 thousand for the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2023, the Company sold three U.S. Treasury securities with a principal balance of $19.9 million for a nominal gain. During the nine months ended September 30, 2022, the Company completed a partial sale of one security with a principal balance of $3.1 million that was sold for proceeds of $3.1 million for a gross gain of $22 thousand. The Company did not sell any investment securities during the three months ended September 30, 2022. The Company recorded a loss of $171 thousand on a call of a non-agency CMO for the nine months ended September 30, 2022. Investment securities with a fair value of $435.9 million and $396.8 million at September 30, 2023 and December 31, 2022, respectively, were pledged to secure public funds and for other purposes as required or permitted by law.