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Investments
 9 Months Ended
Sep. 30, 2023
Schedule of Investments [Abstract]  
Investments

3. Investments

 

A summary of investment securities available-for-sale and held-to-maturity is as follows:

 

(Dollars in thousands)  As of September 30, 2023         
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Available-for-sale:                    
U. S. treasury securities  $125,667   $-   $(7,326)  $118,341 
Municipal obligations, tax exempt   124,352    -    (8,646)   115,706 
Municipal obligations, taxable   81,834    -    (7,841)   73,993 
Agency mortgage-backed securities   167,842    -    (19,025)   148,817 
Total available-for-sale  $499,695   $     -   $(42,838)  $456,857 

 

   As of September 30, 2023     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Held-to-maturity:                    
Other  $3,525   $         -   $(300)  $3,225 
Total held-to-maturity  $3,525   $-   $(300)  $3,225 

 

   As of December 31, 2022     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Available-for-sale:                    
U. S. treasury securities  $130,684   $-   $(7,573)  $123,111 
U. S. federal agency obligations   2,002    -    (14)   1,988 
Municipal obligations, tax exempt   130,848    59    (3,645)   127,262 
Municipal obligations, taxable   73,520    14    (6,290)   67,244 
Agency mortgage-backed securities   185,451    172    (15,922)   169,701 
Total available-for-sale  $522,505   $245   $(33,444)  $489,306 

 

   As of December 31, 2022     
       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
   cost   gains   losses   fair value 
Held-to-maturity:                    
Other  $3,524   $5   $(77)  $3,452 
Total held-to-maturity  $3,524   $5   $(77)  $3,452 

 

The amortized cost of the above held-to-maturity investment securities has been further reduced by the allowance for credit losses of $91,000 at September 30, 2023.

 

 

The tables above show that some of the securities in the available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of September 30, 2023 and December 31, 2022. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date. Securities which were temporarily impaired are shown below, along with the length of time in a continuous unrealized loss position.

 

       As of September 30, 2023 
(Dollars in thousands)      Less than 12 months   12 months or longer   Total 
   No. of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
Available-for-sale:  securities   value   losses   value   losses   value   losses 
U.S. treasury securities   66   $909   $(10)  $117,432   $(7,316)  $118,341   $(7,326)
Municipal obligations, tax exempt   290    50,036    (3,126)   65,225    (5,520)   115,261    (8,646)
Municipal obligations, taxable   126    23,773    (1,519)   50,220    (6,322)   73,993    (7,841)
Agency mortgage-backed securities   103    20,263    (629)   128,554    (18,396)   148,817    (19,025)
Total for available-for-sale   585   $94,981   $(5,284)  $361,431   $(37,554)  $456,412   $(42,838)
                                    
Held-to-maturity:                                   
Other   7   $3,225   $300   $-   $-   $3,225   $300 
Total held-to-maturity   7    3,225    300    -    -    3,225    300 

 

       As of December 31, 2022 
       Less than 12 months   12 months or longer   Total 
   No. of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
Available-for-sale:  securities   value   losses   value   losses   value   losses 
U.S. treasury securities   67   $85,988   $(4,591)  $37,123   $(2,982)  $123,111   $(7,573)
U.S. federal agency obligations   1    1,988    (14)   -    -    1,988    (14)
Municipal obligations, tax exempt   274    107,262    (3,020)   8,495    (625)   115,757    (3,645)
Municipal obligations, taxable   108    54,746    (5,006)   7,571    (1,284)   62,317    (6,290)
Agency mortgage-backed securities   100    78,971    (4,550)   79,882    (11,372)   158,853    (15,922)
Total for available-for-sale   550    328,955    (17,181)   133,071    (16,263)   462,026    (33,444)
                                    
Held-to-maturity:                                   
Other   6   $3,009   $(77)  $-   $-   $3,009   $(77)
Total held-to-maturity   6    3,009    (77)   -    -    3,009    (77)

 

The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury. The receipt of principal and interest on U.S. treasury securities is guaranteed by the full faith and credit of the U.S. government. Based on these factors, along with the Company’s intent to not sell the securities and its belief that it was more likely than not that the Company will not be required to sell the securities before recovery of its cost basis, the Company believed that the U.S. treasury securities identified in the table above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

The Company’s portfolio of municipal obligations consists of both tax-exempt and taxable general obligations securities issued by various municipalities. As of September 30, 2023, the Company did not intend to sell and it was more likely than not that the Company will not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the municipal obligations identified in the tables above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

The Company’s agency mortgage-backed securities portfolio consists of securities underwritten to the standards of and guaranteed by the government-sponsored agencies of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association. The receipt of principal, at par, and interest on agency mortgage-backed securities is guaranteed by the respective government-sponsored agency guarantor, such that the Company believed that its agency mortgage-backed securities did not expose the Company to credit-related losses. Based on these factors, along with the Company’s intent to not sell the securities and the Company’s belief that it was more likely than not that the Company will not be required to sell the securities before recovery of their cost basis, the Company believed that the agency mortgage-backed securities identified in the table above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

 

The Company’s other investment securities portfolio consists of seven subordinated debentures issued by financial institutions. These investment securities were acquired in the Freedom Bank acquisition and classified as held-to-maturity. The securities were issued in 2021 and 2022 with a 10 year maturity and a fixed rate for five years. The securities are callable after the end of the fixed rate term. Due to the issuers’ continued satisfaction of the securities’ obligations in accordance with their contractual terms and the expectation that they will continue to do so, the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence, the Company believed that the other securities identified in the tables above were temporarily impaired as of September 30, 2023 and December 31, 2022.

 

The following table provides information on the Company’s allowance for credit losses related to held-to-maturity investment securities.

 

(Dollars in thousands)    
Balance at January 1, 2023  $- 
Impact of adopting ASC 326   72 
Provision for credit losses   19 
Balance at September 30, 2023  $91 

 

The table below sets forth amortized cost and fair value of investment securities at September 30, 2023. The table includes scheduled principal payments and estimated prepayments, based on observable market inputs, for agency mortgage-backed securities. Actual maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

 

(Dollars in thousands)  Amortized   Estimated 
Available-for-sale:  cost   fair value 
Due in less than one year  $37,975   $37,272 
Due after one year but within five years   265,924    244,855 
Due after five years but within ten years   142,733    127,386 
Due after ten years   53,063    47,344 
Total available-for-sale  $499,695   $456,857 
           
Held-to-maturity:          
Due after five years but within ten years   3,525    3,225 
Total held-to-maturity  $3,525   $3,225 

 

Sales proceeds and gross realized gains and losses on sales of available-for-sale securities were as follows for the periods indicated:

 

   2023   2022   2023   2022 
(Dollars in thousands)  Three months ended September 30,   Nine months ended September 30, 
   2023   2022   2023   2022 
                 
Sales proceeds  $-   $11,210   $-   $11,210 
                     
Realized gains  $-   $-   $-   $- 
Realized losses   -    (353)   -    (353)
Net realized losses  $-   $(353)  $-   $(353)

 

Securities with carrying values of $398.2 million and $420.8 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2023 and December 31, 2022, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.