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Investments

9 Months Ended

Sep. 30, 2024

2. Investments

A summary of the Company’s investment securities classified as available-for-sale and held-to-maturity as of September 30, 2024 and December 31, 2023 is as follows:

(Dollars in thousands)	As of September 30, 2024
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Available-for-sale:
U. S. treasury securities	$	85,457	$	1	$	(1,705	)	$	83,753
Municipal obligations, tax exempt		114,184		94		(2,152	)		112,126
Municipal obligations, taxable		76,753		723		(2,347	)		75,129
Agency mortgage-backed securities		147,928		421		(8,345	)		140,004
Total available-for-sale	$	424,322	$	1,239	$	(14,549	)	$	411,012

Held-to-maturity:
Other	$	3,643	$	-	$	(512	)	$	3,131
Total held-to-maturity	$	3,643	$	-	$	(512	)	$	3,131

	As of December 31, 2023
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Available-for-sale:
U. S. treasury securities	$	99,340	$	-	$	(3,673	)	$	95,667
Municipal obligations, tax exempt		122,775		186		(2,338	)		120,623
Municipal obligations, taxable		82,926		225		(4,068	)		79,083
Agency mortgage-backed securities		169,656		247		(12,507	)		157,396
Total available-for-sale	$	474,697	$	658	$	(22,586	)	$	452,769

Held-to-maturity:
Other	$	3,555	$	-	$	(506	)	$	3,049
Total held-to-maturity	$	3,555	$	-	$	(506	)	$	3,049

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 both September 30, 2024 and December 31, 2023.

The tables above show that some of the securities in the Company’s available-for-sale and held-to-maturity investment portfolios had unrealized losses, or were temporarily impaired, as of both September 30, 2024 and December 31, 2023. This temporary impairment represents the estimated amount of loss that would be realized if the securities were sold on the valuation date.

The following table summarizes available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded at September 30, 2024 and December 31, 2023 along with the length of time each category of securities has been in a continuous loss position:

			As of September 30, 2024
(Dollars in thousands)			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	securities		value		losses			value		losses			value		losses
Available-for-sale:
U.S. treasury securities		45	$	1,764	$	(4	)	$	81,295	$	(1,701	)	$	83,059	$	(1,705	)
Municipal obligations, tax exempt		231		13,705		(97	)		82,828		(2,055	)		96,533		(2,152	)
Municipal obligations, taxable		76		-		-			47,358		(2,347	)		47,358		(2,347	)
Agency mortgage-backed securities		96		-		-			114,329		(8,345	)		114,329		(8,345	)
Total for available-for-sale		448	$	15,469	$	(101	)	$	325,810	$	(14,448	)	$	341,279	$	(14,549	)

			As of December 31, 2023
			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	securities		value		losses			value		losses			value		losses
Available-for-sale:
U.S. treasury securities		47	$	1,129	$	(7	)	$	93,833	$	(3,666	)	$	94,962	$	(3,673	)
Municipal obligations, tax exempt		229		31,468		(337	)		64,962		(2,001	)		96,430		(2,338	)
Municipal obligations, taxable		110		17,278		(151	)		52,212		(3,917	)		69,490		(4,068	)
Agency mortgage-backed securities		100		6,480		(68	)		128,512		(12,439	)		134,992		(12,507	)
Total for available-for-sale		486		56,355		(563	)		339,519		(22,023	)		395,874		(22,586	)

The Company’s U.S. treasury portfolio consists of securities issued by the United States Department of the Treasury (“U.S. 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 available-for-sale U.S. treasury securities identified in the table above were temporarily impaired as of September 30, 2024 and December 31, 2023.

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, 2024, the Company did not intend to sell and it was more likely than not that the Company would not be required to sell its municipal obligations in an unrealized loss position until the recovery of its cost basis. 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, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.

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 in 2022 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, beginning September 3, 2026. The following table provides information regarding the Company’s allowance for credit losses related to held-to-maturity investment securities:

(Dollars in thousands)	2024		2023
	Nine months ended
	September 30,
(Dollars in thousands)	2024		2023
Balance at January 1,	$	91	$	-
Balance	$	91	$	-
Impact of adopting ASC 326		-		72
Provision for credit losses		-		19
Balance at September 30,	$	91	$	91
Balance	$	91	$	91

The table below sets forth the amortized cost and fair value of investment securities at September 30, 2024. 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
	cost		fair value
Available-for-sale:
Due in less than one year	$	49,872	$	49,319
Due after one year but within five years		237,634		228,782
Due after five years but within ten years		98,484		95,207
Due after ten years		38,332		37,704
Total available-for-sale	$	424,322	$	411,012

Held-to-maturity:
Due after one year but within five years		3,643		3,131
Total held-to-maturity	$	3,643	$	3,131

The Company did not record any sales of available-for-sale securities during the nine months ended September 30, 2024 or 2023.

Securities with carrying values of $343.7 million and $380.4 million were pledged to secure public funds on deposit, repurchase agreements and as collateral for borrowings at September 30, 2024 and December 31, 2023, respectively. Except for U.S. federal agency obligations, no investment in a single issuer exceeded 10% of consolidated stockholders’ equity.