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Investment Securities

9 Months Ended

Sep. 30, 2021

3. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the debt securities available-for-sale are as follows

(in thousands):

	Amortized Cost		Gross Unrealized				Fair Value
September 30, 2021	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasury Notes	$	9,922	$	228	$	-	$	10,150
U.S. Government Agency SBA		6,892		70		43		6,919
Mortgage-Backed Securities⁽¹⁾⁽²⁾		270,667		4,243		5,341		269,569
Other		46,513		-		-		46,513
Total	$	333,994	$	4,541	$	5,384	$	333,151

	Amortized Cost		Gross Unrealized				Fair Value
December 31, 2020	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasury Notes	$	14,859	$	429	$	-	$	15,288
U.S. Government Agency SBA		8,252		1		93		8,160
Mortgage-Backed Securities⁽¹⁾		720,562		17,359		48		737,873
Corporate Securities		45,010		927		18		45,919
Other		492		-		-		492
Total	$	789,175	$	18,716	$	159	$	807,732

	Amortized Cost		Gross Unrealized				Fair Value
September 30, 2020	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasury Notes	$	94,830	$	512	$	-	$	95,342
U.S. Government Agency SBA		8,530		1		102		8,429
Mortgage-Backed Securities⁽¹⁾		421,263		18,050		39		439,274
Corporate Securities		25,002		159		98		25,063
Other		428		-		-		428
Total	$	550,053	$	18,722	$	239	$	568,536

⁽¹⁾	All Mortgage-Backed securities consist of securities collateralized by residential real estate and were issued by an agency or government-sponsored entity of the U.S. government.

⁽²⁾	During Q1 2021, the Company transferred $316.9 million of AFS securities to HTM.

The amortized cost, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Amortized Cost		Gross Unrealized				Fair Value
September 30, 2021	Amortized Cost		Gains		Losses		Fair Value
Obligations of States and Political Subdivisions	$	62,936	$	768	$	-	$	63,704
Mortgage Backed Securities⁽¹⁾⁽²⁾		487,682		48		11,126		476,604
Total	$	550,618	$	816	$	11,126	$	540,308

	Amortized Cost		Gross Unrealized				Fair Value
December 31, 2020	Amortized Cost		Gains		Losses		Fair Value
Obligations of States and Political Subdivisions	$	68,933	$	1,116	$	-	$	70,049
Total	$	68,933	$	1,116	$	-	$	70,049

	Amortized Value		Gross Unrealized				Fair Value
September 30, 2020	Amortized Value		Gains		Losses		Fair Value
Obligations of States and Political Subdivisions	$	69,913	$	1,142	$	-	$	71,055
Total	$	69,913	$	1,142	$	-	$	71,055

⁽¹⁾	All Mortgage-Backed securities were issued by an agency or government-sponsored entity of the U.S. government.

⁽²⁾	During Q1 2021, the Company transferred $316.9 million of AFS securities to HTM.

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS securities. During the first quarter of 2021, we transferred $316.9 million of these securities, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value. The unrealized pre-tax loss of $2,000 at the date of transfer remained in accumulated other comprehensive income and is amortized to yield over the remaining lives of the securities.

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

The amortized cost and estimated fair values of investment securities at September 30, 2021 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
September 30, 2021	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	51,503	$	51,569	$	308	$	308
After one year through five years		5,100		5,262		6,969		7,012
After five years through ten years		563		566		19,543		20,254
After ten years		6,161		6,185		36,116		36,130
		63,327		63,582		62,936		63,704

Investment securities not due at a single maturity date:
Mortgage-Backed securities		270,667		269,569		487,682		476,604

Total	$	333,994	$	333,151	$	550,618	$	540,308

Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):

	Less Than 12 Months				12 Months or More				Total
September 30, 2021	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
U.S. Government Agency SBA	$	188	$	1	$	2,141	$	42	$	2,329	$	43
Mortgage-Backed Securities		171,869		5,339		116		2		171,985		5,341
Total	$	172,057	$	5,340	$	2,257	$	44	$	174,314	$	5,384

Securities Held-to-Maturity
Mortgage Backed Securities		468,360		11,126		-		-	$	468,360	$	11,126
Total	$	468,360	$	11,126	$	-	$	-	$	468,360	$	11,126

	Less Than 12 Months				12 Months or More				Total
December 31, 2020	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
U.S. Government Agency SBA	$	1,741	$	3	$	6,126	$	90	$	7,867	$	93
Mortgage-Backed Securities		20,142		45		177		3		20,319		48
Corporate Securities		4,041		18		-		-		4,041		18
Total	$	25,924	$	66	$	6,303	$	93	$	32,227	$	159

There were no HTM investments with gross unrealized losses at December 31, 2020.

	Less Than 12 Months				12 Months or More				Total
September 30, 2020	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
U.S. Government Agency SBA	$	2,312	$	4	$	5,810	$	98	$	8,122	$	102
Mortgage-Backed Securities		20,741		35		194		4		20,935		39
Corporate Securities		10,363		98		-		-		10,363		98
Total	$	33,416	$	137	$	6,004	$	102	$	39,420	$	239

There were no HTM investments with gross unrealized losses at September 30, 2020.

As of September 30, 2021, the Company held 590 investment securities of which 68 were in an unrealized loss position for less than twelve months and 60 securities were in an unrealized loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

U.S. Treasury Notes – At September 30, 2021, December 31, 2020, and September 30, 2020, no U.S. Treasury Note security investments were in an unrealized loss position.

U.S. Government Agency SBA – At September 30, 2021, 4 U.S. Government SBA security investments were in an unrealized loss position for less than 12 months and 44 were in a loss position for 12 months or more. The unrealized losses on the Company's investment in U.S. Government Agency SBA securities were $43,000, $93,000, and $102,000 at September 30, 2021, December 31, 2020, and September 30, 2020, respectively. The unrealized losses were caused by interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2021, December 31, 2020, and September 30, 2020.

Mortgage-Backed Securities – At September 30, 2021, 64 mortgage-backed security investments were in an unrealized loss position for less than 12 months and 16 were in an unrealized loss position for 12 months or more. The unrealized losses on the Company's investment in mortgage-backed securities were $16.5 million, $48,000, and $39,000 at September 30, 2021, December 31, 2020, and September 30, 2020, respectively. The unrealized losses were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government-sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2021, December 31, 2020, and September 30, 2020.

Corporate Securities - At September 30, 2021, we had no corporate securities in our portfolio, having sold all positions during the second quarter of 2021. The unrealized loss on the Company’s investment in the corporate securities were $0, $18,000 and $98,000 at September 30, 2021, December 31, 2020 and September 30, 2020, respectively. Changes in the prices of corporate securities are primarily influenced by: (1) changes in market interest rates; (2) changes in perceived credit risk in the general economy or in particular industries; (3) changes in the perceived credit risk of a particular company; and (4) day to day trading supply, demand and liquidity. The Company monitors the status of each of our corporate securities and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security. Because the Company did not intend to sell the securities and it was more likely than not that the Company would not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2020 and September 30, 2020.

Other Securities – At September 30, 2021, none of the other securities were in an unrealized loss position. Other securities consisted of Money Market accounts held at investment brokerages.

Obligations of States and Political Subdivisions – At September 30, 2021, December 31, 2020 and September 30,2020, no obligation of states and political subdivisions was in an unrealized loss position. As of September 30, 2021, the Company’s bank-qualified municipal bond portfolio was rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of all municipal investments in the portfolio and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security.

Proceeds from sales and calls of securities for the periods shown were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Proceeds	$	1,450	$	50,620	$	301,320	$	53,620
Gains		-		-		5,570		13
Losses		-		-		3,016		-

Pledged Securities

As of September 30, 2021, securities carried at $445.2 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $439.7 million at December 31, 2020, and $333.2 million at September 30, 2020.