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Investment Securities

9 Months Ended

Sep. 30, 2022

Investment Securities [Abstract]

Investment Securities

Note 3—Investment Securities

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

Available-for-Sale Securities						Gross Unrealized
(Dollars in thousands)		Amortized Cost				Gains				Losses				Fair Value
As of September 30, 2022
U.S. Treasury notes		$	4,979			$	-			$	38			$	4,941
U.S. Government-sponsored securities			4,695				27				24				4,698
Mortgage-backed securities⁽¹⁾			194,600				16				38,163				156,453
Collateralized mortgage obligations⁽¹⁾			1,499				-				41				1,458
Corporate securities			10,046				-				452				9,594
Other			310				-				-				310
Total available-for-sale securities		$	216,129			$	43			$	38,718			$	177,454

⁽¹⁾All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

						Gross Unrealized
(Dollars in thousands)		Amortized Cost				Gains				Losses				Fair Value
As of December 31, 2021
U.S. Treasury notes		$	9,938			$	151			$	-			$	10,089
U.S. Government-sponsored securities			6,351				62				39				6,374
Mortgage-backed securities⁽¹⁾			253,300				3,200				5,380				251,120
Collateralized mortgage obligations⁽¹⁾			2,412				24				-				2,436
Other			435				-				-				435
Total available-for-sale securities		$	272,436			$	3,437			$	5,419			$	270,454

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows:

Held-to-Maturity Securities						Gross Unrealized
(Dollars in thousands)		Amortized Cost				Gains				Losses				Fair Value				Allowance for Credit Losses
As of September 30, 2022
Municipal securities		$	60,827			$	-			$	735			$	60,092			$	393
Mortgage-backed securities⁽¹⁾			709,541				-				145,836				563,705				-
Collateralized mortgage obligations⁽¹⁾			82,297				-				15,172				67,125				-
Total held-to-maturity securities		$	852,665			$	-			$	161,743			$	690,922			$	393

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

						Gross Unrealized
(Dollars in thousands)		Amortized Cost				Gains				Losses				Fair Value				Allowance for Credit Losses
As of December 31, 2021
Municipal securities		$	66,496			$	701			$	-			$	67,197			$	-
Mortgage-backed securities⁽¹⁾			596,775				45				11,764				585,056				-
Collateralized mortgage obligations⁽¹⁾			73,781				36				229				73,588				-
Total held-to-maturity securities		$	737,052			$	782			$	11,993			$	725,841			$	-

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

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.

As of September 30, 2022, the Company held 200 available-for-sale investment securities of which 86 were in an unrealized loss position for less than twelve months and 77 securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Management evaluates the available-for-sale investment securities in an unrealized loss position, 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.

The following tables show the gross unrealized losses for available-for-sale securities, for which an allowance for credit losses has not been recorded, that are less than 12 months and 12 months or more:

Available-for-Sale Securities									As of September 30, 2022
		Less Than 12 Months							12 Months or More								Total
(Dollars in thousands)		Fair Value			Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
As of September 30, 2022
U.S. Treasury notes		$	4,941			$	38			$	-			$	-			$	4,941			$	38
U.S. Government-sponsored securities			128				1				1,409				23				1,537				24
Mortgage-backed securities⁽¹⁾			37,141				1,928				117,680				36,235				154,821				38,163
Collateralized mortgage obligations⁽¹⁾			1,458				41				-				-				1,458				41
Corporate securities			9,594				452				-				-				9,594				452
Total available-for-sale securities		$	53,262			$	2,460			$	119,089			$	36,258			$	172,351			$	38,718

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

										As of December 31, 2021
		Less Than 12 Months								12 Months or More								Total
(Dollars in thousands)		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
As of December 31, 2021
U.S. Government-sponsored securities		$	183			$	-			$	2,007			$	39			$	2,190			$	39
Mortgage-backed securities⁽¹⁾			61,469				1,192				104,489				4,188				165,958				5,380
Total available-for-sale securities		$	61,652			$	1,192			$	106,496			$	4,227			$	168,148			$	5,419

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. Government.

The following table presents the activity in the allowance for credit losses for held-to-maturity debt securities by major type for the nine months ended September 30, 2022.

		For the Nine Months Ended September 30, 2022
(Dollars in thousands)		Municipal securities				Mortgage-backed securities				Collateralized Mortgage obligations				Total
Allowance for credit losses - securities
Beginning Balance		$	-			$	-			$	-			$	-
Provision for credit losses			393				-				-				393
Ending Balance		$	393			$	-			$	-			$	393

Management measures expected credit losses on held-to-maturity (“HTM”) debt securities on a collective basis by major security type. The Company’s HTM portfolio contains securities issued by U.S. government entities and agencies and municipalities. The Company uses industry historical credit loss information adjusted for current conditions to establish the allowance for credit losses on its HTM municipal bond portfolio.

U.S. Government-sponsored securities. The unrealized losses were caused by interest rate fluctuations. The decline in market value is attributable to changes in interest rates and not credit quality.

Mortgage-backed securities and collateralized mortgage obligations. 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. The decline in market value is attributable to changes in interest rates and not credit quality.

Corporate securities. 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.

Obligations of states and political subdivisions. The Company’s bank-qualified municipal bond portfolio is comprised of two different segments: (1) publicly issued debt of $18.4 million purchased on the open market, all rated at either the issue or issuer level and all of these ratings are “investment grade”; and (2) municipal debt of $42.4 million purchased directly from the Bank’s customers, all of which is monitored through quarterly or annual financial reviews of the issuer. 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.

The Company does not intend to sell the held-to-maturity investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis.

The amortized cost and estimated fair values of investment securities at September 30, 2022 by contractual final maturity are shown in the following table:

		Available-for-Sale								Held-to-Maturity
(Dollars in thousands)		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Securities maturing in:
One year or less		$	5,312			$	5,274			$	883			$	883
After one year through five years			21,418				20,600				7,484				7,324
After five years through ten years			25,492				23,196				28,907				26,852
After ten years			163,907				128,384				815,391				655,863
Total		$	216,129			$	177,454			$	852,665			$	690,922

The Company monitors the credit quality of those available-for-sale and held-to-maturity debt securities not issued by the U.S. government or one of its agencies or government sponsored entities, through the use of credit ratings. Credit ratings are reviewed and updated quarterly. The following table summarizes the fair value of available-for-sale and amortized cost of held-to-maturity debt securities by credit rating at September 30, 2022:

		Available-for-Sale												Held-to-Maturity
		Fair Value												Amortized Cost
(Dollars in thousands)		AAA/AA/A				BBB/BB/B				Not Rated				AAA/AA/A				BBB/BB/B				Not Rated
September 30, 2022

Breakdown by Category:
U.S. Treasury notes		$	4,941			$	-			$	-			$	-			$	-			$	-
U.S. Government-sponsored securities			-				-				4,698				-				-				-
Mortgage-backed securities⁽¹⁾			-				-				156,453				-				-				709,541
Collateralized mortgage obligations⁽¹⁾			-				-				1,458				-				-				82,297
Municipal securities			-				-				-				18,025				386				42,416
Corporate securities			4,795				4,799				-				-				-				-
Other			-				-				310				-				-				-
Total Investment Grade		$	9,736			$	4,799			$	162,919			$	18,025			$	386			$	834,254

⁽¹⁾ All mortgage-backed securities and collateralized mortgage obligations were issued by an agency or government sponsored entity of the U.S. government.

Proceeds from sales and calls of these securities were as follows:

(Dollars in thousands)		Gross Proceeds				Gross Gains				Gross Losses
Nine months ended September 30, 2022		$	31,394			$	2			$	2,987
Nine months ended September 30, 2021		$	301,320			$	5,570			$	3,016

Pledged Securities

As of September 30, 2022, securities carried at $493.8 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 $426 million at December 31, 2021.