Investment Securities

6 Months Ended

Jun. 30, 2023

Note 2—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 June 30, 2023
U.S. Government-sponsored securities	$	3,845	$	17	$	21	$	3,841
Mortgage-backed securities⁽¹⁾		123,302		4		23,238		100,068
Collateralized mortgage obligations⁽¹⁾		599		-		13		586
Corporate securities		10,038		-		200		9,838
Other		310		-		-		310
Total available-for-sale securities	$	138,094	$	21	$	23,472	$	114,643

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

Available-for-Sale Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value
As of December 31, 2022
U.S. Treasury notes	$	4,989	$	-	$	25	$	4,964
U.S. Government-sponsored securities		4,430		21		24		4,427
Mortgage-backed securities⁽¹⁾		162,314		9		29,795		132,528
Collateralized mortgage obligations⁽¹⁾		1,085		-		31		1,054
Corporate securities		10,043		-		462		9,581
Other		310		-		-		310
Total available-for-sale securities	$	183,171	$	30	$	30,337	$	152,864

⁽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 June 30, 2023
Mortgage-backed securities⁽¹⁾	$	685,028	$	16	$	138,764	$	546,280	$	-
Collateralized mortgage obligations⁽¹⁾		77,290		-		15,022		62,268		-
Municipal securities		76,128		72		245		75,955		450
Total held-to-maturity securities	$	838,446	$	88	$	154,031	$	684,503	$	450

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

Held-to-Maturity Securities			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value		Allowance for Credit Losses
As of December 31, 2022
Mortgage-backed securities⁽¹⁾	$	702,858	$	29	$	141,121	$	561,766	$	-
Collateralized mortgage obligations⁽¹⁾		80,186		-		15,701		64,485		-
Municipal securities		62,302		49		209		62,142		393
Total held-to-maturity securities	$	845,346	$	78	$	157,031	$	688,393	$	393

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

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account that is deducted from the amortized cost basis of held-to-maturity securities to present the net amount expected to be collected. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to residential mortgage-backed securities issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by States and political subdivisions and other held-to-maturity securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts and (v) whether or not such securities are guaranteed or pre-refunded by the issuers.

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 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:

	June 30, 2023
	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale Securities
U.S. Government-sponsored securities	$	267	$	1	$	1,127	$	20	$	1,394	$	21
Mortgage-backed securities⁽¹⁾		15,374		480		83,944		22,758		99,318		23,238
Collateralized mortgage obligations⁽¹⁾		-		-		586		13		586		13
Corporate securities		-		-		9,838		200		9,838		200
Total available-for-sale securities	$	15,641	$	481	$	95,495	$	22,991	$	111,136	$	23,472

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

					December 31, 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
Available-for-Sale Securities
U.S. Treasury notes	$	4,964	$	25	$	-	$	-	$	4,964	$	25
U.S. Government-sponsored securities		378		1		1,326		23		1,704		24
Mortgage-backed securities⁽¹⁾		35,117		1,639		96,589		28,156		131,706		29,795
Collateralized Mortgage Obligations⁽¹⁾		1,054		31		-		-		1,054		31
Corporate securities		-		-		9,581		462		9,581		462
Total available-for-sale securities	$	41,513	$	1,696	$	107,496	$	28,641	$	149,009	$	30,337

⁽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 June 30, 2023, the Company held 182 available-for-sale securities of which 56 were in an unrealized loss position for less than twelve months and 102 securities were in an unrealized loss position for twelve months or more without an allowance for credit losses. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company does not have the intent to sell these securities and it is more likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be impaired. Management evaluates the available-for-sale securities in an unrealized loss position, relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations.

The following table presents the activity in the allowance for credit losses for held-to-maturity securities by major type:

	June 30, 2023
(Dollars in thousands)	Municipal securities		Mortgage-backed securities		Collateralized Mortgage obligations		Total
Allowance for credit losses - securities
Beginning Balance	$	393	$	-	$	-	$	393
Provision for credit losses		57		-		-		57
Ending Balance	$	450	$	-	$	-	$	450

	December 31, 2022
(Dollars in thousands)	Municipal securities		Mortgage- backed securities		Collateralized Mortgage obligations		Total
Allowance for credit losses - securities
Beginning Balance	$	393	$	-	$	-	$	393
Provision for credit losses		-		-		-		-
Ending Balance	$	393	$	-	$	-	$	393

The amortized cost and estimated fair values of investment securities at June 30, 2023 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	$	321	$	321	$	283	$	283
After one year through five years		18,571		18,018		12,292		12,201
After five years through ten years		7,135		6,871		28,355		26,675
After ten years		112,067		89,433		797,516		645,344
Total	$	138,094	$	114,643	$	838,446	$	684,503

Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Expected maturities of mortgage-backed and CMO securities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

The Company monitors the credit quality of those held-to-maturity 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 amortized cost of held-to-maturity municipal securities by credit rating at June 30, 2023:

	Held-to-Maturity
	Amortized Cost
(Dollars in thousands)	AAA/AA/A		BBB/BB/B		Not Rated		Total
June 30, 2023
Municipal securities	$	19,380	$	391	$	56,357	$	76,128
Total	$	19,380	$	391	$	56,357	$	76,128

As of June 30, 2023, there were no past due principal or interest payments associated with these securities.

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

(Dollars in thousands)	Gross Proceeds		Gross Gains		Gross Losses
Six months ended June 30, 2023	$	30,482	$	-	$	5,686
Six months ended June 30, 2022	$	2,610	$	2	$	-

Pledged Securities

As of June 30, 2023, securities carried at $582.2 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 $478.7 million at December 31, 2022.