Investment Securities

6 Months Ended

Jun. 30, 2024

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

	June 30, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	109,281	$	-	$	2,485	$	106,796
State and political subdivisions		26		-		-		26
Mortgage backed securities and collateralized mortgage obligations - residential		246,142		128		27,959		218,311
Corporate bonds		55,054		-		1,290		53,764
Small Business Administration - guaranteed participation securities		17,222		-		1,630		15,592
Other		688		8		8		688
Total Securities Available for Sale	$	428,413	$	136	$	33,372	$	395,177

	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	121,728	$	5	$	3,065	$	118,668
State and political subdivisions		26		-		-		26
Mortgage backed securities and collateralized mortgage obligations - residential		263,182		270		25,775		237,677
Corporate bonds		80,150		-		2,098		78,052
Small Business Administration - guaranteed participation securities		18,740		-		1,554		17,186
Other		687		11		18		680

Total Securities Available for Sale	$	484,513	$	286	$	32,510	$	452,289

The following table categorizes the debt securities included in the available for sale portfolio as of June 30, 2024, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

	Amortized			Fair
(dollars in thousands)	Cost			Value

Due in one year or less		$	65,788		$	64,715
Due after one year through five years			99,261			96,559
Mortgage backed securities and collateralized mortgage obligations - residential			246,142			218,311
Small Business Administration - guaranteed participation securities			17,222			15,592
		$	428,413		$	395,177

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	June 30, 2024
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unreal.
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	19,955	$	45	$	86,841	$	2,440	$	106,796	$	2,485
Mortgage backed securities and collateralized mortgage obligations - residential		2,399		29		209,057		27,930		211,456		27,959
Corporate bonds		-		-		53,764		1,290		53,764		1,290
Small Business Administration - guaranteed participation securities		-		-		15,592		1,630		15,592		1,630
Other		-		-		642		8		642		8

Total	$	22,354	$	74	$	365,896	$	33,298	$	388,250	$	33,372

	December 31, 2023
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unreal		Fair		Unreal		Fair		Unreal.
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	-		-	$	116,163	$	3,065	$	116,163	$	3,065
Mortgage backed securities and collateralized mortgage obligations - residential		-		-		227,891		25,775		227,891		25,775
Corporate bonds		-		-		78,052		2,098		78,052		2,098
Small Business Administration - guaranteed participation securities		-		-		17,186		1,554		17,186		1,554
Other		-		-		631		18		631		18

Total	$	-		-	$	439,923	$	32,510	$	439,923	$	32,510

There were no allowance for credit losses recorded for securities available for sale during the three and six months ended June 30, 2024.

The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and six months ended June 30, 2024 and 2023 are as follows:

	Three months ended June 30,
(dollars in thousands)	2024		2023

Proceeds from sales	$	-	$	-
Proceeds from calls/paydowns		11,653		14,811
Proceeds from maturities		20,000		5,000
Gross realized gains		-		-
Gross realized losses		-		-

	Six months ended June 30,
(dollars in thousands)	2024		2023

Proceeds from sales	$	-	$	-
Proceeds from calls/paydowns		20,494		29,469
Proceeds from maturities		55,000		5,000
Gross realized gains		-		-
Gross realized losses		-		-

There were no transfers of securities available for sale during the three and six months ended June 30, 2024 and 2023.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

	June 30, 2024
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	5,921	$	38	$	140	$	5,819
Total held to maturity	$	5,921	$	38	$	140	$	5,819

	December 31, 2023
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	6,458	$	74	$	136	$	6,396
Total held to maturity	$	6,458	$	74	$	136	$	6,396

The following table categorizes the debt securities included in the held to maturity portfolio as of June 30, 2024, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands)	Amortized		Fair
	Cost		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	5,921	$	5,819
	$	5,921	$	5,819

Gross unrecognized losses on held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	June 30, 2024
	Less than				12 months
(dollars in thousands)	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrec.		Fair		Unrec.		Fair		Unrec.
	Value		Loss		Value		Loss		Value		Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	879	$	3	$	2,481	$	137	$	3,360	$	140

Total	$	879	$	3	$	2,481	$	137	$	3,360	$	140

	December 31, 2023
	Less than				12 months
(dollars in thousands)	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrec.		Fair		Unrec.		Fair		Unrec.
	Value		Loss		Value		Loss		Value		Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	283	$	3	$	2,703	$	133	$	2,986	$	136

Total	$	283	$	3	$	2,703	$	133	$	2,986	$	136

There were no sales or transfers of held to maturity securities during the three and six months ended June 30, 2024 and 2023.

There were no allowance for credit losses recorded for held to maturity securities during the three and six months ended June 30, 2024. There were no securities on non-accrual status and all securities were performing in accordance with contractual terms.

During the second quarter of 2024, Visa Inc. accepted the Company’s tender of its 6,528 shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock. As a result of the exchange, the Company marked its Visa Class C common stock to fair value and recorded a gain of $1.4 million based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock on June 28, 2024 of $262.47 per share. The Company’s Visa Class C shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company originally obtained the shares in 2008. The carrying value of the Visa B-2 shares is nominal as of June 30, 2024.

(d) Other-Than-Temporary Impairment

Debt Securities

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or is it more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings through the provision for credit losses. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.

The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of June 30, 2024. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low turnover in the portfolio.

As of June 30, 2024, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, 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 likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of June 30, 2024.

Mortgage backed securities and collateralized mortgage obligations – residential: As of June 30, 2024, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. 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 likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of June 30, 2024.

Small Business Administration (SBA) - guaranteed participation securities: As of June 30, 2024, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. 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 likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of June 30, 2024.

Corporate Bonds & Other: As of June 30, 2024, corporate bonds held by the Company are investment grade quality. 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 likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of June 30, 2024.