Note 2 - Investment Securities

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) [Text Block]

2.        Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent.  Investment securities at September 30, 2022 and December 31, 2021 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		Losses		Value
September 30, 2022
Securities available for sale:
Agency mortgage-backed securities	$	98,891	$	-	$	12,182	$	86,709
Agency CMO		7,602		-		370		7,232
Other debt securities:
Agency notes and bonds		150,716		-		13,369		137,347
Treasury notes and bonds		83,528		-		4,107		79,421
Municipal obligations		167,210		15		22,655		144,570
Total securities available for sale	$	507,947	$	15	$	52,683	$	455,279
Securities held to maturity:
Other debt securities:
Corporate notes	$	7,000	$	-	$	1,382	$	5,618
Total securities held to maturity	$	7,000	$	-	$	1,382	$	5,618
December 31, 2021
Securities available for sale:
Agency mortgage-backed securities	$	102,767	$	604	$	635	$	102,736
Agency CMO		7,863		98		-		7,961
Other debt securities:
Agency notes and bonds		130,641		489		2,034		129,096
Treasury notes and bonds		50,339		-		545		49,794
Municipal obligations		153,610		4,721		583		157,748
Total securities available for sale	$	445,220	$	5,912	$	3,797	$	447,335
Securities held to maturity:
Other debt securities:
Corporate notes	$	2,000	$	4	$	-	$	2,004
Total securities held to maturity	$	2,000	$	4	$	-	$	2,004

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal Farm Credit Bank (“FFCB”) and the Federal Home Loan Bank (“FHLB”), which are government-sponsored enterprises.  Corporate notes classified as held to maturity include subordinated debt obligations issues by other bank holding companies.

The amortized cost and fair value of debt securities as of September 30, 2022, by contractual maturity, are shown below.  Expected maturities of mortgage-backed securities and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
(In thousands)
Due in one year or less	$	16,194	$	15,800	$	-	$	-
Due after one year through five years		237,878		220,169		-		-
Due after five years through ten years		43,996		40,360		2,000		1,608
Due after ten years		103,386		85,009		5,000		4,010
		401,454		361,338		7,000		5,618
Mortgage-backed securities and CMO		106,493		93,941		-		-
	$	507,947	$	455,279	$	7,000	$	5,618

Information pertaining to investment securities with gross unrealized losses at September 30, 2022, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows. 

	Number of				Gross
	Investment		Fair		Unrealized
	Positions		Value		Losses
(Dollars in thousands)
September 30, 2022:
Securities available for sale:
Continuous loss position less than twelve months:
Agency mortgage-backed securities		78	$	40,860	$	4,440
Agency CMO		26		7,232		370
Agency notes and bonds		20		39,992		1,724
Treasury notes and bonds		20		33,041		976
Muncipal obligations		223		112,415		16,894
Total less than twelve months		367		233,540		24,404
Continuous loss position more than twelve months:
Agency mortgage-backed securities		20		45,849		7,742
Agency notes and bonds		39		97,356		11,645
Treasury notes and bonds		11		46,379		3,131
Muncipal obligations		43		23,500		5,761
Total more than twelve months		113		213,084		28,279
Total securities available for sale		480	$	446,624	$	52,683
Securities held to maturity:
Continuous loss position less than twelve months:
Corporate notes		4	$	5,618	$	1,382
Total less than twelve months		4		5,618		1,382
Total held to maturity		4	$	5,618	$	1,382

Information pertaining to investment securities with gross unrealized losses at December 31, 2021, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows. 

	Number of				Gross
	Investment		Fair		Unrealized
	Positions		Value		Losses
(Dollars in thousands)
December 31, 2021:
Continuous loss position less than twelve months:
Agency mortgage-backed securities		23	$	67,512	$	607
Agency notes and bonds		39		98,042		1,710
Treasury notes and bonds		11		49,190		545
Muncipal obligations		49		32,642		479
Total less than twelve months		122		247,386		3,341
Continuous loss position more than twelve months:
Agency mortgage-backed securities		1		1,357		28
Agency notes and bonds		4		13,676		324
Muncipal obligations		4		2,957		104
Total more than twelve months		9		17,990		456
Total securities available for sale		131	$	265,376	$	3,797

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (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, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair value.

At September 30, 2022, the municipal obligations and U.S. government agency debt securities, including Treasury notes and bonds, agency notes and bonds, mortgage-backed securities and CMOs classified as available for sale and in a loss position had depreciated approximately 10.6% from the amortized cost basis.  All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues.  At September 30, 2022, the corporate notes classified as held to maturity in a loss position had depreciated approximately 19.7% from the amortized cost basis.  These unrealized losses related principally to current interest rates for similar types of securities.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.  As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

While management does not anticipate any credit-related impairment losses at September 30, 2022, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future.

During the nine months ended September 30, 2021, the Company realized gross gains of $12,000 and gross losses of $5,000 on sales of available for sale securities.  There were no sales of investment securities or time deposits during the three months ended September 30, 2021 nor the three and nine months ended September 30, 2022.

Certain debt securities available for sale were pledged to secure public fund deposits at September 30, 2022 and December 31, 2021.

Equity Securities

In September 2018, the Company acquired 90,000 shares of common stock in another bank holding company, representing approximately 5% of the outstanding common stock of the entity, for a total investment of $1.9 million.  During the three and nine months ended September 30, 2022, the Company recognized unrealized losses of $229,000 and $265,000, respectively, on this equity investment.  During the three and nine months ended September 30, 2021, the Company recognized an unrealized loss of $67,000 and an unrealized gain of $360,000, respectively, on this equity investment.  At September 30, 2022 and December 31, 2021, the equity investment had a fair value of $1.6 million and $1.9 million, respectively, and is included in other assets on the consolidated balance sheets.

In October 2021, the Company entered into an agreement to invest in a bank technology fund through a limited partnership.  At September 30, 2022 and December 31, 2021, the Company’s investment in the limited partnership was $1.0 million and is reflected in other assets on the consolidated balance sheets.  The unfunded commitment related to the limited partnership investment at September 30, 2022 and December 31, 2021 was $780,000 and $880,000, respectively, and is reflected in other liabilities on the consolidated balance sheets.  The Company expects to fulfill the commitment as capital calls are made through 2026.  The investment is accounted for as an equity security without a readily determinable fair value, and has been recorded at cost, less any impairment, and adjustments resulting from observable price changes.  There were no impairments or adjustments on equity securities without readily determinable fair values during the three or nine months ended September 30, 2022 or 2021.