INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2024

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

4.       INVESTMENT SECURITIES

The following tables summarize the amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, 2024 and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss on securities available-for-sale. The Company did not record an allowance for credit losses on its securities held-to-maturity portfolio as of September 30, 2024 and December 31, 2023.

	September 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Debt securities:
Government-sponsored enterprise obligations	$	17,459	$	4	$	(2,477	)	$	14,986
Corporate bonds		5,000		—		(419	)		4,581
Total debt securities		22,459		4		(2,896	)		19,567
Mortgage-backed securities:
Government-sponsored mortgage-backed securities		151,735		156		(20,758	)		131,133
U.S. government guaranteed mortgage-backed securities		6,307		—		(1,118	)		5,189
Total mortgage-backed securities		158,042		156		(21,876	)		136,322
Total securities available-for-sale		180,501		160		(24,772	)		155,889
Securities held-to-maturity:
Debt securities:
U.S. Treasury securities		10,001		—		(272	)		9,729
U.S. government guaranteed obligations		1,077		2		—			1,079
Total debt securities		11,078		2		(272	)		10,808
Mortgage-backed securities:
Government-sponsored mortgage-backed securities		202,188		192		(30,640	)		171,740
Total mortgage-backed securities		202,188		192		(30,640	)		171,740
Total securities held-to-maturity		213,266		194		(30,912	)		182,548
Total	$	393,767	$	354	$	(55,684	)	$	338,437

	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Debt securities:
Government-sponsored enterprise obligations	$	14,924	$	—	$	(2,898	)	$	12,026
State and municipal bonds		135		—		—			135
Corporate bonds		8,000		—		(1,038	)		6,962
Total debt securities		23,059		—		(3,936	)		19,123
Mortgage-backed securities:
Government-sponsored mortgage-backed securities		136,533		—		(23,976	)		112,557
U.S. government guaranteed mortgage-backed securities		6,689		—		(1,254	)		5,435
Total mortgage-backed securities		143,222		—		(25,230	)		117,992
Total securities available-for-sale		166,281		—		(29,166	)		137,115
Securities held-to-maturity:
Debt securities:
U.S. Treasury securities		9,995		—		(545	)		9,450
Total debt securities		9,995		—		(545	)		9,450
Mortgage-backed securities:
Government-sponsored mortgage-backed securities		213,375		107		(35,240	)		178,242
Total mortgage-backed securities		213,375		107		(35,240	)		178,242
Total securities held-to-maturity		223,370		107		(35,785	)		187,692
Total	$	389,651	$	107	$	(64,951	)	$	324,807

The following table summarizes the unrealized gains recognized on marketable equity securities for the periods indicated:

	Nine Months Ended September 30,
	2024		2023
	(Dollars in thousands)
Net gains recognized during the period on marketable equity securities	$	22	$	—
Unrealized gains recognized during the period on marketable equity securities still held at end of period	$	22	$	—

The corporate bonds are investments in subordinated debt of two federally-insured banks, the majority of which is callable after five years of origination. The Company reviewed the financial strength of these bonds and concluded that the amortized cost remains supported by the expected future cash flows and there were no credit impairments on the bonds at September 30, 2024. All securities are performing at September 30, 2024.

At September 30, 2024, U.S. Treasury securities with a fair value of $9.7 million, government-sponsored enterprise obligations with a fair value of $8.2 million and mortgage-backed securities with a fair value of $169.7 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.

The amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, 2024, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Debt securities:
Due in one year or less	$	—	$	—	$	4,999	$	4,975
Due after one year through five years		—		—		5,002		4,754
Due after five years through ten years		22,459		19,567		—		—
Due after ten years		—		—		1,077		1,079
Total debt securities		22,459		19,567		11,078		10,808
Mortgage-backed securities:
Due after one year through five years		883		857		—		—
Due after five years through ten years		739		689		2,702		2,597
Due after ten years		156,420		134,776		199,486		169,143
Total mortgage-backed securities		158,042		136,322		202,188		171,740
Total securities	$	180,501	$	155,889	$	213,266	$	182,548

There were no sales of securities available-for-sale for the three and nine months ended September 30, 2024 and 2023.

Allowance for Credit Losses – Securities Available-for-Sale

The Company measures expected credit losses on debt securities available-for-sale based upon the gain or loss position of the security. For debt securities available-for-sale in an unrealized loss position which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the security before recovery of the Company’s amortized cost, the Company evaluates qualitative criteria to determine any expected loss. This includes among other items the financial health of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows of the security. Securities available-for-sale which are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise; Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Federal Farm Credit Bank (“FFCB”), or Federal Home Loan Bank (“FHLB”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Accrued interest receivable on securities available-for-sale guaranteed by government agencies totaled $418,000 at September 30, 2024 and $333,000 at December 31, 2023, and is excluded from the estimate of credit losses. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses would be recorded, with a related charge to earnings. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company recognizes the entire difference between the amortized cost basis of the security and its fair value in earnings. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Accrued interest receivable on debt securities available-for-sale not guaranteed by government agencies totaled $51,000 at September 30, 2024 and $178,000 at December 31, 2023, and is excluded from the estimate of credit losses. There were no allowances for credit losses established on debt securities available-for-sale during the three and nine months ended September 30, 2024.

At September 30, 2024, there was one available-for-sale corporate bond that was rated below investment grade by one or more ratings agencies, while at December 31, 2023, there were two available-for-sale corporate bonds that were rated below investment grade by one or more ratings agencies. At September 30, 2024, the Company reviewed the financial strength of the one available-for-sale corporate bond below investment grade and concluded that the amortized cost remains supported by the expected future cash flows of the security.

Allowance for Credit Losses – Securities Held-to-Maturity

The Company measures expected credit losses on debt securities held-to-maturity on a collective basis by security type and risk rating where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise; FHLMC, FNMA, FFCB, or FHLB. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Any expected credit losses on securities held-to-maturity would be presented as an allowance for credit loss. Accrued interest receivable on securities held-to-maturity totaled $466,000 at September 30, 2024 and $454,000 at December 31, 2023, and is excluded from the estimate of credit losses. There were no allowances for credit losses established on securities held-to-maturity securities during the three and nine months ended September 30, 2024.

At September 30, 2024 and December 31, 2023, management attributed the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality.

The following tables summarize the gross unrealized losses and fair value of the Company’s securities available-for-sale and held-to-maturity, segregated by the duration of their continuous unrealized loss positions at September 30, 2024 and December 31, 2023:

	September 30, 2024
	Less Than Twelve Months									Over Twelve Months
	Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)			Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)
	(Dollars in thousands)
Securities available-for-sale:
Government-sponsored mortgage-backed securities		3	$	9,412	$	88		0.9	%		70	$	107,691	$	20,670		16.1	%
U.S. government guaranteed mortgage-backed securities		—		—		—		—			9		5,189		1,118		17.7
Government-sponsored enterprise obligations		1		1,026		1		0.1			3		12,456		2,476		16.6
Corporate bonds		—		—		—		—			2		4,581		419		8.4
Total securities available-for-sale		4		10,438		89					84		129,917		24,683
Securities held-to-maturity:
U.S. Treasury securities		—		—		—		—	%		2		9,729		272		2.7	%
Government-sponsored mortgage-backed securities		—		—		—		—			37		160,477		30,640		16.0
Total securities held-to-maturity		—		—		—					39		170,206		30,912
Total securities		4	$	10,438	$	89					123	$	300,123	$	55,595

	December 31, 2023
	Less Than Twelve Months									Over Twelve Months
	Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)			Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)
	(Dollars in thousands)
Securities available-for-sale:
Government-sponsored mortgage-backed securities		—	$	—	$	—		—	%		70	$	112,557	$	23,976		17.6	%
U.S. government guaranteed mortgage-backed securities		—		—		—		—			9		5,435		1,254		18.7
Government-sponsored enterprise obligations		—		—		—		—			3		12,026		2,898		19.4
Corporate bonds		—		—		—		—			3		6,962		1,038		13.0
Total securities available-for-sale		—		—		—					85		136,980		29,166
Securities held-to-maturity:
U.S. Treasury securities		—		—		—		—	%		2		9,450		545		5.5	%
Government-sponsored mortgage-backed securities		4		7,097		56		0.8			36		164,395		35,184		17.6
Total securities held-to-maturity		4		7,097		56					38		173,845		35,729
Total securities		4	$	7,097	$	56					123	$	310,825	$	64,895

The Company expects to recover its amortized cost basis on all securities in its available-for-sale and held-to-maturity portfolios. Furthermore, 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 September 30, 2024, prior to this anticipated recovery. The decline in fair value on its available-for-sale and held-to-maturity portfolios is largely due to changes in interest rates and other market conditions and not due to credit quality issues. The issuers continue to make timely principal and interest payments on the securities and the fair value is expected to recover as the securities approach maturity. 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 portfolio turnover.

The following description provides the number of investment positions in an unrealized loss position:

At September 30, 2024, the Company reported unrealized losses on the securities available-for-sale portfolio of $24.8 million, or 13.7% of the amortized cost basis of the securities available-for-sale, compared to unrealized losses of $29.2 million, or 17.5% of the amortized cost basis of the securities available-for-sale at December 31, 2023. At September 30, 2024, there were 88 securities available-for-sale in which the fair value was less than the amortized cost, compared to 85 securities available-for-sale at December 31, 2023.

At September 30, 2024, the Company reported unrealized losses on the securities held-to-maturity portfolio of $30.9 million, or 15.2%, of the amortized cost basis of the securities held-to-maturity portfolio, compared to $35.7 million, or 16.0% of the amortized cost basis of the securities held-to-maturity at December 31, 2023. At September 30, 2024, there 39 securities held-to-maturity in which the fair value was less than the amortized cost, compared to 42 securities held-to-maturity at December 31, 2023.