Debt Securities Available-for-Sale

9 Months Ended

Sep. 30, 2024

Investments, Debt and Equity Securities [Abstract]

The following is a comparative summary of mortgage-backed securities and other debt securities available-for-sale at September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value

U.S. Government agency securities	75,734		—		(833)		74,901
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises ("GSEs")	295,840		3		(18,194)		277,649
Real estate mortgage investment conduits ("REMICs"):
GSE	597,142		1,694		(7,075)		591,761

Total mortgage-backed securities	892,982		1,697		(25,269)		869,410
Other debt securities:
Municipal bonds	684		—		—		684

Corporate bonds	119,574		81		(1,164)		118,491

	120,258		81		(1,164)		119,175
Total debt securities available-for-sale	$	1,088,974	$	1,778	$	(27,266)	$	1,063,486


	December 31, 2023
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
U.S. Treasuries	$	44,364	$	15	$	—	$	44,379
U.S. Government agency securities	75,898		—		(1,990)		73,908
Mortgage-backed securities:
Pass-through certificates:
GSE	365,823		2		(28,285)		337,540
REMICs:
GSE	224,931		—		(11,831)		213,100

Total mortgage-backed securities	590,754		2		(40,116)		550,640
Other debt securities:
Municipal bonds	765		—		(2)		763
Corporate bonds	128,704		43		(2,973)		125,774

	129,469		43		(2,975)		126,537
Total debt securities available-for-sale	$	840,485	$	60	$	(45,081)	$	795,464

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2024 (in thousands):


Available-for-sale	Amortized cost		Estimated fair value
Due in one year or less	$	94,396	$	93,588
Due after one year through five years	93,596		92,919
Due after five years through ten years	8,000		7,569

	$	195,992	$	194,076

Contractual maturities for mortgage-backed securities are not included above, as expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

Certain securities available-for-sale are pledged or encumbered to secure borrowings under pledge agreements and repurchase agreements and for other purposes required by law. At September 30, 2024 and December 31, 2023, the fair value of debt securities available-for-sale that were pledged to secure borrowings and deposits was $476.5 million and $272.9 million, respectively.

For the three months ended September 30, 2024, the Company had no proceeds on sales of debt securities available-for-sale, with no gross realized gains and gross realized losses of $7,000 related to calls of securities. For the nine months ended September 30, 2024, the Company had no proceeds on sales of debt securities available-for-sale, with gross realized losses of $7,000 and gross realized gains of $1,000 related to calls of securities. For the three months ended September 30, 2023, the Company had no proceeds on sales of debt securities available-for-sale, and no gross realized gains or losses. For the nine months ended September 30, 2023, the Company had no proceeds on sales of debt securities available-for-sale, with gross realized gains of $22,000 and gross realized losses of $39,000 related to calls of securities. The Company recognized net gains of $710,000 and $1.6 million on its trading securities portfolio during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, the Company recognized net losses of $295,000 and net gains of $723,000, respectively, on its trading securities portfolio.

Gross unrealized losses on mortgage-backed securities and other debt securities available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2024 and December 31, 2023, were as follows (in thousands):


	September 30, 2024
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value

U.S. Government agency securities	$	—	$	—	$	(833)	$	74,901	$	(833)	$	74,901
Mortgage-backed securities:
Pass-through certificates:
GSE	—		—		(18,194)		277,443		(18,194)		277,443
REMICs:
GSE	—		—		(7,075)		178,488		(7,075)		178,488

Other debt securities:

Corporate bonds	—		3,308		(1,164)		32,603		(1,164)		35,911


Total	$	—	$	3,308	$	(27,266)	$	563,435	$	(27,266)	$	566,743


	December 31, 2023
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
U.S. Government agency securities	$	—	$	—	$	(1,990)	$	73,908	$	(1,990)	$	73,908
Mortgage-backed securities:
Pass-through certificates:
GSE	—		17		(28,285)		337,438		(28,285)		337,455
REMICs:
GSE	—		—		(11,831)		213,100		(11,831)		213,100

Other debt securities:
Municipal bonds	(2)		763		—		—		(2)		763
Corporate bonds	(7)		9,966		(2,966)		96,978		(2,973)		106,944
Total	$	(9)	$	10,746	$	(45,072)	$	721,424	$	(45,081)	$	732,170

The Company held 110 pass-through mortgage-backed securities issued or guaranteed by GSEs, 71 REMIC mortgage-backed securities issued or guaranteed by GSEs, five corporate bonds, and five U.S. Government agency securities that were in a continuous unrealized loss position of twelve months or greater at September 30, 2024. There was one corporate bond, no pass-through mortgage-backed securities issued or guaranteed by GSEs, and no REMIC mortgage-backed securities issued or guaranteed by GSEs that were in an unrealized loss position of less than twelve months at September 30, 2024. Substantially all securities referred to above were rated investment grade at September 30, 2024.

Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. In performing an assessment of whether any decline in fair value is due to a credit loss, the Company considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level such as credit deterioration of the issuer or collateral underlying the security. In assessing the impairment, the Company compares the present value of cash flows expected to be collected with the amortized cost basis of the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. The Company did not record any allowance for credit losses on its available-for-sale debt securities as of September 30, 2024 or December 31, 2023.

The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. The Company also assesses its intent to sell the securities (as well as the likelihood of a near-term recovery). If the Company intends to sell an available-for-sale debt security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.

The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivable associated with debt securities available-for-sale totaled $3.4 million and $2.4 million at September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. The Company elected not to measure an allowance for credit losses on accrued interest receivable as an allowance on possible uncollectible accrued interest is not warranted.

Equity Securities

Equity securities totaled $10.7 million and $10.6 million at September 30, 2024 and December 31, 2023, respectively. Equity securities consisted of money market mutual funds, recorded at fair value of $699,000 and $330,000 at September 30, 2024 and December 31, 2023, respectively, and an investment in a private SBA loan fund (the “SBA Loan Fund”) recorded at net asset value of $10.0 million and $10.3 million at September 30, 2024 and December 31, 2023, respectively. As the SBA Loan Fund operates as a private fund, its shares are not publicly traded and, therefore, has no readily determinable market value. The SBA Loan Fund was recorded at net asset value as a practical expedient for reporting fair value.