Note 2 - Investments, Available for Sale

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Investments in Debt Securities, Available for Sale [Text Block]

NOTE 2 - INVESTMENTS, AVAILABLE FOR SALE

AFS securities are recorded at fair market value. There was no allowance for credit losses for AFS securities as of December 31, 2023. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the dates indicated were as follows:

	December 31, 2023
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair value
Student Loan Pools	$	51,022	$	72	$	(728	)	$	50,366
Small Business Administration (“SBA”) Bonds		79,014		416		(2,677	)		76,753
Tax Exempt Municipal Bonds		21,501		643		(908	)		21,236
Taxable Municipal Bonds		64,669		—		(11,554	)		53,115
Mortgage-Backed Securities ("MBS")		368,081		31		(31,942	)		336,170
Total AFS Securities	$	584,287	$	1,162	$	(47,809	)	$	537,640

	December 31, 2022
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair value
Student Loan Pools	$	60,855	$	12	$	(1,709	)	$	59,158
SBA Bonds		102,293		584		(3,247	)		99,630
Tax Exempt Municipal Bonds		22,537		405		(1,632	)		21,310
Taxable Municipal Bonds		65,250		—		(14,480	)		50,770
MBS		353,222		30		(33,972	)		319,280
Total AFS Securities	$	604,157	$	1,031	$	(55,040	)	$	550,148

Student Loan Pools are typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the United States government. The majority of the Bank's MBS are issued or guaranteed by an agency of the United States government such as Ginnie Mae, or by Government Sponsored Entities ("GSEs"), including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the United States government, while those issued by GSEs are not. Also included in MBS are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the United States government. At December 31, 2023 the Bank held an amortized cost and fair value of $83.3 million and $76.7 million in private label CMO securities, compared to an amortized cost and fair value of $60.1 million and $53.8 million at December 31, 2022, respectively.

The amortized cost and fair value of AFS securities at December 31, 2023 are shown below by contractual maturity.  Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since MBS are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5	$	5
Due after one year to five years		7,646		7,664
Due after five to ten years		73,665		69,452
Due after ten years or more		134,890		124,349
MBS		368,081		336,170
Total AFS Securities	$	584,287	$	537,640

The amortized cost and fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $533.7 million and $490.5 million at December 31, 2023, and $318.0 million and $297.0 million at December 31, 2022, respectively.

There were no sales of AFS securities during the year ended December 31, 2023 , and therefore, no proceeds from sales, gross gains or gross losses were recorded during 2023.  The Bank received $22.4 million in gross proceeds from sales of AFS securities and recognized gross gains of $159,000 and gross losses of $161,000 during the year ended December 31, 2022 .

The following tables summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual AFS securities have been in a continuous unrealized loss position at the dates indicated.

	December 31, 2023
	Less than 12 Months						12 Months or More						Total
	Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(Dollars in thousands)	Value		Losses		#		Value		Losses		#		Value		Losses
Student Loan Pools	$	377	$	1		1	$	43,872	$	727		34	$	44,249	$	728
SBA Bonds		2,200		5		4		39,151		2,672		63		41,351		2,677
Tax Exempt Municipal Bonds		—		—		—		12,965		908		12		12,965		908
Taxable Municipal Bonds		—		—		—		53,115		11,554		59		53,115		11,554
MBS		36,069		434		30		292,864		31,508		213		328,933		31,942
	$	38,646	$	440		35	$	441,967	$	47,369		381	$	480,613	$	47,809

	December 31, 2022
	Less than 12 Months						12 Months or More						Total
	Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(Dollars in thousands)	Value		Losses		#		Value		Losses		#		Value		Losses
Student Loan Pools	$	24,768	$	638		16	$	30,684	$	1,071		23	$	55,452	$	1,709
SBA Bonds		8,404		121		18		45,969		3,126		52		54,373		3,247
Tax Exempt Municipal Bonds		8,051		719		9		4,929		913		4		12,980		1,632
Taxable Municipal Bonds		14,428		3,197		17		36,342		11,283		43		50,770		14,480
MBS		146,016		11,133		145		170,578		22,839		89		316,594		33,972
	$	201,667	$	15,808		205	$	288,502	$	39,232		211	$	490,169	$	55,040

At December 31, 2023, the Company’s AFS security portfolio consisted of 514 securities, 416 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s SBA bonds, MBS, and taxable municipal bonds. Management’s evaluation of those securities is discussed below. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether an allowance for credit loss is deemed necessary.

SBA Bonds

At December 31, 2023, there were 120 SBA Bonds, 67 of which had unrealized losses.  These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.  Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company did not recognize unrealized losses into income at December 31, 2023. SBA securities are fully backed by the U.S. government.

MBS

At December 31, 2023, approximately 81% of the AFS MBS held by the Company were issued or guaranteed by an agency of the U.S. government such as Ginnie Mae, or by Government Sponsored Entities ("GSEs"), including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the U.S. government, while those issued by GSEs are not. At December 31, 2023, there were 194 of these securities in an unrealized loss position. This impairment is believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income as of December 31, 2023.

Also included in MBS are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the U.S. government. At December 31, 2023 we held 53 private label CMO securities with an amortized cost and fair value of $83.3 million and $76.7 million, respectively. At that date, 49 of these securities had unrealized losses. Of the 49 securities in a loss position, 36 were rated AA or higher by Moody’s, Bloomberg, and/or S&P. In addition, each of the individual securities have credit enhancements and LTVs further reducing potential realized losses. This impairment is believed to be caused by the current interest rate environment. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income as of December 31, 2023.

Municipal Bonds

At December 31, 2023 there were 12 tax exempt municipal securities and 59 taxable municipal securities that had unrealized losses. The Company believes the unrealized losses on those investments were caused by the interest rate environment and do not relate to the underlying credit quality of the issuers. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income as of December 31, 2023. Each of the Municipal securities held were rated “A2” (Moody’s) or “AA-” (S&P) or better.

Accrued interest receivable on AFS securities totaled $2.9 million at December 31, 2023 and was excluded from the estimate of credit losses.