Note 6 - Investments, Available for Sale ("AFS")

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

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

NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS")

AFS securities are recorded at fair market value.  There was no allowance for credit losses for AFS securities as of March 31, 2024 and  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:

	March 31, 2024
Dollars in thousands		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Student Loan Pools	$	48,005	$	104	$	(406	)	$	47,703
Small Business Administration (“SBA”) Bonds		73,124		385		(2,709	)		70,800
Tax Exempt Municipal Bonds		20,519		509		(993	)		20,035
Taxable Municipal Bonds		64,649		—		(11,897	)		52,752
Mortgage-Backed Securities ("MBS")		371,494		123		(30,438	)		341,179
Total AFS Securities	$	577,791	$	1,121	$	(46,443	)	$	532,469

	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
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
MBS		368,081		31		(31,942	)		336,170
Total AFS Securities	$	584,287	$	1,162	$	(47,809	)	$	537,640

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.

The amortized cost and fair value of AFS securities at March 31, 2024, 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		March 31, 2024
AFS Securities:	Amortized Cost		Fair Value
One Year or Less	$	38	$	37
After One – Five Years		10,334		10,348
After Five – Ten Years		67,860		63,062
More Than Ten Years		128,065		117,843
MBS		371,494		341,179
Total AFS Securities	$	577,791	$	532,469

The amortized cost and fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $521.1 million and $479.2 million at March 31, 2024, and $533.7 million and $490.5 million at December 31, 2023, respectively.

There were no sales of AFS securities during the three months ended March 31, 2024 and 2023; and therefore, no proceeds from sales, gross gains or gross losses were recorded during those periods.

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. 

	March 31, 2024
	Less than 12 Months						12 Months or More						Total
Dollars in thousands		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses
Student Loan Pools	$	348	$	—		1	$	38,658	$	(406	)	32	$	39,006	$	(406	)
SBA Bonds		2,208		(6	)	5		36,193		(2,703	)	57		38,401		(2,709	)
Tax Exempt Municipal Bonds		549		(1	)	1		12,827		(992	)	12		13,376		(993	)
Taxable Municipal Bonds		—		—		—		52,752		(11,897	)	59		52,752		(11,897	)
MBS		30,103		(176	)	26		287,017		(30,262	)	215		317,120		(30,438	)
	$	33,208	$	(183	)	33	$	427,447	$	(46,260	)	375	$	460,655	$	(46,443	)

	December 31, 2023
	Less than 12 Months						12 Months or More						Total
Dollars in thousands		Fair Value		Unrealized Losses		#		Fair Value		Unrealized Losses		#		Fair Value		Unrealized 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	)

At March 31, 2024 our AFS investment portfolio consisted of 510 individual AFS securities, 408 of which were in an unrealized loss position. At  December 31, 2023, 416 individual AFS securities were in an unrealized loss position. 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. Management’s evaluation of those securities as of  March 31, 2024 is discussed below.

SBA Bonds - SBA securities are fully backed by the U.S. government. At March 31, 2024, there were 114 AFS SBA Bonds, 62 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 the unrealized losses on these securities during the quarter ended  March 31, 2024.

MBS - At March 31, 2024, approximately 76% 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 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 March 31, 2024, there were 191 of these securities in an unrealized loss position. These unrealized losses are 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 on these securities were not recognized into income during the quarter ended  March 31, 2024.

Also included in AFS 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 March 31, 2024, we held 55 private label CMO securities with an amortized cost and fair value of $87.3 million and $81.3 million, respectively. At that date, 50 of these securities had unrealized losses. Of the 50 securities in a loss position, 31 were rated AA or higher by Moody’s, Bloomberg, and/or S&P. In addition, each of the individual securities have credit enhancements further reducing potential realized losses. The unrealized losses on these securities are 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 during the quarter ended  March 31, 2024.

Municipal Bonds - At March 31, 2024 there were 13 tax exempt municipal securities and 59 taxable municipal securities that had unrealized losses. The Company believes the unrealized losses on these 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 during the quarter ended  March 31, 2024. Each of the municipal securities held was rated “A2” (Moody’s) or “AA-” (S&P) or better.

Accrued interest receivable on AFS securities totaled $2.8 million at March 31, 2024 and was excluded from the estimate of credit losses.