Note 3 - Debt Securities

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 3. Debt Securities

There was no allowance for credit losses for debt securities as of  June 30, 2023; therefore, it is not presented in the table below.  The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:

	June 30, 2023
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
(Amounts in thousands)
U.S. Agency securities	$	7,250	$	-	$	(21	)	$	7,229
U.S. Treasury Notes		181,670		3		(3,167	)		178,506
Municipal securities		21,684		10		(245	)		21,449
Corporate notes		28,551		-		(2,088	)		26,463
Agency mortgage-backed securities		93,401		1		(12,676	)		80,726
Total	$	332,556	$	14	$	(18,197	)	$	314,373

	December 31, 2022
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
(Amounts in thousands)
U.S. Agency securities	$	1,500	$	—	$	(15	)	$	1,485
U.S. Treasury Notes		161,617		-		(4,353	)		157,264
Municipal securities		23,480		21		(192	)		23,309
Corporate notes		37,046		—		(2,189	)		34,857
Agency mortgage-backed securities		96,480		3		(13,049	)		83,434
Total	$	320,123	$	24	$	(19,798	)	$	300,349

The following table presents the amortized cost and aggregate fair value of available-for-sale debt securities by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

	June 30, 2023
	Amortized
(Amounts in thousands)	Cost		Fair Value
Available-for-sale debt securities
Due within one year	$	188,484	$	185,298
Due after one year but within five years		48,727		46,419
Due after five years but within ten years		1,944		1,930
		239,155		233,647
Agency mortgage-backed securities		93,401		80,726
Total debt securities available for sale	$	332,556	$	314,373

The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

	June 30, 2023
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
(Amounts in thousands)
U.S. Agency securities	$	7,228	$	(21	)	$	-	$	-		$	7,228	$	(21	)
U.S. Treasury Notes		40,602		(84	)		126,686		(3,083	)		167,288		(3,167	)
Municipal securities		14,017		(189	)		1,403		(56	)		15,420		(245	)
Corporate notes		-		-			26,462		(2,088	)		26,462		(2,088	)
Agency mortgage-backed securities		3,335		(204	)		77,311		(12,472	)		80,646		(12,676	)
Total	$	65,182	$	(498	)	$	231,862	$	(17,699	)	$	297,044	$	(18,197	)

	December 31, 2022
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
(Amounts in thousands)
U.S. Agency securities	$	1,485	$	(15	)	$	—	$	—		$	1,485	$	(15	)
U.S. Treasury Notes		157,264		(4,353	)		—		—			157,264		(4,353	)
Municipal securities		12,347		(192	)		—		—			12,347		(192	)
Corporate notes		32,368		(2,172	)		2,489		(17	)		34,857		(2,189	)
Agency mortgage-backed securities		64,993		(8,824	)		18,305		(4,225	)		83,298		(13,049	)
Total	$	268,457	$	(15,556	)	$	20,794	$	(4,242	)	$	289,251	$	(19,798	)

There were 129 individual debt securities in an unrealized loss position as of June 30, 2023, and the combined depreciation in value represented 5.79% of the debt securities portfolio. There were 113 individual debt securities in an unrealized loss position as of December 31, 2022, and their combined depreciation in value represented 6.59% of  the debt securities portfolio.  

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security.  The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments.  All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of June 30, 2023, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 1 – Basis of Presentation for further discussion.

Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

Approximately $38.98 million in securities available for sale have been sold in the first six months of 2023.  Included in the sale of securities was the entire portfolio of Surrey with an acquired fair value of $20.93 million comprised primarily of U. S. Treasury Notes.  A loss of $28 thousand was recognized in the sale of the portfolio. The following table presents gross realized gains and losses from the sale of available-for-sale debt securities for the periods indicated:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2023			2022		2023			2022
(Amounts in thousands)
Gross realized gains	$	-		$	-	$	7		$	-
Gross realized losses		(28	)		-		(28	)		-
Net Gain (Loss) on sale of securities	$	(28	)	$	-	$	(21	)	$	-

The carrying amount of securities pledged for various purposes totaled $37.88 million as of June 30, 2023, and $22.43million as of December 31, 2022.