Note 3 - Investment Securities

6 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) [Text Block]

3.           Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent.  Investment securities at June 30, 2024 and December 31, 2023 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		Losses		Value
June 30, 2024
Securities available for sale:
Agency mortgage-backed securities	$	74,648	$	-	$	9,035	$	65,613
Agency CMO		48,313		56		561		47,808
Other debt securities:
Agency notes and bonds		135,335		8		7,821		127,522
Treasury notes and bonds		45,769		-		978		44,791
Municipal obligations		143,424		200		15,057		128,567
Total securities available for sale	$	447,489	$	264	$	33,452	$	414,301
Securities held to maturity:
Other debt securities:
Corporate notes	$	7,000	$	-	$	2,506	$	4,494
Total securities held to maturity	$	7,000	$	-	$	2,506	$	4,494
December 31, 2023
Securities available for sale:
Agency mortgage-backed securities	$	81,166	$	-	$	9,122	$	72,044
Agency CMO		25,402		94		323		25,173
Other debt securities:
Agency notes and bonds		138,174		38		8,707		129,505
Treasury notes and bonds		64,758		-		1,674		63,084
Municipal obligations		159,049		655		12,239		147,465
Total securities available for sale	$	468,549	$	787	$	32,065	$	437,271
Securities held to maturity:
Other debt securities:
Corporate notes	$	7,000	$	-	$	2,554	$	4,446
Total securities held to maturity	$	7,000	$	-	$	2,554	$	4,446

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal Farm Credit Bank (“FFCB”) and the Federal Home Loan Bank (“FHLB”), which are government-sponsored enterprises.  Corporate notes classified as held to maturity include subordinated debt obligations issued by other bank holding companies.

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The amortized cost and fair value of debt securities as of June 30, 2024, by contractual maturity, are shown below.  Expected maturities of mortgage-backed securities and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

	Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
(In thousands)
Due in one year or less	$	61,814	$	60,386	$	-	$	-
Due after one year through five years		142,008		133,181		-		-
Due after five years through ten years		47,965		44,223		2,000		1,299
Due after ten years		72,741		63,090		5,000		3,195
		324,528		300,880		7,000		4,494
Mortgage-backed securities and CMO		122,961		113,421		-		-
	$	447,489	$	414,301	$	7,000	$	4,494

Information pertaining to investment securities with gross unrealized losses at June 30, 2024, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows. 

	Number of				Gross
	Investment		Fair		Unrealized
	Positions		Value		Losses
(Dollars in thousands)
June 30, 2024:
Securities available for sale:
Continuous loss position less than twelve months:
Agency CMO		12	$	25,124	$	180
Agency notes and bonds		4		2,732		18
Muncipal obligations		88		37,119		2,929
Total less than twelve months		104		64,975		3,127
Continuous loss position more than twelve months:
Agency mortgage-backed securities		95		65,612		9,035
Agency CMO		25		11,104		381
Agency notes and bonds		53		122,709		7,803
Treasury notes and bonds		16		44,791		978
Muncipal obligations		129		76,205		12,128
Total more than twelve months		318		320,421		30,325
Total securities available for sale		422	$	385,396	$	33,452
Securities held to maturity:
Continuous loss position more than twelve months:
Corporate notes		4	$	4,494	$	2,506
Total more than twelve months		4		4,494		2,506
Total securities held to maturity		4	$	4,494	$	2,506

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Information pertaining to investment securities with gross unrealized losses at December 31, 2023, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

	Number of				Gross
	Investment		Fair		Unrealized
	Positions		Value		Losses
(Dollars in thousands)
December 31, 2023:
Securities available for sale:
Continuous loss position less than twelve months:
Agency CMO		3	$	8,019	$	30
Agency notes and bonds		3		2,754		12
Muncipal obligations		74		32,124		2,405
Total less than twelve months		80		42,897		2,447
Continuous loss position more than twelve months:
Agency mortgage-backed securities		96		72,044		9,122
Agency CMO		22		4,998		293
Agency notes and bonds		52		123,416		8,695
Treasury notes and bonds		21		63,084		1,674
Muncipal obligations		130		79,643		9,834
Total more than twelve months		321		343,185		29,618
Total securities available for sale		401	$	386,082	$	32,065
Securities held to maturity:
Continuous loss position more than twelve months:
Corporate notes		4	$	4,446	$	2,554
Total more than twelve months		4		4,446		2,554
Total securities held to maturity		4	$	4,446	$	2,554

The Company has not identified any specific available for sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Company reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. At June 30, 2024, management concluded that in all instances, securities with fair values less than carrying value were due to fluctuations in interest rates and other factors; thus, no credit loss provision was required.

In addition, management assesses held to maturity securities for credit losses on a quarterly basis. The assessment includes review of performance metrics, identification of delinquency and evaluation of market factors. Based on this analysis, management concludes the decline in fair value is due to changes in interest rates and other market factors. Accordingly, no credit loss provision was recorded in earnings for the three and six months ended June 30, 2024 and 2023. 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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At June 30, 2024, the municipal obligations and U.S. government agency debt securities, including Treasury notes and bonds, agency notes and bonds, mortgage-backed securities and CMOs classified as available for sale and in a loss position had depreciated approximately 8.0% from the amortized cost basis.  All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues.  At June 30, 2024, the corporate notes classified as held to maturity in a loss position had depreciated approximately 35.8% from the amortized cost basis.  These unrealized losses related principally to current interest rates for similar types of securities.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.  As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no credit loss is deemed to exist.

As of June 30, 2024 and December 31, 2023, the Company estimated expected credit losses to be immaterial based on the composition of the held to maturity securities portfolio.

While management does not anticipate any credit losses at June 30, 2024, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future.

There were no sales of available for sale securities during the three months ended June 30, 2024.  During the six months ended June 30, 2024, the Company recognized gross gains of $133,000 and gross losses of $101,000 on sales of available for sale securities.  During the three and six months ended June 30, 2023, the Company recognized gross gains of $78,000 and gross losses of $92,000 on sales of available for sale securities and time deposits.

At June 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, with an aggregate book value greater that 10% of stockholders’ equity.

Accrued interest receivable on available for sale debt securities totaled $2.2 million and $2.4 million at June 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Accrued interest receivable on held to maturity debt securities totaled $18,000 at both June 30, 2024 and December 31, 2023, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Equity Securities

In September 2018, the Company acquired 90,000 shares of common stock in another bank holding company, representing approximately 5% of the outstanding common stock of the entity, for a total investment of $1.9 million.  During the three months ended June 30, 2024 and 2023, the Company recognized unrealized losses of $6,000 and $92,000, respectively, on this equity investment.  During the six months ended June 30, 2024, the Company recognized an unrealized loss of $74,000 on this equity investment.  During the six months ended June 30, 2023, the Company recognized an unrealized gain of $45,000 on this equity investment. At June 30, 2024 and December 31, 2023, the equity investment had a fair value of $1.2 million and $1.3 million, respectively, and is included in other assets on the consolidated balance sheets.

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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In October 2021, the Company entered into an agreement to invest in a bank technology fund through a limited partnership.  At June 30, 2024 and December 31, 2023, the Company’s investment in the limited partnership was $1.0 million and is reflected in other assets on the consolidated balance sheets.  The unfunded commitment related to the limited partnership investment at June 30, 2024 and December 31, 2023 was $480,000 and $530,000, respectively, and is reflected in other liabilities on the consolidated balance sheets.  The Company expects to fulfill the commitment as capital calls are made through 2026.  The investment is accounted for as an equity security without a readily determinable fair value, and has been recorded at cost, less any impairment, and adjustments resulting from observable price changes.  There were no impairments or adjustments on equity securities without readily determinable fair values during the three and six months ended June 30, 2024 or 2023.