Investments

3 Months Ended

Mar. 31, 2023

Investments available-for-sale are summarized as follows at the dates indicated:


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	11,739	$	—	$	(1,708)	$	10,031
Freddie Mac	13,684		—		(1,685)		11,999
Ginnie Mae	29,191		31		(1,469)		27,753
Other	33,548		—		(1,842)		31,706
Municipal bonds	36,868		55		(5,050)		31,873
U.S. Government agencies	75,131		6		(1,990)		73,147
Corporate bonds	33,000		—		(4,561)		28,439
Total	$	233,161	$	92	$	(18,305)	$	214,948


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	11,800	$	—	$	(1,860)	$	9,940
Freddie Mac	13,720		—		(1,831)		11,889
Ginnie Mae	29,426		18		(1,601)		27,843
Other	34,295		—		(1,906)		32,389
Municipal bonds	36,968		17		(6,102)		30,883
U.S. Government agencies	76,718		6		(2,370)		74,354
Corporate bonds	33,000		—		(2,520)		30,480
Total	$	235,927	$	41	$	(18,190)	$	217,778

There were no holdings of investment securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at March 31, 2023 and December 31, 2022.

The tables below summarize the aggregate fair value and gross unrealized loss by length of time those investment securities have been continuously in an unrealized loss position at the dates indicated:


	March 31, 2023
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	2,113	$	(30)	$	7,918	$	(1,678)	$	10,031	$	(1,708)
Freddie Mac	959		(25)		10,306		(1,660)		11,265		(1,685)
Ginnie Mae	3,148		(17)		16,208		(1,452)		19,356		(1,469)
Other	25,129		(1,424)		6,577		(418)		31,706		(1,842)
Municipal bonds	3,016		(19)		26,369		(5,031)		29,385		(5,050)
U.S. Government agencies	17,381		(329)		55,305		(1,661)		72,686		(1,990)
Corporate bonds	10,959		(1,041)		17,480		(3,520)		28,439		(4,561)
Total	$	62,705	$	(2,885)	$	140,163	$	(15,420)	$	202,868	$	(18,305)


	December 31, 2022
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	6,710	$	(1,073)	$	3,226	$	(787)	$	9,936	$	(1,860)
Freddie Mac	4,677		(272)		6,476		(1,559)		11,153		(1,831)
Ginnie Mae	7,645		(310)		13,714		(1,291)		21,359		(1,601)
Other	27,430		(1,614)		4,959		(292)		32,389		(1,906)
Municipal bonds	7,892		(680)		20,901		(5,422)		28,793		(6,102)
U.S. Government agencies	43,664		(1,184)		30,224		(1,186)		73,888		(2,370)
Corporate bonds	17,241		(1,259)		13,239		(1,261)		30,480		(2,520)
Total	$	115,259	$	(6,392)	$	92,739	$	(11,798)	$	207,998	$	(18,190)

On a quarterly basis, management evaluates available-for-sale (“AFS”) securities in unrealized loss positions to determine if an allowance for credit losses is required. The Company considers many factors including the severity and duration of the impairment, economic circumstances, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. If it is determined that a credit loss exists, that loss is recognized as an allowance for credit losses through the provision for credit losses in the Consolidated Income Statements. If the Company intends to sell a debt security, or it is likely that the Company will be required to sell the debt security before recovering its cost basis, the entire impairment loss would be recognized through earnings. If the Company does not intend to sell the debt security and it is not likely that it will be required to sell the debt security but does not expect to recover the entire amortized cost basis of the debt security, only the portion of the unrealized loss representing a credit loss would be recognized in earnings, limited by the amount that the fair value is less than the amortized cost basis. The credit loss on a debt security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the debt security being measured for a potential credit loss. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”).

The Company had 121 securities and 123 securities in an unrealized loss position, with 92 and 62 of these securities in an unrealized loss position for 12 months or more, at March 31, 2023, and December 31, 2022, respectively. Management does

not believe that any material amount of the unrealized losses at December 31, 2022 was related to credit issues. The decline in fair market value of these securities was generally due to changes in market interest rates and changes in market-desired spreads subsequent to their purchase. However, at March 31, 2023, a portion of the losses in the Company’s corporate bond portfolio are credit related. Specifically, the Company’s corporate bond portfolio includes $22.0 million in subordinated debt securities issued by financial institutions, including $8.0 million issued by two large regional west coast financial institutions. The market value on the securities issued by these two institutions declined by $2.1 million in the quarter ended March 31, 2023, with estimated valuations totaling $5.5 million at quarter end. Currently, the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the positions before their recovery of the amortized cost basis, which may be at maturity. As such, no allowance for credit losses was recorded with respect to AFS securities as of or during the three months ended March 31, 2023, and December 31, 2022.

The amortized cost and estimated fair value of investments available-for-sale at March 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.


	March 31, 2023
	Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	24,929	$	24,357
Due after one year through five years	25,248		24,737
Due after five years through ten years	30,923		25,910
Due after ten years	63,899		58,455
	144,999		133,459
Mortgage-backed investments	88,162		81,489
Total	$	233,161	$	214,948

Under Washington state law, in order to participate in the public funds program the Company is required to pledge eligible securities as collateral in an amount equal to 50% of the public deposits held less the FDIC insured amount. Investment securities with market values of $27.4 million and $21.0 million were pledged as collateral for public deposits at March 31, 2023, and December 31, 2022, respectively, both of which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

For the three months ended March 31, 2023, there were no calls, sales or maturities of investment securities. For the three months ended March 31, 2022, there was a $30,000 call on one investment security with no gain or loss generated. There were no sales of investment securities during the three months ended March 31, 2022.

In January 2020, the Bank purchased three annuity contracts, totaling $2.4 million, to be held long-term to satisfy the benefit obligation associated with certain supplemental executive retirement plan agreements. At March 31, 2023, the annuities were reported as investments held-to-maturity at an amortized cost of $2.4 million on the Company’s Consolidated Balance Sheets. The amortized cost is considered the fair value of the investment.