Investments

6 Months Ended

Jun. 30, 2023

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


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	11,677	$	—	$	(1,864)	$	9,813
Freddie Mac	13,652		—		(1,921)		11,731
Ginnie Mae	28,633		—		(1,639)		26,994
Other	32,367		—		(2,020)		30,347
Municipal bonds	36,770		17		(5,398)		31,389
U.S. Government agencies	73,764		4		(1,924)		71,844
Corporate bonds	33,000		—		(6,191)		26,809
Total	$	229,863	$	21	$	(20,957)	$	208,927


	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 June 30, 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:


	June 30, 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	$	2,086	$	(43)	$	7,727	$	(1,821)	$	9,813	$	(1,864)
Freddie Mac	1,620		(93)		10,112		(1,828)		11,731		(1,921)
Ginnie Mae	11,465		(50)		15,529		(1,589)		26,994		(1,639)
Other	12,003		(838)		18,344		(1,181)		30,347		(2,020)
Municipal bonds	3,631		(48)		25,968		(5,350)		29,599		(5,398)
U.S. Government agencies	2,762		(18)		68,714		(1,906)		71,477		(1,924)
Corporate bonds	6,724		(276)		20,085		(5,915)		26,809		(6,191)
Total	$	40,291	$	(1,366)	$	166,479	$	(19,590)	$	206,770	$	(20,957)


	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)

Available-for-sale (“AFS”) debt securities are considered impaired if the fair value is less than the amortized cost. On a quarterly basis, management evaluates impaired debt securities to determine if an allowance for credit losses is required. If it is determined that a credit loss exists, the credit loss on a debt security is measured as the difference between the amortized cost and the present value of the cash flows expected to be collected, limited by the amount of the impairment. For impaired debt securities that the Company does not intend to sell and it is not likely that it will be required to sell but does not expect to recover the entire security’s amortized cost basis, only the portion of the impairment representing a credit loss would be recognized in earnings. 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 would be recognized through earnings. 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 rating updates. 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 is recognized as a charge to other comprehensive income (“OCI”).

The Company had 127 securities and 123 securities in an unrealized loss position, with 103 and 62 of these securities in an unrealized loss position for 12 months or more, at June 30, 2023, and December 31, 2022, respectively. Management does not believe that the unrealized losses at June 30, 2023 and December 31, 2022 were related to credit losses. The declines in fair market value of these securities were mainly attributed to changes in market interest rates, credit spreads, market volatility and

liquidity conditions. 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 for the three and six months ended June 30, 2023.

The amortized cost and estimated fair value of investments available-for-sale at June 30, 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.


	June 30, 2023
	Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	39,721	$	38,823
Due after one year through five years	10,535		10,064
Due after five years through ten years	31,157		24,681
Due after ten years	62,121		56,474
	143,534		130,042
Mortgage-backed investments	86,329		78,885
Total	$	229,863	$	208,927

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 $26.7 million and $21.0 million were pledged as collateral for public deposits at June 30, 2023, and December 31, 2022, respectively, both of which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

For the three and six months ended June 30, 2023, there were no calls, sales or maturities of investment securities. For the three and six months ended June 30, 2022, there were $1.0 million and $3.4 million, respectively, in calls and maturities on investment securities with no gain or loss generated.

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 June 30, 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.