INVESTMENTS

6 Months Ended

Jun. 30, 2022

INVESTMENTS

INVESTMENTS

NOTE 2 - INVESTMENTS

The following tables present the amortized costs, unrealized gains, unrealized losses, estimated fair values of securities available-for-sale and held-to-maturity, and ACL at June 30, 2022 and December 31, 2021:

	June 30, 2022
							Estimated		Allowance
	Amortized		Unrealized		Unrealized		Fair		for Credit
SECURITIES AVAILABLE-FOR-SALE	Cost		Gains		Losses		Values		Losses
U.S. agency securities	$	21,154	$	68	$	(2,672)	$	18,550	$	—
Corporate securities		9,496		36		(764)		8,768		—
Municipal bonds		148,363		92		(21,324)		127,131		—
Mortgage-backed securities		85,142		77		(8,044)		77,175		—
U.S. Small Business Administration securities		16,848		21		(661)		16,208		—
Total securities available-for-sale		281,003		294		(33,465)		247,832		—
SECURITIES HELD-TO-MATURITY
Corporate securities		8,500		—		(158)		8,342		(31)
Total securities held-to-maturity		8,500		—		(158)		8,342		(31)
										—
Total securities	$	289,503	$	294	$	(33,623)	$	256,174	$	(31)

	December 31, 2021
							Estimated
	Amortized		Unrealized		Unrealized		Fair
SECURITIES AVAILABLE-FOR-SALE	Cost		Gains		Losses		Values
U.S. agency securities	$	21,155	$	133	$	(318)	$	20,970
Corporate securities		9,495		31		(524)		9,002
Municipal bonds		136,377		1,577		(2,521)		135,433
Mortgage-backed securities		88,641		1,457		(696)		89,402
U.S. Small Business Administration securities		16,383		235		(66)		16,552
Total securities available-for-sale		272,051		3,433		(4,125)		271,359
SECURITIES HELD-TO-MATURITY
Corporate securities		7,500		628		—		8,128
Total securities held-to-maturity		7,500		628		—		8,128
Total securities	$	279,551	$	4,061	$	(4,125)	$	279,487

The following table presents the activity in the allowance for credit losses on securities held-to-maturity by major security type for the three and six months ended June 30, 2022:

	For the Three Months Ended		For the Six Months Ended
	June 30, 2022		June 30, 2022
	Corporate Securities		Corporate Securities
Beginning allowance balance	$	72	$	—
Impact of adopting ASU 2016-13		—		72
Recapture of provision for credit losses		(41)		(41)
Securities charged-off		—		—
Recoveries		—		—
Total ending allowance balance	$	31	$	31

Management measures expected credit losses on held-to-maturity debt securities on an individual basis. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held-to-maturity debt securities totaled $117,000 and $113,000 as of June 30, 2022 and December 31, 2021, respectively and was $1.2 million and $1.1 million on available-for-sale debt securities as of June 30, 2022 and December 31, 2021, respectively.  Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Balance Sheets and is excluded from the calculation of the ACL.

The Bank monitors the credit quality of debt securities held-to-maturity quarterly through the use of credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at June 30, 2022 and December 31, 2021, aggregated by credit quality indicator:

	Corporate
June 30, 2022	Securities
BBB/BBB-	$	8,500
December 31, 2021
BBB/BBB-	$	7,500

As of June 30, 2022, there were no debt securities held-to-maturity that were classified as either nonaccrual or 90 days or more past due and still accruing interest.

At June 30, 2022, the Bank pledged seven securities held at the FHLB of Des Moines with a carrying value of $6.4 million to secure Washington State public deposits of $15.7 million with a $6.4 million collateral requirement by the Washington Public Deposit Protection Commission.  

Investment securities that were in an unrealized loss position at June 30, 2022 and December 31, 2021 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

	June 30, 2022
	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
SECURITIES AVAILABLE-FOR-SALE	Value		Losses		Value		Losses		Value		Losses
U.S. agency securities	$	13,349	$	(1,837)	$	3,132	$	(835)	$	16,481	$	(2,672)
Corporate securities		1,494		(4)		4,240		(760)		5,734		(764)
Municipal bonds		81,129		(13,146)		39,852		(8,178)		120,981		(21,324)
Mortgage-backed securities		68,824		(7,451)		5,235		(593)		74,059		(8,044)
U.S. Small Business Administration securities		11,059		(661)		—		—		11,059		(661)
Total securities available-for-sale	$	175,855	$	(23,099)	$	52,459	$	(10,366)	$	228,314	$	(33,465)
SECURITIES HELD-TO-MATURITY
Corporate securities		7,342		(158)		—		—		7,342		(158)
Total securities held-to-maturity		7,342		(158)		—		—		7,342		(158)
Total	$	183,197	$	(23,257)	$	52,459	$	(10,366)	$	235,656	$	(33,623)

	December 31, 2021
	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
SECURITIES AVAILABLE-FOR-SALE	Value		Losses		Value		Losses		Value		Losses
U.S. agency securities	$	13,125	$	(105)	$	3,752	$	(213)	$	16,877	$	(318)
Corporate securities		—		—		5,476		(524)		5,476		(524)
Municipal bonds		72,098		(1,961)		14,116		(560)		86,214		(2,521)
Mortgage-backed securities		33,291		(620)		3,825		(76)		37,116		(696)
U.S. Small Business Administration securities		2,988		(66)		—		—		2,988		(66)
Total securities available-for-sale	$	121,502	$	(2,752)	$	27,169	$	(1,373)	$	148,671	$	(4,125)

There were six held-to-maturity debt securities with unrealized losses less than one year and none with unrealized losses of more than one year at June 30, 2022.  There were no held-to-maturity debt securities in an unrealized loss position as of December 31, 2021.

There were 148 available-for-sale securities with unrealized losses of less than one year, and 39 available-for-sale securities with an unrealized loss of more than one year at June 30, 2022. There were 75 available-for-sale securities with unrealized losses of less than one year, and 17 available-for-sale securities with an unrealized loss of more than one year at December 31, 2021. The unrealized losses associated with these securities are believed to be caused by changing market conditions that are considered to be temporary and the Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity.  Management monitors the published credit ratings of the issuers of the debt securities for material ratings or outlook changes.  Substantially, all of the Company’s municipal bond portfolio is comprised of obligations of states and political subdivisions located within the Company’s geographic footprint that are monitored through quarterly or annual financial review.  

All of the available-for-sale mortgage-backed securities and U.S. Small Business Administration securities in an unrealized loss position are issued or guaranteed by government-sponsored enterprises, and the available-for-sale corporate securities are all investment grade and monitored for rating or outlook changes. Based on the Company’s evaluation of these securities, no credit impairment was recorded for the six months ended June 30, 2022, or for the year ended December 31, 2021.

The contractual maturities of securities available-for-sale and held-to-maturity at June 30, 2022 and December 31, 2021 are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because

borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.

	June 30, 2022				December 31, 2021
SECURITIES AVAILABLE-FOR-SALE	Amortized		Fair		Amortized		Fair
U.S. agency securities	Cost		Value		Cost		Value
Due after one year through five years	$	950	$	948	$	959	$	1,004
Due after five years through ten years		6,927		6,229		6,920		6,850
Due after ten years		13,277		11,373		13,276		13,116
Subtotal		21,154		18,550		21,155		20,970
Corporate securities
Due within one year		1,000		1,005		—		—
Due after one year through five years		2,496		2,523		3,495		3,526
Due after five years through ten years		4,000		3,788		4,000		3,627
Due after ten years		2,000		1,452		2,000		1,849
Subtotal		9,496		8,768		9,495		9,002
Municipal bonds
Due within one year		2,660		2,653		—		—
Due after one year through five years		1,051		1,047		3,724		3,850
Due after five years through ten years		8,013		7,729		6,857		7,035
Due after ten years		136,639		115,702		125,796		124,548
Subtotal		148,363		127,131		136,377		135,433
Mortgage-backed securities
Federal National Mortgage Association (“FNMA”)		70,871		63,653		75,171		75,737
Federal Home Loan Mortgage Corporation (“FHLMC”)		9,395		8,920		9,606		9,768
Government National Mortgage Association (“GNMA”)		4,876		4,602		3,864		3,897
Subtotal		85,142		77,175		88,641		89,402
U.S. Small Business Administration securities
Due after one year through five years		3,423		3,285		2,485		2,507
Due after five years through ten years		4,805		4,661		4,420		4,515
Due after ten years		8,620		8,262		9,478		9,530
Subtotal		16,848		16,208		16,383		16,552
Total securities available-for-sale		281,003		247,832		272,051		271,359
SECURITIES HELD-TO-MATURITY
Corporate securities
Due after five years through ten years		8,500		8,342		7,500		8,128
Total securities held-to-maturity		8,500		8,342		7,500		8,128
Total securities	$	289,503	$	256,174	$	279,551	$	279,487

There were no sales proceeds, gains or losses from the sale of securities available-for-sale for both the three and six months ended June 30, 2022 and 2021.