SECURITIES

9 Months Ended

Sep. 30, 2024

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 3 – SECURITIES

Available-for-sale and held-to-maturity securities have been classified in the consolidated balance sheets according to management’s intent on September 30, 2024, and December 31, 2023. The amortized cost of such securities and their approximate fair values were as follows (dollars in thousands):

Available-for-sale	September 30, 2024
	Gross		Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
Mortgage-backed securities	$	35,262	$	6	$	(3,324	)	$	31,944
U.S. Treasuries		5,044		—		(189	)		4,855
U.S. government agencies		214		—		(6	)		208
Municipal obligations		22,058		—		(1,760	)		20,298
Corporate debt		1,000		—		(114	)		886
Total	$	63,578	$	6	$	(5,393	)	$	58,191

Held-to-maturity	September 30, 2024
	Gross			Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost			Gains		Losses			Value
Corporate debt	$	5,774		$	—	$	(417	)	$	5,357
Total	$	5,774		$	—	$	(417	)	$	5,357
Allowance for Credit Losses	$	(136	)
Net Carrying Value of Held-to-maturity securities	$	5,638

Available-for-sale	December 31, 2023
	Gross		Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		Losses			Value
Mortgage-backed securities	$	36,829	$	—	$	(4,362	)	$	32,467
U.S. Treasuries		3,069		—		(277	)		2,792
U.S. government agencies		287		—		(17	)		270
Municipal obligations		22,921		—		(2,593	)		20,328
Corporate debt		1,000		—		(167	)		833
Total	$	64,106	$	—	$	(7,416	)	$	56,690

Held-to-maturity	December 31, 2023
	Gross			Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost			Gains		Losses			Value
Corporate debt	$	5,799		$	—	$	(692	)	$	5,107
Total	$	5,799		$	—	$	(692	)	$	5,107
Allowance for Credit Losses	$	(115	)
Net Carrying Value of Held-to-maturity securities	$	5,684

There was no allowance for credit losses related to available-for-sale securities as of September 30, 2024, or December 31, 2023.

Securities with unrealized losses on September 30, 2024, and December 31, 2023, that have not been recognized in income are as follows (dollars in thousands):

	Continued Unrealized Loss for Less than 12 Months					Continued Unrealized Loss for 12 Months or More					Total
Description of securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale, September 30, 2024
Mortgage-backed securities	$	1,967	$	(4	)	$	27,191	$	(3,320	)	$	29,158	$	(3,324	)
U.S. Treasuries		1,985		(1	)		2,870		(188	)		4,855		(189	)
U.S. government agencies		—		—			208		(6	)		208		(6	)
Municipal obligations		—		—			19,722		(1,760	)		19,722		(1,760	)
Corporate debt		—		—			886		(114	)		886		(114	)
Total temporarily impaired	$	3,952	$	(5	)	$	50,877	$	(5,388	)	$	54,829	$	(5,393	)

Held to Maturity: September 30, 2024
Corporate debt	$	—	$	—	$	5,357	$	(417	)	$	5,357	$	(417	)
Total temporarily impaired	$	—	$	—	$	5,357	$	(417	)	$	5,357	$	(417	)

	Continued Unrealized Loss for Less than 12 Months				Continued Unrealized Loss for 12 Months or More					Total
Description of securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale, December 31, 2023
Mortgage-backed securities	$	—	$	—	$	30,462	$	(4,362	)	$	30,462	$	(4,362	)
U.S. Treasuries		—		—		2,792		(277	)		2,792		(277	)
U.S. government agencies		—		—		270		(17	)		270		(17	)
Municipal obligations		—		—		20,328		(2,593	)		20,328		(2,593	)
Corporate debt		—		—		833		(167	)		833		(167	)
Total temporarily impaired	$	—	$	—	$	54,685	$	(7,416	)	$	54,685	$	(7,416	)

Held to Maturity December 31, 2023
Corporate debt	$	904	$	(96	)	$	4,203	$	(596	)	$	5,107	$	(692	)
Total temporarily impaired	$	904	$	(96	)	$	4,203	$	(596	)	$	5,107	$	(692	)

Unrealized losses on U.S. Treasury bonds and U.S. Agency bonds have not been recognized through the income statement due to the bonds being backed in full by the United States government. Management has no intent to sell the securities, the Company can hold the securities to maturity, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the securities approach their maturity date.

Unrealized losses on mortgage-backed securities have not been recognized into income. At September 30, 2024, 84% of the mortgage-backed securities portfolio were issued by U.S. government sponsored entities or agencies. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not intend to sell the mortgage-backed securities, no unrealized losses have been recognized into income.

The remainder of the mortgage-backed securities portfolio includes non-agency structured commercial mortgage-backed securities (CMBS) with a fair value of $5,020,000 which had unrealized losses of $447,000 at September 30, 2024. Each CMBS was rated AAA at September 30, 2024. These bonds have significant credit enhancement and have performed as agreed. Management does not intend to sell the CMBS and it is likely that management will not be required to sell the securities prior to their anticipated recovery.

Unrealized losses on available-for-sale municipal obligation securities have not been recognized through the income statement. As of September 30, 2024, the credit rating for these securities ranges from A+ to AAA. General Obligation bonds represent 30% of the municipal bond portfolio. The remaining 70% of the portfolio consists of revenue bonds, the majority of which are essential purpose or have an insurance wrapper. Management has no intent to sell these securities and can hold the securities to maturity. The decline in fair value is largely due to changes in market interest rates and management expects the fair value to recover as the securities approach their maturity date.

Management evaluated the foregoing available-for-sale securities for potential impairment as of September 30, 2024. Based on this evaluation, including the preceding analysis summary, management has determined that the unrealized losses on available-for-sale securities are primarily attributable to increases in market interest rates and do not reflect credit losses. Accordingly, as of September 30, 2024, management concluded that an allowance for credit losses on available-for-sale securities is not necessary, as the decline in fair value is not indicative of credit losses. Management will continue to monitor the fair value of these available-for-sale securities and reassess the need for an allowance for credit losses if circumstances change.

Certain information concerning the sale of debt securities available-for-sale for the three and nine months ended September 30, 2024, and 2023, was as follows (dollars in thousands):

	Three months ended
	September 30, 2024		September 30, 2023
Proceeds from sale	$	—	$	—
Gross realized gains	$	—	$	—
Gross realized losses	$	—	$	—

	Nine months ended
	September 30, 2024		September 30, 2023
Proceeds from sale	$	54,085	$	—
Gross realized gains	$	—	$	—
Gross realized losses	$	—	$	—

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. Securities not due at a single maturity date are shown separately.

As of September 30, 2024, the amortized cost and estimated fair value of the debt securities portfolio are shown by contractual maturity dates (dollars in thousands).

	Amortized Cost		Fair Value		Average Yield
Available-for-sale
Due in one year or less	$	3,027	$	3,020		4.51	%
Due from one to five years		13,778		12,861		1.74	%
Due from five to ten years		11,511		10,366		2.41	%
Due after ten years		—		—		—
Mortgage-backed securities		35,262		31,944		2.36	%
Total	$	63,578	$	58,191		2.37	%
	Amortized Cost		Fair Value		Average Yield
Held-to-maturity
Due in one year or less	$	—	$	—		—
Due from one to five years		—		—		—
Due from five to ten years		5,774		5,357		4.31	%
Due after ten years		—		—		—
Total	$	5,774	$	5,357		4.31	%

Securities pledged at September 30, 2024, and December 31, 2023, are comprised of available-for-sale securities and had fair values totaling $55,611,000 and $43,070,000, respectively.

The Company had no investment in securities of issuers outside of the United States as of September 30, 2024, or December 31, 2023.

Allowance for Credit Losses for HTM Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The held-to-maturity investment portfolio consists solely of bank holding company subordinated debt. Accrued interest receivable on held-to-maturity debt securities totaled $52,000 at September 30, 2024, and is excluded from the estimate of credit losses. Refer to Note 1 – Nature of Operations and Significant Accounting Policies for additional information on the Company’s methodology on estimating credit losses. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type (dollars in thousands):

For the three months ended September 30, 2024	Corporate Bonds
Allowance for credit losses:
Beginning balance June 30, 2024	$	136
Provision for credit losses		—
Securities charged off (recoveries)		—
Total ending allowance balance September 30, 2024		136

For the nine months ended September 30, 2024	Corporate Bonds
Allowance for credit losses:
Beginning balance December 31, 2023	$	115
Provision for credit losses		21
Securities charged off (recoveries)		—
Total ending allowance balance September 30, 2024		136

The Company monitors the credit quality of held-to-maturity securities on a quarterly basis. As of September 30, 2024, there were no held-to-maturity securities past due or on non-accrual.