Note 2 - Investment Securities

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Investment [Text Block]

Note 2. Investment Securities

The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2024 and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. The Company did not record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of September 30, 2024 and  December 31, 2023.

Investment securities available-for-sale was comprised of the following:

	September 30, 2024
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized Mortgage Backed	$	21,712	$	3	$	(3,329	)	$	18,386
Subordinated Debt		9,470		—		(1,171	)		8,299
Preferred Stock		449		—		—			449
Municipal Securities:
Taxable		10,630		—		(1,992	)		8,638
Tax-exempt		22,059		13		(1,789	)		20,283
U.S. Governmental Agencies		2,447		10		(23	)		2,434
Total	$	66,767	$	26	$	(8,304	)	$	58,489

Investment securities held-to-maturity was comprised of the following:

	September 30, 2024
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Municipal Securities:
Tax-exempt	$	13,516	$	8	$	(82	)	$	13,442
Subordinated Debt		2,500		—		(15	)		2,485
Total	$	16,016	$	8	$	(97	)	$	15,927

Investment securities available-for-sale was comprised of the following:

	December 31, 2023
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Collateralized Mortgage Backed	$	23,446	$	—	$	(3,931	)	$	19,515
Subordinated Debt		9,970		—		(1,503	)		8,467
Municipal Securities:
Taxable		10,649		—		(2,342	)		8,307
Tax-exempt		22,668		23		(1,949	)		20,742
U.S. Governmental Agencies		2,932		3		(38	)		2,897
Total	$	69,665	$	26	$	(9,763	)	$	59,928

Investment securities held-to-maturity was comprised of the following:

	December 31, 2023
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Municipal Securities:
Tax-exempt	$	14,775	$	19	$	(121	)	$	14,673
Subordinated Debt		2,500		—		(10	)		2,490
Total	$	17,275	$	19	$	(131	)	$	17,163

Credit Quality Indicators and Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis using security-level credit ratings. The Company’s HTM securities ACL was immaterial at  September 30, 2024 and December 31, 2023. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

The following table presents the amortized cost of HTM securities as of  September 30, 2024 and  December 31, 2023 by security type and credit rating:

(Dollars in thousands)	Municipal Securities		Subordinated Debt		Total HTM securities
September 30, 2024
Credit Rating:
AAA/AA/A	$	13,516	$	—	$	13,516
Not Rated - Non Agency		—		2,500		2,500
Total	$	13,516	$	2,500	$	16,016
December 31, 2023
Credit Rating:
AAA/AA/A	$	14,775	$	—	$	14,775
Not Rated - Non Agency		—		2,500		2,500
Total	$	14,775	$	2,500	$	17,275

As of  September 30, 2024 and  December 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual as of  September 30, 2024 and  December 31, 2023.

The scheduled maturities of securities available-for-sale and held-to-maturity at  September 30, 2024 were as follows:

	September 30, 2024
	Available-for-Sale				Held-to-Maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	689	$	688
Due from one to five years		1,000		993		3,517		3,502
Due from after five to ten years		13,811		12,390		5,942		5,922
Due after ten years		51,956		45,106		5,868		5,815
Total	$	66,767	$	58,489	$	16,016	$	15,927

The scheduled maturities of securities available-for-sale and held-to-maturity at  December 31, 2023 were as follows:

	December 31, 2023
	Available-for-Sale				Held-to-Maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	318	$	315
Due from one to five years		1,000		976		3,325		3,314
Due from after five to ten years		14,054		12,222		7,218		7,188
Due after ten years		54,611		46,730		6,414		6,346
Total	$	69,665	$	59,928	$	17,275	$	17,163

Securities with a fair value of $399,000 and $16.1 million were pledged at September 30, 2024 and December 31, 2023, respectively. As the Federal Reserve Bank ended its Bank Term Funding Program, the Company no longer continued to pledge eligible securities. The Company did not need to utilize this program as its liquidity position remains strong.

The following tables summarize the unrealized loss positions of securities available-for-sale as of September 30, 2024 and December 31, 2023:

	September 30, 2024
	Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale:
Collateralized Mortgage Backed	$	—	$	—		$	18,292	$	(3,329	)	$	18,292	$	(3,329	)
Subordinated Debt		216		(34	)		7,583		(1,137	)		7,799		(1,171	)
Municipal securities:
Taxable		—		—			8,638		(1,992	)		8,638		(1,992	)
Tax-exempt		241		—			16,965		(1,789	)		17,206		(1,789	)
U.S. Governmental Agencies		—		—			636		(23	)		636		(23	)
Total	$	457	$	(34	)	$	52,114	$	(8,270	)	$	52,571	$	(8,304	)

	December 31, 2023
	Less than 12 Months					12 Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available-for-sale:
Collateralized Mortgage Backed	$	—	$	—		$	19,440	$	(3,931	)	$	19,440	$	(3,931	)
Subordinated Debt		—		—			7,717		(1,503	)		7,717		(1,503	)
Municipal Securities:
Taxable		—		—			8,307		(2,342	)		8,307		(2,342	)
Tax-exempt		1,986		(34	)		16,510		(1,915	)		18,496		(1,949	)
U.S. Government Agencies		1,515		(1	)		845		(37	)		2,360		(38	)
Total	$	3,501	$	(35	)	$	52,819	$	(9,728	)	$	56,320	$	(9,763	)

Unrealized losses on each of the major categories of securities have not been recognized into income because all the securities are of high credit quality (rated A or higher, if rated). Management does not intend to sell and it is unlikely management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity. The following description provides the number of investment positions in an unrealized loss position and approximate duration of that loss position.

At  September 30, 2024, there were twenty-two collateralized mortgage backed securities with fair values totaling $18.3 million in an unrealized loss position of more than 12 months. At  September 30, 2024, there was one subordinated debt security totaling $216,000 in an unrealized loss position of less than 12 months and twenty-one securities with a fair value totaling $7.6 million in an unrealized loss position of more than 12 months. At  September 30, 2024, there was one tax-exempt municipal securities with a fair value totaling approximately $241,000 in an unrealized loss position of less than 12 months and twenty-seven securities with fair values totaling $17.0 million in an unrealized loss position of more than 12 months. At  September 30, 2024, there were eleven taxable municipal securities with fair values totaling $8.6 million in an unrealized loss position of more than 12 months. At  September 30, 2024, there were six government agency securities with a fair value of approximately $636,000 in an unrealized loss position of more than 12 months. 

The Company periodically invests in New Market Tax Credit opportunities, related primarily to certain community development projects. The Company receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. These tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. On January 1, 2024, the Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method.