DEBT SECURITIES

3 Months Ended

Mar. 31, 2024

DEBT SECURITIES

DEBT SECURITIES

2. DEBT SECURITIES

The following is a summary of securities available for sale and held to maturity:

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
	Cost		Gains		Losses		Losses		Value
	(in thousands)
March 31, 2024:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	47,143	$	—	$	7,127	$	—	$	40,016
U.S. government agency and government-sponsored residential mortgage-backed securities		305,548		9		59,486		—		246,071
U.S. government-sponsored collateralized mortgage obligations		1,656		—		66		—		1,590
SBA asset-backed securities		1,607		—		90		—		1,517
Corporate bonds		2,000		—		186		—		1,814
Total securities available for sale	$	357,954	$	9	$	66,955	$	—	$	291,008
Securities held to maturity
U.S. government and government-sponsored enterprise obligations	$	15,000	$	—	$	477	$	—	$	14,523
SBA asset-backed securities		4,724		—		145		—		4,579
Total securities held to maturity	$	19,724	$	—	$	622	$	—	$	19,102

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
	Cost		Gains		Losses		Losses		Value
	(in thousands)
December 31, 2023:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	47,143	$	—	$	6,961	$	—	$	40,182
U.S. government agency and government-sponsored residential mortgage-backed securities		300,277		3		54,683		—		245,597
U.S. government-sponsored collateralized mortgage obligations		1,852		—		70		—		1,782
SBA asset-backed securities		1,885		—		107		—		1,778
Corporate bonds		1,000		—		188		—		812
Total securities available for sale	$	352,157	$	3	$	62,009	$	—	$	290,151
Securities held to maturity
U.S. government and government-sponsored enterprise obligations	$	15,000	$	—	$	438	$	—	$	14,562
SBA asset-backed securities		4,796		—		96		—		4,700
Total securities held to maturity	$	19,796	$	—	$	534	$	—	$	19,262

Accrued interest receivable is excluded from the amortized cost basis of debt securities. Accrued interest receivable totaled $959,000 and $940,000 as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, available-for-sale debt securities with a fair value of $158.3 million were pledged for the BTFP borrowing, and available-for-sale debt securities with a fair value of $129.4 million and held-to-maturity securities with a fair value of $14.5 million were pledged as collateral to provide borrowing capacity through the FRB BIC line.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2024 is as follows:

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)
After 1 year through 5 years	$	7,998	$	7,564	$	15,000	$	14,523
After 5 years through 10 years		41,145		34,266		—		—
		49,143		41,830		15,000		14,523
U.S. government agency and government-sponsored residential mortgage-backed securities		305,548		246,071		—		—
U.S. government-sponsored collateralized mortgage obligations		1,656		1,590		—		—
SBA asset-backed securities		1,607		1,517		4,724		4,579
Total	$	357,954	$	291,008	$	19,724	$	19,102

U.S. government-sponsored residential mortgage-backed securities, collateralized mortgage obligations, and securities whose underlying assets are loans from the SBA have stated maturities of one to 29 years; however, it is expected that such securities will have shorter actual lives due to prepayments. U.S. government and government-sponsored enterprise obligations and corporate bonds are callable at the discretion of the issuer. U.S. government and government-sponsored enterprise obligations and corporate bonds with a total fair value of $56.4 million have a final maturity of three to eight years and a call feature of one month to three years. At March 31, 2024, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholder equity.

There were no sales or calls of securities in the three months ended March 31, 2024 and 2023, respectively.

Information pertaining to securities with gross unrealized losses at March 31, 2024 and December 31, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

	Less Than Twelve Months				Twelve Months and Over
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(in thousands)
March 31, 2024:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	—	$	—	$	7,127	$	40,016
U.S. government agency and government-sponsored residential mortgage-backed securities		47		9,249		59,439		231,934
U.S. government-sponsored collateralized mortgage obligations		—		—		66		1,590
SBA asset-backed securities		—		—		90		1,517
Corporate bonds		—		—		186		814
	$	47	$	9,249	$	66,908	$	275,871
Securities held to maturity
U.S. government and government-sponsored enterprise obligations	$	—	$	—		477		14,523
SBA asset-backed securities		145		4,579		—		—
	$	145	$	4,579	$	477	$	14,523
December 31, 2023:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	—	$	—	$	6,961	$	40,182
U.S. government agency and government-sponsored residential mortgage-backed securities		—		—		54,683		240,955
U.S. government-sponsored collateralized mortgage obligations		—		—		70		1,782
SBA asset-backed securities		—		—		107		1,778
Corporate bonds		—		—		188		812
	$	—	$	—	$	62,009	$	285,509
Securities held to maturity
U.S. government and government-sponsored enterprise obligations	$	—	$	—		438		14,562
SBA asset-backed securities		96		4,700		—		—
	$	96	$	4,700	$	438	$	14,562

Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether an impairment exists. 

As of March 31, 2024, the Company’s security portfolio consisted of 136 debt securities, 133 of which were in an unrealized loss position. The unrealized losses are primarily related to the Company’s debt securities that were issued by U.S. government-sponsored enterprises and agencies. The Company does not believe that the debt securities that were in an unrealized loss position as of March 31, 2024 represent a credit loss impairment. As of March 31, 2024, and December 31, 2023, the gross unrealized loss positions were primarily related to mortgage-backed securities and other

obligations issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Total gross unrealized losses were primarily attributable to changes in interest rates relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Management reviewed the collectability of the corporate bonds taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information. Management believes the unrealized losses on the corporate bonds are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the corporate bonds.

Management expects to recover the entire amortized cost basis of the available-for-sale debt securities with an unrealized loss. Furthermore, the Company does not intend to sell these securities, and it is unlikely that the Company will be required to sell these securities, before recovery of their cost basis, which may be at maturity. Therefore, no ACL was recorded at March 31, 2024.

As of March 31, 2024, the held-to-maturity securities were U.S. government-sponsored enterprise obligations. These securities are guaranteed by the government-sponsored enterprise with a long history of no credit losses and Management has determined these securities to have a zero loss expectation and therefore does not estimate an ACL on these securities.