Investment Securities

9 Months Ended

Sep. 30, 2024

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

	September 30, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	91,807	$	16	$	1,235	$	90,588
State and political subdivisions		26		-		-		26
Mortgage backed securities and collateralized mortgage obligations - residential		242,429		327		19,915		222,841
Corporate bonds		55,030		-		703		54,327
Small Business Administration - guaranteed participation securities		16,352		-		1,181		15,171
Other		688		15		2		701
Total Securities Available for Sale	$	406,332	$	358	$	23,036	$	383,654

	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	121,728	$	5	$	3,065	$	118,668
State and political subdivisions		26		-		-		26
Mortgage backed securities and collateralized mortgage obligations - residential		263,182		270		25,775		237,677
Corporate bonds		80,150		-		2,098		78,052
Small Business Administration - guaranteed participation securities		18,740		-		1,554		17,186
Other		687		11		18		680
Total Securities Available for Sale	$	484,513	$	286	$	32,510	$	452,289

The following table categorizes the debt securities included in the available for sale portfolio as of September 30, 2024, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

	Amortized		Fair
(dollars in thousands)	Cost		Value

Due in one year or less	$	80,758	$	79,853
Due after one year through five years		54,793		53,810
Due after five years through ten years		12,000		11,979
Due after ten years		-		-
Mortgage backed securities and collateralized mortgage obligations - residential		242,429		222,841
Small Business Administration - guaranteed participation securities		16,352		15,171
	$	406,332	$	383,654

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	September 30, 2024
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	11,979	$	21	$	68,593	$	1,214	$	80,572	$	1,235
Mortgage backed securities and collateralized mortgage obligations - residential		5,092		83		208,526		19,832		213,618		19,915
Corporate bonds		-		-		54,327		703		54,327		703
Small Business Administration - guaranteed participation securities		-		-		15,171		1,181		15,171		1,181
Other		-		-		648		2		648		2

Total	$	17,071	$	104	$	347,265	$	22,932	$	364,336	$	23,036

	December 31, 2023
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	-		-	$	116,163	$	3,065	$	116,163	$	3,065
Mortgage backed securities and collateralized mortgage obligations - residential		-		-		227,891		25,775		227,891		25,775
Corporate bonds		-		-		78,052		2,098		78,052		2,098
Small Business Administration - guaranteed participation securities		-		-		17,186		1,554		17,186		1,554
Other		-		-		631		18		631		18

Total	$	-		-	$	439,923	$	32,510	$	439,923	$	32,510

There were no allowance for credit losses recorded for securities available for sale as of September 30, 2024 and December 31, 2023. During the three and nine months ended September 30, 2024 and 2023 there were no available for sale securities charged off.

The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30, 2024 and 2023 are as follows:

	Three months ended September 30,
(dollars in thousands)	2024		2023

Proceeds from sales	$	-	$	-
Proceeds from calls/paydowns		33,992		9,877
Proceeds from maturities		5,000		-
Gross realized gains		-		-
Gross realized losses		-		-

	Nine months ended September 30,
(dollars in thousands)	2024		2023

Proceeds from sales	$	-	$	-
Proceeds from calls/paydowns		54,486		39,346
Proceeds from maturities		60,000		5,000
Gross realized gains		-		-
Gross realized losses		-		-

There were no transfers of securities available for sale during the three and nine months ended September 30, 2024 and 2023.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

	September 30, 2024
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	5,636	$	80	$	71	$	5,645
Total held to maturity	$	5,636	$	80	$	71	$	5,645

	December 31, 2023
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	6,458	$	74	$	136	$	6,396
Total held to maturity	$	6,458	$	74	$	136	$	6,396

The following table categorizes the debt securities included in the held to maturity portfolio as of September 30, 2024, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands)	Amortized		Fair
	Cost		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	5,636	$	5,645
	$	5,636	$	5,645

Gross unrecognized losses on held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	September 30, 2024
	Less than				12 months
(dollars in thousands)	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrec.		Fair		Unrec.		Fair		Unrec.
	Value		Loss		Value		Loss		Value		Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	-	$	-	$	2,240	$	71	$	2,240	$	71

Total	$	-	$	-	$	2,240	$	71	$	2,240	$	71

	December 31, 2023
	Less than				12 months
(dollars in thousands)	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrec.		Fair		Unrec.		Fair		Unrec.
	Value		Loss		Value		Loss		Value		Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	283	$	3	$	2,703	$	133	$	2,986	$	136

Total	$	283	$	3	$	2,703	$	133	$	2,986	$	136

There were no sales or transfers of held to maturity securities during the three and nine months ended September 30, 2024 and 2023.

There were no allowance for credit losses recorded for held to maturity securities as of September 30, 2024 and December 31, 2023. There was no credit loss expense recorded for held to maturity securities for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024, there were no securities on non-accrual status and all securities were performing in accordance with contractual terms.

During the second quarter of 2024, Visa Inc. accepted the Company’s tender of its 6,528 shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock. As a result, during the second quarter of 2024, the Company marked it Visa Class C common stock to fair value and recorded an unrealized gain of $1.4 million. The Company then sold them all in the third quarter of 2024 and recorded an additional gain of $23 thousand, thus resulting in no remaining carrying value on the Company’s Statement of Financial Condition. Once the Company is able to convert the remaining shares of Visa Class B-2 common stock to Visa Class C shares, the Company will mark these shares to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company originally obtained the shares in 2008. The carrying value of Visa B-2 shares is nominal as of September 30, 2024.

(d) Other-Than-Temporary Impairment

Debt Securities

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or it is more likely than not it will be required to sell the debt security before its anticipated recovery. The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings through the provision for credit losses. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.

The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, 2024. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low turnover in the portfolio.

As of September 30, 2024, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2024.

Mortgage backed securities and collateralized mortgage obligations – residential: At September 30, 2024, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2024.

Small Business Administration (SBA) - guaranteed participation securities: At September 30, 2024, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2024.

Corporate Bonds & Other: At September 30, 2024, corporate bonds held by the Company are investment grade quality. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2024.