Note 5 - Debt Securities

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 5.  DEBT SECURITIES

We classify debt securities as held to maturity, available for sale or trading according to management’s intent.  The appropriate classification is determined at the time of purchase of each security and re-evaluated at each reporting date.

Debt securities held to maturity: Certain debt securities for which we have the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts.

Debt securities available for sale: Debt securities not classified as "held to maturity" or as "trading" are classified as "available for sale."  Securities classified as "available for sale" are those securities that we intend to hold for an indefinite period of time, but not necessarily to maturity.  "Available for sale" securities are reported at estimated fair value net of unrealized gains or losses, which are adjusted for applicable income taxes and reported as a separate component of shareholders' equity.

Debt trading securities: There are no securities classified as "trading" in the accompanying financial statements.

Allowance for Credit Losses – Debt Securities Available for Sale: For debt securities available for sale in an unrealized loss position, we first assess whether (i) we intend to sell or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. We have elected to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Debt securities available for sale are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Allowance for Credit Losses – Debt Securities Held to Maturity: The allowance for credit losses on debt securities held to maturity is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of debt securities held to maturities to present our best estimate of the net amount expected to be collected. Debt securities held to maturity are charged-off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. We measure expected credit losses on debt securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. We made the accounting policy election to exclude accrued interest receivable on debt securities held to maturity from the estimate of credit losses.

Realized gains and losses on sales of securities are recognized on the specific identification method.  Amortization of premiums and accretion of discounts are computed using the interest method.

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at December 31, 2023 and 2022, are summarized as follows:

	December 31, 2023
			Unrealized
Dollars in thousands	Amortized Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	23,295	$	38	$	508	$	22,825
Residential mortgage-backed securities:
Government-sponsored agencies		133,709		729		4,871		129,567
Nongovernment-sponsored entities		78,350		22		4,503		73,869
State and political subdivisions
General obligations		79,323		3		14,995		64,331
Various tax revenues		10,665		—		2,107		8,558
Other revenues		26,822		—		4,782		22,040
Corporate debt securities		39,618		52		1,763		37,907
Asset-backed securities		44,388		81		264		44,205
Total taxable debt securities		436,170		925		33,793		403,302
Tax-exempt debt securities
State and political subdivisions
General obligations		80,144		581		3,716		77,009
Other revenues		24,882		28		2,459		22,451
Total tax-exempt debt securities		105,026		609		6,175		99,460
Total debt securities available for sale	$	541,196	$	1,534	$	39,968	$	502,762

	December 31, 2022
			Unrealized
Dollars in thousands	Amortized Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	20,446	$	83	$	310	$	20,219
Residential mortgage-backed securities:
Government-sponsored agencies		55,184		80		3,808		51,456
Nongovernment-sponsored entities		65,860		48		4,291		61,617
State and political subdivisions
General obligations		82,410		9		19,924		62,495
Various tax revenues		10,699		—		2,591		8,108
Other revenues		29,044		—		6,580		22,464
Corporate debt securities		33,409		44		1,825		31,628
Asset-backed securities		20,009		—		533		19,476
Total taxable debt securities		317,061		264		39,862		277,463
Tax-exempt debt securities
State and political subdivisions
General obligations		93,910		281		6,719		87,472
Water and sewer revenues		17,560		120		1,154		16,526
Lease revenues		7,411		47		411		7,047
Various tax revenues		7,851		—		1,115		6,736
Other revenues		11,274		9		1,326		9,957
Total tax-exempt debt securities		138,006		457		10,725		127,738
Total debt securities available for sale	$	455,067	$	721	$	50,587	$	405,201

Accrued interest receivable on debt securities available for sale totaled $3.1 million and $3.0 million at December 31, 2023 and 2022, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.

	December 31, 2023
			Unrealized
Dollars in thousands	Amortized Cost		Gains		Losses		Fair Value
California	$	43,903	$	—	$	8,423	$	35,480
Texas		29,284		220		3,604		25,900
Michigan		18,749		8		1,481		17,276
Oregon		14,719		—		3,006		11,713
Pennsylvania		11,214		19		1,231		10,002

Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.  We principally use credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”) to support analyses of our portfolio of securities issued by state and political subdivisions, as we generally do not purchase securities that are rated below the six highest NRSRO rating categories.  In addition to considering a security’s NRSRO rating, we also assess or confirm through an internal review of an issuer’s financial information and other applicable information that:  1) the issuer’s risk of default is low; 2) the characteristics of the issuer’s demographics and economic environment are satisfactory; and 3) the issuer’s budgetary position and stability of tax or other revenue sources are sound.

The proceeds from sales, calls and maturities of available for sale securities, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized are as follows:

Dollars in thousands	Proceeds from						Gross realized
			Calls and		Principal
Years ended December 31,	Sales		Maturities		Payments		Gains		Losses
2023	$	135,701	$	4,492	$	40,702	$	1,254	$	1,520
2022		69,211		1,875		37,860		288		996
2021		64,932		8,070		29,869		1,210		785

Residential mortgage-backed obligations having contractual maturities ranging from 1 to 49 years are included in the following maturity distribution schedules based on their anticipated average life to maturity, which ranges from 2 months to 17 years.  Accordingly, discounts are accreted and premiums are amortized over the anticipated average life to maturity of the specific obligation.

The maturities, amortized cost and estimated fair values of securities available for sale at December 31, 2023, are summarized as follows:

Dollars in thousands	Amortized Cost		Fair Value
Due in one year or less	$	61,455	$	59,934
Due from one to five years		161,414		156,157
Due from five to ten years		112,930		105,048
Due after ten years		205,397		181,623
Total	$	541,196	$	502,762

At December 31, 2023 and 2022, securities with estimated carrying values of $349.4 million and $238.6 million respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Provided below is a summary of debt securities available for sale which were in an unrealized loss position and for which an allowance for credit losses has not been recorded at December 31, 2023 and 2022.

	2023
			Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations		39	$	11,809	$	287	$	9,329	$	221	$	21,138	$	508
Residential mortgage-backed securities:
Government-sponsored agencies		133		68,815		1,528		32,902		3,343		101,717		4,871
Nongovernment-sponsored entities		35		27,804		1,493		40,274		3,010		68,078		4,503
State and political subdivisions:
General obligations		54		—		—		63,336		14,995		63,336		14,995
Various tax revenues		7		—		—		8,558		2,107		8,558		2,107
Other revenues		21		1,530		56		18,854		4,726		20,384		4,782
Corporate debt securities		21		6,758		341		18,310		1,422		25,068		1,763
Asset-backed securities		17		23,823		110		9,961		154		33,784		264
Tax-exempt debt securities
State and political subdivisions:
General obligations		39		7,479		69		43,626		3,647		51,105		3,716
Other revenues		19		807		28		19,317		2,431		20,124		2,459
Total		385	$	148,825	$	3,912	$	264,467	$	36,056	$	413,292	$	39,968

	2022
			Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations		28	$	8,012	$	99	$	9,577	$	211	$	17,589	$	310
Residential mortgage-backed securities:
Government-sponsored agencies		58		21,831		1,104		19,459		2,704		41,290		3,808
Nongovernment-sponsored entities		27		35,727		2,974		10,041		1,317		45,768		4,291
State and political subdivisions:
General obligations		56		11,258		1,476		49,858		18,448		61,116		19,924
Various tax revenues		7		1,352		276		6,756		2,315		8,108		2,591
Other revenues		23		6,361		1,040		16,103		5,540		22,464		6,580
Corporate debt securities		20		8,308		591		13,072		1,234		21,380		1,825
Asset-backed securities		13		11,680		277		7,796		256		19,476		533
Tax-exempt debt securities
State and political subdivisions:
General obligations		52		50,671		1,823		26,062		4,896		76,733		6,719
Water and sewer revenues		13		8,800		403		4,471		751		13,271		1,154
Lease revenues		2		3,330		11		1,985		400		5,315		411
Various tax revenues		4		3,597		439		3,139		676		6,736		1,115
Other revenues		7		2,900		393		4,812		933		7,712		1,326
Total		310	$	173,827	$	10,906	$	173,131	$	39,681	$	346,958	$	50,587

We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases.  We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality, as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.

Debt Securities Held to Maturity

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at December 31, 2023 and 2022 are summarized as follows:

	December 31, 2023
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
Tax-exempt debt securities
State and political subdivisions
General obligations	$	68,966	$	—	$	4,029	$	64,937
Water and sewer revenues		7,816		—		417		7,399
Lease revenues		4,151		—		321		3,830
Sales tax revenues		4,446		—		409		4,037
Various tax revenues		5,425		—		536		4,889
Other revenues		3,423		—		196		3,227
Total Debt Securities Held to Maturity	$	94,227	$	—	$	5,908	$	88,319

	December 31, 2022
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
Tax-exempt debt securities
State and political subdivisions
General obligations	$	70,401	$	—	$	6,480	$	63,921
Water and sewer revenues		8,006		—		672		7,334
Lease revenues		4,234		—		534		3,700
Sales tax revenues		4,515		—		689		3,826
Various tax revenues		5,511		—		871		4,640
Other revenues		3,496		—		290		3,206
Total Debt Securities Held to Maturity	$	96,163	$	—	$	9,536	$	86,627

Accrued interest receivable on debt securities held to maturity totaled $1.1 million at December 31, 2023 and 2022 respectively, and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.

	December 31, 2023
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Texas	$	14,795	$	—	$	854	$	13,941
California		9,450		—		454		8,996
Pennsylvania		8,322		—		439		7,883
Florida		7,331		—		637		6,694
Michigan		6,772		—		503		6,269

The following table displays the amortized cost of held to maturity securities by credit rating at December 31, 2023 and 2022.

	December 31, 2023
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	14,866	$	72,086	$	7,275	$	—	$	—

	December 31, 2022
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	12,846	$	75,932	$	7,385	$	—	$	—

We owned no past due or nonaccrual held to maturity debt securities at December 31, 2023 or 2022.

The maturities, amortized cost and estimated fair values of debt securities held to maturity at December 31, 2023, are summarized as follows:

Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		4,025		3,856
Due after ten years		90,202		84,463
Total	$	94,227	$	88,319

There were no proceeds from the calls and maturities of debt securities held to maturity for the year ended December 31, 2023 , 2022, or 2021.