Note 4 - Investment Securities

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

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

NOTE 4 Investment Securities

Trading securities are reported on the Company’s consolidated balance sheet at fair value. As of September 30, 2024, the fair value of the Company’s trading securities was $2.7 million. There were no trading securities as of December 31, 2023. Changes in fair value of trading securities are recorded in other noninterest income on the Company’s consolidated statements of income. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company’s deferred compensation plan for eligible employees, executives, and directors.

The following tables present amortized cost, gross unrealized gains and losses, allowance for credit losses, or ACL, and fair value of the available-for-sale, or AFS, investment securities and the amortized cost, gross unrealized gains and losses and fair value of held-to-maturity, or HTM, securities as of September 30, 2024 and December 31, 2023:

	September 30, 2024
	Amortized		Unrealized		Unrealized			Allowance for		Fair
(dollars in thousands)	Cost		Gains		Losses			Credit Losses		Value
Available-for-sale
U.S. Treasury and agencies	$	739	$	2	$	(2	)	$	—	$	739
Mortgage backed securities
Residential agency		488,915		2		(74,529	)		—		414,388
Commercial		1,460		—		(59	)		—		1,401
Asset backed securities		20		—		—			—		20
Corporate bonds		57,988		—		(8,533	)		—		49,455
Total available-for-sale investment securities		549,122		4		(83,123	)		—		466,003
Held-to-maturity
Obligations of state and political agencies		122,717		—		(9,124	)		81		113,593
Mortgage backed securities
Residential agency		159,333		—		(23,064	)		56		136,269
Total held-to-maturity investment securities		282,050		—		(32,188	)		137		249,862
Total investment securities	$	831,172	$	4	$	(115,311	)	$	137	$	715,865

	December 31, 2023
	Amortized		Unrealized		Unrealized			Allowance for		Fair
(dollars in thousands)	Cost		Gains		Losses			Credit Losses		Value
Available-for-sale
U.S. Treasury and agencies	$	1,119	$	4	$	(3	)		—	$	1,120
Mortgage backed securities
Residential agency		524,140		1		(88,547	)		—		435,594
Commercial		1,476		—		(123	)		—		1,353
Asset backed securities		26		—		(1	)		—		25
Corporate bonds		57,993		—		(9,349	)		—		48,644
Total available-for-sale investment securities		584,754		5		(98,023	)		—		486,736
Held-to-maturity
Obligations of state and political agencies		129,603		—		(12,613	)		114		116,990
Mortgage backed securities
Residential agency		170,125		—		(28,498	)		99		141,627
Total held-to-maturity investment securities		299,728		—		(41,111	)		213		258,617
Total investment securities	$	884,482	$	5	$	(139,134	)	$	213	$	745,353

The adequacy of the ACL on investment securities is assessed at the end of each quarter. The Company does not believe that the AFS debt securities that were in an unrealized loss position as of September 30, 2024 represented a credit loss impairment. As of both September 30, 2024 and December 31, 2023, the gross unrealized loss positions were primarily related to mortgage-backed securities 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, are widely recognized as “risk free,” and have a long history of zero credit loss. Additionally, there were corporate bonds in gross unrealized loss positions as of both September 30, 2024 and December 31, 2023; however, all such bonds had an investment grade rating as of both September 30, 2024 and December 31, 2023. Total gross unrealized losses were 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. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

The ACL on HTM debt securities is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Using a probability of default and loss given default analysis, the ACL on HTM debt securities was $137 thousand and $213 thousand as of September 30, 2024 and December 31, 2023, respectively. The change in the ACL on HTM debt securities was due to a change in the provision for credit losses, with no charge-offs or recoveries for the three and nine months ended September 30, 2024.

 

Accrued interest receivable on AFS investment securities and HTM investment securities is recorded in accrued interest receivable and is excluded from the estimate of credit losses. As of September 30, 2024, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $1.6 million and $0.9 million, respectively. As of December 31, 2023, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $1.5 million and $1.4 million, respectively.

The Company had no sales or calls of AFS investment securities for the three and nine months ended September 30, 2024 and 2023.

The Company had no sales of HTM investment securities for the three and nine months ended September 30, 2024 and 2023.

The following tables present investment securities with gross unrealized losses, for which an ACL was not recorded at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position:

			September 30, 2024
			Less than 12 Months					Over 12 Months					Total
	Number of		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
(dollars in thousands)	Holdings		Losses			Value		Losses			Value		Losses			Value
Available-for-sale
U.S. Treasury and agencies		1	$	(2	)	$	370	$	—		$	—	$	(2	)	$	370
Mortgage backed securities
Residential agency		108		—			—		(74,529	)		414,315		(74,529	)		414,315
Commercial		1		—			—		(59	)		1,401		(59	)		1,401
Asset backed securities		3		—			—		—			20		—			20
Corporate bonds		12		—			—		(8,533	)		49,455		(8,533	)		49,455
Total available-for-sale investment securities		125	$	(2	)	$	370	$	(83,121	)	$	465,191	$	(83,123	)	$	465,561

			December 31, 2023
			Less than 12 Months					Over 12 Months					Total
	Number of		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
(dollars in thousands)	Holdings		Losses			Value		Losses			Value		Losses			Value
Available-for-sale
U.S. Treasury and agencies		1	$	(3	)	$	489	$	—		$	—	$	(3	)	$	489
Mortgage backed securities
Residential agency		112		—			43		(88,547	)		435,505		(88,547	)		435,548
Commercial		1		—			—		(123	)		1,353		(123	)		1,353
Asset backed securities		3		—			—		(1	)		25		(1	)		25
Corporate bonds		12		—			—		(9,349	)		48,644		(9,349	)		48,644
Total available-for-sale investment securities		129	$	(3	)	$	532	$	(98,020	)	$	485,527	$	(98,023	)	$	486,059

As of September 30, 2024 and December 31, 2023, none of the Company’s HTM debt securities were past due or on nonaccrual status. The Company did not recognize any interest income on nonaccrual HTM debt securities during the three months ended September 30, 2024 and 2023.

The following table presents the carrying value and fair value of HTM investment securities and the amortized cost and fair value of AFS investment securities as of September 30, 2024, by contractual maturity:

	Held-to-maturity				Available-for-sale
	Carrying		Fair		Amortized		Fair
(dollars in thousands)	Value		Value		Cost		Value
Due within one year or less	$	8,282	$	8,203	$	—	$	—
Due after one year through five years		56,385		53,122		1,838		1,778
Due after five years through ten years		48,042		43,323		57,992		49,460
Due after 10 years		10,008		8,945		377		377
		122,717		113,593		60,207		51,615
Mortgage-backed securities
Residential agency		159,333		136,269		488,915		414,388
Total investment securities	$	282,050	$	249,862	$	549,122	$	466,003

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities with a total carrying value of $335.9 million and $250.0 million were pledged as of September 30, 2024 and December 31, 2023, respectively, to secure public deposits and for other purposes required or permitted by law.

As of September 30, 2024 and December 31, 2023, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines, or FHLB, stock was as follows:

	September 30,		December 31,
(dollars in thousands)	2024		2023
Federal Reserve	$	4,623	$	4,623
FHLB		13,757		16,566

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of September 30, 2024, the conversion ratio was 1.5875. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (10,992 Class A equivalents) that the Company owned as of September 30, 2024 and December 31, 2023, were carried at a zero cost basis.