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Note 2 - Securities

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

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

Note 2. Securities

The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs, gross unrealized gains and losses, allowance for credit losses, and fair values of debt securities at September 30, 2023 and December 31, 2022 were as follows (in thousands):

		September 30, 2023
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized (Losses)				Fair Value				Allowance for Credit Losses
Securities available for sale:
U.S. Treasury securities		$	12,474			$	—			$	(1,361	)		$	11,113			$	—
U.S. agency and mortgage-backed securities			99,894				60				(15,660	)			84,294				—
Obligations of states and political subdivisions			64,131				4				(11,367	)			52,768				—
Total securities available for sale		$	176,499			$	64			$	(28,388	)		$	148,175			$	—
Securities held to maturity:
U.S. Treasury securities		$	38,862			$	—			$	(734	)		$	38,128			$	—
U.S. agency and mortgage-backed securities			96,563				—				(12,216	)			84,347				—
Obligations of states and political subdivisions			11,654				—				(1,706	)			9,948				—
Corporate debt securities			3,000				—				(564	)			2,436				(131	)
Total securities held to maturity		$	150,079			$	-			$	(15,220	)		$	134,859			$	(131	)
Total securities		$	326,578			$	64			$	(43,608	)		$	283,034			$	(131	)

		December 31, 2022
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized (Losses)				Fair Value
Securities available for sale:
U.S. Treasury securities		$	12,468			$	—			$	(1,239	)		$	11,229
U.S. agency and mortgage-backed securities			109,972				95				(13,149	)			96,918
Obligations of states and political subdivisions			64,386				4				(9,630	)			54,760
Total securities available for sale		$	186,826			$	99			$	(24,018	)		$	162,907
Securities held to maturity:
U.S. Treasury securities		$	38,211			$	—			$	(568	)		$	37,643
U.S. agency and mortgage-backed securities			99,374				—				(9,189	)			90,185
Obligations of states and political subdivisions			12,573				—				(1,252	)			11,321
Corporate debt securities			3,000				—				(352	)			2,648
Total securities held to maturity		$	153,158			$	—			$	(11,361	)		$	141,797
Total securities		$	339,984			$	99			$	(35,379	)		$	304,704

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows (in thousands):

		September 30, 2023
		Less than 12 months								12 months or more								Total
		Fair Value				Unrealized (Loss)				Fair Value				Unrealized (Loss)				Fair Value				Unrealized (Loss)
Securities available for sale:
U.S. Treasury securities		$	—			$	—			$	11,113			$	(1,361	)		$	11,113			$	(1,361	)
U.S. agency and mortgage-backed securities			2,065				(37	)			77,201				(15,623	)			79,266				(15,660	)
Obligations of states and political subdivisions			7,753				(382	)			44,511				(10,985	)			52,264				(11,367	)
Total securities available for sale		$	9,818			$	(419	)		$	132,825			$	(27,969	)		$	142,643			$	(28,388	)

		December 31, 2022
		Less than 12 months								12 months or more								Total
		Fair Value				Unrealized (Loss)				Fair Value				Unrealized (Loss)				Fair Value				Unrealized (Loss)
Securities available for sale:
U.S. Treasury securities		$	9,041			$	(932	)		$	2,188			$	(307	)		$	11,229			$	(1,239	)
U.S. agency and mortgage-backed securities			27,282				(1,945	)			62,342				(11,204	)			89,624				(13,149	)
Obligations of states and political subdivisions			24,689				(2,581	)			26,362				(7,049	)			51,051				(9,630	)
Total securities available for sale		$	61,012			$	(5,458	)		$	90,892			$	(18,560	)		$	151,904			$	(24,018	)
Securities held to maturity:
U.S. Treasury securities		$	19,302			$	(258	)		$	18,342			$	(310	)		$	37,644			$	(568	)
U.S. agency and mortgage-backed securities			58,019				(6,848	)			32,167				(2,341	)			90,186				(9,189	)
Obligations of states and political subdivisions			8,648				(1,008	)			2,672				(244	)			11,320				(1,252	)
Corporate debt securities			2,648				(352	)			—				—				2,648				(352	)
Total securities held to maturity		$	88,617			$	(8,466	)		$	53,181			$	(2,895	)		$	141,798			$	(11,361	)
Total securities		$	149,629			$	(13,924	)		$	144,073			$	(21,455	)		$	293,702			$	(35,379	)

The tables above provide information about securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. Management evaluates securities to determine whether the impairment is due to credit-related factors or noncredit-related factors at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.

Accrued interest receivable on securities available for sale and securities held to maturity totaled $786 thousand and $593 thousand, respectively, at September 30, 2023. Accrued interest on debt securities is included in accrued interest receivable on the Company's consolidated balance sheets.

At September 30, 2023, there were three out of three U.S. Treasury securities, 94 out of 107 U.S. agency and mortgage-backed securities, and 97 out of 104 obligations of states and political subdivisions in an unrealized loss position. One hundred percent of the Company’s investment portfolio was considered investment grade. The weighted-average re-pricing term of the portfolio was 5.9 years at September 30, 2023. One hundred percent of the Company’s investment portfolio was considered investment grade at December 31, 2022. The weighted-average re-pricing term of the portfolio was 6.5 years at December 31, 2022. The unrealized losses at September 30, 2023 in the U.S. Treasury securities portfolio, U.S. agency and mortgage-backed securities portfolio, and obligations of states and political subdivisions portfolio were related to changes in market interest rates and not credit concerns of the issuers.

On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity. The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders’ equity section of the Company’s balance sheet. The amortization of the unrealized loss on the transferred securities totaled $1.2 million for the first nine months of 2023. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss.

The amortized cost and fair value of securities at September 30, 2023 by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

		Available for Sale								Held to Maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due within one year		$	760			$	757			$	20,828			$	20,642
Due after one year through five years			23,027				21,026				28,993				27,586
Due after five years through ten years			37,962				33,340				23,514				20,658
Due after ten years			114,750				93,052				76,744				65,973
		$	176,499			$	148,175			$	150,079			$	134,859

Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The composition of restricted securities at September 30, 2023 and December 31, 2022 was as follows (in thousands):

		September 30, 2023				December 31, 2022
Federal Home Loan Bank stock		$	965			$	796
Federal Reserve Bank stock			980				980
Community Bankers’ Bank stock			132				132
		$	2,077			$	1,908

The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments without readily determinable fair values at their cost, less any impairment. The amounts included in other assets for the limited partnership investments were $642 thousand and $599 thousand at September 30, 2023 and December 31, 2022, respectively.

Credit Quality Indicators & Allowance for Credit Losses - HTM

The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings from Moody's, S&P, and Egan-Jones. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held to maturity at September 30, 2023, aggregated by credit quality indicators.

		U.S. Treasury securities				U.S. agency and mortgage-backed securities				Obligations of states and political subdivisions				Corporate debt securities				Total Held to Maturity Securities
September 30, 2023
Aaa		$	38,862			$	22,877			$	2,812			$	—			$	64,551
Aa1 / Aa2 / Aa3			—				—				8,842				—				8,842
Baa1 / Baa2 / Baa3			—				—				—				3,000				3,000
Not rated - Agency ⁽¹⁾			—				73,686				—				—				73,686
Total		$	38,862			$	96,563			$	11,654			$	3,000			$	150,079
December 31, 2022
Aaa		$	38,211			$	22,706			$	3,126			$	—			$	64,043
Aa1 / Aa2 / Aa3			—				—				9,447				—				9,447
Baa1 / Baa2 / Baa3			—				—				—				3,000				3,000
Not rated - Agency ⁽¹⁾			—				76,668				—				—				76,668
Total		$	38,211			$	99,374			$	12,573			$	3,000			$	153,158

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⁽¹⁾Generally considered not to have credit risk given the implied governmental guarantees associated with these agencies.

The following table summarizes the change in the allowance for credit losses on held to maturity securities for the nine months ended September 30, 2023.

		U.S. Treasury securities				U.S. agency and mortgage-backed securities				Obligations of states and political subdivisions				Corporate debt securities				Total Held to Maturity Securities
Balance, December 31, 2022		$	—			$	—			$	—			$	—			$	—
Adjustment for adoption of ASU 2016-13			—				—				—				134				134
Provision for credit losses			—				—				—				10				10
Charge-offs of securities			—				—				—				—				—
Recoveries			—				—				—				(13	)			(13	)
Balance, September 30, 2023		$	—			$	—			$	—			$	131			$	131

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