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Note 3 - Investment Securities

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) [Text Block]

3.	Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at September 30, 2024 and December 31, 2023 are summarized as follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value

September 30, 2024
Securities available for sale:
Agency mortgage-backed securities		$	72,785			$	42			$	6,315			$	66,512
Agency CMO			52,335				199				222				52,312
Other debt securities:
Agency notes and bonds			126,601				135				4,901				121,835
Treasury notes and bonds			34,781				-				398				34,383
Municipal obligations			145,903				598				13,074				133,427

Total securities available for sale		$	432,405			$	974			$	24,910			$	408,469

Securities held to maturity:
Other debt securities:
Corporate notes		$	7,000			$	-			$	2,312			$	4,688

Total securities held to maturity		$	7,000			$	-			$	2,312			$	4,688

December 31, 2023
Securities available for sale:
Agency mortgage-backed securities		$	81,166			$	-			$	9,122			$	72,044
Agency CMO			25,402				94				323				25,173
Other debt securities:
Agency notes and bonds			138,174				38				8,707				129,505
Treasury notes and bonds			64,758				-				1,674				63,084
Municipal obligations			159,049				655				12,239				147,465

Total securities available for sale		$	468,549			$	787			$	32,065			$	437,271

Securities held to maturity:
Other debt securities:
Corporate notes		$	7,000			$	-			$	2,554			$	4,446

Total securities held to maturity		$	7,000			$	-			$	2,554			$	4,446

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal Farm Credit Bank (“FFCB”) and the Federal Home Loan Bank (“FHLB”), which are government-sponsored enterprises. Corporate notes classified as held to maturity include subordinated debt obligations issued by other bank holding companies (“BHC”).

The amortized cost and fair value of debt securities as of September 30, 2024, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

		Securities Available for Sale								Securities Held to Maturity
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
(In thousands)

Due in one year or less		$	60,809			$	59,782			$	-			$	-
Due after one year through five years			123,645				118,416				-				-
Due after five years through ten years			52,663				49,010				2,000				1,354
Due after ten years			70,168				62,437				5,000				3,334
			307,285				289,645				7,000				4,688
Mortgage-backed securities and CMO			125,120				118,824				-				-

		$	432,405			$	408,469			$	7,000			$	4,688

Information pertaining to investment securities with gross unrealized losses at September 30, 2024, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows.

		Number of								Gross
		Investment				Fair				Unrealized
		Positions				Value				Losses
(Dollars in thousands)

September 30, 2024:
Securities available for sale:
Continuous loss position less than twelve months:
Agency CMO			3			$	11,844			$	38
Muncipal obligations			13				6,970				153
Total less than twelve months			16				18,814				191

Continuous loss position more than twelve months:
Agency mortgage-backed securities			94				65,069				6,315
Agency CMO			22				8,315				184
Agency notes and bonds			47				115,349				4,901
Treasury notes and bonds			13				34,383				398
Muncipal obligations			186				101,063				12,921
Total more than twelve months			362				324,179				24,719

Total securities available for sale			378			$	342,993			$	24,910

Securities held to maturity:
Continuous loss position more than twelve months:
Corporate notes			4			$	4,688			$	2,312
Total more than twelve months			4				4,688				2,312

Total securities held to maturity			4			$	4,688			$	2,312

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

		Number of								Gross
		Investment				Fair				Unrealized
		Positions				Value				Losses
(Dollars in thousands)

December 31, 2023:
Securities available for sale:
Continuous loss position less than twelve months:
Agency CMO			3			$	8,019			$	30
Agency notes and bonds			3				2,754				12
Muncipal obligations			74				32,124				2,405
Total less than twelve months			80				42,897				2,447

Continuous loss position more than twelve months:
Agency mortgage-backed securities			96				72,044				9,122
Agency CMO			22				4,998				293
Agency notes and bonds			52				123,416				8,695
Treasury notes and bonds			21				63,084				1,674
Muncipal obligations			130				79,643				9,834
Total more than twelve months			321				343,185				29,618

Total securities available for sale			401			$	386,082			$	32,065

Securities held to maturity:
Continuous loss position more than twelve months:
Corporate notes			4			$	4,446			$	2,554
Total more than twelve months			4				4,446				2,554

Total securities held to maturity			4			$	4,446			$	2,554

The Company has not identified any specific available for sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Company reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. At September 30, 2024, management concluded that in all instances, securities with fair values less than carrying value were due to fluctuations in interest rates and other factors; thus, no credit loss provision was required.

In addition, management assesses held to maturity securities for credit losses on a quarterly basis. The assessment includes review of performance metrics, identification of delinquency and evaluation of market factors. In July 2024, a BHC whose subordinated debt the Company holds and is classified as held to maturity, having an amortized cost balance of $2.0 million, announced the suspension of its quarterly dividend. Based on this announcement, management performed additional research regarding the financial stability and strength of the BHC and underlying bank. Based on all analysis, management concluded the decline in fair value of all securities classified as held to maturity was due to changes in interest rates and other market factors. Accordingly, no credit loss provision was recorded in earnings for the three and nine months ended September 30, 2024 and 2023.

At September 30, 2024, the municipal obligations and U.S. government agency debt securities, including Treasury notes and bonds, agency notes and bonds, mortgage-backed securities and CMOs classified as available for sale and in a loss position had depreciated approximately 6.8% from the amortized cost basis. All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues. At September 30, 2024, the corporate notes classified as held to maturity in a loss position had depreciated approximately 33.0% from the amortized cost basis. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no credit loss is deemed to exist.

As of September 30, 2024 and December 31, 2023, the Company estimated expected credit losses to be immaterial based on the composition of the held to maturity securities portfolio.

While management does not anticipate any credit losses at September 30, 2024, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future.

There were no sales of available for sale securities during the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company recognized gross gains of $133,000 and gross losses of $101,000 on sales of available for sale securities. During the three months ended September 30, 2023, the Company recognized gross gains of $1,000 and gross losses of $95,000 on sales of available for sale securities. During the nine months ended September 30, 2023, the Company recognized gross gains of $79,000 and gross losses of $187,000 on sales of available for sale securities and time deposits.

At September 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, with an aggregate book value greater that 10% of stockholders’ equity.

Accrued interest receivable on available for sale debt securities totaled $1.9 million and $2.4 million at September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Accrued interest receivable on held to maturity debt securities totaled $18,000 at both September 30, 2024 and December 31, 2023, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Equity Securities

In September 2018, the Company acquired 90,000 shares of common stock in another BHC, representing approximately 5% of the outstanding common stock of the entity, for a total investment of $1.9 million. During the three months ended September 30, 2024 and 2023, the Company recognized unrealized losses of $196,000 and $131,000, respectively, on this equity investment. During the nine months ended September 30, 2024 and 2023, the Company recognized unrealized losses of $270,000 and $86,000, respectively. At September 30, 2024 and December 31, 2023, the equity investment had a fair value of $990,000 and $1.3 million, respectively, and is included in other assets on the consolidated balance sheets.

In October 2021, the Company entered into an agreement to invest in a bank technology fund through a limited partnership. At September 30, 2024 and December 31, 2023, the Company’s investment in the limited partnership was $1.0 million and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the limited partnership investment at September 30, 2024 and December 31, 2023 was $430,000 and $530,000, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Company expects to fulfill the commitment as capital calls are made through 2026. The investment is accounted for as an equity security without a readily determinable fair value, and has been recorded at cost, less any impairment, and adjustments resulting from observable price changes. There were no impairments or adjustments on equity securities without readily determinable fair values during the three and nine months ended September 30, 2024 or 2023.

In December 2015, the Company acquired Peoples Bancorp, Inc. of Bullitt County and its wholly-owned bank subsidiary, Peoples Bank of Bullitt County (“Peoples”), headquartered in Shepherdsville, Kentucky. Peoples owned Class B shares of VISA that were carried at an amortized costs basis of zero and were subsequently transferred to the Company. During the three and nine months ended September 30, 2023, the Company sold all the VISA Class B shares owned for a gross gain of $157,000.