Available-for-Sale Securities

6 Months Ended

Jun. 30, 2023

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of available-for-sale securities at June 30, 2023 and December 31, 2022 are as follows:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
June 30, 2023:
U. S. Government agency and mortgage-backed securities	$	82,192	$	63	$	(15,007)	$	67,248
Corporate bonds	18,002		—		(4,747)		13,255
Subordinated notes	5,000		—		(764)		4,236
SBA loan pools	6,409		—		(1,083)		5,326
Municipal bonds	560		—		(78)		482
Total available-for-sale securities	$	112,163	$	63	$	(21,679)	$	90,547

December 31, 2022:
U. S. Government agency and mortgage-backed securities	$	73,480	$	—	$	(14,434)	$	59,046
Corporate bonds	19,773		7		(5,125)		14,655
Subordinated notes	5,000		—		(398)		4,602
SBA loan pools	6,791		—		(1,073)		5,718
Municipal bonds	561		—		(62)		499
Total available-for-sale securities	$	105,605	$	7	$	(21,092)	$	84,520

The following table presents the available-for-sale securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous loss position as of June 30, 2023 and December 31, 2022:


(In thousands)	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized (Loss)		Fair Value		Unrealized (Loss)		Fair Value		Unrealized (Loss)
June 30, 2023:
U. S. Government agency and mortgage-backed securities	$	18,306	$	(1,077)	$	46,807	$	(13,930)	$	65,113	$	(15,007)
Corporate bonds	—		—		13,255		(4,747)		13,255		(4,747)
Subordinated notes	2,543		(457)		1,693		(307)		4,236		(764)
SBA loan pools	1,276		(13)		4,050		(1,070)		5,326		(1,083)
Municipal bonds	—		—		482		(78)		482		(78)
Total available-for-sale securities	$	22,125	$	(1,547)	$	66,287	$	(20,132)	$	88,412	$	(21,679)

December 31, 2022:
U. S. Government agency and mortgage-backed securities	$	11,126	$	(633)	$	47,920	$	(13,801)	$	59,046	$	(14,434)
Corporate bonds	1,959		(64)		10,934		(5,061)		12,893		(5,125)
Subordinated notes	4,602		(398)		—		—		4,602		(398)
SBA loan pools	1,437		(12)		4,280		(1,061)		5,717		(1,073)
Municipal bonds	—		—		498		(62)		498		(62)
Total available-for-sale securities	$	19,124	$	(1,107)	$	63,632	$	(19,985)	$	82,756	$	(21,092)

As of June 30, 2023 and December 31, 2022, forty-nine of fifty and forty-six of forty-seven available-for-sale securities had unrealized losses with an aggregate decline of (19.7)% and (20.3)% from the amortized cost of those securities, respectively.

At June 30, 2023, no allowance for credit losses has been recognized on available for sale debt securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired. This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to available for sale debt securities. The issuers of these debt securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these debt securities and it is more likely than not that the Company will not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity. The unrealized losses are due to increases in market interest rates over the yields available at the time the debt securities were purchased.

With regard to U.S. mortgage-backed securities and municipal bonds issued by the U.S. government, or agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost basis of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities.

With regard to corporate bonds, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, and (iv) internal forecasts. Securities under the U.S. Small Business Administration (“SBA”) government guaranteed loan pools program were purchased at a premium and the impairment was attributable primarily to increased prepayment speeds. The timely payment of principal and interest on these securities is guaranteed by the U.S. Government agency. The contractual terms of the subordinated notes do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Furthermore, as of June 30, 2023, there were no past due principal or interest payments associated with these securities. Based upon (i) the issuer’s strong bond ratings and (ii) a zero historical loss rate, no allowance for credit losses has been recorded for available-for-sale securities at June 30, 2023. All debt securities in an unrealized loss position as of June 30, 2023 continue to perform as scheduled and the Company does not believe there is a possible credit loss or that an allowance for credit loss on these debt securities is necessary.

As of June 30, 2023 and December 31, 2022, available-for-sale securities of $70.3 million and $30.8 million, respectively, were pledged to the Federal Home Loan Bank ("FHLB") and Federal Reserve Bank (“FRB”). The securities were pledged primarily to secure borrowings from the FHLB and municipal deposits.

The following summarizes, by class and contractual maturity, the amortized cost and estimated fair value of available-for-sale debt securities held as of June 30, 2023 and December 31, 2022. The mortgages underlying the mortgage-backed securities are not due at a single maturity date. Additionally, these mortgages often are and generally may be pre-paid without penalty, creating a degree of uncertainty that such investments can be held until maturity. For convenience, mortgage-backed securities have been included in the summary as a separate line item.


(In thousands)	Amortized Cost								Fair Value
	Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total		Due Within 5 years		Due After 5 years through 10 years		Due After 10 years		Total
June 30, 2023:
Corporate bonds	$	2,007	$	15,995	$	—	$	18,002	$	1,855	$	11,400	$	—	$	13,255
Subordinated notes	3,000		2,000		—		5,000		2,543		1,693		—		4,236
SBA loan pools	—		1,289		5,120		6,409		—		1,276		4,050		5,326
Municipal bonds	154		406		—		560		139		343		—		482
Available-for-sale securities with stated maturity dates	5,161		19,690		5,120		29,971		4,537		14,712		4,050		23,299
U. S. Government agency and mortgage-backed securities	—		5,237		76,955		82,192		—		4,134		63,114		67,248
Total available-for-sale securities	$	5,161	$	24,927	$	82,075	$	112,163	$	4,537	$	18,846	$	67,164	$	90,547

December 31, 2022:
Corporate bonds	$	3,778	$	15,995	$	—	$	19,773	$	3,721	$	10,934	$	—	$	14,655
Subordinated notes	3,000		2,000		—		5,000		2,830		1,772		—		4,602
SBA loan pools	—		1,449		5,342		6,791		—		1,438		4,280		5,718
Municipal bonds	154		407		—		561		139		360		—		499
Available-for-sale securities with stated maturity dates	6,932		19,851		5,342		32,125		6,690		14,504		4,280		25,474
U. S. Government agency and mortgage-backed securities	—		5,276		68,204		73,480		—		4,129		54,917		59,046
Total available-for-sale securities	$	6,932	$	25,127	$	73,546	$	105,605	$	6,690	$	18,633	$	59,197	$	84,520

During the six months ended June 30, 2023, the Company purchased $10.4 million U.S. Government agency mortgage-backed securities and sold $1.8 million available-for-sale securities and recognized a net gain on sale of $24,000. During the six months ended June 30, 2022, the Company purchased $2.0 million corporate bonds and $1.0 million subordinated notes, and did not sell any available-for-sale securities.