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Investment Securities

9 Months Ended

Sep. 30, 2025

Investment Securities

Investment Securities

6. Investment Securities

Securities are classified at the time of purchase as investment securities held to maturity if it is management’s intent and the Company has the ability to hold the securities until maturity. These held to maturity securities are carried on the Company’s books at cost, adjusted for amortization of premium and accretion of discount which is computed using the level yield method which approximates the effective interest method. Alternatively, securities are classified as available for sale if it is management’s intent at the time of purchase to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. Securities classified as available for sale include securities which may be sold to effectively manage interest rate risk exposure, prepayment risk, and other factors (such as liquidity requirements). These available for sale securities are reported at fair value with unrealized aggregate appreciation/depreciation excluded from income and credited/charged to accumulated other comprehensive income (loss) within shareholders’ equity on a net of tax basis. Realized gains or losses on securities sold are computed upon the adjusted cost of the specific securities sold.

Securities classified as trading assets are purchased with the intent of selling them in the near term (less than 30 days) to generate profits from short-term changes in price. Trading securities are reported at fair value with unrealized gains and losses included in income. The Company participates in limited trading activity. Specifically, during 2025, the Company established a $5.0 million investment trading account which is managed by an outside third party. The trading account is invested in U.S. Treasury and municipal securities. As of September 30, 2025, there was $774,000 of cash held in the account available for future trading security purchases. This cash balance is included in cash and cash equivalents on the Consolidated Balance Sheets.

Additionally, the Company holds equity securities which are comprised of mutual funds held within a rabbi trust for the executive deferred compensation plan and ordinary shares issued by a borrower in satisfaction of debt previously

contracted. The deferred compensation plan equity securities are reported at fair value within other assets on the Consolidated Balance Sheets and unrealized holding gains and losses are included in earnings. The ordinary shares issued in satisfaction of debt previously contracted do not have a readily determinable fair value. Therefore, they are reported at cost within other assets on the Consolidated Balance Sheets and are adjusted when observable price changes are identified, or an impairment charge is recognized.

Allowance for Credit Losses – Held to Maturity Securities

The Company measures expected credit losses on held to maturity debt securities, which are comprised of U.S. government agency and mortgage-backed securities as well as taxable municipal, corporate, and other bonds. The Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default (PD/LGD) method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At September 30, 2025 and December 31, 2024, the allowance for credit losses on the held to maturity securities portfolio totaled $94,000 and $89,000, respectively.

The allowance for credit losses on held to maturity debt securities is included within investment securities held to maturity on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within provision (recovery) for credit losses on the Consolidated Statements of Operations.

Accrued interest receivable on held to maturity debt securities totaled $427,000 and $403,000 at September 30, 2025 and December 31, 2024, respectively, and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Held to maturity debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had no held to maturity debt securities in non-accrual status or past due over 90 days still accruing interest at September 30, 2025 and December 31, 2024. The underlying issuers continue to make timely principal and interest payments on the securities.

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available for sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company 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 adverse conditions specifically related to the security, among other factors. If this evaluation 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, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. At times, based on management judgment, the Company may establish an allowance for credit losses in excess of the amount that the fair value is less than the amortized cost basis based on the specific circumstances surrounding the security. At September 30, 2025, the Company had no allowance for credit losses on the available for sale securities portfolio compared to an allowance totaling $360,000 at December 31, 2024.

The allowance for credit losses on available for sale debt securities is included within investment securities available for sale on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within provision (recovery) for credit losses on the Consolidated Statements of Operations. Losses are charged against the allowance when the Company believes the collectability of an available for sale security is in jeopardy or when either of the criteria

regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities totaled $1.1 million and $833,000 at September 30, 2025 and December 31, 2024, respectively, and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Available for sale debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. It should be noted that the Company had no available for sale debt securities in non-accrual status at September 30, 2025 due to the third quarter 2025 charge-off of a non-performing security totaling $1.0 million against a previously established allowance for credit losses. This is compared to one available for sale debt security in non-accrual status at December 31, 2024 totaling $1.0 million with an associated allowance for credit losses of $360,000.

The cost basis and fair values of available for sale and held to maturity investment securities are summarized as follows:

Investment securities available for sale (AFS):

September 30, 2025

Gross

Gross

Allowance

Unrealized

Unrealized

For Credit

Fair

Cost Basis

Gains

Losses

Losses

Value

(In Thousands)

U.S. Agency

$

5,207

$

—

$

(416)

$

—

$

4,791

U.S. Agency mortgage-backed securities

115,335

590

(9,748)

—

106,177

Municipal

11,261

94

(417)

—

10,938

Corporate bonds

48,768

358

(1,471)

—

47,655

Total

$

180,571

$

1,042

$

(12,052)

$

—

$

169,561

Investment securities held to maturity (HTM):

September 30, 2025

Allowance

Gross

Gross

For Credit

Carrying

Unrealized

Unrealized

Fair

Cost Basis

Losses

Value

Gains

Losses

Value

(In Thousands)

U.S. Agency

$

2,500

$

—

$

2,500

$

—

$

(246)

$

2,254

U.S. Agency mortgage-backed securities

33,769

—

33,769

157

(1,885)

32,041

Municipal

28,505

(1)

28,504

4

(1,588)

26,920

Corporate bonds and other securities

2,499

(93)

2,406

—

(129)

2,277

Total

$

67,273

$

(94)

$

67,179

$

161

$

(3,848)

$

63,492

Investment securities available for sale (AFS):


		December 31, 2024
					Gross			Gross			Allowance
					Unrealized			Unrealized			For Credit			Fair
		Cost Basis			Gains			Losses			Losses			Value

		(In Thousands)
U.S. Agency		$	5,345		$	—		$	(679)		$	—		$	4,666
U.S. Agency mortgage-backed securities			104,227			90			(12,783)			—			91,534
Municipal			9,031			2			(670)			—			8,363
Corporate bonds			54,254			94			(2,931)			(360)			51,057
Total		$	172,857		$	186		$	(17,063)		$	(360)		$	155,620

Investment securities held to maturity (HTM):


		December 31, 2024
					Allowance						Gross			Gross
					For Credit			Carrying			Unrealized			Unrealized			Fair
		Cost Basis			Losses			Value			Gains			Losses			Value

		(In Thousands)
U.S. Agency		$	2,500		$	—		$	2,500		$	—		$	(365)		$	2,135
U.S. Agency mortgage-backed securities			26,966			—			26,966			28			(2,403)			24,591
Municipal			30,961			(2)			30,959			—			(2,553)			28,406
Corporate bonds and other securities			3,499			(87)			3,412			—			(73)			3,339
Total		$	63,926		$	(89)		$	63,837		$	28		$	(5,394)		$	58,471

The Company sold no AFS securities during the third quarter or first nine months of 2025. The Company sold no AFS securities during the third quarter of 2024 while the proceeds from the sale of AFS securities totaled $935,000 during the first nine months of 2024, resulting in the recognition of no gross investment security gains or losses. The Company had established an allowance for credit losses on one of the AFS securities sold during the first nine months of 2024. In accordance with ASC 326, Financial Instruments – Credit Losses, once the Company decided to sell the security (i.e. intent to sell), the security was charged down, against the allowance, to fair value therefore resulting in the recognition of no gain or loss.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $142.3 million at September 30, 2025 and $125.8 million at December 31, 2024. In addition, the Company has pledged $3.8 million of available for sale securities as collateral for a revolving line of credit from an unrelated financial institution.

The interest rate environment and market yields can have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of September 30, 2025, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 100.7% of the par value.

Contractual maturities of securities at September 30, 2025 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at September 30, 2025 was 44.6 months and was shorter than the duration at December 31, 2024 which was 50.3 months. The duration remains within our internally established guideline to not exceed 60 months which we believe was appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

September 30, 2025

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

$

9,482

$

9,424

$

1,900

$

1,869

After 1 year but within 5 years

23,759

23,282

14,287

14,086

After 5 years but within 10 years

34,511

33,098

17,975

16,258

Over 10 years

112,819

103,757

33,017

31,279

Total

$

180,571

$

169,561

$

67,179

$

63,492

The following tables summarize the available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2025 and December 31, 2024, aggregated by security type and length of time in a continuous loss position (in thousands):

September 30, 2025

Less Than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

U.S. Agency

$

—

$

—

$

4,791

$

(416)

$

4,791

$

(416)

U.S. Agency mortgage-backed securities

3,210

(6)

62,898

(9,742)

66,108

(9,748)

Municipal

—

—

7,700

(417)

7,700

(417)

Corporate bonds

2,499

(449)

22,545

(1,022)

25,044

(1,471)

Total

$

5,709

$

(455)

$

97,934

$

(11,597)

$

103,643

$

(12,052)


		December 31, 2024
		Less Than 12 Months						12 Months or Longer						Total
		Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
		Value			Losses			Value			Losses			Value			Losses
U.S. Agency		$	—		$	—		$	4,666		$	(679)		$	4,666		$	(679)
U.S. Agency mortgage-backed securities			16,104			(275)			63,323			(12,508)			79,427			(12,783)
Municipal			—			—			8,121			(670)			8,121			(670)
Corporate bonds			9,500			(675)			34,612			(2,256)			44,112			(2,931)
Total		$	25,604		$	(950)		$	110,722		$	(16,113)		$	136,326		$	(17,063)

At September 30, 2025 within the available for sale debt securities portfolio, the Company had three U.S. Agency mortgage-backed securities and five corporate bonds that have been in a gross unrealized loss position for less than 12 months with depreciation of 7.4% from its amortized cost basis. Additionally, at September 30, 2025, within the available for sale debt securities portfolio, the Company had six U.S. Agency, 129 U.S. Agency mortgage-backed securities, 22 municipal, and 44 corporate bonds that have been in a gross unrealized loss position for greater than 12 months with depreciation of 10.6% from its amortized cost basis.

These unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields decrease, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, no allowance for credit losses has been recorded for these securities. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature.

The following tables present the activity in the allowance for credit losses on available for sale debt securities by major security type for the three and nine months ended September 30, 2025 and 2024 (in thousands).

Three months ended September 30, 2025

Balance at June 30, 2025

Charge-Offs

Recoveries

Provision (Recovery)

Balance at September 30, 2025

Corporate bonds

$

1,000

$

(1,000)

$

—

$

—

$

—

Total

$

1,000

$

(1,000)

$

—

$

—

$

—


		Three months ended September 30, 2024
		Balance at June 30, 2024			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2024
Corporate bonds		$	360		$	—		$	—		$	—		$	360
Total		$	360		$	—		$	—		$	—		$	360

Nine months ended September 30, 2025

Balance at December 31, 2024

Charge-Offs

Recoveries

Provision (Recovery)

Balance at September 30, 2025

Corporate bonds

$

360

$

(1,000)

$

—

$

640

$

—

Total

$

360

$

(1,000)

$

—

$

640

$

—


		Nine months ended September 30, 2024
		Balance at December 31, 2023			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2024
Corporate bonds		$	926		$	(491)		$	—		$	(75)		$	360
Total		$	926		$	(491)		$	—		$	(75)		$	360

During the third quarter of 2025, the Company recognized the charge-off of a $1.0 million corporate bond within the available for sale debt securities portfolio. The security was charged off against a previously established allowance for credit losses due to further credit deterioration and heightened doubts surrounding the issuer’s ability to meet its payment obligations as well as substantial legal issues. For the first nine months of 2025, the Company recognized a $640,000 provision for credit losses on available for sale debt securities as a result of the establishment of a full reserve on the corporate bond discussed above after a partial reserve was established for the security last year. This compares to the recognition of a $75,000 provision for credit losses recovery in the first nine months of 2024. During 2024, the recognition of the provision recovery was due to the sale of the impaired Signature Bank subordinated debt investment which was partially offset by the establishment of an allowance for credit losses on a corporate AFS security deemed to be credit impaired.

The following tables present the activity in the allowance for credit losses on held to maturity debt securities by major security type for the three and nine months ended September 30, 2025 and 2024 (in thousands).


		Three months ended September 30, 2025
		Balance at June 30, 2025			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2025
Municipal		$	2		$	—		$	—		$	(1)		$	1
Corporate bonds and other securities			83			—			—			10			93
Total		$	85		$	—		$	—		$	9		$	94


		Three months ended September 30, 2024
		Balance at June 30, 2024			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2024
Municipal		$	2		$	—		$	—		$	—		$	2
Corporate bonds and other securities			98			—			—			(12)			86
Total		$	100		$	—		$	—		$	(12)		$	88


		Nine months ended September 30, 2025
		Balance at December 31, 2024			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2025
Municipal		$	2		$	—		$	—		$	(1)		$	1
Corporate bonds and other securities			87			—			—			6			93
Total		$	89		$	—		$	—		$	5		$	94


		Nine months ended September 30, 2024
		Balance at December 31, 2023			Charge-Offs			Recoveries			Provision (Recovery)			Balance at September 30, 2024
Municipal		$	2		$	—		$	—		$	—		$	2
Corporate bonds and other securities			35			—			—			51			86
Total		$	37		$	—		$	—		$	51		$	88

As stated previously, the Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the PD/LGD method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source.

Maintaining investment quality is a primary objective of the Company’s Investment Policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s or Standard & Poor’s rating of A. The Company monitors the credit ratings of its debt securities on a quarterly basis. At September 30, 2025, 1.0% of the total investment securities portfolio was rated AAA as compared to 59.2% at December 31, 2024. The steep decline in securities rated AAA resulted from the Moody’s downgrade of the United States rating to Aa1 during 2025 which impacted the Company’s U.S. Agency and U.S. Agency mortgage-backed securities. At September 30, 2025, 76.1% of the total investment securities portfolio was rated AA or higher compared to 72.8% at December 31, 2024. Approximately 12.6% of the total investment securities portfolio was either rated below A or unrated at September 30, 2025 as compared to 14.7% at December 31, 2024.

Specifically, the following table summarizes the amortized cost of held to maturity debt securities at September 30, 2025, aggregated by credit quality indicator (in thousands).

September 30, 2025

Credit Rating

AAA/AA/A

BBB/BB/B

Unrated

Total

U.S. Agency

$

2,500

$

—

$

—

$

2,500

U.S. Agency mortgage-backed securities

33,769

—

—

33,769

Municipal

28,504

—

—

28,504

Corporate bonds and other securities

1,000

—

1,406

2,406

Total

$

65,773

$

—

$

1,406

$

67,179

Trading Securities

The following table presents the Company’s trading securities, at estimated fair value (in thousands).


		September 30, 2025			December 31, 2024
U.S. Treasury		$	1,995		$	—
Municipal			2,467			—
Total		$	4,462		$	—

The following table presents the net gain on trading securities included in trading securities revenue for the three- and nine-month periods ended September 30, 2025 and 2024 (in thousands).


		Three months ended						Nine months ended
		September 30,						September 30,
		2025			2024			2025			2024
Net realized gain on sales		$	128		$	—		$	166		$	—
Net unrealized (loss) gain			(28)			—			7			—
Net gain on trading securities			100			—			173			—
Less: Portfolio expenses and management fees			45			—			83			—
Trading securities revenue		$	55		$	—		$	90		$	—