Note 6 - Investments, Available for Sale ("AFS")

6 Months Ended

Jun. 30, 2025

Investments in Debt Securities, Available for Sale [Text Block]

NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS")

AFS securities are recorded at fair market value. There was no allowance for credit losses for AFS securities as of June 30, 2025 and December 31, 2024. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the dates indicated were as follows:

June 30, 2025

Dollars in thousands

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Student Loan Pools

52,934

(449

)

52,533

Small Business Administration (“SBA”) Bonds

56,241

280

(1,960

)

54,561

Tax Exempt Municipal Bonds

6,692

—

(916

)

5,776

Taxable Municipal Bonds

64,406

—

(9,885

)

54,521

Mortgage-Backed Securities ("MBS")

442,289

270

(21,743

)

420,816

Total AFS Securities

622,562

598

(34,953

)

588,207

	December 31, 2024
Dollars in thousands		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Student Loan Pools	$	39,670	$	117	$	(203	)	$	39,584
SBA Bonds		66,491		337		(2,402	)		64,426
Tax Exempt Municipal Bonds		6,746		—		(688	)		6,058
Taxable Municipal Bonds		64,530		—		(11,970	)		52,560
MBS		389,592		346		(26,943	)		362,995
Total AFS Securities	$	567,029	$	800	$	(42,206	)	$	525,623

Student Loan Pools are typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the United States government. The majority of the Bank's MBS are issued or guaranteed by an agency of the United States government such as the Government National Mortgage Association (“Ginnie Mae,”), or by Government Sponsored Entities ("GSEs"), including the Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corp. (“Freddie Mac.”). Ginnie Mae MBS are backed by the full faith and credit of the United States government, while those issued by GSEs are not.

The following tables summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual AFS securities have been in a continuous unrealized loss position at the dates indicated.

	*June 30, 2025*
	*Less than 12 Months*							*12 Months or More*							*Total*
Dollars in thousands	*Fair Value*		*Unrealized Losses*			#		*Fair Value*		*Unrealized Losses*			#		*Fair Value*		*Unrealized Losses*
Student Loan Pools	$	20,063	$	(152	)		18	$	21,030	$	(297	)		20	$	41,093	$	(449	)
SBA Bonds		8,905		(115	)		11		21,911		(1,845	)		40		30,816		(1,960	)
Tax Exempt Municipal Bonds		—		—			—		5,776		(916	)		5		5,776		(916	)
Taxable Municipal Bonds		—		—			—		54,521		(9,885	)		59		54,521		(9,885	)
MBS		108,463		(761	)		39		235,620		(20,982	)		177		344,083		(21,743	)
	$	137,431	$	(1,028	)		68	$	338,858	$	(33,925	)		301	$	476,289	$	(34,953	)

	December 31, 2024
	Less than 12 Months							12 Months or More							Total
Dollars in thousands	Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses
Student Loan Pools	$	3,014	$	(10	)		4	$	23,427	$	(193	)		22	$	26,441	$	(203	)
SBA Bonds		10,795		(154	)		12		24,319		(2,248	)		46		35,114		(2,402	)
Tax Exempt Municipal Bonds		—		—			—		6,058		(688	)		5		6,058		(688	)
Taxable Municipal Bonds		—		—			—		52,560		(11,970	)		59		52,560		(11,970	)
MBS		16,510		(152	)		26		270,559		(26,791	)		195		287,069		(26,943	)
	$	30,319	$	(316	)		42	$	376,923	$	(41,890	)		327	$	407,242	$	(42,206	)

At June 30, 2025 our AFS investment portfolio consisted of 511 individual AFS securities, 369 of which were in an unrealized loss position. At December 31, 2024, 369 individual AFS securities were in an unrealized loss position. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether an allowance for credit loss is deemed necessary. Management’s evaluation of those securities as of June 30, 2025 is discussed below.

Student Loan Pools - Securities in this group are typically 97% guaranteed by the U.S. government. At June 30, 2025, there were 46 AFS student loan pool securities, 38 of which had unrealized losses. Of the 38 securities in a loss position, 37 were rated AA or higher by Moody’s, Bloomberg, and/or S&P. The remaining security in a loss position had an unrealized loss of less than $1,000 at June 30, 2025. Each of the individual securities have credit enhancements further reducing potential realized losses. The unrealized losses on these securities are believed to be caused by the current interest rate environment, and not credit quality. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income during the six months ended June 30, 2025.

SBA Bonds - SBA Bonds are fully backed by the U.S. government. At June 30, 2025, there were 108 AFS SBA Bonds, 51 of which had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company did not recognize unrealized losses on these securities during the six months ended June 30, 2025.

MBS - At June 30, 2025, approximately 78% of the AFS MBS held by the Company were issued or guaranteed by an agency of the U.S. government such as Ginnie Mae, or by GSEs, including Fannie Mae and Freddie Mac. At June 30, 2025, there were 165 of these securities in an unrealized loss position. These unrealized losses are believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses on these securities were not recognized into income during the six months ended June 30, 2025.

Also included in AFS MBS are private label collateralized mortgage obligation ("CMO") securities, which are issued by non-governmental real estate mortgage investment conduits and are not backed by the full faith and credit of the U.S. government. At June 30, 2025, we held 65 private label CMO securities with an amortized cost and fair value of $96.4 million and $93.3 million, respectively. At that date, 51 of these securities had unrealized losses. Of the 51 securities in a loss position, 34 were rated AA or higher by Moody’s, Bloomberg, and/or S&P. The remaining 17 securities in a loss position had a total fair value of $27.2 million and unrealized losses of $317,000 at June 30, 2025. Each of the individual securities have credit enhancements further reducing potential realized losses. The unrealized losses on these securities are believed to be caused by the current interest rate environment. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income during the six months ended June 30, 2025.

Municipal Bonds - At June 30, 2025 there were five tax exempt municipal securities and 59 taxable municipal securities that had unrealized losses. The Company believes the unrealized losses on these investments were caused by the interest rate environment and do not relate to the underlying credit quality of the issuers. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, unrealized losses were not recognized into income during the six months ended June 30, 2025. Each of the municipal securities held was rated “A2” (Moody’s) or “AA-” (S&P) or better.

Accrued interest receivable on AFS securities totaled $2.3 million at June 30, 2025 and was excluded from the estimate of credit losses.

The amortized cost and fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $451.1 million and $419.3 million at June 30, 2025 , and $578.0 million and $535.8 million at December 31, 2024 , respectively.

During the six months ended June 30, 2025, the Company sold seven individual investment securities for $24.3 million and recorded gross gains of $57,000 and gross losses of $35,000 during the period. There were no sales of AFS securities during the six months ended June 30, 2024.

The amortized cost and fair value of AFS securities at June 30, 2025, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Since MBS are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.

	*June 30, 2025*
Dollars in thousands	*Amortized Cost*		*Fair Value*
One Year or Less	$	9	$	9
After One – Five Years		16,920		16,378
After Five – Ten Years		48,853		44,182
More Than Ten Years		114,491		106,822
MBS		442,289		420,816
Total AFS Securities	$	622,562	$	588,207

SECURITY FEDERAL CORP 10-Q