HTM vs. AFS Securities: What’s the Difference?

 In bank investment portfolio management, few decisions carry as much accounting and regulatory impact as how you classify securities.  There are two common designations: Held-to-Maturity (HTM) and Available-for-Sale (AFS).  While they may seem similar on the surface, the financial reporting outcomes are dramatically different. 

Whether you are managing a bond portfolio, preparing the Call Report, or answering questions from auditors and examiners, understanding these categories is critical.

Let’s break them down in a clear, practical way.

Held-to-Maturity (HTM) Securities:

HTM securities are debt securities which management has the positive intent and ability to hold until maturity.  This means they are not intended for sale before maturity.  These securities are carried at amortized cost due to the securities being held to collect contractual cash flows.  HTM securities are subject to ongoing impairment evaluation under CECL, meaning immediate loss recognition at the time of  evaluation. If it is determined that a decline in fair value is Other than Temporary (OTTI) (See FAS 115) or related to expected credit losses under the CECL model (ASC 326), an impairment loss  must be  recorded.  This is done via an allowance against amortized costs which creates an immediate reduction in the net carrying amount and a corresponding charge to earnings.

Once you label a security HTM, you are making a long-term accounting commitment. This strategy appeals to institutions prioritizing income stability over balance sheet flexibility. It also shields capital from interest-rate volatility, a helpful benefit during rising rate environments.

Selling HTM securities can "taint" a portfolio unless a qualifying exception applies (like credit deterioration or regulatory restructuring (See FAS 115). Once a portfolio is tainted, all remaining securities in the existing HTM portfolio must be transferred to the AFS category, and future investment purchases may not be classified as HTM, generally for two years (See OCC 2024 Bank Accounting Advisory Series).

Available-for-Sale (AFS) Securities:

The available for sale, AFS, designation was invented by the Financial Accounting Standards Board, the group that creates accounting rules for U.S. companies. Banks buy bonds for a number of reasons and the standard, ASC 320 and FAS 115, allows banks to classify them based on those reasons and treats each differently.

AFS securities offer flexibility. These are debt securities a bank may sell for liquidity needs, interest-rate management, or portfolio strategy shifts.  AFS securities are reported quarterly  at fair value, with all unrealized gains and unrealized losses reported, net of related tax effect if applicable, in accumulated other comprehensive income (AOCI).  Because of this, AFS securities are not within the scope of CECL. Upon sale of an AFS security, realized gains and losses are reported in net income. 

Unlike HTM designations, the AFS designation is flexible.  A bank can sell its AFS securities, hold them to maturity within AFS or transfer them to HTM.

HTM vs. AFS: A Side-by-Side Comparison:

*Asset Liability Management

Most banks blend both approaches, choosing HTM for long-term rate stability and AFS for liquidity and tactical ALM management.

Final  Thoughts:

HTM and AFS are not simply accounting labels, they are strategic decisions that influence the balance sheet, regulatory capital, and portfolio flexibility.

In a shifting rate environment, classification decisions can have significant consequences, making it essential to document intent, manage risks, and communicate your strategy clearly.  If you haven’t reviewed your investment classification policy lately, now’s a good time.