Held-to-Maturity Securities: Definition, Accounting, and Financial Reporting

Held-to-Maturity (HTM) Securities are a specific category of debt investments where the investor has the positive intent and ability to hold the investment until its maturity date.

These securities are valued differently from trading or available-for-sale investments, reflecting a commitment to realize the investment’s contractual cash flows rather than market fluctuations.

This article explains the definition, accounting treatment, measurement, and disclosure requirements for Held-to-Maturity Securities under U.S. GAAP (ASC 320) and IFRS (IFRS 9), with clear examples and journal entries.

1. What Are Held-to-Maturity (HTM) Securities?

HTM Securities are:

✦ Debt securities (e.g., bonds, notes, debentures)

✦ Purchased with the intent and ability to hold until maturity

✦ Recorded at amortized cost, not at fair value after initial recognition

They differ fundamentally from:

✦ Trading securities (held for short-term profit)

✦ Available-for-Sale securities (may be sold in response to market conditions)

Only debt instruments can be classified as HTM — equity securities cannot.

2. Criteria for HTM Classification

To classify an investment as HTM:

✦ The company must demonstrate a positive intent to hold the security until maturity.

✦ The company must have the financial ability to hold the security until maturity.

✦ No frequent or significant sales of HTM securities should occur, except for allowed reasons (e.g., major credit deterioration, regulatory changes).

Failure to meet these conditions may result in tainting the entire HTM portfolio, forcing reclassification to Available-for-Sale.

3. Initial Recognition

At acquisition, HTM securities are recorded at cost, which includes:

✦ Purchase price

✦ Direct transaction costs (e.g., broker fees)

Journal Entry at Purchase:

Debit: Held-to-Maturity Securities – Purchase Cost

Credit: Cash – Purchase Cost

4. Subsequent Measurement

After initial recognition:

✦ HTM securities are measured at amortized cost

✦ Interest income is recognized using the effective interest method

✦ No fair value adjustments (unless impaired)

Amortized cost adjusts the carrying amount by:

✦ Adding accrued interest

✦ Adding or subtracting amortization of premiums or discounts

Example – Purchase at a Discount:

A company buys a bond:

• Face value: $100,000

• Purchase price: $95,000

• Coupon: 5%

• Term: 5 years

• Market rate: 6%

Amortization of Discount:

✦ Recognize interest income based on effective yield (6%)

✦ Increase carrying value toward face value over time

First Year Interest Income Calculation:

• Carrying value = $95,000

• Interest income = $95,000 × 6% = $5,700

• Cash received = $100,000 × 5% = $5,000

• Amortization of discount = $5,700 – $5,000 = $700

Journal Entry:

Debit: Cash – $5,000

Debit: Held-to-Maturity Securities – $700

Credit: Interest Income – $5,700

5. Impairment of HTM Securities

If a decline in fair value is:

✦ Other-than-temporary (OTTI) under U.S. GAAP (old standard), or

✦ Related to expected credit losses under the CECL model (ASC 326),

an impairment loss must be recorded.

Recognition of Credit Loss:

Debit: Credit Loss Expense – Amount

Credit: Allowance for Credit Losses – Amount

The allowance account reduces the carrying amount of the security but keeps the gross investment reported.

6. IFRS Treatment for HTM Securities

Under IFRS 9, the equivalent category is called:

✦ Debt instruments at amortized cost

Classification requires:

✦ The business model is to hold assets to collect contractual cash flows, and

✦ Cash flows are solely payments of principal and interest.

Measurement and impairment under IFRS are similar to U.S. GAAP’s CECL model, using expected credit loss models.

7. Presentation in Financial Statements

• Balance Sheet: HTM securities are reported at amortized cost in non-current or current assets based on maturity.

• Income Statement: Interest income is reported as part of revenues.

• Cash Flow Statement:

  • Cash interest received → operating activities

  • Purchases and maturities → investing activities

8. Disclosure Requirements

Companies must disclose:

✦ Amortized cost, gross unrealized gains and losses (for informational purposes)

✦ Allowance for credit losses and related movements

✦ Maturity profiles of HTM investments

✦ Basis for valuation and expected credit loss estimation

9. HTM Securities vs. Other Investment Categories

Aspect	HTM Securities	Trading Securities	AFS Securities
Valuation Basis	Amortized Cost	Fair Value (through Net Income)	Fair Value (through OCI)
Unrealized Gains/Losses	Not recognized	Recognized in Net Income	Recognized in OCI
Intent Requirement	Positive intent to hold to maturity	No intent restriction	No intent restriction
Impact on Earnings	Steady Interest Income	Fluctuating based on market prices	Realized only on sale or impairment