Securities

9 Months Ended

Sep. 30, 2021

Securities [Abstract]

Securities

5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of September 30, 2021, the Company had $1,111,000 in equity securities recorded at fair value, and $1,091,000 in equity securities were recorded at fair value at December 31, 2020. The Company recorded net gains of $38,000 and $139,000 during the three and nine months ended September 30, 2021, respectively, and a net gain of $2,000 and net loss of $152,000 during the three and nine months ended September 30, 2020, respectively, due to changes in the fair value of the Company’s portfolio of equity securities during the applicable periods.

Debt Securities Available for Sale

Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Interest and dividends are recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, determined on a specific identification basis.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 11% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 76%), corporate debt securities (approximately 10%) and municipal bonds (approximately 3%) as of September 30, 2021. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

The amortized cost and fair value of debt securities available for sale as of September 30, 2021 and December 31, 2020, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

(Dollars in thousands)	September 30, 2021
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After five years but within ten years	$	41,866	$	40,972	$	—	$	(894)
		41,866		40,972		—		(894)
Obligations of state and political subdivisions
Within one year		30		30		—		—
After one year but within five years		4,539		4,686		147		—
After five years but within ten years		1,240		1,224		—		(16)
After ten years		4,119		4,032		—		(87)
		9,928		9,972		147		(103)
Corporate debt securities
After one year but within five years		2,000		1,994		—		(6)
After five years but within ten years		27,434		28,249		912		(97)
After ten years		5,000		5,006		6		—
		34,434		35,249		918		(103)
Mortgage-backed securities		274,359		272,116		1,490		(3,733)
Total	$	360,587	$	358,309	$	2,555	$	(4,833)

(Dollars in thousands)	December 31, 2020
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After five years but within ten years	$	22,994	$	22,949	$	7	$	(52)
		22,994		22,949		7		(52)
Obligations of state and political subdivisions
Within one year		31		31		—		—
After one year but within five years		4,708		4,767		59		—
After five years but within ten years		3,289		3,484		195		—
		8,028		8,282		254		—
Corporate debt securities
Within one year		1,033		1,039		6		—
After five years but within ten years		10,058		10,484		485		(59)
		11,091		11,523		491		(59)
Mortgage-backed securities		239,793		243,661		3,999		(131)
Total	$	281,906	$	286,415	$	4,751	$	(242)

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $88,705,000 and $74,614,000 on September 30, 2021 and December 31, 2020, respectively.

In addition to cash received from the scheduled maturities of investment securities, some securities available for sale are sold or called at current market values during normal operations.

The following table summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and losses during the nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	Nine Months Ended
	September 30,
	2021		2020
Gross proceeds from sales and calls of securities	$	32,975	$	48,565
Securities available for sale:
Gross realized gains from sold and called securities	$	130	$	875
Gross realized losses from sold and called securities		(72)		(30)
Net gains from sales and calls of securities	$	58	$	845

Topic 320 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. Management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

The following tables show gross unrealized losses and fair values of debt securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020:

	Unrealized Losses at September 30, 2021
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	8	$	40,972	$	(894)	—	$	—	$	—	8	$	40,972	$	(894)
Obligations of state and political subdivisions	6		5,256		(103)	—		—		—	6		5,256		(103)
Corporate debt securities	5		9,281		(103)	—		—		—	5		9,281		(103)
Mortgage-backed securities	38		204,783		(3,733)	—		—		—	38		204,783		(3,733)
Total temporarily impaired securities	57	$	260,292	$	(4,833)	—	$	—	$	—	57	$	260,292	$	(4,833)

	Unrealized Losses at December 31, 2020
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	3	$	18,948	$	(52)	—	$	—	$	—	3	$	18,948	$	(52)
Corporate debt securities	1		2,972		(59)	—		—		—	1		2,972		(59)
Mortgage-backed securities	7		43,583		(131)	—		—		—	7		43,583		(131)
Total temporarily impaired securities	11	$	65,503	$	(242)	—	$	—	$	—	11	$	65,503	$	(242)

At September 30, 2021, eight obligations of U.S. Government sponsored enterprises, six obligations of state and political subdivisions, five corporate debt securities, and thirty-eight mortgage-backed securities had unrealized losses. None of these securities have been in a continuous loss position for twelve months or more. The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (“GSE”) pass-through instruments issued by the Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

The unrealized losses noted in the tables above are considered temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Because the Company does not intend to sell the securities, does not believe the Company will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, no debt securities were deemed to be other-than-temporarily impaired for the periods ended September 30, 2021 and December 31, 2020, respectively.