INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2021

INVESTMENT SECURITIES

INVESTMENT SECURITIES

NOTE 4 – INVESTMENT SECURITIES

Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company held no trading securities at September 30, 2021 or December 31, 2020. Available-for-sale investment securities, comprised of debt and mortgage-backed securities, are those that may be sold before maturity due to changes in the Company's interest rate risk profile or funding needs, and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. Held-to-maturity investment securities are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company held no held-to-maturity securities at September 30, 2021 or December 31, 2020.

Realized gains and losses are recorded in noninterest income and are determined on a trade date basis using the specific identification method. Interest and dividends on investment securities are recognized in interest income on an accrual basis. Premiums and discounts are amortized or accreted into interest income using the interest method over the expected lives of the individual securities.

The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at September 30, 2021 and December 31, 2020:

	At September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	23,493	$	260	$	(132)	$	23,621
Agency mortgage-backed securities		29,432		525		(235)		29,722
Municipal securities		44,629		652		(642)		44,639
Corporate Securities		1,500		—		(10)		1,490
U.S. Government agency securities		64,965		26		(1,636)		63,355
Total securities available for sale	$	164,019	$	1,463	$	(2,655)	$	162,827

	At December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	24,261	$	396	$	(14)	$	24,643
Agency mortgage-backed securities		26,072		886		(10)		26,948
Municipal securities		28,675		740		(2)		29,413
Corporate Securities		—		—		—		—
U.S. Government agency securities		33,346		9		(310)		33,045
Total securities available for sale	$	112,354	$	2,031	$	(336)	$	114,049

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2021 and December 31, 2020 are as follows:

September 30, 2021	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	6,747	$	(126)	$	953	$	(6)	$	7,700	$	(132)
Agency mortgage-backed securities		9,738		(229)		221		(6)		9,959		(235)
Municipal securities		25,335		(642)		—		—		25,335		(642)
Corporate Securities		1,490		(10)		—		—		1,490		(10)
U.S. Government agency securities		45,025		(1,062)		12,499		(574)		57,524		(1,636)
	$	88,335	$	(2,069)	$	13,673	$	(586)	$	102,008	$	(2,655)

December 31, 2020	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	201	$	—	$	1,188	$	(14)	$	1,389	$	(14)
Agency mortgage-backed securities		—		—		566		(10)		566		(10)
Municipal securities		851		(2)		—		—		851		(2)
Corporate Securities		—		—		—		—		—		—
U.S. Government agency securities		24,160		(308)		481		(2)		24,641		(310)
	$	25,212	$	(310)	$	2,235	$	(26)	$	27,447	$	(336)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment upon adoption of ASC 326 on January 1, 2021 or as of September 30, 2021. As of September 30, 2021, the Company did not intend to sell the investment securities that were in an unrealized loss position. It is more likely than not that the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Municipal bonds are considered to have issuer(s) of high credit quality (rated A or higher) and the decline in fair value is due to changes in interest rates and other market conditions. Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating. The absence of a rating does not imply substandard quality. Non-rated corporate securities may be purchased from issuers operating in and around the Company’s operating footprint. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

At September 30, 2021, the Company recorded unrealized losses in its portfolio of debt securities totaling $2,655,000 related to 146 securities, which resulted from decreases in market value, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

At December 31, 2020, the Company recorded unrealized losses in its portfolio of debt securities totaling $336,000 related to 49 securities, which resulted from decreases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

Shown below are contractual maturities of debt securities at September 30, 2021. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	At September 30, 2021
	Amortized		Fair		Yield
(dollars in thousands)	Cost		Value		(1), (2)
Available for sale securities maturing:
Within one year	$	—	$	—	—	%
Over one to five years		2,134		2,161	1.94	%
Over five to ten years		19,283		19,348	1.61	%
Over ten years		142,602		141,318	2.13	%
Total debt securities	$	164,019	$	162,827

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(1) Yields are stated as book yields which are adjusted for amortization and accretion of purchase premiums and discounts, respectively.

(2) Yields on tax-exempt obligations are computed on a tax-equivalent basis.