Note 3 – Investment Securities

Debt Securities

The amortized cost and fair value of securities are as follows:


	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
SECURITIES AVAILABLE FOR SALE:
Debt Securities
U.S. government agencies	$	2,010	$	364	$	-	$	2,374
Municipal bonds		44,816		1,089		(32)		45,873
Mortgage-backed securities:
Collateralized mortgage obligations-private label		19		-		-		19
Collateralized mortgage obligations-government sponsored entities		25,091		674		(15)		25,750
Government National Mortgage Association		128		12		-		140
Federal National Mortgage Association		4,520		125		-		4,645
Federal Home Loan Mortgage Corporation		2,419		173		-		2,592
Asset-backed securities-private label		-		171		-		171
Asset-backed securities-government sponsored entities		31		3		-		34
Total Debt Securities	$	79,034	$	2,611	$	(47)	$	81,598
Equity Securities		22		21		-		43
Total Securities Available for Sale	$	79,056	$	2,632	$	(47)	$	81,641


	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
SECURITIES AVAILABLE FOR SALE:
Debt Securities
U.S. government agencies	$	2,011	$	134	$	-	$	2,145
Municipal bonds		34,985		835		(1)		35,819
Mortgage-backed securities:
Collateralized mortgage obligations-private label		23		-		-		23
Collateralized mortgage obligations-government sponsored entities		27,081		393		(133)		27,341
Government National Mortgage Association		162		14		-		176
Federal National Mortgage Association		1,944		69		-		2,013
Federal Home Loan Mortgage Corporation		3,211		156		-		3,367
Asset-backed securities-private label		-		215		-		215
Asset-backed securities-government sponsored entities		33		2		-		35
Total Debt Securities	$	69,450	$	1,818	$	(134)	$	71,134
Equity Securities		22		45		-		67
Total Securities Available for Sale	$	69,472	$	1,863	$	(134)	$	71,201

Debt Securities

All of our collateralized mortgage obligations are backed by one- to four-family residential mortgages.

At September 30, 2020, thirty-two municipal bonds with a cost of $10.7 million and fair value of $11.2 million were pledged under a collateral agreement with the Federal Reserve Bank (“FRB”) of New York for liquidity borrowing. At December 31, 2019, thirty-three municipal bonds with a cost of $10.9 million and fair value of $11.2 million were pledged with the FRB. In addition, at September 30, 2020 seventeen municipal bonds with a cost of $3.9 million and fair value of $4.1 million were pledged as collateral for customer deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At December 31, 2019, sixteen municipal bonds with a cost of $3.6 million and fair value of $3.7 million were pledged as collateral for customer deposits in excess of the FDIC insurance limits.

The following table sets forth the Company’s investment in securities available for sale with gross unrealized losses of less than twelve months and gross unrealized losses of twelve months or more and associated fair values as of the dates indicated:


	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
September 30, 2020
Municipal bonds	$	3,757		(32)	$	-	$	-	$	3,757	$	(32)
Mortgage-backed securities		2,246		(14)		152		(1)		2,398		(15)
	$	6,003	$	(46)	$	152	$	(1)	$	6,155	$	(47)


December 31, 2019
Municipal bonds	$	399		(1)	$	-	$	-	$	399	$	(1)
Mortgage-backed securities		423		(3)		10,676		(130)		11,099		(133)
	$	822	$	(4)	$	10,676	$	(130)	$	11,498	$	(134)

The Company reviews all investment securities on an ongoing basis for the presence of other-than-temporary-impairment (“OTTI”) with formal reviews performed quarterly.

At September 30, 2020, the Company’s investment portfolio included fourteen securities in the “unrealized losses less than twelve months” category and five securities in the “unrealized losses twelve months or more” category. Management has the intent and ability to hold these securities until maturity. Management believes the temporary impairments were due to declines in fair value resulting from changes in interest rates and/or increased credit liquidity spreads since the securities were purchased. The unrealized losses on debt securities shown in the previous tables were recorded as a component of other comprehensive income, net of tax expense on the Company’s consolidated statements of stockholders’ equity.

The following table presents a summary of the credit-related OTTI charges recognized as components of income:


	For the Nine Months Ended September 30,
	2020		2019
	(Dollars in thousands)
Beginning balance	$	294	$	347
Additions:
Credit loss not previously recognized		-		-
Reductions:
Losses realized during the period on OTTI previously recognized		-		-
Receipt of cash flows on previously recorded OTTI		(48)		(39)
Ending balance	$	246	$	308

A deterioration in credit quality and/or other factors that may limit the liquidity of a security in our portfolio might adversely affect the fair values of the Company’s investment portfolio and may increase the potential that certain unrealized losses will be designated as “other-than-temporary” and that the Company may incur additional write-downs in future periods.

During the nine months ended September 30, 2020 and 2019, the Company did not sell any available for sale debt securities.

Scheduled contractual maturities of available for sale debt securities are as follows:


	Amortized		Fair
	Cost		Value
	(Dollars in thousands)
September 30, 2020:
Less than one year	$	895	$	897
After one year through five years		7,416		7,472
After five years through ten years		13,684		14,221
After ten years		24,831		25,657
Mortgage-backed securities		32,177		33,146
Asset-backed securities		31		205
	$	79,034	$	81,598

Equity Securities

At September 30, 2020 and December 31, 2019, equity securities consisted of 22,368 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) common stock. During the three months ended September 30, 2020 and 2019, the Company recognized an unrealized loss of $6,000 and an unrealized gain of $22,000, respectively, on the equity securities, which was recorded in non-interest income in the consolidated statements of income. During the nine months ended September 30, 2020 and 2019, the Company recognized an unrealized loss of $24,000 and an unrealized gain of $57,000, respectively, on the equity securities. There were no sales of equity securities during the three and nine months ended September 30, 2020 and 2019.