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Investment Securities

9 Months Ended

Sep. 30, 2022

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

	September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	109,097		15		6,333		102,779
State and political subdivisions		41		-		-		41
Mortgage backed securities and collateralized mortgage obligations - residential		297,131		-		35,889		261,242
Corporate bonds		85,764		-		4,762		81,002
Small Business Administration - guaranteed participation securities		24,883		-		2,385		22,498
Other		686		-		29		657
Total Securities Available for Sale	$	517,602		15		49,398		468,219

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	59,976		-		797		59,179
State and political subdivisions		41		-		-		41
Mortgage backed securities and collateralized mortgage obligations - residential		269,907		3,367		2,476		270,798
Corporate bonds		45,805		157		625		45,337
Small Business Administration - guaranteed participation securities		31,303		371		-		31,674
Other		685		-		1		684
Total Securities Available for Sale	$	407,717		3,895		3,899		407,713

The following table categorize the debt securities included in the available for sale portfolio as of September 30, 2022, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

	Amortized		Fair
(dollars in thousands)	Cost		Value

Due in one year or less	$	5,043		5,018
Due after one year through five years		186,045		174,946
Due after five years through ten years		4,500		4,515
Mortgage backed securities and collateralized mortgage obligations - residential		297,131		261,242
Small Business Administration - guaranteed participation securities		24,883		22,498
	$	517,602		468,219

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	September 30, 2022
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unreal.
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	43,300		1,315		54,964		5,018		98,264		6,333
Mortgage backed securities and collateralized mortgage obligations - residential		175,486		17,560		85,755		18,329		261,241		35,889
Corporate bonds		62,343		3,226		18,659		1,536		81,002		4,762
Small Business Administration - guaranteed participation securities		22,497		2,385		-		-		22,497		2,385
Other		621		29		-		-		621		29

Total	$	304,247		24,515		159,378		24,883		463,625		49,398

	December 31, 2021
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unreal.
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	49,279		697		9,900		100		59,179		797
Mortgage backed securities and collateralized mortgage obligations - residential		93,447		1,888		22,098		588		115,545		2,476
Corporate bonds		15,670		171		14,546		454		30,216		625
Other		648		1		-		-		648		1

Total	$	159,044		2,757		46,544		1,142		205,588		3,899

There were no allowance for credit losses recorded for securities available for sale during the three or nine months ended September 30, 2022.

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30, 2022 and 2021 are as follows:

	Three months ended September 30,
(dollars in thousands)	2022		2021

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		14,376		47,100
Proceeds from maturities		5,000		3,500
Gross realized gains		-		-
Gross realized losses		-		-

	Nine months ended September 30,
(dollars in thousands)	2022		2021

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		57,714		123,550
Proceeds from maturities		15,050		8,555
Gross realized gains		-		-
Gross realized losses		-		-

There were no transfers of securities available for sale during the three and nine months ended September 30, 2022 and 2021.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

	September 30, 2022
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	8,091		122		275		7,938
Total held to maturity	$	8,091		122		275		7,938

	December 31, 2021
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	9,923		773		1		10,695
Total held to maturity	$	9,923		773		1		10,695

The following table categorizes the debt securities included in the held to maturity portfolio as of September 30, 2022, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands)	Amortized		Fair
	Cost		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	8,091		7,938
	$	8,091		7,938

All held to maturity securities are held at cost on the financial statements. As of September 30, 2022 and December 31, 2021 held to maturity securities with a fair value of $3.7 million and $442 thousand had an unrecognized loss of less than 12 months of $275 thousand and one thousand, respectively.

There were no sales or transfers of held to maturity securities during the three months ended September 30, 2022 and 2021.

There were no allowance for credit losses recorded for held to maturity securities during the three and nine months ended September 30, 2022. As of September 30, 2022, there were no securities on non-accrual status and all securities were performing in accordance with contractual terms.

Debt Securities

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or it is more likely than not it will be required to sell the debt security before its anticipated recovery. The assessment of whether any other‑than‑temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2022, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2022.

Mortgage backed securities and collateralized mortgage obligations – residential: At September 30, 2022, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other‑than‑temporarily impaired at September 30, 2022.

Small Business Administration (SBA) - guaranteed participation securities: At September 30, 2022, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2022.

Corporate Bonds & Other: At September 30, 2022, corporate bonds held by the Company are investment grade quality. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2022.