Securities Portfolio

12 Months Ended

Dec. 31, 2021

NOTE 3, Securities Portfolio

The amortized cost and fair value, with gross unrealized gains and losses, of securities available-for-sale were:

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		(Losses)			Value
U.S. Treasury securities	$	15,052	$	-	$	(148	)	$	14,904
Obligations of U.S. Government agencies		38,651		75		(168	)		38,558
Obligations of state and political subdivisions		64,132		1,948		(277	)		65,803
Mortgage-backed securities		88,511		1,348		(801	)		89,058
Money market investments		2,413		-		-			2,413
Corporate bonds and other securities		23,441		261		(117	)		23,585
	$	232,200	$	3,632	$	(1,511	)	$	234,321

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollars in thousands)	Cost		Gains		(Losses)			Value
U.S. Treasury securities	$	6,980	$	63	$	-		$	7,043
Obligations of U.S. Government agencies		36,858		35		(197	)		36,696
Obligations of state and political subdivisions		43,517		2,478		-			45,995
Mortgage-backed securities		70,866		2,759		(124	)		73,501
Money market investments		4,743		-		-			4,743
Corporate bonds and other securities		18,295		158		(22	)		18,431
	$	181,259	$	5,493	$	(343	)	$	186,409

Securities with a fair value of $59.3 million and $69.4 million at December 31, 2021 and 2020, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, FHLB advances and for other purposes required or permitted by law.

At December 31, 2021, the Company held no securities of any single issuer (excluding U.S. Government agencies) with a book value that exceeded 10 percent of stockholders’ equity.

The amortized cost and fair value of securities by contractual maturity are shown below.

	December 31, 2021
	Amortized		Fair
(Dollars in thousands)	Cost		Value
Due in one year or less	$	200	$	195
Due after one year through five years		13,045		13,341
Due after five through ten years		69,739		70,559
Due after ten years		146,803		147,813
Other securities, restricted		2,413		2,413
	$	232,200	$	234,321

The following table provides information about securities sold in the years ended December 31:

	Year Ended December 31,
(Dollars in thousands)	2021		2020
Securities Available-for-sale
Realized gains on sales of securities	$	-	$	265
Realized losses on sales of securities		-		(1	)
Net realized gain	$	-	$	264

OTHER-THAN-TEMPORARILY IMPAIRED SECURITIES

Management assesses whether the Company intends to sell or it is more-likely-than-not that the Company will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the Company separates the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of expected future cash flows is due to factors that are not credit related and is recognized in accumulated other comprehensive income on the consolidated balance sheets.

The present value of expected future cash flows is determined using the best-estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best-estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds, and structural support, including subordination and guarantees.

The Company has a process in place to identify debt securities that could potentially have a credit or interest-rate related impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts, and cash flow projections as indicators of credit issues. On a quarterly basis, management reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. Management considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (a) the extent and length of time the fair value has been below cost; (b) the reasons for the decline in value; (c) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (d) for fixed maturity securities, the Company’s intent to sell a security or whether it is more-likely-than-not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company’s ability and intent to hold the security for a period of time that allows for the recovery in value.

The Company did not record impairment charges through income on securities for the years ended December 31, 2021 and 2020.

The following tables show the number of securities with unrealized losses, the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated:

	December 31, 2021
	Less than 12 months				12 months or more				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury securities	$	148	$	14,904	$	-	$	-	$	148	$	14,904
Obligations of U.S. Government agencies		131		19,181		37		5,042		168		24,223
Obligations of state and political subdivisions		277		20,673		-		-		277		20,673
Mortgage-backed securities		608		35,882		193		6,450		801		42,332
Corporate bonds and other securities		117		9,833		-		-		117		9,833
Total securities available-for-sale	$	1,281	$	100,473	$	230	$	11,492	$	1,511	$	111,965

	December 31, 2020
	Less than 12 months				12 months or more				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
Obligations of U.S. Government agencies	$	8	$	2,810	$	189	$	17,191	$	197	$	20,001
Mortgage-backed securities		118		14,291		6		1,285		124		15,576
Corporate bonds and other securities		22		5,977		-		-		22		5,977
Total securities available-for-sale	$	148	$	23,078	$	195	$	18,476	$	343	$	41,554

Certain investments within the Company’s portfolio had unrealized losses at December 31, 2021 and December 31, 2020, as shown in the tables above. The unrealized losses were primarily driven by changes in market interest rates. The Company purchases only highly-rated securities, including U.S. government agencies and mortgage-backed securities guaranteed by government-sponsored entities. The municipal and corporate securities portfolios are reviewed regularly to ensure that ratings of individual securities have not deteriorated below the threshold established by the Company’s policy.

Because the Company does not intend to sell the investments and management believes it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company does not consider the investments to be other-than-temporarily impaired at December 31, 2021 or December 31, 2020.

As of December 31, 2021, there were 9 individual available-for-sale securities with a total fair value of $11.5 million that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $230 thousand and consisted of government agency obligations and mortgage-backed securities. As of December 31, 2020, there were 12 individual available-for-sale securities with a fair value totaling $18.5 million that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $195 thousand and consisted of government agency obligations and mortgage-backed securities. The Company has determined that these securities are temporarily impaired at December 31, 2021 and 2020 for the reasons set out below:

Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.

Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Restricted Stock

The restricted stock category is comprised of FHLB, Federal Reserve Bank, and CBB stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, these investments are carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered.