Note 3 - Investment Securities

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3.) Investment Securities:

Investments in debt securities are classified as held-to-maturity, available-for-sale or trading. Securities classified as held-to-maturity are those that management has the positive intent and ability to hold to maturity. Securities classified as available-for-sale are those that could be sold for liquidity, investment management, or similar reasons, even though management has no present intentions to do so. Securities classified as trading are those that management has bought principally for the purpose of selling in the near term. The Company currently has no securities classified as held-to-maturity or trading.

Available-for-sale securities are carried at fair value with unrealized gains and losses recorded as a separate component of shareholders’ equity, net of tax. Realized gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. Interest income includes amortization of purchase premium or discount and is amortized on the level-yield method without anticipating payments, except for U.S. Government mortgage-backed and related securities where twelve months of historical prepayments are taken into consideration.

The regulatory stock is carried at cost (its redeemable value) and the Company is required to hold such investments as a condition of membership in order to transact business with the Federal Home Loan Bank (FHLB) of Cincinnati and the Federal Reserve Bank (FRB). The stock is bought from and sold to the correspondent institutions based upon its par value. The stock cannot be traded or sold in any market and as such is classified as restricted stock, carried at cost (its redeemable value) and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB and FRB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB and FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and FRB and (d) the liquidity position of the FHLB and FRB. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020.

Securities are evaluated periodically to determine whether a decline in value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, along with the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline in value is permanent but indicates that the prospect for a near-term recovery of value is not necessarily favorable and that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Unrealized losses on available-for-sale investments have not been recognized into income. However, once a decline in value is determined to be other-than-temporary, the credit related other-than-temporary impairment (OTTI) is recognized in earnings while the non-credit related OTTI on securities not expected to be sold is recognized in other comprehensive income (loss).

The following table is a summary of investment securities available-for-sale and regulatory stock: 

	(Amounts in thousands)
			Gross		Gross
			Unrealized		Unrealized
September 30, 2020	Amortized Cost		Gains		Losses		Fair Value
U.S. Government agencies and corporations	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		84,264		4,174		27		88,411
U.S. Government-sponsored mortgage-backed securities		66,929		1,014		28		67,915
U.S. Government-sponsored collateralized mortgage obligations		5,507		112		3		5,616
U.S. Government-guaranteed small business administration pools		5,474		161		—		5,635
Total investment securities available-for-sale	$	162,174	$	5,461	$	58	$	167,577
Federal Home Loan Bank (FHLB) stock	$	2,805	$	—	$	—	$	2,805
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	3,031	$	—	$	—	$	3,031

	(Amounts in thousands)
			Gross		Gross
			Unrealized		Unrealized
December 31, 2019	Amortized Cost		Gains		Losses		Fair Value
U.S. Government agencies and corporations	$	3,348	$	1	$	39	$	3,310
Obligations of states and political subdivisions		67,794		1,853		21		69,626
U.S. Government-sponsored mortgage-backed securities		48,566		75		404		48,237
U.S. Government-sponsored collateralized mortgage obligations		8,447		78		44		8,481
U.S. Government-guaranteed small business administration pools		6,576		—		99		6,477
Total investment securities available-for-sale	$	134,731	$	2,007	$	607	$	136,131
Federal Home Loan Bank (FHLB) stock	$	2,609	$	—	$	—	$	2,609
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,835	$	—	$	—	$	2,835

The amortized cost and fair value of debt securities at September 30, 2020, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

	(Amounts in thousands)
	Amortized Cost		Fair Value
Due in one year or less	$	69	$	70
Due after one year through five years		5,176		5,298
Due after five years through ten years		2,146		2,295
Due after ten years		82,347		86,383
Total		89,738		94,046
U.S. Government-sponsored mortgage-backed and related securities		72,436		73,531
Total investment securities available-for-sale	$	162,174	$	167,577

The table below sets forth the proceeds, gains and losses realized on available for sale securities sold or called for the periods ended September 30, 2020 and September 30, 2019.

	(Amounts in thousands)				(Amounts in thousands)
	Three Months Ended				Nine Months Ended
	2020		2019		2020		2019
Proceeds on securities sold	$	—	$	—	$	2,610	$	13,622
Gross realized gain		—		—		27		82
Gross realized losses		—		—		9		126

Investment securities with a carrying value of approximately $87.3 million at  September 30, 2020 and $59.0 million at December 31, 2019 were pledged to secure deposits and for other purposes. The remaining securities provide an adequate level of liquidity.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at September 30, 2020:  

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Government agencies and corporations	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		3,532		27		—		—		3,532		27
U.S. Government-sponsored mortgage-backed securities		6,873		28		—		—		6,873		28
U.S. Government-sponsored collateralized mortgage obligations		992		3		—		—		992		3
U.S. Government-guaranteed small business administration pools		—		—		—		—		—		—
Total	$	11,397	$	58	$	—	$	—	$	11,397	$	58

The above table comprises 6 investment securities where the fair value is less than the related amortized cost.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at December 31, 2019:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Government agencies and corporations	$	2,961	$	39	$	—	$	—	$	2,961	$	39
Obligations of states and political subdivisions		263		1		1,332		20		1,595		21
U.S. Government-sponsored mortgage-backed securities		—		—		34,124		404		34,124		404
U.S. Government-sponsored collateralized mortgage obligations		931		7		3,944		37		4,875		44
U.S. Government-guaranteed small business administration pools		5,600		78		877		21		6,477		99
Total	$	9,755	$	125	$	40,277	$	482	$	50,032	$	607

The above table comprises 32 investment securities where the fair value is less than the related amortized cost.

The unrealized losses at September 30, 2020 on the Company’s investments were caused by changes in market rates and related spreads. It is expected that the securities would not be settled at less than the amortized cost of the Company’s investment because the decline in fair value is attributable to changes in interest rates and relative spreads and not credit quality. Also, the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2020.