Note 7 - Investment and Equity Securities

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

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

NOTE 7 – INVESTMENT AND EQUITY SECURITIES

The amortized cost and fair values of investment securities available for sale are as follows:

	September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	32,300	$	6	$	(1,793	)	$	30,513
Obligations of states and political subdivisions:
Taxable		500		-		-			500
Tax-exempt		152,297		24		(29,107	)		123,214
Mortgage-backed securities in  government-sponsored entities		8,714		4		(881	)		7,837
Total	$	193,811	$	34	$	(31,781	)	$	162,064

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
Subordinated debt	$	32,300	$	356	$	(119	)	$	32,537
Obligations of states and political subdivisions:
Taxable		500		2		-			502
Tax-exempt		122,877		4,307		(341	)		126,843
Mortgage-backed securities in government-sponsored entities		10,140		257		(80	)		10,317
Total	$	165,817	$	4,922	$	(540	)	$	170,199

Equity securities totaled $972,000 and $818,000 at September 30, 2022 and December 31, 2021, respectively.

The Company recognized a net loss on equity investments of $57,000 and $96,000, respectively, for the three and nine months ended September 30, 2022. The Company recognized a net gain on equity investments of $102,000 and $223,000, respectively, for the three and nine months ended September 30, 2021. No net gains on sold equity securities were realized from sales during these periods.

The amortized cost and fair value of debt securities at September 30, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	601	$	603
Due after one year through five years		2,709		2,671
Due after five years through ten years		45,209		42,783
Due after ten years		145,292		116,007
Total	$	193,811	$	162,064

There were no securities sold during the three and nine months ended September 30, 2022, and 2021, respectively.

Investment securities with an approximate carrying value of $87.7 million and $77.1 million on September 30, 2022, and December 31, 2021, respectively, were pledged to secure deposits and for other purposes as required by law.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	September 30, 2022
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
Subordinated debt	$	21,957	$	(993	)	$	8,050	$	(800	)	$	30,007	$	(1,793	)
Obligations of states and political subdivisions:
Tax-exempt		104,880		(24,096	)		11,242		(5,011	)		116,122		(29,107	)
Mortgage-backed securities in government-sponsored entities		5,954		(533	)		1,332		(348	)		7,286		(881	)
Total	$	132,791	$	(25,622	)	$	20,624	$	(6,159	)	$	153,415	$	(31,781	)

	December 31, 2021
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
Subordinated debt	$	9,150	$	(100	)	$	731	$	(19	)	$	9,881	$	(119	)
Obligations of states and political subdivisions:
Tax-exempt		24,273		(341	)		-		-			24,273		(341	)
Mortgage-backed securities in government-sponsored entities		-		-			1,980		(80	)		1,980		(80	)
Total	$	33,423	$	(441	)	$	2,711	$	(99	)	$	36,134	$	(540	)

There were 174 securities in an unrealized loss position for less than twelve months and 28 securities in an unrealized loss position for twelve months or greater on September 30, 2022.

Every quarter, the Company assesses whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security before recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for 81% of the total available-for-sale portfolio as of September 30, 2022, and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of the state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis;

• Changes in the near-term prospects of the underlying collateral of a security, such as changes in default rates, loss severity given default, and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry, and actions taken by the issuer to deal with the present economic climate.

For the three and nine months ended September 30, 2022, and 2021, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of September 30, 2022, or December 31, 2021, represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities, and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.