Note 3. Investment Securities

A summary of the amortized cost and market value of securities available for sale at December 31, 2020 and 2019 is as follows:


	At December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collaterized mortgage obligations	$	24,261	$	396	$	(14)	$	24,643
Agency mortgage-backed securities		26,072		886		(10)		26,948
Municipal securities		28,675		740		(2)		29,413
U.S. Government agency securities		33,346		9		(310)		33,045
U.S. Treasury securities		—		—		—		—

Total securities available for sale	$	112,354	$	2,031	$	(336)	$	114,049


	At December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collaterized mortgage obligations	$	27,618	$	52	$	(187)	$	27,483
Agency mortgage-backed securities		27,823		149		(135)		27,837
Municipal securities		12,301		191		(17)		12,475
U.S. Government agency securities		3,195		1		(5)		3,191
U.S. Treasury securities		500		—		—		500

Total securities available for sale	$	71,437	$	393	$	(344)	$	71,486

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2020 and 2019:


	At December 31, 2020
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

Collaterized mortgage obligations	$	201	$	—	$	1,188	$	(14)	$	1,389	$	(14)
Agency mortgage-backed securities		—		—		566		(10)		566		(10)
Municipal securities		851		(2)		—		—		851		(2)
U.S. Government agency securities		24,160		(308)		481		(2)		24,641		(310)

	$	25,212	$	(310)	$	2,235	$	(26)	$	27,447	$	(336)


	At December 31, 2019
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

Collaterized mortgage obligations	$	11,792	$	(65)	$	7,330	$	(122)	$	19,122	$	(187)
Agency mortgage-backed securities		4,577		(20)		10,918		(115)		15,495		(135)
Municipal securities		1,806		(7)		864		(10)		2,670		(17)
U.S. Government agency securities		591		(5)		—		—		591		(5)

	$	18,766	$	(97)	$	19,112	$	(247)	$	37,878	$	(344)

At December 31, 2020 and 2019, the Company did not have any securities that had impairment charges.

The Company's investment securities portfolio consists primarily of debt securities issued by U.S. Government agencies, U.S. Government-sponsored agencies, state governments and local municipalities. There were no private label mortgage-backed securities ("MBS") or collateralized mortgage obligations ("CMO") held in the investment securities portfolio as of December 31, 2020 and December 31, 2019.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders' equity as a component of accumulated other comprehensive income or loss, net of tax. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An other-than-temporary impairment ("OTTI") loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified as available for sale.

The Company held forty-two U.S. Government agency, four collateralized mortgage obligations, and two agency mortgage-backed securities that were in an unrealized loss position at December 31, 2020. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of December 31, 2020.

All municipal securities held in the investment portfolio are reviewed on at least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody's or Standard & Poor's. In addition the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Maryland and Texas and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At December 31, 2020, the investment portfolio included one municipal securities that was in an unrealized loss position. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of any credit deterioration.

At December 31, 2020 and 2019, investment securities in the amount of approximately $0.9 and $0.8 million, respectively were pledged as collateral for interest rate swap contracts.

Unrealized losses on securities in the investment portfolio amounted to $0.3 million with a total fair value of $27.4 million as of December 31, 2020 compared to unrealized losses of $0.3 million with a total fair value of $37.9 million as of December 31, 2019. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in a particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

In 2018, the Board of Directors at Maryland Financial Bank (“MFB”) determined that it was advisable and in the best interests of stockholders to undertake the liquidation and dissolution of MFB. In 2018, the Bank recognized an impairment loss of $25,000 on the 5,000 shares of MFB stock that it owned. On July 16, 2019, all remaining assets and liabilities of MFB were transferred to the MFB Dissolution Trust (the “Trust”). The purpose of the Trust is to liquidate the remaining assets, resolve the remaining liabilities, and to distribute the net proceeds. The Trust is intended to be a "liquidating trust" for U.S. federal income tax purposes. At December 31, 2019, the Trust was unable to complete all its activities and make cash liquidating distributions to its stockholders due to the bankruptcy of a borrower that has a commercial real estate loan. In 2019, the Bank reduced its investment in the Trust to the projected value of $0.53 per share and decreased the value of its Trust units from $5,000 to $2,650, a $2,350 decrease in value.

The following table presents investment securities by stated maturity at December 31, 2020. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.


	At December 31, 2020
	Amortized		Fair
(dollars in thousands)	Cost		Value


Due within one year	$	456	$	461
Due over one to five years		1,380		1,409
Due over five to ten years		483		481
Due over ten years		59,702		60,107
Collaterized mortgage obligations		24,261		24,643
Agency mortgage-backed securities		26,072		26,948

Total securities available for sale	$	112,354	$	114,049

Proceeds from sales of available for sale securities prior to maturity totaled $21.4 million for the year ended December 31, 2019. No investment securities were sold in 2020. The Bank realized net gains of $6,000 and $3,000 for the years ended December 31, 2020 and 2019, respectively. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade.