INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2022

INVESTMENT SECURITIES

INVESTMENT SECURITIES

NOTE 4 – INVESTMENT SECURITIES

Investment securities are accounted for according to their purpose and holding period. Trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company held no trading securities at September 30, 2022 or December 31, 2021. Available-for-sale investment securities, comprised of debt and mortgage-backed securities, are those that may be sold before maturity due to changes in the Company's interest rate risk profile or funding needs, and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income. Held-to-maturity investment securities are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company held no held-to-maturity securities at September 30, 2022 or December 31, 2021.

Realized gains and losses are recorded in noninterest income and are determined on a trade date basis using the specific identification method. Interest and dividends on investment securities are recognized in interest income on an accrual basis. Premiums and discounts are amortized or accreted into interest income using the interest method over the expected lives of the individual securities.

The following table summarizes the amortized cost and estimated fair value of the Company’s investment securities portfolio at September 30, 2022 and December 31, 2021:

	At September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	18,295	$	16	$	(2,124)	$	16,187
Agency mortgage-backed securities		60,630		—		(7,404)		53,226
Municipal securities		43,121		5		(12,272)		30,854
Corporate Securities		1,559		—		(160)		1,399
U.S. Government agency securities		45,483		1		(8,949)		36,535
U.S. Treasury securities		6,992		—		(213)		6,779
Total securities available for sale	$	176,080	$	22	$	(31,122)	$	144,980

	At December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	21,730	$	169	$	(211)	$	21,688
Agency mortgage-backed securities		56,252		356		(419)		56,189
Municipal securities		44,594		811		(180)		45,225
Corporate Securities		1,500		—		(26)		1,474
U.S. Government agency securities		32,616		4		(1,269)		31,351
Total securities available for sale	$	156,692	$	1,340	$	(2,105)	$	155,927

The gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	9,719	$	(658)	$	4,375	$	(1,466)	$	14,094	$	(2,124)
Agency mortgage-backed securities		46,341		(5,622)		6,761		(1,782)		53,102		(7,404)
Municipal securities		17,838		(6,226)		12,256		(6,046)		30,094		(12,272)
Corporate Securities		58		(1)		1,340		(159)		1,398		(160)
U.S. Government agency securities		16,502		(1,101)		19,734		(7,848)		36,236		(8,949)
U.S. Treasury securities		6,779		(213)		—		—		6,779		(213)
	$	97,237	$	(13,821)	$	44,466	$	(17,301)	$	141,703	$	(31,122)

December 31, 2021	Less than 12 months				12 months or more				Total
Securities available for sale:	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(dollars in thousands)
Collateralized mortgage obligations	$	7,917	$	(194)	$	876	$	(17)	$	8,793	$	(211)
Agency mortgage-backed securities		42,109		(414)		197		(5)		42,306		(419)
Municipal securities		18,603		(180)		—		—		18,603		(180)
Corporate Securities		1,474		(26)		—		—		1,474		(26)
U.S. Government agency securities		13,976		(420)		15,942		(849)		29,918		(1,269)
U.S. Treasury securities		—		—		—		—		—		—
	$	84,079	$	(1,234)	$	17,015	$	(871)	$	101,094	$	(2,105)

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment upon adoption of ASC 326 on January 1, 2021 or as of September 30, 2022. As of September 30, 2022, the Company did not intend to sell the investment securities that were in an unrealized loss position. It is more likely than not that the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Municipal bonds are considered to have issuer(s) of high credit quality (rated A or higher) and the decline in fair value is due to changes in interest rates and other market conditions. Corporate securities are non-rated investments that are booked as a debt security where rating agencies do not provide a rating. The absence of a rating does not imply substandard quality. Non-rated corporate securities may be purchased

from issuers operating in and around the Company’s operating footprint. The issuer(s) continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bond(s) approach maturity.

At September 30, 2022, the Company recorded unrealized losses in its portfolio of debt securities totaling $31,122,000 related to 246 securities, which resulted from decreases in market value, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

At December 31, 2021, the Company recorded unrealized losses in its portfolio of debt securities totaling $2,105,000 related to 116 securities, which resulted from decreases in market interest rates, spread volatility, and other factors that management deems to be temporary. Management does not believe the securities are impaired due to reasons of credit quality. Since management believes that it is more likely than not that the Company will not be required to sell these securities prior to maturity or a full recovery of the amortized cost, the Company does not consider these securities to have a credit loss impairment.

Shown below are contractual maturities of debt securities at September 30, 2022. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	At September 30, 2022
	Amortized		Fair		Yield
(dollars in thousands)	Cost		Value		(1), (2)
Available for sale securities maturing:
Within one year	$	—	$	—	—	%
Over one to five years		24,517		23,656	2.37	%
Over five to ten years		39,149		34,674	1.90	%
Over ten years		112,414		86,650	2.23	%
Total debt securities	$	176,080	$	144,980

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(1) Yields are stated as book yields which are adjusted for amortization and accretion of purchase premiums and discounts, respectively.

(2) Yields on tax-exempt obligations are computed on a tax-equivalent basis.