Investment Securities

12 Months Ended

Dec. 31, 2023

Investment Securities

Investment Securities

Note 3. Investment Securities

A summary of the amortized cost and market value of securities available for sale at December 31, 2023 and 2022 is as follows:

	At December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	15,962	$	8	$	(2,309)	$	13,661
Agency mortgage-backed securities		51,930		—		(5,816)		46,114
Municipal securities		42,990		4		(9,265)		33,729
U.S. Government agency securities		45,406		—		(7,712)		37,694
Corporate securities		1,500		—		(216)		1,284
U.S. Treasury securities		6,999		—		(54)		6,945
Total securities available for sale	$	164,787	$	12	$	(25,372)	$	139,427

	At December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Collateralized mortgage obligations	$	17,596	$	7	$	(2,348)	$	15,255
Agency mortgage-backed securities		58,801		—		(6,908)		51,893
Municipal securities		43,092		1		(10,796)		32,297
U.S. Government agency securities		45,471		—		(8,891)		36,580
Corporate securities		1,500		—		(175)		1,325
U.S. Treasury securities		6,993		—		(210)		6,783
Total securities available for sale	$	173,453	$	8	$	(29,328)	$	144,133

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 December 31, 2023 or December 31, 2022. 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 or loss. 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 December 31, 2023 or December 31, 2022.

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 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, 2023 and 2022:

	At December 31, 2023
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	492	$	(1)	$	11,927	$	(2,308)	$	12,419	$	(2,309)
Agency mortgage-backed securities		5		—		46,109		(5,816)		46,114		(5,816)
Municipal securities		2,978		(39)		28,667		(9,226)		31,645		(9,265)
U.S. Government agency securities		220		(1)		37,474		(7,711)		37,694		(7,712)
Corporate securities		—		—		1,284		(216)		1,284		(216)
U.S. Treasury securities		—		—		6,944		(54)		6,944		(54)
	$	3,695	$	(41)	$	132,405	$	(25,331)	$	136,100	$	(25,372)

	At December 31, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Collateralized mortgage obligations	$	8,315	$	(364)	$	6,127	$	(1,984)	$	14,442	$	(2,348)
Agency mortgage-backed securities		20,029		(1,308)		31,865		(5,600)		51,894		(6,908)
Municipal securities		18,456		(5,438)		13,340		(5,358)		31,796		(10,796)
U.S. Government agency securities		13,526		(474)		22,767		(8,417)		36,293		(8,891)
Corporate securities		—		—		1,325		(175)		1,325		(175)
U.S. Treasury securities		6,783		(210)		—		—		6,783		(210)
	$	67,109	$	(7,794)	$	75,424	$	(21,534)	$	142,533	$	(29,328)

At December 31, 2023 and 2022, 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, Corporate securities, 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, 2023 and December 31, 2022.

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 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 December 31, 2023. As of December 31, 2023, 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.

The Company held fifty-seven U.S. Government agency, seventy-two collateralized mortgage obligations, one treasury security and eighty-three agency mortgage-backed securities that were in an unrealized loss position at December 31, 2023. 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 credit loss impairment 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, 2023.

The Company held one corporate security that was in an unrealized loss position at December 31, 2023. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of any credit deterioration.

All municipal securities held in the investment portfolio are reviewed on at least a quarterly basis for credit loss 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 consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At December 31, 2023, the investment portfolio included thirty-one municipal securities that were 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, 2023 and 2022, investment securities in the amount of approximately $13.2 million and $0, respectively, were pledged as collateral under the Federal Reserve’s Bank Term Funding Program.

Unrealized losses on securities in the investment portfolio amounted to $25.4 million with a total fair value of $136.1 million as of December 31, 2023 compared to unrealized losses of $29.3 million with a total fair value of $142.5 million as of December 31, 2022. 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.

The following table presents investment securities by stated maturity at December 31, 2023. 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, 2023
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year	$	20,998	$	20,814
Due over one to five years		5,080		4,584
Due over five to ten years		14,665		12,621
Due over ten years		56,152		41,633
Collateralized mortgage obligations		15,962		13,661
Agency mortgage-backed securities		51,930		46,114
Total securities available for sale	$	164,787	$	139,427

No investment securities were sold in 2023 or 2022.