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Note 2 - 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 2. Securities

The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs and fair values of securities at September 30, 2022 and December 31, 2021 were as follows (in thousands):

		September 30, 2022
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized (Losses)				Fair Value
Securities available for sale:
U.S. Treasury securities		$	19,953			$	—			$	(2,422	)		$	17,531
U.S. agency and mortgage-backed securities			122,190				113				(16,000	)			106,303
Obligations of states and political subdivisions			64,472				20				(11,923	)			52,569
Total securities available for sale		$	206,615			$	133			$	(30,345	)		$	176,403
Securities held to maturity:
U.S. Treasury securities		$	37,994			$	—			$	(638	)		$	37,356
U.S. agency and mortgage-backed securities			101,321				—				(9,351	)			91,970
Obligations of states and political subdivisions			12,579				—				(1,701	)			10,878
Corporate debt securities			3,000				—				(284	)			2,716
Total securities held to maturity		$	154,894			$	—			$	(11,974	)		$	142,920
Total securities		$	361,509			$	133			$	(42,319	)		$	319,323

		December 31, 2021
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized (Losses)				Fair Value
Securities available for sale:
U.S. Treasury securities		$	39,871			$	37			$	(250	)		$	39,658
U.S. agency and mortgage-backed securities			177,131				1,085				(1,837	)			176,379
Obligations of states and political subdivisions			71,037				910				(509	)			71,438
Corporate debt securities			2,019				1				—				2,020
Total securities available for sale		$	290,058			$	2,033			$	(2,596	)		$	289,495
Securities held to maturity:
U.S. agency and mortgage-backed securities		$	26,392			$	124			$	(53	)		$	26,463
Obligations of states and political subdivisions			7,049				118				(13	)			7,154
Total securities held to maturity		$	33,441			$	242			$	(66	)		$	33,617
Total securities		$	323,499			$	2,275			$	(2,662	)		$	323,112

At September 30, 2022 and December 31, 2021, investments in an unrealized loss position that were temporarily impaired were as follows (in thousands):

September 30, 2022

Less than 12 months

12 months or more

Total

Fair Value
Unrealized (Loss)
Fair Value

Unrealized (Loss)

Fair Value

Unrealized (Loss)

Securities available for sale:

U.S. Treasury securities
$ 17,531 $ (2,422 ) $ — $ — $ 17,531 $ (2,422 )

U.S. agency and mortgage-backed securities
33,107 (2,596 ) 64,184 (13,404 ) 97,291 (16,000 )

Obligations of states and political subdivisions
33,128 (6,055 ) 17,036 (5,868 ) 50,164 (11,923 )

Total securities available for sale
$ 83,766 $ (11,073 ) $ 81,220 $ (19,272 ) $ 164,986 $ (30,345 )

Securities held to maturity:

U.S. Treasury securities
$ 28,517 $ (395 ) $ 8,839 $ (243 ) $ 37,356 $ (638 )

U.S. agency and mortgage-backed securities
68,723 (6,595 ) 18,242 (2,756 ) 86,965 (9,351 )

Obligations of states and political subdivisions
9,104 (1,576 ) 1,774 (125 ) 10,878 (1,701 )

Corporate debt securities
2,716 (284 ) — — 2,716 (284 )

Total securities held to maturity
$ 109,060 $ (8,850 ) $ 28,855 $ (3,124 ) $ 137,915 $ (11,974 )

Total securities
$ 192,826 $ (19,923 ) $ 110,075 $ (22,396 ) $ 302,901 $ (42,319 )

December 31, 2021

Less than 12 months

12 months or more

Total

Fair Value

Unrealized (Loss)

Fair Value

Unrealized (Loss)

Fair Value

Unrealized (Loss)

Securities available for sale:

U.S. Treasury securities
$ 29,656 $ (250 ) $ — $ — $ 29,656 $ (250 )

U.S. agency and mortgage-backed securities
109,950 (1,335 ) 14,749 (502 ) 124,699 (1,837 )

Obligations of states and political subdivisions
34,611 (500 ) 1,009 (9 ) 35,620 (509 )

Total securities available for sale
$ 174,217 $ (2,085 ) $ 15,758 $ (511 ) $ 189,975 $ (2,596 )

Securities held to maturity:

U.S. agency and mortgage-backed securities
$ 5,411 $ (53 ) $ — $ — $ 5,411 $ (53 )

Obligations of states and political subdivisions
999 (13 ) — — 999 (13 )

Total securities held to maturity
$ 6,410 $ (66 ) $ — $ — $ 6,410 $ (66 )

Total securities
$ 180,627 $ (2,151 ) $ 15,758 $ (511 ) $ 196,385 $ (2,662 )

The tables above provide information about securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Impairment is considered to be other-than-temporary if the Company (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does not expect to recover the security’s entire amortized cost basis. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.

On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity. The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders’ equity section of the Company’s balance sheet. The amortization of the unrealized loss on the transferred securities totaled $157 thousand, or $124 thousand net of tax, for the third quarter of 2022. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss. Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value.

At September 30, 2022, there were 12 out of 12 U.S. Treasury securities, 122 out of 145 U.S. agency and mortgage-backed securities, 111 out of 116 obligations of states and political subdivisions, and one out of one corporate debt securities in an unrealized loss position. One hundred percent of the Company’s investment portfolio is considered investment grade. The weighted-average re-pricing term of the portfolio was 6.1 years at September 30, 2022. At December 31, 2021, there were six out of eight U.S. Treasury securities, 58 out of 135 U.S. agency and mortgage-backed securities and 37 out of 118 obligations of states and political subdivisions in an unrealized loss position. One hundred percent of the Company’s investment portfolio was considered investment grade at December 31, 2021. The weighted-average re-pricing term of the portfolio was 5.2 years at December 31, 2021. The unrealized losses at September 30, 2022 in the U.S. Treasury securities portfolio, U.S. agency and mortgage-backed securities portfolio, obligations of states and political subdivisions portfolio, and the corporate debt securities portfolio were related to changes in market interest rates and not credit concerns of the issuers.

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

Available for Sale

Held to Maturity

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Due within one year
$ - $ - $ 907 $ 902

Due after one year through five years
17,612 16,341 44,214 43,113

Due after five years through ten years
53,590 48,051 27,267 24,698

Due after ten years
135,413 112,011 82,506 74,207

$ 206,615 $ 176,403 $ 154,894 $ 142,920

Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2022, and no impairment has been recognized.

The composition of restricted securities at September 30, 2022 and December 31, 2021 was as follows (in thousands):

September 30, 2022

December 31, 2021

Federal Home Loan Bank stock
$ 796 $ 701

Federal Reserve Bank stock
980 980

Community Bankers’ Bank stock
132 132

$ 1,908 $ 1,813

The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments without readily determinable fair values at their cost, less any impairment. The amounts included in other assets for the limited partnership investments were $566 thousand and $504 thousand at September 30, 2022 and December 31, 2021, respectively.