Held to Maturity Securities (HTM)

Brief Definition

Held to maturity (HTM) securities are financial assets that a company intends and is able to hold until they reach their maturity date. These are typically fixed-income investments like bonds, which pay periodic interest and return the principal amount at maturity.

Further Explanation

Held to maturity (HTM) securities are financial assets that a company intends and is able to hold until they reach their maturity date. These are typically fixed-income investments like bonds, which pay periodic interest and return the principal amount at maturity. HTM securities are recorded at amortized cost on the balance sheet, meaning their value is adjusted for any premiums or discounts at purchase, rather than at their current market value. This classification helps reduce the impact of market price fluctuations on the company’s financial statements.

Example:
If a company buys a $10,000 bond with a 10-year maturity and a 4% annual interest rate, intending to hold it until maturity, the bond will be classified as an HTM security. Each year, the company receives $400 in interest income. The bond is recorded at its initial purchase cost of $10,000, adjusted for any amortization, rather than its market value, which might fluctuate.