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Investment Securities | 9 Months Ended
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Sep. 30, 2020
Investment Securities |
Investment Securities | 7. Investment Securities The cost basis and fair values of investment securities are summarized as follows: Investment securities available for sale (AFS):
|  | SEPTEMBER 30, 2020
|  |  |  |  | GROSS |  | GROSS |  |  |
|  |  |  |  | UNREALIZED |  | UNREALIZED |  | FAIR
|  | COST BASIS |  | GAINS |  | LOSSES |  | VALUE
|  | (IN THOUSANDS)
U.S. Agency |  | $ | 3,079 |  | $ | 197 |  | $ | — |  | $ | 3,276
U.S. Agency mortgage-backed securities |  |  | 66,198 |  |  | 2,850 |  |  | (6) |  |  | 69,042
Municipal |  |  | 17,409 |  |  | 1,242 |  |  | — |  |  | 18,651
Corporate bonds |  |  | 50,586 |  |  | 557 |  |  | (396) |  |  | 50,747
Total |  | $ | 137,272 |  | $ | 4,846 |  | $ | (402) |  | $ | 141,716
Investment securities held to maturity (HTM):
|  | SEPTEMBER 30, 2020
|  |  |  |  | GROSS |  | GROSS |  |  |
|  |  |  |  | UNREALIZED |  | UNREALIZED |  | FAIR
|  | COST BASIS |  | GAINS |  | LOSSES |  | VALUE
|  | (IN THOUSANDS)
U.S. Agency mortgage-backed securities |  | $ | 7,719 |  | $ | 394 |  | $ | — |  | $ | 8,113
Municipal |  |  | 28,889 |  |  | 2,225 |  |  | (51) |  |  | 31,063
Corporate bonds and other securities |  |  | 6,028 |  |  | 108 |  |  | (4) |  |  | 6,132
Total |  | $ | 42,636 |  | $ | 2,727 |  | $ | (55) |  | $ | 45,308
Investment securities available for sale (AFS):
|  | DECEMBER 31, 2019
|  |  |  |  | GROSS |  | GROSS |  |  |
|  |  |  |  | UNREALIZED |  | UNREALIZED |  | FAIR
|  | COST BASIS |  | GAINS |  | LOSSES |  | VALUE
|  | (IN THOUSANDS)
U.S. Agency |  | $ | 5,084 |  | $ | 32 |  | $ | — |  | $ | 5,116
U.S. Agency mortgage-backed securities |  |  | 80,046 |  |  | 1,681 |  |  | (94) |  |  | 81,633
Municipal |  |  | 14,678 |  |  | 509 |  |  | (17) |  |  | 15,170
Corporate bonds |  |  | 39,769 |  |  | 342 |  |  | (281) |  |  | 39,830
Total |  | $ | 139,577 |  | $ | 2,564 |  | $ | (392) |  | $ | 141,749
Investment securities held to maturity (HTM):
|  | DECEMBER 31, 2019
|  |  |  |  | GROSS |  | GROSS |  |  |
|  |  |  |  | UNREALIZED |  | UNREALIZED |  | FAIR
|  | COST BASIS |  | GAINS |  | LOSSES |  | VALUE
|  | (IN THOUSANDS)
U.S. Agency mortgage-backed securities |  | $ | 9,466 |  | $ | 251 |  | $ | (4) |  | $ | 9,713
Municipal |  |  | 24,438 |  |  | 941 |  |  | (53) |  |  | 25,326
Corporate bonds and other securities |  |  | 6,032 |  |  | 58 |  |  | (47) |  |  | 6,043
Total |  | $ | 39,936 |  | $ | 1,250 |  | $ | (104) |  | $ | 41,082
Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of “A.” At September 30, 2020, 43.5% of the portfolio was rated “AAA” as compared to 53.4% at December 31, 2019. Approximately 14.8% of the portfolio was either rated below “A” or unrated at September 30, 2020 as compared to 9.1% at December 31, 2019. The Company sold no AFS securities during the third quarter or first nine months of 2020. Total proceeds from the sale of AFS securities for the third quarter and first nine months of 2019 were $2.8 million and $3.4 million, respectively, resulting in $88,000 and $118,000, respectively, of gross investment security gains. The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $113,126,000 at September 30, 2020 and $117,076,000 at December 31, 2019. The following tables present information concerning investments with unrealized losses as of September 30, 2020 and December 31, 2019 (in thousands): Total investment securities:
|  | SEPTEMBER 30, 2020
|  | LESS THAN 12 MONTHS |  | 12 MONTHS OR LONGER |  | TOTAL
|  | FAIR |  | UNREALIZED |  | FAIR |  | UNREALIZED |  | FAIR |  | UNREALIZED
|  | VALUE |  | LOSSES |  | VALUE |  | LOSSES |  | VALUE |  | LOSSES
U.S. Agency |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
U.S. Agency mortgage-backed securities |  |  | 1,438 |  |  | (5) |  |  | 138 |  |  | (1) |  |  | 1,576 |  |  | (6)
Municipal |  |  | 1,044 |  |  | (1) |  |  | 752 |  |  | (50) |  |  | 1,796 |  |  | (51)
Corporate bonds and other securities |  |  | 15,741 |  |  | (259) |  |  | 6,859 |  |  | (141) |  |  | 22,600 |  |  | (400)
Total |  | $ | 18,223 |  | $ | (265) |  | $ | 7,749 |  | $ | (192) |  | $ | 25,972 |  | $ | (457)
Total investment securities:
|  | DECEMBER 31, 2019
|  | LESS THAN 12 MONTHS |  | 12 MONTHS OR LONGER |  | TOTAL
|  | FAIR |  | UNREALIZED |  | FAIR |  | UNREALIZED |  | FAIR |  | UNREALIZED
|  | VALUE |  | LOSSES |  | VALUE |  | LOSSES |  | VALUE |  | LOSSES
U.S. Agency |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
U.S. Agency mortgage-backed securities |  |  | 7,084 |  |  | (23) |  |  | 8,562 |  |  | (75) |  |  | 15,646 |  |  | (98)
Municipal |  |  | 2,269 |  |  | (18) |  |  | 1,123 |  |  | (52) |  |  | 3,392 |  |  | (70)
Corporate bonds and other securities |  |  | 7,797 |  |  | (85) |  |  | 11,783 |  |  | (243) |  |  | 19,580 |  |  | (328)
Total |  | $ | 17,150 |  | $ | (126) |  | $ | 21,468 |  | $ | (370) |  | $ | 38,618 |  | $ | (496)
The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 35 positions that are considered temporarily impaired at September 30, 2020. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature. The interest rate environment and market yields can also have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of September 30, 2020, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 101.4% of the par value. Contractual maturities of securities at September 30, 2020 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at September 30, 2020 is 20.3 months and is lower than the duration at December 31, 2019 which was 36.9 months. The duration remains within our internally established guideline to not exceed 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability. Total investment securities:
|  | September 30, 2020
|  | Available for sale |  | Held to maturity
|  | Cost Basis |  | Fair Value |  | Cost Basis |  | Fair Value
Within 1 year |  | $ | 5,060 |  | $ | 5,093 |  | $ | 3,400 |  | $ | 3,403
After 1 year but within 5 years |  |  | 22,222 |  |  | 22,536 |  |  | 7,629 |  |  | 8,054
After 5 years but within 10 years |  |  | 48,851 |  |  | 50,395 |  |  | 17,115 |  |  | 18,607
After 10 years but within15 years |  |  | 19,253 |  |  | 20,120 |  |  | 9,395 |  |  | 9,946
Over 15 years |  |  | 41,886 |  |  | 43,572 |  |  | 5,097 |  |  | 5,298
Total |  | $ | 137,272 |  | $ | 141,716 |  | $ | 42,636 |  | $ | 45,308
As of September 30, 2020 and December 31, 2019, the Company reported $424,000 and $366,000, respectively, of equity securities within other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) is reported within other income on the Consolidated Statements of Operations. During the periods presented, the Company recorded both realized and unrealized gains/losses related to the equity securities. The amounts of such gains/losses were immaterial to the Consolidated Financial Statements. Additionally, the Company has recognized a deferred compensation liability, which is equal to the balance of the equity securities and is reported within other liabilities on the Consolidated Balance Sheets.

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