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.