7. Investment Securities

The cost basis and fair values of investment securities are summarized as follows:

Investment securities available for sale (AFS):


	March 31, 2021
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE
	(IN THOUSANDS)
U.S. Agency	$	6,786	$	135	$	(33)	$	6,888
U.S. Agency mortgage-backed securities		75,758		2,016		(899)		76,875
Municipal		19,859		1,001		(83)		20,777
Corporate bonds		51,040		1,002		(166)		51,876
Total	$	153,443	$	4,154	$	(1,181)	$	156,416

Investment securities held to maturity (HTM):


	March 31, 2021
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE
	(IN THOUSANDS)
U.S. Agency	$	1,500	$	—	$	—	$	1,500
U.S. Agency mortgage-backed securities		9,317		311		(91)		9,537
Municipal		30,935		1,797		(261)		32,471
Corporate bonds and other securities		6,025		79		(29)		6,075
Total	$	47,777	$	2,187	$	(381)	$	49,583

Investment securities available for sale (AFS):


	December 31, 2020
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE
	(IN THOUSANDS)
U.S. Agency	$	2,971	$	181	$	—	$	3,152
U.S. Agency mortgage-backed securities		65,398		2,533		(18)		67,913
Municipal		19,000		1,348		—		20,348
Corporate bonds		52,315		666		(229)		52,752
Total	$	139,684	$	4,728	$	(247)	$	144,165

Investment securities held to maturity (HTM):


	December 31, 2020
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE
	(IN THOUSANDS)
U.S. Agency mortgage-backed securities	$	8,119	$	369	$	—	$	8,488
Municipal		30,076		2,455		(49)		32,482
Corporate bonds and other securities		6,027		113		(4)		6,136
Total	$	44,222	$	2,937	$	(53)	$	47,106

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 March 31, 2021, 47.1% of the portfolio was rated “AAA” as compared to 42.2% at December 31, 2020. Approximately 13.8% of the portfolio was either rated below “A” or unrated at March 31, 2021 as compared to 15.2% at December 31, 2020.

The Company sold no AFS securities during the first quarter of 2021 and 2020.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $123,462,000 at March 31, 2021 and $111,694,000 at December 31, 2020.

The following tables present information concerning investments with unrealized losses as of March 31, 2021 and December 31, 2020 (in thousands):

Total investment securities:


	March 31, 2021
	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
	FAIR		UNREALIZED		FAIR		UNREALIZED		FAIR		UNREALIZED
	VALUE		LOSSES		VALUE		LOSSES		VALUE		LOSSES
U.S. Agency	$	1,967	$	(33)	$	—	$	—	$	1,967	$	(33)
U.S. Agency mortgage-backed securities		28,534		(989)		101		(1)		28,635		(990)
Municipal		8,958		(297)		751		(47)		9,709		(344)
Corporate bonds and other securities		9,466		(130)		7,435		(65)		16,901		(195)
Total	$	48,925	$	(1,449)	$	8,287	$	(113)	$	57,212	$	(1,562)

Total investment securities:


	December 31, 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 mortgage-backed securities	$	6,394	$	(17)	$	123	$	(1)	$	6,517	$	(18)
Municipal		—		—		751		(49)		751		(49)
Corporate bonds and other securities		13,083		(162)		7,929		(71)		21,012		(233)
Total	$	19,477	$	(179)	$	8,803	$	(121)	$	28,280	$	(300)

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 76 positions that are considered temporarily impaired at March 31, 2021. 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 March 31, 2021, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 101.1% of the par value.

Contractual maturities of securities at March 31, 2021 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 March 31, 2021 is 39.4 months and is higher than the duration at December 31, 2020 which was 25.4 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:


	March 31, 2021
	Available for sale				Held to maturity
	Cost Basis		Fair Value		Cost Basis		Fair Value
Within 1 year	$	4,587	$	4,634	$	3,400	$	3,398
After 1 year but within 5 years		26,757		27,575		8,164		8,552
After 5 years but within 10 years		50,613		51,944		19,061		20,270
After 10 years but within15 years		14,788		15,380		10,162		10,326
Over 15 years		56,698		56,883		6,990		7,037
Total	$	153,443	$	156,416	$	47,777	$	49,583

As of March 31, 2021 and December 31, 2020, the Company reported $474,000 and $443,000, 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.