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Investment Securities

6 Months Ended

Jun. 30, 2021

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):

June 30, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

6,725

$

161

$

—

$

6,886

U.S. Agency mortgage-backed securities

83,598

1,806

(580)

84,824

Municipal

19,358

1,106

(12)

20,452

Corporate bonds

52,538

1,206

(63)

53,681

Total

$

162,219

$

4,279

$

(655)

$

165,843

Investment securities held to maturity (HTM):

June 30, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

2,500

$

4

$

—

$

2,504

U.S. Agency mortgage-backed securities

11,612

292

(58)

11,846

Municipal

31,931

2,101

(86)

33,946

Corporate bonds and other securities

7,509

88

(2)

7,595

Total

$

53,552

$

2,485

$

(146)

$

55,891

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 June 30, 2021, 49.1% of the portfolio was rated “AAA” as compared to 42.2% at December 31, 2020. Approximately 14.4% of the portfolio was either rated below “A” or unrated at June 30, 2021 as compared to 15.2% at December 31, 2020.

Total proceeds from the sale of AFS securities for the second quarter and first six months of 2021 were $960,000 resulting in $84,000 of gross investment security gains. The Company sold no AFS securities during the second quarter or first six months of 2020.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $116,752,000 at June 30, 2021 and $111,694,000 at December 31, 2020.

The following tables present information concerning investments with unrealized losses as of June 30, 2021 and December 31, 2020 (in thousands):

Total investment securities:

June 30, 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 mortgage-backed securities

$

28,931

$

(637)

$

93

$

(1)

$

29,024

$

(638)

Municipal

4,542

(54)

752

(44)

5,294

(98)

Corporate bonds and other securities

5,843

(57)

3,993

(8)

9,836

(65)

Total

$

39,316

$

(748)

$

4,838

$

(53)

$

44,154

$

(801)

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 48 positions that are considered temporarily impaired at June 30, 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 June 30, 2021, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 101.2% of the par value.

Contractual maturities of securities at June 30, 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 June 30, 2021 is 38.8 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:

June 30, 2021

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

$

3,575

$

3,627

$

3,000

$

2,999

After 1 year but within 5 years

32,800

33,881

8,155

8,553

After 5 years but within 10 years

46,739

48,276

23,536

25,083

After 10 years but within15 years

13,090

13,639

9,441

9,761

Over 15 years

66,015

66,420

9,420

9,495

Total

$

162,219

$

165,843

$

53,552

$

55,891