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Investment Securities

9 Months Ended

Sep. 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):

September 30, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

7,536

$

127

$

(28)

$

7,635

U.S. Agency mortgage-backed securities

77,963

1,610

(813)

78,760

Municipal

19,258

1,062

(18)

20,302

Corporate bonds

52,561

1,197

(102)

53,656

Total

$

157,318

$

3,996

$

(961)

$

160,353

Investment securities held to maturity (HTM):

September 30, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

2,500

$

—

$

—

$

2,500

U.S. Agency mortgage-backed securities

11,078

272

(101)

11,249

Municipal

32,856

1,973

(95)

34,734

Corporate bonds and other securities

7,508

80

(1)

7,587

Total

$

53,942

$

2,325

$

(197)

$

56,070

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 September 30, 2021, 47.6% of the portfolio was rated “AAA” as compared to 42.2% at December 31, 2020. Approximately 15.0% of the portfolio was either rated below “A” or unrated at September 30, 2021 as compared to 15.2% at December 31, 2020.

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

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $119,809,000 at September 30, 2021 and $111,694,000 at December 31, 2020.

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

Total investment securities:

September 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

$

5,971

$

(28)

$

—

$

—

$

5,971

$

(28)

U.S. Agency mortgage-backed securities

45,487

(909)

462

(5)

45,949

(914)

Municipal

7,053

(113)

—

—

7,053

(113)

Corporate bonds and other securities

8,451

(48)

2,445

(55)

10,896

(103)

Total

$

66,962

$

(1,098)

$

2,907

$

(60)

$

69,869

$

(1,158)

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 73 positions that are considered temporarily impaired at September 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 September 30, 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 September 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 September 30, 2021 is 37.1 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:

September 30, 2021

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

$

3,150

$

3,188

$

—

$

—

After 1 year but within 5 years

34,390

35,443

12,293

12,768

After 5 years but within 10 years

44,850

46,275

23,084

24,509

After 10 years but within15 years

13,608

14,082

9,877

10,105

Over 15 years

61,320

61,365

8,688

8,688

Total

$

157,318

$

160,353

$

53,942

$

56,070