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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2021

INVESTMENT SECURITIES

INVESTMENT SECURITIES

5. INVESTMENT SECURITIES

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

Investment securities available for sale:

DECEMBER 31, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

7,371

$

86

$

(70)

$

7,387

U.S. Agency mortgage-backed securities

80,136

1,202

(1,171)

80,167

Municipal

20,066

851

(25)

20,892

Corporate bonds

53,843

1,028

(146)

54,725

Total

$

161,416

$

3,167

$

(1,412)

$

163,171

Investment securities held to maturity:

DECEMBER 31, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

2,500

$

—

$

(11)

$

2,489

U.S. Agency mortgage-backed securities

10,556

203

(115)

10,644

Municipal

33,188

1,734

(103)

34,819

Corporate bonds and other securities

7,507

64

(7)

7,564

Total

$

53,751

$

2,001

$

(236)

$

55,516

Investment securities available for sale:


		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:


		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 Investors Service or Standard & Poor’s rating of A. At December 31, 2021, 47.1% of the portfolio was rated AAA as compared to 42.2% at December 31, 2020. Approximately 14.7% and 15.2% of the portfolio was rated below A or unrated on December 31, 2021 and 2020, respectively. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. agencies, that exceeded 10% of shareholders’ equity at December 31, 2021.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $122,574,000 at December 31, 2021 and $111,694,000 at December 31, 2020.

The Company realized $84,000 of gross investment security gains in 2021, sold no investment securities during 2020, and realized $118,000 of gross investment security gains in 2019. On a net basis, the realized gain for 2021 was $66,000 after factoring in tax expense of $18,000 and the realized gain for 2019 was $93,000 after factoring in tax expense of $25,000. Proceeds from sales of investment securities available for sale were $960,000 for 2021 and $3.4 million for 2019.

The Company’s consolidated investment securities portfolio had an effective duration of approximately 3.46 years. The weighted average expected maturity for available for sale securities at December 31, 2021 for U.S. agency, U.S. agency mortgage-backed, corporate bond, and municipal securities was 8.50, 5.29, 4.83, and 4.63 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2021 for U.S. agency, U.S. agency mortgage-backed, corporate bond/other securities, and municipal securities was 8.40, 5.33, 4.19, and 6.05 years, respectively. The following table sets forth the contractual maturity distribution of the investment securities, cost basis and fair market values as of December 31, 2021.

Investment securities available for sale:

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

MORTGAGE-

SECURITIES

CORPORATE

BACKED

AVAILABLE

U. S. AGENCY

MUNICIPAL

BONDS

SECURITIES

FOR SALE

(IN THOUSANDS)

COST BASIS

Within 1 year

$

—

$

700

$

3,002

$

22

$

3,724

After 1 year but within 5 years

—

11,099

22,648

2,034

35,781

After 5 years but within 10 years

5,497

8,267

27,543

6,657

47,964

Over 10 years

1,874

—

650

71,423

73,947

Total

$

7,371

$

20,066

$

53,843

$

80,136

$

161,416

FAIR VALUE

Within 1 year

$

—

$

708

$

3,014

$

23

$

3,745

After 1 year but within 5 years

—

11,647

22,797

2,133

36,577

After 5 years but within 10 years

5,438

8,537

28,250

6,910

49,135

Over 10 years

1,949

—

664

71,101

73,714

Total

$

7,387

$

20,892

$

54,725

$

80,167

$

163,171

Investment securities held to maturity:

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

CORPORATE

MORTGAGE-

SECURITIES

BONDS AND

BACKED

HELD TO

U.S. AGENCY

MUNICIPAL

OTHER

SECURITIES

MATURITY

(IN THOUSANDS)

COST BASIS

Within 1 year

$

—

$

200

$

—

$

—

$

200

After 1 year but within 5 years

—

5,130

6,021

1,037

12,188

After 5 years but within 10 years

2,500

21,287

500

457

24,744

Over 10 years

—

6,571

986

9,062

16,619

Total

$

2,500

$

33,188

$

7,507

$

10,556

$

53,751

FAIR VALUE

Within 1 year

$

—

$

205

$

—

$

—

$

205

After 1 year but within 5 years

—

5,431

6,078

1,064

12,573

After 5 years but within 10 years

2,489

22,540

500

485

26,014

Over 10 years

—

6,643

986

9,095

16,724

Total

$

2,489

$

34,819

$

7,564

$

10,644

$

55,516

The following table presents information concerning investments with unrealized losses as of December 31, 2021 (in thousands):

Total investment securities:

DECEMBER 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

$

7,419

$

(81)

$

—

$

—

$

7,419

$

(81)

U.S. Agency mortgage-backed securities

45,422

(972)

6,691

(314)

52,113

(1,286)

Municipal

7,832

(128)

—

—

7,832

(128)

Corporate bonds and other securities

14,558

(92)

2,439

(61)

16,997

(153)

Total

$

75,231

$

(1,273)

$

9,130

$

(375)

$

84,361

$

(1,648)

The following table presents information concerning investments with unrealized losses as of December 31, 2020 (in thousands):

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 89 positions that are considered temporarily impaired at December 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 December 31, 2021, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 101.0% of the par value.

As of December 31, 2021 and 2020, the Company reported $526,000 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. The realized gain on equity securities was $36,000 and $2,000 during 2021 and 2020, respectively. The unrealized gain was $7,000 and $3,000 in 2021 and 2020, respectively. 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.