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Investment Securities

6 Months Ended

Jun. 30, 2022

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, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

10,009

$

—

$

(723)

$

9,286

U.S. Agency mortgage-backed securities

97,467

58

(8,144)

89,381

Municipal

21,543

36

(1,046)

20,533

Corporate bonds

54,329

136

(1,413)

53,052

Total

$

183,348

$

230

$

(11,326)

$

172,252

Investment securities held to maturity (HTM):

June 30, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

2,500

$

—

$

(313)

$

2,187

U.S. Agency mortgage-backed securities

15,709

27

(1,383)

14,353

Municipal

34,287

64

(2,185)

32,166

Corporate bonds and other securities

6,507

—

(98)

6,409

Total

$

59,003

$

91

$

(3,979)

$

55,115

Investment securities available for sale (AFS):


		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 (HTM):


		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

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, 2022, 52.2% of the portfolio was rated “AAA” as compared to 47.1% at December 31, 2021. Approximately 13.3% of the portfolio was either rated below “A” or unrated at June 30, 2022 as compared to 14.7% at December 31, 2021.

The Company sold no AFS securities during the second quarter or first six months of 2022. 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 carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $122,240,000 at June 30, 2022 and $122,574,000 at December 31, 2021.

The following tables present information concerning investments with unrealized losses as of June 30, 2022 and December 31, 2021 (in thousands):

Total investment securities:

June 30, 2022

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED

VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES

U.S. Agency

$

10,599

$

(911)

$

874

$

(125)

$

11,473

$

(1,036)

U.S. Agency mortgage-backed securities

78,840

(6,307)

15,874

(3,220)

94,714

(9,527)

Municipal

42,300

(3,052)

1,591

(179)

43,891

(3,231)

Corporate bonds and other securities

41,606

(1,446)

1,436

(65)

43,042

(1,511)

Total

$

173,345

$

(11,716)

$

19,775

$

(3,589)

$

193,120

$

(15,305)

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 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 376 positions that are considered temporarily impaired at June 30, 2022. 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, 2022, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 100.9% of the par value.

Contractual maturities of securities at June 30, 2022 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, 2022 is 52.0 months and is higher than the duration at December 31, 2021 which was 41.5 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, 2022

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

$

5,427

$

5,426

$

200

$

201

After 1 year but within 5 years

36,336

35,632

12,555

12,372

After 5 years but within 10 years

51,117

48,844

24,299

22,908

Over 10 years

90,468

82,350

21,949

19,634

Total

$

183,348

$

172,252

$

59,003

$

55,115