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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2022

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, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

11,797

$

1

$

(1,265)

$

10,533

U.S. Agency mortgage-backed securities

102,631

64

(12,710)

89,985

Municipal

20,837

—

(1,799)

19,038

Corporate bonds

63,152

30

(3,230)

59,952

Total

$

198,417

$

95

$

(19,004)

$

179,508

Investment securities held to maturity:

DECEMBER 31, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

$

2,500

$

—

$

(432)

$

2,068

U.S. Agency mortgage-backed securities

18,877

8

(2,212)

16,673

Municipal

33,993

2

(3,880)

30,115

Corporate bonds and other securities

6,508

—

(172)

6,336

Total

$

61,878

$

10

$

(6,696)

$

55,192

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

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, 2022, 52.5% of the portfolio was rated AAA as compared to 47.1% at December 31, 2021. Approximately 14.7% of the portfolio was rated below A or unrated on December 31, 2022 and 2021. 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, 2022.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $134,002,000 at December 31, 2022 and $122,574,000 at December 31, 2021.

The Company realized $5,000 of gross investment security gains and $5,000 of gross investment security losses in 2022, realized $84,000 of gross investment security gains in 2021, and sold no investment securities during 2020. On a net basis, the realized gain for 2022 was zero and the realized gain for 2021 was $66,000 after factoring in tax expense of $18,000. Proceeds from sales of investment securities available for sale were $1.5 million for 2022 and $960,000 for 2021.

The Company’s consolidated investment securities portfolio had an effective duration of approximately 4.67 years. The weighted average expected maturity for available for sale securities at December 31, 2022 for U.S. agency, U.S. agency mortgage-backed, corporate bond, and municipal securities was 5.62, 6.99, 4.18, and 4.06 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2022 for U.S. agency, U.S. agency mortgage-backed, corporate bond/other securities, and municipal securities was 7.57, 7.39, 2.97, and 5.37 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, 2022.

Investment securities available for sale:

AT DECEMBER 31, 2022

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

$

—

$

1,065

$

6,000

$

—

$

7,065

After 1 year but within 5 years

4,279

12,538

26,039

1,488

44,344

After 5 years but within 10 years

6,000

7,234

30,463

5,577

49,274

Over 10 years

1,518

—

650

95,566

97,734

Total

$

11,797

$

20,837

$

63,152

$

102,631

$

198,417

FAIR VALUE

Within 1 year

$

—

$

1,045

$

5,970

$

—

$

7,015

After 1 year but within 5 years

4,102

11,873

25,084

1,431

42,490

After 5 years but within 10 years

5,048

6,120

28,364

5,264

44,796

Over 10 years

1,383

—

534

83,290

85,207

Total

$

10,533

$

19,038

$

59,952

$

89,985

$

179,508

Investment securities held to maturity:

AT DECEMBER 31, 2022

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

$

—

$

425

$

2,000

$

—

$

2,425

After 1 year but within 5 years

—

8,874

3,015

1,005

12,894

After 5 years but within 10 years

2,500

21,315

500

812

25,127

Over 10 years

—

3,379

993

17,060

21,432

Total

$

2,500

$

33,993

$

6,508

$

18,877

$

61,878

FAIR VALUE

Within 1 year

$

—

$

419

$

1,942

$

—

$

2,361

After 1 year but within 5 years

—

8,411

2,901

979

12,291

After 5 years but within 10 years

2,068

18,550

500

779

21,897

Over 10 years

—

2,735

993

14,915

18,643

Total

$

2,068

$

30,115

$

6,336

$

16,673

$

55,192

The following table presents information concerning investments with unrealized losses as of December 31, 2022 (in thousands):

Total investment securities:

DECEMBER 31, 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

$

5,446

$

(350)

$

6,653

$

(1,347)

$

12,099

$

(1,697)

U.S. Agency mortgage-backed securities

57,193

(4,018)

44,083

(10,904)

101,276

(14,922)

Municipal

37,175

(3,113)

11,475

(2,566)

48,650

(5,679)

Corporate bonds and other securities

39,549

(1,923)

16,721

(1,479)

56,270

(3,402)

Total

$

139,363

$

(9,404)

$

78,932

$

(16,296)

$

218,295

$

(25,700)

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 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 426 positions that are considered temporarily impaired at December 31, 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 December 31, 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.

As of December 31, 2022, 2021, and 2020, the Company reported $502,000, $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 loss on equity securities was $9,000 during 2022 while the realized gain on equity securities was $36,000 and $2,000 during 2021 and 2020, respectively. The unrealized loss was $13,000 in 2022 compared to an unrealized gain of $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.