Investment Securities

12 Months Ended

Dec. 31, 2020

Investments, Debt and Equity Securities [Abstract]

As of December 31, 2020, and 2019, the investment portfolio was comprised primarily of debt securities, with a small portion of the portfolio invested in equity securities.

See also Item (d), "Restricted Cash and Investments" and Item (e), "Investments," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements of this Form 10-K, contained above, for further information regarding the accounting for the Company's investments portfolio and FHLB Stock. See Note 17, "Fair Value Measurements," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information regarding the Company's fair value measurements for investment securities.

Debt Securities

As of December 31, 2020, and 2019, all of the Company's debt securities were classified as available-for-sale and carried at fair value. The amortized cost and fair values of debt securities at December 31, 2020 and 2019 are summarized as follows:


	2020
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value

Residential federal agency MBS(1)	$	209,923	$	6,339	$	287	$	215,975
Commercial federal agency MBS(1)	102,468		7,726		—		110,194
Taxable municipal securities	135,117		9,293		3		144,407
Tax-exempt municipal securities	88,235		7,216		—		95,451
Corporate bonds	10,448		828		—		11,276
Subordinated corporate bonds	5,000		—		—		5,000

Total debt securities, at fair value	$	551,191	$	31,402	$	290	$	582,303


	2019
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	999	$	5	$	—	$	1,004
Residential federal agency MBS(1)	190,392		2,599		333		192,658
Commercial federal agency MBS(1)	111,182		3,453		—		114,635
Taxable municipal securities	79,095		2,726		134		81,687
Tax-exempt municipal securities	95,342		4,696		—		100,038
Corporate bonds	13,826		485		—		14,311
CDs(2)	454		1		—		455
Total debt securities, at fair value	$	491,290	$	13,965	$	467	$	504,788

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(1)These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as, investments guaranteed by Ginnie Mae ("GNMA"), a wholly-owned government entity.

(2)CDs represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.

As of the dates reflected in the tables above, the majority of residential and commercial federal agency MBS categories were collateralized mortgage obligations ("CMOs") issued by U.S. agencies. The remaining MBS investments totaled $18.7 million, and $23.5 million at December 31, 2020 and 2019, respectively.

Net unrealized gains and losses on debt securities available-for-sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss). The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall. Due to the fixed rate nature of this portfolio, as market rates fall the value of the portfolio rises, and as market rates rise, the value of the portfolio declines. The

unrealized gains or losses on debt securities will also decline as the securities approach maturity. Unrealized losses on debt securities that are deemed OTTI are generally charged to earnings, as described further in Note 1, "Summary of Significant Accounting Policies," of this Form 10-K under Item (e), "Investments." Gains or losses will be recognized in the Consolidated Statement of Income if the debt securities are sold.

The following tables summarize debt securities with unrealized losses, due to the fair values having declined below the amortized costs of the individual investments, by the duration of their continuous unrealized loss positions at December 31, 2020 and 2019:


	2020
	Less than 12 months				12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings

Residential federal agency MBS	$	51,396	$	284	$	2,107	$	3	$	53,503	$	287	10

Taxable municipal securities	1,997		3		—		—		1,997		3		4



Total temporarily impaired debt securities	$	53,393	$	287	$	2,107	$	3	$	55,500	$	290	14


	2019
	Less than 12 months				12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings

Residential federal agency MBS	$	36,464	$	263	$	5,060	$	70	$	41,524	$	333	11

Taxable municipal securities	16,826		134		—		—		16,826		134		15



Total temporarily impaired debt securities	$	53,290	$	397	$	5,060	$	70	$	58,350	$	467	26

Management regularly reviews the portfolio for debt securities with unrealized losses that are other-than-temporarily impaired. During the years ended December 31, 2020 and 2019, the Company did not record any OTTI on its investments in debt securities and at December 31, 2020, management did not consider any debt securities to have OTTI.

The process for assessing investments for OTTI may vary depending on the type of debt security. In assessing the Company's investments in federal agency mortgage-backed securities and federal agency obligations, the contractual cash flows of these investments are guaranteed by the respective government sponsored enterprise (FHLMC, FNMA, FFCB, or FHLB) or wholly-owned government corporation (GNMA). Accordingly, the Company does not have the intent to sell any of the securities that are in an unrealized loss position and have concluded that it is not more likely than not that it will have to sell securities prior to forecasted recovery. Management's assessment of other debt securities within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investments' materiality, and duration of the investments' unrealized loss position. In addition, the Company utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios, within prescribed guidelines set by management, and to provide assistance in assessing the credit risk of those portfolios. At December 31, 2020, the Company's corporate and municipal bond portfolios did not contain any securities below investment grade, as reported by major credit rating agencies.

The contractual maturity distribution at December 31, 2020 of debt securities was as follows:


(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	3,044	$	3,064
Due after one, but within five years	101,461		108,845
Due after five, but within ten years	173,137		187,404
Due after ten years	273,549		282,990
Total debt securities	$	551,191	$	582,303

Scheduled contractual maturities shown above may not reflect the actual maturities of the investments. The actual MBS/CMO cash flows likely will be faster than presented above due to prepayments and amortization. Similarly,

included in the table above are callable securities, comprised of municipal securities and corporate bonds, with a fair value of $127.0 million at December 31, 2020, which can be redeemed by the issuers prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.

From time to time the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the FRB. The fair value of debt securities pledged as collateral for these purposes was $577.3 million and $503.5 million at December 31, 2020 and 2019, respectively.

Sales of debt securities, for the years ended December 31, 2020, 2019, and 2018 are summarized as follows:


(Dollars in thousands)	2020		2019		2018
Amortized cost of debt securities sold(1)	$	5,680	$	11,621	$	122,652
Gross realized gains on sales(2)	227		149		25
Gross realized losses on sales	—		(3)		(2,975)
Total proceeds from sales of debt securities	$	5,907	$	11,767	$	119,702

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(1) Amortized cost of investments sold is determined on a specific identification basis and includes pending trades based on trade date, if applicable.

(2) Immaterial amount of capital gain distributions realized from mutual funds included in 2018.

Tax-exempt interest earned on the municipal securities portfolio was $3.5 million for the year ended December 31, 2020, $3.8 million for the year ended December 31, 2019, and $4.5 million for the year ended December 31, 2018.

The average balance of tax-exempt investments was $91.0 million and $99.8 million for the years ended December 31, 2020 and December 31, 2019, respectively.

Equity Securities

As of December 31, 2020, the Company held equity securities with a fair value of $746 thousand, compared to $467 thousand at December 31, 2019. At December 31, 2020, the equity portfolio consisted primarily of investments in common stock of individual entities in the financial services industry and mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan. Also included in the equity portfolio were investments with a fair value of $476 thousand and $135 thousand at December 31, 2020 and December 31, 2019, respectively, held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Gains and losses on equity securities at December 31, 2020 and December 31, 2019 are summarized as follows:


(Dollars in thousands)	2020		2019
Unrealized (losses) gains recognized during the reporting period on equity securities still held at year end	$	(38)	$	208
Less: Net (losses) gains realized on equity securities sold during the period	(11)		159
Net (losses) gains recognized during the period on equity securities	$	(49)	$	367