Investment securities

9 Months Ended

Sep. 30, 2021

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at September 30, 2021 and December 31, 2020 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	135,816	$	191	$	610	$	135,397
U.S. government-sponsored enterprises		40,969		621				41,590
State and municipals:
Taxable		66,535		1,315		949		66,901
Tax-exempt		89,124		2,389		1,028		90,485
Residential mortgage-backed securities:
U.S. government agencies		2,087		71				2,158
U.S. government-sponsored enterprises		109,992		1,199		2,471		108,720
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,562		598				13,160
Corporate debt securities		3,000				39		2,961
Total	$	460,085	$	6,384	$	5,097	$	461,372
Held-to-maturity:
Tax-exempt state and municipals	$	10,384	$	146	$	59	$	10,471
Residential mortgage-backed securities:
U.S. government agencies		11,361				195		11,166
U.S. government-sponsored enterprises		11,103		4		188		10,919
Total	$	32,848	$	150	$	442	$	32,556

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	18,478	$	427			$	18,905
U.S. government-sponsored enterprises		63,834		1,354				65,188
State and municipals:
Taxable		53,297		2,099	$	30		55,366
Tax-exempt		53,977		3,054		37		56,994
Residential mortgage-backed securities:
U.S. government agencies		3,553		154				3,707
U.S. government-sponsored enterprises		79,457		1,930		136		81,251
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises		12,619		881				13,500
Corporate debt securities		1,000						1,000
Total	$	286,215	$	9,899	$	203	$	295,911
Held-to-maturity:
Tax-exempt state and municipals	$	6,849	$	275	$		$	7,124
Residential mortgage-backed securities:
U.S. government agencies		21						21
U.S. government-sponsored enterprises		355		13				368
Total	$	7,225	$	288	$		$	7,513

Equity Securities

At September 30, 2021, our equity security portfolio consisted of stock of one financial institution. At September 30, 2021 and December 31, 2020, we had $147 and $138 respectively, in equity securities recorded at fair value. At September 30, 2021, the fair value of our equity portfolio was lower than the cost basis by $6. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended September 30, 2021 (in thousands):

Three Months Ended September 30,		2021		2020
Net gain recognized during the period on equity securities	$	5	$	2
Less: Net gain (loss) recognized during the period on equity securities sold during the period
Unrealized gain recognized during the reporting period on equity securities still held at the reporting date	$	5	$	2
For the Nine Months Ended September 30,		2021		2020
Net gain (loss) recognized during the period on equity securities	$	9	$	(82)
Less: Net gain (loss) recognized during the period on equity securities sold during the period
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	9	$	(82)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank (“FHLB”) stock with a carrying cost of $3,874 and $5,355 at September 30, 2021 and December 31, 2020, respectively, Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42 at September 30, 2021 and December 31, 2020, respectively, and VISA Class B stock

with a carrying cost of $0 at September 30, 2021 and December 31, 2020, which are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member bank’s use of FHLB’s services.

On October 8, 2021, Peoples’ banking subsidiary, Peoples Security Bank and Trust Company (the “Bank”), agreed to sell its 44,982 shares of the Class B common stock of Visa Inc. for a purchase price of $12.2 million.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) periodically. As of September 30, 2021, there was no OTTI associated with these investments.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at September 30, 2021, is summarized as follows:

	Fair
September 30, 2021	Value
Within one year	$	38,277
After one but within five years		95,877
After five but within ten years		93,524
After ten years		106,538
		334,216
Mortgage-backed and other amortizing securities		127,156
Total	$	461,372

 The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at September 30, 2021, is summarized as follows:

	Amortized		Fair
September 30, 2021	Cost		Value
After five but within ten years	$	5,940	$	5,938
After ten years		4,444		4,533
		10,384		10,471
Mortgage-backed securities		22,464		22,085
Total	$	32,848	$	32,556

Securities with a carrying value of $195,104 and $165,982 at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At September 30, 2021 and December 31, 2020, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at September 30, 2021 and December 31, 2020, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2021	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	102,789	$	610					$	102,789	$	610
State and municipals:
Taxable		29,122		771	$	4,283	$	178	$	33,405	$	949
Tax-exempt		52,825		1,087						52,825		1,087
Residential mortgage-backed securities:
U.S. government agencies		11,279		195					$	11,279	$	195
U.S. government-sponsored enterprises		89,214		2,502		7,069		157		96,283		2,659
Corporate debt securities		2,961		39						2,961		39
Total	$	288,190	$	5,204	$	11,352	$	335	$	299,542	$	5,539

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
State and municipals:
Taxable	$	9,246	$	30					$	9,246	$	30
Tax-exempt		6,786		37						6,786		37
Residential mortgage-backed securities:
U.S. government-sponsored enterprises		11,553		135	$	284	$	1		11,837		136
Total	$	27,585	$	202	$	284	$	1	$	27,869	$	203

Management, from a credit risk perspective, has taken action to identify and assess its COVID-19 related credit exposures based on asset class. No specific COVID-19 related credit impairment was identified within our investment securities portfolio, including our municipal securities, during the first nine months of 2021. The Company had twenty mortgage-backed securities, sixty-five tax-exempt municipals, thirty-three taxable municipals and five corporate bonds that were in unrealized loss positions at September 30, 2021. Of these securities, four mortgage-backed securities and four taxable municipals were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no known material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at September 30, 2021. There was no OTTI recognized for the three or nine months ended September 30, 2021 and 2020.