HVBC 2016 Annual Report

18 Ginnie Mae is a government agency within the Department of Housing and Urban Development and is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. government with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Mortgage-Backed Securities . We invest in mortgage-backed securities insured or guaranteed by Ginnie Mae, Freddie Mac or Fannie Mae. We have not purchased privately-issued mortgage-backed securities. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Ginnie Mae, Freddie Mac or Fannie Mae. Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates. Municipal Securities . We invest in fixed-rate investment grade bonds issued primarily by municipalities in the Commonwealth of Pennsylvania. Bank Certificates of Deposit . We invest in certificates of deposit issued by geographically dispersed large financial institutions that are insured by the FDIC. The following table sets forth the amortized cost and fair value of our securities portfolio (excluding Federal Home Loan Bank of Pittsburgh common stock) at the dates indicated. At June 30, 2017 2016 2015 Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Securities available-for-sale: U.S. Government securities $ 4,330 $ 4,340 $ 1,493 $ 1,521 $ 2,958 $ 2,927 Corporate notes 11,231 11,226 8,423 8,327 5,822 5,683 Collateralized mortgage obligations 12,668 12,567 9,879 9,831 16,467 16,026 Mortgage-backed securities 4,520 4,435 6,980 7,009 7,033 6,888 Municipal securities 3,517 3,507 3,524 3,566 4,402 4,324 Bank certificates of deposit 6,742 6,745 2,994 3,027 2,249 2,240 Total securities available-for-sale $ 43,008 $ 42,820 $ 33,293 $ 33,281 $ 38,931 $ 38,088 Securities held-to-maturity: Corporate notes $ 2,000 $ 2,012 $ — $ — $ — $ — Municipal securities 9,809 9,884 5,825 5,941 4,744 4,732 Total securities held-to-maturity $ 11,809 $ 11,896 $ 5,825 $ 5,941 $ 4,744 $ 4,732