Investment Securities

6 Months Ended

Jun. 30, 2020

Investment Securities.

Investment Securities

(5)      Investment Securities

The amortized cost and fair values of investment securities are as follows:

	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
June 30, 2020:
Available-for-sale:
U.S. government-sponsored mortgage-backed securities	$	3,782	$	430	$	—	$	4,212
Total	$	3,782	$	430	$	—	$	4,212
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	332,533	$	19,267	$	(1)	$	351,799
Total	$	332,533	$	19,267	$	(1)	$	351,799
December 31, 2019:
Available-for-sale:
U.S. government-sponsored mortgage-backed securities	$	7,905	$	723	$	—	$	8,628
Total	$	7,905	$	723	$	—	$	8,628
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	363,883	$	8,436	$	(1,014)	$	371,305
Total	$	363,883	$	8,436	$	(1,014)	$	371,305

The amortized cost and estimated fair value of investment securities by maturity date at June 30, 2020 are shown below. Incorporated in the maturity schedule are mortgage-backed securities, which are allocated using the contractual maturity as a basis. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value
Available-for-sale:
Due within 5 years	$	—	$	—
Due after 5 years through 10 years		—		—
Due after 10 years		3,782		4,212
Total	$	3,782	$	4,212
Held-to-maturity:
Due within 5 years	$	1	$	1
Due after 5 years through 10 years		66		65
Due after 10 years		332,466		351,733
Total	$	332,533	$	351,799

Realized gains and losses and the proceeds from sales of held-to-maturity and available-for-sale securities are shown in the table below.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2020		2019		2020		2019
Proceeds from sales	$	5,710	$	1,595	$	8,360	$	4,336
Gross gains		419		70		597		2,787
Gross losses		—		—		—		—

During the six months ended June 30, 2020, the Company sold $4.4 million of held-to-maturity mortgage-backed securities and recorded a gain of $307,000. During the six months ended June 30, 2019, the Company sold its $75,000 investment in its trust preferred security, PreTSL XXIII, and recorded a gain of $2.7 million and sold $746,000 of held-to-maturity mortgage-backed securities and recorded a gain of $40,000. The sale of the trust preferred security, which had a significant deterioration in the issuer’s credit rating, and the sale of the mortgage-backed securities, for which the Company had already collected a substantial portion of the outstanding purchased principal (at least 85%), were in accordance with the Investments – Debt and Equity Securities topic of the FASB ASC and do not taint management’s assertion of its intent to hold the remaining securities in the held-to-maturity portfolio to maturity.

During the six months ended June 30, 2020, the Company sold $3.4 million of available-for-sale mortgage-backed securities and recorded a gain of $290,000. During the six months ended June 30, 2019, the Company sold $779,000 of available-for-sale mortgage-backed securities and recorded a gain of $30,000.

As of January 1, 2019, the Company transferred securities with an amortized cost of $11.4 million from held-to-maturity to available-for-sale with the adoption of ASU 2017-12 on derivatives and hedging.

Investment securities with amortized costs of $212.3 million and $188.9 million at June 30, 2020 and December 31, 2019, respectively, were pledged to secure deposits made by state and local governments, securities sold under agreements to repurchase and transaction clearing accounts.

Provided below is a summary of investment securities that were in an unrealized loss position at June 30, 2020 and December 31, 2019. The Company does not intend to sell held-to-maturity and available-for-sale securities until

such time as the value recovers or the securities mature and it is not more likely than not that the Company will be required to sell the securities prior to recovery of value or the securities mature.

	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized		Number of			Unrealized
Description of securities	Fair Value		Losses		Fair Value		Losses		Securities	Fair Value		Losses
(Dollars in thousands)
June 30, 2020:
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	59	$	(1)	$	—	$	—	5	$	59	$	(1)
December 31, 2019:
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	55,882	$	(302)	$	34,492	$	(712)	30	$	90,374	$	(1,014)

Mortgage-Backed Securities. The unrealized losses on the Company’s investment in mortgage-backed securities were caused by increases in market interest rates subsequent to purchase. All of the mortgage-backed securities are guaranteed by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. Since the decline in market value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell these investments until maturity and it is not more likely than not that the Company will be required to sell such investments prior to recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired as of June 30, 2020 and December 31, 2019.

During the six months ended June 30, 2020, the Company securitized fixed-rate first mortgage loans with a book value of $9.4 million into Freddie Mac mortgage-backed securities to increase liquidity. The securitization transaction increased investment securities and lowered loans receivable. The securitization transaction was accounted for by recording the mortgage-backed securities at a fair value of $9.8 million in accordance with the Transfers and Servicing topic of the FASB ASC. Mortgage servicing assets of $78,000 were also recorded on the transaction and a net gain of $377,000 was recognized on the securitization and recorded in gain on sale of loans in the consolidated statements of income.