SECURITIES

6 Months Ended

Jun. 30, 2020

SECURITIES

SECURITIES

2. SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
June 30, 2020:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	10,004	$	205	$	—	$	10,209
U.S. government agency and government-sponsored residential mortgage-backed securities		204,155		3,894		106		207,943
U.S. government-sponsored collateralized mortgage obligations		22,934		571		—		23,505
SBA asset-backed securities		18,181		865		—		19,046
Municipal bonds		2,002		5		—		2,007
Total securities available for sale	$	257,276	$	5,540	$	106	$	262,710
December 31, 2019:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	14,994	$	210	$	—	$	15,204
U.S. government agency and government-sponsored residential mortgage-backed securities		163,982		1,456		265		165,173
U.S. government-sponsored collateralized mortgage obligations		26,137		243		7		26,373
SBA asset-backed securities		32,461		286		24		32,723
Total securities available for sale	$	237,574	$	2,195	$	296	$	239,473
Securities held to maturity
U.S. government agency and government-sponsored residential mortgage-backed securities	$	12,682	$	86	$	6	$	12,762
U.S. government-sponsored collateralized mortgage obligations		1,433		69		—		1,502
SBA asset-backed securities		5,308		124		—		5,432
Municipal bonds		6,949		282		—		7,231
Total securities held to maturity	$	26,372	$	561	$	6	$	26,927

In February 2020, with the intention to reduce credit risk in the investment portfolio and to support the Bank’s credit risk policy, the Bank executed the sale of five held-to-maturity investments. The securities had a total amortized cost of $4.5 million and a $1.3 million gain on sale was recorded during the three months ended March 31, 2020. As a result, the remaining held to maturity securities, with an amortized cost of $21.5 million and an unrealized gain of approximately $522,000, were transferred to the available for sale category at a fair value of $22.1 million.

Twenty-three mortgage-backed securities with a combined fair value of $49.4 million are pledged as collateral for interest rate swap agreements as of June 30, 2020 (see Note 10). Seven mortgage-backed securities with a combined fair value of $15.7 million were pledged as collateral for interest rate swap agreements as of December 31, 2019.

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2020 is as follows:

	Available for Sale
	Amortized		Fair
	Cost		Value
	(in thousands)
After 1 year through 5 years	$	5,000	$	5,049
After 5 years through 10 years		5,004		5,160
Over 10 years		2,002		2,007
		12,006		12,216
U.S. government agency and government-sponsored residential mortgage-backed securities		204,155		207,943
U.S. government-sponsored collateralized mortgage obligations		22,934		23,505
SBA asset-backed securities		18,181		19,046
Total	$	257,276	$	262,710

SBA asset-backed securities are U.S. government-sponsored residential mortgage-backed securities, collateralized mortgage obligations and securities whose underlying assets are loans from the U.S. Small Business Administration (“SBA”) and have stated maturities of 2 to 30 years; however, it is expected that such securities will have shorter actual lives due to prepayments. Municipal bonds and U.S. government and government-sponsored enterprise obligations are callable at the discretion of the issuer. Municipal bonds with a total fair value of $2.0 million have final maturities ranging from 12 years to 14 years and call features of 2 month. U.S. government and government-sponsored enterprise obligations with a total fair value of $10.2 million have final maturities ranging from 3 years to 8 years and call features ranging from less than 4 months to 1 year.

The following table shows proceeds and gross realized gains and losses related to the sales and calls of securities for the periods indicated:

		Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019
		(in thousands)
Sales
Proceeds	$	1,604	$	28,391	$	72,333	$	28,391
Gross gains		—		1,267		2,521		1,267
Gross losses		—		—		—		—
Calls
Proceeds	$	4,968	$	5,740	$	6,635	$	8,370
Gross gains		8		—		12		—
Gross losses		—		—		—		—

Information pertaining to securities with gross unrealized losses at June 30, 2020 and December 31, 2019 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

	Less Than Twelve Months				Twelve Months and Over
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(in thousands)
June 30, 2020:
Securities available for sale
U.S. government agency and government-sponsored residential mortgage-backed securities	$	89	$	27,881	$	17	$	4,224
December 31, 2019:
Securities available for sale
U.S. government agency and government-sponsored residential mortgage-backed securities	$	147	$	47,343	$	118	$	7,986
U.S. government-sponsored collateralized mortgage obligations		1		884		6		795
SBA asset-backed securities		24		3,964		—		—
	$	172	$	52,191	$	124	$	8,781
Securities held to maturity
U.S. government agency and government-sponsored residential mortgage-backed securities	$	—	$	—	$	6	$	2,538

Management evaluates securities for other-than-temporary impairment (“OTTI”) at each reporting period, and more frequently when economic or market concerns warrant such evaluation.

At June 30, 2020, ten securities with an amortized cost of $32.2 million have unrealized losses with aggregate depreciation of 0.33% from the Company’s amortized cost basis.  

The unrealized losses on the Company’s securities were primarily caused by changes in interest rates. All of these investments are guaranteed by government and government-sponsored enterprises. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be OTTI at June 30, 2020.