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Investment Securities

9 Months Ended

Sep. 30, 2019

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

	September 30, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	164,889		58		457		164,490
State and political subdivisions		166		3		-		169
Mortgage backed securities and collateralized mortgage obligations - residential		405,677		2,701		2,212		406,166
Corporate bonds		40,209		349		277		40,281
Small Business Administration - guaranteed participation securities		51,016		88		134		50,970
Other		685		-		2		683

Total Securities Available for Sale	$	662,642		3,199		3,082		662,759

	December 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	154,868		-		2,708		152,160
State and political subdivisions		168		5		-		173
Mortgage backed securities and collateralized mortgage obligations - residential		271,386		53		9,407		262,032
Corporate bonds		30,048		-		110		29,938
Small Business Administration - guaranteed participation securities		58,376		-		1,901		56,475
Other		685		-		-		685

Total securities available for sale	$	515,531		58		14,126		501,463

The schedule of maturities of debt securities available for sale is presented below. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately.

(dollars in thousands)	Amortized Cost		Fair Value

Due in one year or less	$	5,049	$	5,060
Due in one year through five years		150,845		150,454
Due after five years through ten years		50,055		50,109
Mortgage backed securities and collateralized mortgage obligations		405,677		406,166
Small Business Administration - guaranteed participation securities		51,016		50,970
	$	662,642	$	662,759

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

	September 30, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss

U.S. government sponsored enterprises	$	39,915		85		74,522		372		114,437		457
Mortgage backed securities and collateralized mortgage obligations - residential		53,449		360		192,733		1,852		246,182		2,212
Corporate bonds		14,723		277		-		-		14,723		277
Small Business Administration - guaranteed participation securities		27,832		134		-		-		27,832		134
Other		598		2		-		-		598		2

Total	$	136,517		858		267,255		2,224		403,772		3,082

	December 31, 2018
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss

U.S. government sponsored enterprises	$	29,870		106		112,291		2,602		142,161		2,708
Mortgage backed securities and collateralized mortgage obligations - residential		1,102		11		259,729		9,396		260,831		9,407
Corporate bonds		14,943		98		9,995		12		24,938		110
Small Business Administration - guaranteed participation securities		-		-		56,475		1,901		56,475		1,901

Total	$	45,915		215		438,490		13,911		484,405		14,126

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30, 2019 and 2018 are as follows:

	Three months ended September 30,
(dollars in thousands)	2019		2018

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		56,856		15,444
Proceeds from maturities		-		-
Gross realized gains		-		-
Gross realized losses		-		-

	Nine months ended September 30,
(dollars in thousands)	2019		2018

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		101,306		64,925
Proceeds from maturities		10,052		45,000
Gross realized gains		-		-
Gross realized losses		-		-

There were no gross realized gains or losses from calls of available for sale securities during the three and nine months ended September 30, 2019 and 2018.

There were no sales or transfers of securities available for sale during the three and nine months ended September 30, 2019 and 2018.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

	September 30, 2019
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	19,705		1,131		-		20,836

Total held to maturity	$	19,705		1,131		-		20,836

	December 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	22,501		577		154		22,924

Total held to maturity	$	22,501		577		154		22,924

The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2019, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands)	Amortized Cost		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	19,705		20,836
	$	19,705		20,836

Gross unrecognized losses on securities held to maturity and the related fair values aggregated by the length of time that individual securities have been in an unrecognized loss position, were as follows:

September 30, 2019

(dollars in thousands)

Less than

12 months

or more

Total

Fair

Value

Gross

Unrec.

Loss

Fair

Value

Gross

Unrec.

Loss

Fair

Value

Gross

Unrec.

Loss

Mortgage backed securities and collateralized mortgage obligations - residential

Total

	December 31, 2018
(dollars in thousands)	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	10,958		154		-		-		10,958		154

Total	$	10,958		154		-		-		10,958		154

There were no sales or transfers of held to maturity securities during the three and nine months ended September 30, 2019 and 2018.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2019, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Mortgage backed securities and collateralized mortgage obligations – residential: At September 30, 2019, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Corporate Bonds: At September 30, 2019, corporate bonds held by the Company are investment grade quality. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Small Business Administration (SBA) - guaranteed participation securities: At September 30, 2019, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.