Investment Securities

9 Months Ended

Sep. 30, 2020

(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, 2020
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	30,000		3		7		29,996
State and political subdivisions		110		1		-		111
Mortgage backed securities and collateralized mortgage obligations - residential		301,490		8,369		91		309,768
Corporate bonds		69,231		1,048		166		70,113
Small Business Administration - guaranteed participation securities		42,599		1,471		-		44,070
Other		685		-		-		685

Total Securities Available for Sale	$	444,115		10,892		264		454,743

	December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	104,895		36		419		104,512
State and political subdivisions		160		2		-		162
Mortgage backed securities and collateralized mortgage obligations - residential		388,537		2,406		1,426		389,517
Corporate bonds		30,164		367		95		30,436
Small Business Administration - guaranteed participation securities		48,991		-		480		48,511
Other		685		-		-		685

Total securities available for sale	$	573,432		2,811		2,420		573,823

The following table distributes the debt securities included in the available for sale portfolio as of September 30, 2020, 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

Due in one year or less	$	18,563		18,747
Due in one year through five years		81,445		82,140
Due after five years through ten years		18		18
Mortgage backed securities and collateralized mortgage obligations - residential		301,490		309,768
Small Business Administration - guaranteed participation securities		42,599		44,070
	$	444,115		454,743

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, 2020
	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	$	9,993		7		-		-		9,993		7
Mortgage backed securities and collateralized mortgage obligations - residential		20,096		91		-		-		20,096		91
Corporate bonds		15,723		103		4,937		63		20,660		166

Total	$	45,812		201		4,937		63		50,749		264

	December 31, 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	$	19,820		180		74,656		239		94,476		419
Mortgage backed securities and collateralized mortgage obligations - residential		67,322		446		169,169		980		236,491		1,426
Corporate bonds		4,905		95		-		-		4,905		95
Small Business Administration - guaranteed participation securities		48,510		480		-		-		48,510		480

Total	$	140,557		1,201		243,825		1,219		384,382		2,420

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, 2020 and 2019 are as follows:

	Three months ended September 30,
(dollars in thousands)	2020		2019

Proceeds from sales	$	-	$	-
Proceeds from calls/paydowns		43,052		56,856
Proceeds from maturities		-		-
Gross realized losses		-		-

	Nine months ended September 30,
(dollars in thousands)	2020		2019

Proceeds from sales	$	29,219	$	-
Proceeds from calls/paydowns		197,667		101,306
Proceeds from maturities		5,000		10,052
Gross realized gains		1,155		-

The current interest rate environment has significantly contributed to more bonds being called. There were no transfers of securities available for sale during the three and nine months ended September 30, 2020 and 2019.

(b) Held to maturity securities

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

	September 30, 2020
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	15,094		1,249		-		16,343

Total held to maturity	$	15,094		1,249		-		16,343

	December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	18,618		1,062		-		19,680

Total held to maturity	$	18,618		1,062		-		19,680

The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2020, 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	$	15,094		16,343
	$	15,094		16,343

All held to maturity securities are held at cost on the financial statements. There were no gross unrecognized losses on held to maturity securities as of September 30, 2020 and December 31, 2019.

There were no sales or transfers of held to maturity securities during the three and nine months ended September 30, 2020 and 2019.

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, 2020, 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, 2020.

Mortgage backed securities and collateralized mortgage obligations – residential: At September 30, 2020, 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, 2020.

Corporate Bonds: At September 30, 2020, 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, 2020.