SECURITIES

In December 2019, the Company reclassified the entire HTM investment portfolio, totaling $83.1 million with unrealized holding gains of $810,000 to the AFS investments category. The reclassification resulted in an increase to accumulated other comprehensive income of $587,000 and to deferred tax liabilities of $223,000. The Bank's primary reasons for the reclassification were to better manage interest rate risks and provide additional on-balance sheet liquidity. Based on accounting rules, the Bank will not be able to designate any securities as HTM securities for a period of time. Management determined that it no longer had the positive intent to hold its investment in securities classified as HTM until maturity and does not intend to hold HTM securities in the future. The Company's HTM portfolio was primarily comprised of asset-backed securities issued by GSEs and U.S. Agencies.

There were no HTM investment securities at December 31, 2019. Amortized cost and fair values of AFS investment securities at December 31, 2019 are summarized as follows:



	December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale (AFS)
Asset-backed securities issued by GSEs and U.S. Agencies
Residential Mortgage Backed Securities ("MBS")	$	35,351	$	754	$	13	$	36,092
Residential Collateralized Mortgage Obligations ("CMOs")	145,479		1,839		386		146,932
U.S. Agency	9,671		122		60		9,733
Asset-backed securities issued by Others:
Residential CMOs	380		3		12		371
Callable GSE Agency Bonds	2,001		1		—		2,002
Certificates of Deposit Fixed	250		—		—		250
U.S. government obligations	1,490		—		1		1,489
Municipal bonds	11,491		—		173		11,318
Total investment securities available-for-sale	$	206,113	$	2,719	$	645	$	208,187

Equity securities carried at fair value through income
CRA investment fund	$	4,669	$	—	$	—	$	4,669
Non-marketable equity securities
Other equity securities	$	209	$	—	$	—	$	209

Total investment securities	$	210,991	$	2,719	$	645	$	213,065

Amortized cost and fair values of AFS and HTM investment securities at December 31, 2018 are summarized as follows:



	December 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale (AFS)
Asset-backed securities issued by GSEs and U.S. Agencies
Residential Mortgage Backed Securities ("MBS")	$	7,641	$	1	$	281	$	7,361
Residential Collateralized Mortgage Obligations ("CMOs")	102,411		199		1,870		100,740
U.S. Agency	12,472		9		606		11,875
Total investment securities available-for-sale	$	122,524	$	209	$	2,757	$	119,976

Securities held-to-maturity (HTM)
Asset-backed securities issued by GSEs and U.S. Agencies
Residential MBS	$	25,948	$	75	$	756	$	25,267
Residential CMOs	52,375		64		1,360		51,079
U.S. Agency	10,508		7		404		10,111
Asset-backed securities issued by Others:
Residential CMOs	482		—		41		441
Callable GSE Agency Bonds	5,009		—		110		4,899
Certificates of deposit fixed	950		—		—		950
U.S. government obligations	999		—		1		998
Total investment securities held-to-maturity	$	96,271	$	146	$	2,672	$	93,745

Equity securities carried at fair value through income
CRA investment fund	$	4,428	$	—	$	—	$	4,428
Non-marketable equity securities
Other equity securities	$	209	$	—	$	—	$	209

Total investment securities	$	223,432	$	355	$	5,429	$	218,358

At December 31, 2019, and 2018 securities with an amortized cost of $47.4 million and $41.3 million were pledged to secure certain customer deposits. At December 31, 2018, securities with an amortized cost of $3.3 million were pledged as collateral for advances from the FHLB of Atlanta.

During the year ended December 31, 2019, the Company recognized net gains of $226,000 on the sale of 20 AFS securities with aggregate carrying values of $31.6 million. There were no sales of securities during the year ended December 31, 2018. During the year ended December 31, 2017, the Company recognized net gains on the sale of securities of $175,000. The Company sold three AFS securities with aggregate carrying values of $3.7 million and nine HTM securities with aggregate carrying values of $4.8 million, recognizing gains of $9,000 and $166,000, respectively. The sale of HTM securities was permitted under ASC 320 “Investments - Debt and Equity Securities.” The Company disposed of HTM securities using the safe harbor rule that allows for the sale of HTM securities that have principal reductions to less than 15% of original purchased par. ASC 320 10-25-15 indicates that a sale of a debt security after a substantial portion of the principal has been collected is equivalent to holding the security to maturity. In addition, the Company may dispose of HTM securities under ASC 320-10-25-6 due to a significant deterioration in the issues’ creditworthiness.

The Company’s investment portfolio includes securities that are in an unrealized loss position as of December 31, 2019, the details of which are included in the following table. Although these securities, if sold at December 31, 2019 would result in a pretax loss of $645,000, the Company has no intent to sell the applicable securities at such fair values, and maintains the Company has the ability to hold these securities until all principal has been recovered. It is more likely than not that the Company will not sell any securities at a loss for liquidity purposes. Declines in the fair values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of December 31, 2019, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe it will sustain any material realized losses as a result of the current temporary decline in fair value. No charges related to other-than-temporary impairment were made during for the years ended December 31, 2019, 2018 and 2017.

AFS Securities

Gross unrealized losses and estimated fair value by length of time that the individual AFS securities have been in a continuous unrealized loss position at December 31, 2019 and 2018 were as follows:



December 31, 2019	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	15,215	$	63	$	39,689	$	336	$	54,904	$	399
U.S. SBA Debentures	—		—		4,744		60		4,744		60
Asset-backed securities issued by Others	—		—		136		12		136		12
Municipal bonds	11,318		173		—		—		11,318		173
U.S. government obligations	1,489		1		—		—		1,489		1
	$	28,022	$	237	$	44,569	$	408	$	72,591	$	645



December 31, 2018	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	30,095	$	163	$	54,846	$	2,594	$	84,941	$	2,757
	$	30,095	$	163	$	54,846	$	2,594	$	84,941	$	2,757

At December 31, 2019, and 2018 the AFS investment portfolio had an estimated fair value of $208.2 million and $120.0 million, of which $72.6 million and $84.9 million of the securities had some unrealized losses from their amortized cost, respectively.

AFS asset-backed securities issued by GSEs are guaranteed by the issuer and AFS U.S. government agency securities and bonds are guaranteed by the full faith and credit of the U.S. government. At December 31, 2019, and 2018 total unrealized losses on the portfolio were $645,000 and $2.8 million of the portfolio amortized cost of $206.1 million and $122.5 million, respectively. At December 31, 2019, and 2018 AFS asset-backed securities issued by GSEs and U.S. Agencies with unrealized losses had an average life of 4.67 years and 4.32 years and an average duration of 4.22 years and 3.83 years, respectively. At December 31, 2019, AFS municipal bonds issued by states, political subdivisions, or agencies had the total amortized cost of $11.5 million with total unrealized losses of $173,000 and had an average life of 9.51 years and an average duration of 8.18 years. Management believes that the securities will either recover in market value or be paid off as agreed.

HTM Securities

Gross unrealized losses and estimated fair value by length of time that the individual HTM securities have been in a continuous unrealized loss position at December 31, 2018 were as follows:



December 31, 2018	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	6,955	$	38	$	70,752	$	2,483	$	77,707	$	2,521
Callable GSE Agency Bonds	—		—		4,899		110		4,899		110
Asset-backed securities issued by Others	—		—		441		41		441		41
	$	6,955	$	38	$	76,092	$	2,634	$	83,047	$	2,672

At December 31, 2018 the HTM investment portfolio had an estimated fair value of $93.7 million, of which $83.0 million of the securities had some unrealized losses from their amortized cost. Of these securities, $82.6 million were asset-backed securities issued by GSEs and U.S. Agencies, and the remaining $441,000 were asset-backed securities issued by others.

HTM asset-backed securities issued by GSEs and GSE agency bonds are guaranteed by the issuer and HTM U.S. government agency securities and bonds are guaranteed by the full faith and credit of the U.S. government. At December 31, 2018 total unrealized losses on the portfolio were $2.7 million of the portfolio amortized cost of $94.8 million. The securities with unrealized losses had an average life of 4.88 years and an average duration of 4.26 years.

HTM asset-backed securities issued by others are collateralized mortgage obligation securities. The securities have credit support tranches that absorb losses prior to the tranches that the Company owns. The Company reviews credit support positions on its securities regularly. At December 31, 2018 total unrealized losses on the asset-backed securities issued by others were $41,000 of the portfolio amortized cost of $482,000. HTM asset-backed securities issued by others with unrealized losses had an average life of 3.01 years and an average duration of 2.33 years.

Maturities

The amortized cost and estimated fair value of debt securities at December 31, 2019 by contractual maturity, are shown below. The Company has allocated the AFS securities into the four maturity groups listed below using the expected average life of the individual securities based on statistics provided by industry sources. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.



December 31, 2019	AFS
(dollars in thousands)	Amortized Cost		Estimated Fair Value

Within one year	$	41,949	$	42,358
Over one year through five years	80,043		80,855
Over five years through ten years	66,972		67,651
After ten years	17,149		17,323
Total AFS securities	$	206,113	$	208,187