2.INVESTMENT SECURITIES

Available-for-Sale Debt Securities

The gross amortized cost and fair value of AFS debt securities and the related gross unrealized gains and losses recognized in AOCI were as follows:


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

U.S. Treasury securities and U.S. Government agencies	$	134,765	$	59	$	(184)	$	134,640
Private label mortgage backed security		2,210		1,285		—		3,495
Mortgage backed securities - residential		253,288		2,916		(357)		255,847
Collateralized mortgage obligations		63,284		258		(171)		63,371
Corporate bonds		10,000		2		—		10,002
Trust preferred security		3,575		425		—		4,000
Total available-for-sale debt securities	$	467,122	$	4,945	$	(712)	$	471,355


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

U.S. Treasury securities and U.S. Government agencies	$	218,502	$	25	$	(1,654)	$	216,873
Private label mortgage backed security		2,348		1,364		—		3,712
Mortgage backed securities - residential		168,992		1,470		(1,253)		169,209
Collateralized mortgage obligations		73,740		222		(1,151)		72,811
Corporate bonds		10,000		—		(942)		9,058
Trust preferred security		3,533		542		—		4,075
Total available-for-sale debt securities	$	477,115	$	3,623	$	(5,000)	$	475,738

Held-to-Maturity Debt Securities

The carrying value, gross unrecognized gains and losses, and fair value of HTM debt securities were as follows:


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
December 31, 2019 (in thousands)	Value		Gains		Losses		Value

Mortgage backed securities - residential	$	104	$	6	$	—	$	110
Collateralized mortgage obligations		16,970		94		(21)		17,043
Corporate bonds		44,995		544		—		45,539
Obligations of state and political subdivisions		462		2		—		464
Total held-to-maturity debt securities	$	62,531	$	646	$	(21)	$	63,156


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
December 31, 2018 (in thousands)	Value		Gains		Losses		Value

Mortgage backed securities - residential	$	132	$	8	$	—	$	140
Collateralized mortgage obligations		19,544		178		(46)		19,676
Corporate bonds		45,088		16		(514)		44,590
Obligations of state and political subdivisions		463		—		(11)		452
Total held-to-maturity debt securities	$	65,227	$	202	$	(571)	$	64,858

At December 31, 2019 and 2018, there were no holdings of debt securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Sales of Available-for-Sale Debt Securities

During 2017, the Bank recognized a gross loss of $136,000 on the sale of two AFS debt securities. The tax benefit related to the Bank’s realized losses totaled $48,000 for the year ended December 31, 2017.

During 2019 and 2018, there were no sales of AFS debt securities.

Debt Securities by Contractual Maturity

The following table presents the amortized cost and fair value of debt securities by contractual maturity at December 31, 2019. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Available-for-Sale				Held-to-Maturity
	Debt Securities				Debt Securities
	Amortized		Fair		Carrying		Fair
December 31, 2019 (in thousands)	Cost		Value		Value		Value

Due in one year or less	$	34,495	$	34,493	$	5,105	$	5,119
Due from one year to five years		110,270		110,149		35,405		35,887
Due from five years to ten years		—		—		4,947		4,997
Due beyond ten years		3,575		4,000		—		—
Private label mortgage backed security		2,210		3,495		—		—
Mortgage backed securities - residential		253,288		255,847		104		110
Collateralized mortgage obligations		63,284		63,371		16,970		17,043
Total debt securities	$	467,122	$	471,355	$	62,531	$	63,156

Market Loss Analysis

Securities with unrealized losses at December 31, 2019 and 2018, aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position, are as follows:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2019 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	40,165	$	(176)	$	14,992	$	(8)	$	55,157	$	(184)
Mortgage backed securities - residential		65,630		(269)		16,633		(88)		82,263		(357)
Collateralized mortgage obligations		12,444		(36)		10,738		(135)		23,182		(171)
Total available-for-sale debt securities	$	118,239	$	(481)	$	42,363	$	(231)	$	160,602	$	(712)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2018 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies	$	71,627	$	(598)	$	106,136	$	(1,056)	$	177,763	$	(1,654)
Mortgage backed securities - residential		43,691		(484)		32,003		(769)		75,694		(1,253)
Collateralized mortgage obligations		16,487		(473)		31,071		(678)		47,558		(1,151)
Corporate bonds		9,058		(942)		—		—		9,058		(942)
Total available-for-sale debt securities	$	140,863	$	(2,497)	$	169,210	$	(2,503)	$	310,073	$	(5,000)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2019 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Held-to-maturity debt securities:
Collateralized mortgage obligations	$	4	$	(2)	$	4,827	$	(19)	$	4,831	$	(21)
Total held-to-maturity debt securities:	$	4	$	(2)	$	4,827	$	(19)	$	4,831	$	(21)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2018 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Held-to-maturity debt securities:
Collateralized mortgage obligations	$	—	$	—	$	5,539	$	(46)	$	5,539	$	(46)
Corporate bonds		39,499		(514)		—		—		39,499		(514)
Obligations of state and political subdivisions		105		(1)		347		(10)		452		(11)
Total held-to-maturity debt securities:	$	39,604	$	(515)	$	5,886	$	(56)	$	45,490	$	(571)

At December 31, 2019, the Bank’s portfolio consisted of 173 securities, 34 of which were in an unrealized loss position.

At December 31, 2018, the Bank’s portfolio consisted of 182 securities, 65 of which were in an unrealized loss position.

Corporate Bonds

From 2013 to 2018, the Bank purchased various floating-rate corporate bonds. These bonds were rated “investment grade” by accredited rating agencies as of their respective purchase dates. The total fair value of the Bank’s corporate bonds represented 10% and 10% of the Bank’s investment portfolio as of December 31, 2019 and 2018. During 2018, one of these bonds was downgraded to BBB+ (S&P/Fitch), driving a significant decrease in the bond’s market value. As of December 31, 2019, this bond had fully recovered its lost value and reflected an unrealized gain of $2,000.

Mortgage Backed Securities and Collateralized Mortgage Obligations

At December 31, 2019, with the exception of the $3.5 million private label mortgage backed security, all other mortgage backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FNMA. At December 31, 2019 and 2018, there were gross unrealized losses of $528,000 and $2.4 million related to available for sale mortgage backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank 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, management does not consider these securities to have OTTI.

Trust Preferred Security

During the fourth quarter of 2015, the Parent Company purchased a $3 million floating rate trust preferred security at a price of 68% of par. The coupon on this security is based on the 3-month LIBOR rate plus 159 basis points. The Company performed an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.

Other-Than-Temporary Impairment

Unrealized losses for all investment securities are reviewed to determine whether the losses are “other-than-temporary.” Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in value below amortized cost is other-than-temporary. In conducting this assessment, the Bank evaluates a number of factors including, but not limited to the following:

The length of time and the extent to which fair value has been less than the amortized cost basis;

The Bank’s intent to hold until maturity or sell the debt security prior to maturity;

An analysis of whether it is more-likely-than-not that the Bank will be required to sell the debt security before its anticipated recovery;

Adverse conditions specifically related to the security, an industry, or a geographic area;

The historical and implied volatility of the fair value of the security;

The payment structure of the security and the likelihood of the issuer being able to make payments;

Failure of the issuer to make scheduled interest or principal payments;

Any rating changes by a rating agency; and

Recoveries or additional decline in fair value subsequent to the balance sheet date.

The term “other-than-temporary” is not intended to indicate that the decline is permanent but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.

The Bank owns one private label mortgage backed security with a total carrying value of $3.5 million at December 31, 2019. This security is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage backed security in this section of the filing under Footnote 15 “Fair Value.”

The following table presents a rollforward of the Bank’s private label mortgage backed security credit losses recognized in earnings:


Years Ended December 31, (in thousands)	2019		2018		2017

Balance, beginning of period	$	1,613	$	1,765	$	1,765
Recovery of losses previously recorded		(151)		(152)		—
Balance, end of period	$	1,462	$	1,613	$	1,765

Further deterioration in economic conditions could cause the Bank to record an additional impairment charge related to credit losses of up to $2.2 million, which is the current gross amortized cost of the Bank’s remaining private label mortgage backed security.

Pledged Debt Securities

Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and securities held for other purposes, as required or permitted by law are as follows:


December 31, (in thousands)	2019		2018

Carrying amount	$	229,700	$	240,590
Fair value		229,706		240,700

Equity Securities

The following tables present the carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values:


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

Freddie Mac preferred stock	$	—	$	714	$	—	$	714
Community Reinvestment Act mutual fund		2,500		—		(26)		2,474
Total equity securities with readily determinable fair values	$	2,500	$	714	$	(26)	$	3,188


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

Freddie Mac preferred stock	$	—	$	410	$	—	$	410
Community Reinvestment Act mutual fund		2,500		—		(104)		2,396
Total equity securities with readily determinable fair values	$	2,500	$	410	$	(104)	$	2,806

For equity securities with readily determinable fair values, the gross realized and unrealized gains and losses recognized in the Company’s consolidated statements of income were as follows:


	Gains (Losses) Recognized on Equity Securities
	Year Ended December 31, 2019						Year Ended December 31, 2018
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	304	$	304	$	—	$	(63)	$	(63)
Community Reinvestment Act mutual fund		—		78		78		—		(59)		(59)
Total equity securities with readily determinable fair value	$	—	$	382	$	382	$	—	$	(122)	$	(122)

Freddie Mac Preferred Stock

During 2008, the U.S. Treasury, the FRB, and the FHFA announced that the FHFA was placing Freddie Mac under conservatorship and giving management control to the FHFA. The Bank contemporaneously determined that its 40,000 shares of Freddie Mac preferred stock were fully impaired and recorded an OTTI charge of $2.1 million in 2008. The OTTI charge brought the carrying value of the stock to $0. During 2014, based on active trading volume of Freddie Mac preferred stock, the Company determined it appropriate to record an unrealized gain to OCI related to its Freddie Mac preferred stock holdings. Based on the stock’s market closing price as of December 31, 2019, the Company’s unrealized gain for its Freddie Mac preferred stock totaled $714,000.