2. INVESTMENT SECURITIES

Available-for-Sale Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of AFS debt securities and the corresponding amounts of related gross unrealized gains and losses recognized in AOCI:


			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for		Fair
March 31, 2020 (in thousands)	Cost		Gains		Losses		Credit Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	167,249	$	2,043	$	—	$	—	$	169,292
Private label mortgage backed security		1,963		1,286		—		—		3,249
Mortgage backed securities - residential		288,781		8,943		(2)		—		297,722
Collateralized mortgage obligations		60,395		306		(820)		—		59,881
Corporate bonds		10,000		—		(259)		(126)		9,615
Trust preferred security		3,586		514		—		—		4,100
Total available-for-sale debt securities	$	531,974	$	13,092	$	(1,081)	$	(126)	$	543,859


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

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

Held-to-Maturity Debt Securities

The following tables summarize the amortized cost, fair value, and ACLS of HTM debt securities and the corresponding amounts of related gross unrecognized gains and losses:


			Gross		Gross				Allowance
	Carrying		Unrecognized		Unrecognized		Fair		for
March 31, 2020 (in thousands)	Value		Gains		Losses		Value		Credit Losses

Mortgage backed securities - residential	$	103	$	5	$	—	$	108	$	—
Collateralized mortgage obligations		16,277		44		(275)		16,046		—
Corporate bonds		44,993		—		(1,887)		43,106		(171)
Obligations of state and political subdivisions		462		3		—		465		—
Total held-to-maturity debt securities	$	61,835	$	52	$	(2,162)	$	59,725	$	(171)


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

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

Sales of Available-for-Sale Debt Securities

During the three months ended March 31, 2020 and 2019, there were no gains or losses on sales or calls of AFS debt securities.

Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2020 follow. 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
March 31, 2020 (in thousands)	Cost		Value		Value		Value

Due in one year or less	$	5,000	$	5,005	$	5,105	$	5,100
Due from one year to five years		172,249		173,902		35,400		33,929
Due from five years to ten years		—		—		4,950		4,542
Due beyond ten years		3,586		4,100		—		—
Private label mortgage backed security		1,963		3,249		—		—
Mortgage backed securities - residential		288,781		297,722		103		108
Collateralized mortgage obligations		60,395		59,881		16,277		16,046
Total debt securities	$	531,974	$	543,859	$	61,835	$	59,725

Unrealized-Loss Analysis on Debt Securities

The following table summarizes AFS debt securities in an unrealized loss position for which an ACLS had not been recorded at March 31, 2020, aggregated by investment category and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
March 31, 2020 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Available-for-sale debt securities:
Mortgage backed securities - residential	$	—	$	—	$	532	$	(2)	$	532	$	(2)
Collateralized mortgage obligations		31,536		(769)		5,946		(51)		37,482		(820)
Total available-for-sale debt securities	$	31,536	$	(769)	$	6,478	$	(53)	$	38,014	$	(822)

Debt securities with unrealized losses at December 31, 2019, aggregated by investment category and length of time in a continuous unrealized loss position, were 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, 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)

At March 31, 2020, the Bank’s security portfolio consisted of 176 securities, 39 of which were in an unrealized loss position.

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

At March 31, 2020 and December 31, 2019, 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.

Mortgage Backed Securities and Collateralized Mortgage Obligations

At March 31, 2020, with the exception of the $3.2 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 FHLMC and FNMA. At March 31, 2020 and December 31, 2019, there were gross unrealized losses of $822,000 and $528,000 related to AFS 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 2015, the Parent Company purchased a $3 million floating rate TRUP 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.

Private Label Mortgage Backed Security

The Bank owns one private label mortgage backed security with a total carrying value of $3.2 million at March 31, 2020. 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 under Footnote 10 “Fair Value” in this section of the filing.

Rollforward of the Allowance for Credit Losses on Debt Securities

The table below presents a rollforward for the three months ended March 31, 2020 of the ACLS on AFS and HTM debt securities:


	ACLS Rollforward
	Three Months Ended March 31, 2020
	Beginning		ASC 326				Charge-				Ending
(in thousands)	Balance		Adoption		Provision		offs		Recoveries		Balance

Available-for-Sale Securities:
Corporate Bonds	$	—	$	—	$	126	$	—	$	—	$	126
Held-to-Maturity Securities:
Corporate Bonds		—		51		120		—		—		171

Total	$	—	$	51	$	246	$	—	$	—	$	297

The Company recorded Provisions to the ACLS on its AFS and HTM corporate bonds during the three months ended March 31, 2020 based on higher PD and LGD estimates on these bonds resulting from economic concerns from the COVID-19 pandemic.

There were no HTM debt securities on nonaccrual or past due over 89 days as of March 31, 2020. All of the Company’s HTM corporate bonds were rated investment grade as of March 31, 2020.

There were no HTM debt securities considered collateral dependent as of March 31, 2020.

Pledged Debt Securities

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


(in thousands)	March 31, 2020		December 31, 2019

Carrying amount	$	154,592	$	229,700
Fair value		154,501		229,706

Equity Securities

The carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2020 (in thousands)	Cost		Gains		Losses		Value

Freddie Mac preferred stock	$	—	$	294	$	—	$	294
Community Reinvestment Act mutual fund		2,500		13		—		2,513
Total equity securities with readily determinable fair values	$	2,500	$	307	$	—	$	2,807


			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

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
	Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
(in thousands)	Realized		Unrealized		Total		Realized		Unrealized		Total

Freddie Mac preferred stock	$	—	$	(420)	$	(420)	$	—	$	252	$	252
Community Reinvestment Act mutual fund		—		39		39		—		37		37
Total equity securities with readily determinable fair value	$	—	$	(381)	$	(381)	$	—	$	289	$	289