The Company’s investment securities are classified as available-for-sale at March 31, 2020 and December 31, 2019. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of March 31, 2020 and December 31, 2019. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 7 of the Notes to Consolidated Financial Statements for a further discussion.

The following tables present information related to the Company’s portfolio of securities available-for-sale at March 31, 2020 and December 31, 2019.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
March 31, 2020	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	36,392	$	2,057	$	(1	)	$	38,448
Residential mortgage pass-through securities		232,864		5,759		(3	)		238,620
Commercial mortgage pass-through securities		2,032		160		-			2,192
Obligations of U.S. states and political subdivisions		134,413		2,829		(347	)		136,895
Corporate bonds and notes		25,151		207		(620	)		24,738
Asset-backed securities		5,526		-		(163	)		5,363
Certificates of deposit		149		-		(2	)		147
Other securities		335		-		-			335
Total securities available-for-sale	$	436,862	$	11,012	$	(1,136	)	$	446,738

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
December 31, 2019	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	27,667	$	612	$	(42	)	$	28,237
Residential mortgage pass-through securities		199,611		1,528		(643	)		200,496
Commercial mortgage pass-through securities		4,995		37		(35	)		4,997
Obligations of U.S. states and political subdivisions		134,500		2,411		(392	)		136,519
Corporate bonds and notes		28,142		285		(45	)		28,382
Asset-backed securities		5,845		-		(65	)		5,780
Certificates of deposit		148		2		-			150
Other securities		140		-		-			140
Total securities available-for-sale	$	401,048	$	4,875	$	(1,222	)	$	404,701

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4. Securities Available-for-Sale – (continued)

Investment securities having a carrying value of approximately $122.4 million and $111.5 million at March 31, 2020 and December 31, 2019, respectively, were pledged to secure public deposits, borrowings, repurchase agreements, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law. As of March 31, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table presents information for investments in securities available-for-sale at March 31, 2020, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. Securities not due at a single maturity date are shown separately.

	March 31, 2020
	Amortized		Fair
	Cost		Value
	(dollars in thousands)
Securities available-for-sale:
Due in one year or less	$	5,104	$	5,143
Due after one year through five years		24,672		24,324
Due after five years through ten years		25,077		25,731
Due after ten years		146,778		150,393
Residential mortgage pass-through securities		232,864		238,620
Commercial mortgage pass-through securities		2,032		2,192
Other securities		335		335
Total securities available-for-sale	$	436,862	$	446,738

Gross gains and losses from the sales of securities for periods presented were as follows (dollars in thousands):

	Three Months Ended
	March 31,
	2020			2019
Proceeds	$	19,624		$	94,075

Gross gains on sales of securities		29			8
Gross losses on sales of securities		-			-
Net gains on sales of securities		29			8
Less: tax provision on net gains		(6	)		(2	)

Net gains on sales of securities, after tax	$	23		$	6

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4. Securities Available-for-Sale – (continued)

Other-than-Temporarily Impaired Investments

The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.

The Company’s assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced a restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

Temporarily Impaired Investments

The Company does not believe that any of the unrealized losses, which were comprised of 31 and 53 securities as of March 31, 2020 and December 31, 2019, respectively, represent an other-than-temporary impairment (“OTTI”). The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, and asset-backed securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and credit spreads and do not affect the expected cash flows of the underlying collateral or issuer.

Factors which may contribute to unrealized losses include credit risk, market risk, changes in interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Company’s investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of the securities portfolio including limits on concentrations to any one issuer. The Company believes the securities portfolio is prudently diversified.

The unrealized losses included in the tables below are primarily related to changes in interest rates and credit spreads. All of the Company’s securities are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. These are largely intermediate duration holdings and, in certain cases, monthly principal payments can further reduce loss exposure resulting from an increase in rates.

In determining whether or not securities are OTTI, the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Company’s judgments and that such differences may not require the future recognition of OTTI charges that could have a material effect on the Company’s financial position and results of operations. In addition, the value of, and the realization of any loss on, a security is subject to numerous risks as cited above.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4. Securities Available-for-Sale – (continued)

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019.

	March 31, 2020
	Total					Less than 12 Months					12 Months or Longer
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligation	$	1,260	$	(1	)	$	1,249	$	(1	)	$	11	$	-
Residential mortgage pass-through securities		486		(3	)		35		-			451		(3	)
Commercial mortgage pass-through securities		-		-			-		-			-		-
Obligations of U.S. states and political subdivisions		27,436		(347	)		4,989		(97	)		22,447		(250	)
Corporate bonds and notes		8,845		(620	)		8,845		(620	)		-		-
Asset-backed securities		5,363		(163	)		2,115		(82	)		3,248		(81	)
Certificates of Deposit		147		(2	)		147		(2	)		-		-
Total temporarily impaired securities	$	45,537	$	(1,136	)	$	17,380	$	(802	)	$	26,157	$	(334	)

	December 31, 2019
	Total					Less than 12 Months					12 Months or Longer
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligation	$	6,512	$	(42	)	$	6,498	$	(42	)	$	14	$	-
Residential mortgage pass-through securities		94,980		(643	)		49,154		(179	)		45,826		(464	)
Commercial mortgage pass-through securities		2,006		(35	)		2,006		(35	)		-		-
Obligations of U.S. states and political subdivisions		34,775		(392	)		10,306		(8	)		24,469		(384	)
Corporate bonds and notes		5,437		(45	)		2,478		(23	)		2,959		(22	)
Asset-backed securities		5,718		(65	)		2,268		(22	)		3,450		(43	)
Total Temporarily Impaired Securities	$	149,428	$	(1,222	)	$	72,710	$	(309	)	$	76,718	$	(913	)