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Securities Available-for-Sale
6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Securities Available-for-Sale

Note 4. Securities Available-for-Sale

The Company’s investment securities are all classified as available-for-sale at June 30, 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 June 30, 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 June 30, 2020 and December 31, 2019.

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

June 30, 2020

(dollars in thousands)

Securities available-for-sale

Federal agency obligations

$

44,868

$

1,827

$

(26

)

$

46,669

Residential mortgage pass-through  securities

206,186

4,424

(40

)

210,570

Commercial mortgage pass-through  securities

2,026

205

-

2,231

Obligations of U.S. states and political subdivisions

126,128

2,899

(306

)

128,721

Corporate bonds and notes

25,159

270

(594

)

24,835

Asset-backed securities

5,274

-

(208

)

5,066

Certificates of deposit

148

2

-

150

Other securities

184

-

-

184

Total securities available-for-sale

$

409,973

$

9,627

$

(1,174

)

$

418,426

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


15


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 $114.5 million and $111.5 million at June 30, 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 June 30, 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 June 30, 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.

June 30, 2020

Amortized

Fair

Cost

Value

(dollars in thousands)

Securities available-for-sale:

Due in one year or less

$

5,476

$

5,521

Due after one year through five years

23,961

23,716

Due after five years through ten years

25,669

26,255

Due after ten years

146,471

149,949

Residential mortgage pass-through securities

206,186

210,570

Commercial mortgage pass-through securities

2,026

2,231

Other securities

184

184

Total securities available-for-sale

$

409,973

$

418,426

Gross gains and losses from the sales of securities for periods presented were as follows:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

 

(dollars in thousands)

 

 

 

2020

 

2019

 

 

2020

 

2019

 

Proceeds

 

$

-

 

 

$

47,664

 

 

$

19,624

 

 

$

150,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross gains on sales of securities

 

 

-

 

 

 

263

 

 

 

29

 

 

 

400

 

Gross losses on sales of securities

 

 

-

 

 

 

(272

)

 

 

-

 

 

 

(401

)

Net losses on sales of securities

 

 

-

 

 

 

(9

)

 

 

29

 

 

 

(1

)

Less: tax provision on net losses

 

 

-

 

 

2

 

 

(6

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net losses on sales of securities, after tax

 

$

-

 

 

$

(7

)

 

$

23

 

 

$

(1

)


16


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 36 and 53 securities as of June 30, 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.


17


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 June 30, 2020 and December 31, 2019.

June 30, 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

$

11,366

$

(26

)

$

11,358

$

(26

)

$

8

$

-

 

Residential mortgage pass-through securities

10,784

(40

)

10,774

(40

)

10

-

 

Obligations of U.S. states and political subdivisions

28,353

(306

)

9,024

(24

)

19,329

(282

)

Corporate bonds and notes

8,374

(594

)

8,374

(594

)

-

-

 

Asset-backed securities

5,066

(208

)

1,902

(48

)

3,164

(160

)

Total temporarily impaired securities

$

63,943

$

(1,174

)

$

41,432

$

(732

)

$

22,511

$

(442

)

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

)