NOTE 7. Securities

This table provides the major components of AFS and HTM securities at amortized cost and estimated fair value at September 30, 2015 and December 31, 2014:


	September 30, 2015								December 31, 2014
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available for sale:
U.S. Government sponsored entities	$	5,457	$	9	$	(62)	$	5,404	$	4,711	$	-	$	(93)	$	4,618
State and political subdivisions		10,686		99		(68)		10,717		11,055		112		(35)		11,132
Residential mortgage-backed securities		27,774		581		(167)		28,188		33,884		646		(147)		34,383
Corporate and other securities		9,471		60		(370)		9,161		10,188		63		(311)		9,940
Total securities available for sale	$	53,388	$	749	$	(667)	$	53,470	$	59,838	$	821	$	(586)	$	60,073
Held to maturity:
U.S. Government sponsored entities	$	4,219	$	-	$	(78)	$	4,141	$	4,440	$	-	$	(124)	$	4,316
State and political subdivisions		2,366		187		-		2,553		2,417		277		-		2,694
Residential mortgage-backed securities		6,525		160		(36)		6,649		8,164		211		(29)		8,346
Commercial mortgage-backed securities		3,928		-		(84)		3,844		4,005		13		(53)		3,965
Corporate and other securities		984		-		(24)		960		983		-		(23)		960
Total securities held to maturity	$	18,022	$	347	$	(222)	$	18,147	$	20,009	$	501	$	(229)	$	20,281

This table provides the remaining contractual maturities and yields of securities within the investment portfolios. The carrying value of securities at September 30, 2015 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.


	Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
(In thousands, except percentages)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available for sale at fair value:
U.S. Government sponsored entities	$	-	-	%	$	2,025	1.35	%	$	926	2.08	%	$	2,453	2.04	%	$	5,404	1.79	%
State and political subdivisions		39	6.43			1,052	2.80			6,072	2.37			3,554	2.56			10,717	2.49
Residential mortgage-backed securities		-	-			1,177	1.85			2,389	2.04			24,622	2.71			28,188	2.61
Corporate and other securities		-	-			2,775	1.13			966	1.04			5,420	1.31			9,161	1.22
Total securities available for sale	$	39	6.43	%	$	7,029	1.56	%	$	10,353	2.14	%	$	36,049	2.44	%	$	53,470	2.27	%
Held to maturity at cost:
U.S. Government sponsored entities	$	-	-	%	$	-	-	%	$	-	-	%	$	4,219	1.97	%	$	4,219	1.97	%
State and political subdivisions		264	0.75			-	-			-	-			2,102	4.73			2,366	4.29
Residential mortgage-backed securities		-	-			246	4.78			201	4.94			6,078	2.84			6,525	2.98
Commercial mortgage-backed securities		-	-			-	-			-	-			3,928	2.75			3,928	2.75
Corporate and other securities		-	-			-	-			984	2.95			-	-			984	2.95
Total securities held to maturity	$	264	0.75	%	$	246	4.78	%	$	1,185	3.29	%	$	16,327	2.84	%	$	18,022	2.86	%

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014 are as follows:


	September 30, 2015
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		5	$	926	$	(3)	$	2,468	$	(59)	$	3,394	$	(62)
State and political subdivisions		5		2,745		(68)		-		-		2,745		(68)
Residential mortgage-backed securities		8		3,796		(15)		4,744		(152)		8,540		(167)
Corporate and other securities		10		4,792		(163)		3,789		(207)		8,581		(370)
Total temporarily impaired securities		28	$	12,259	$	(249)	$	11,001	$	(418)	$	23,260	$	(667)
Held to maturity:
U.S. Government sponsored entities		2	$	-	$	-	$	4,141	$	(78)	$	4,141	$	(78)
Residential mortgage-backed securities		3		-		-		1,961		(36)		1,961		(36)
Commercial mortgage-backed securities		3		3,844		(84)		-		-		3,844		(84)
Corporate and other securities		1		960		(24)		-		-		960		(24)
Total temporarily impaired securities		9	$	4,804	$	(108)	$	6,102	$	(114)	$	10,906	$	(222)


	December 31, 2014
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		4	$	-	$	-	$	4,590	$	(93)	$	4,590	$	(93)
State and political subdivisions		7		-		-		4,103		(35)		4,103		(35)
Residential mortgage-backed securities		9		6,579		(16)		5,889		(131)		12,468		(147)
Corporate and other securities		7		1,053		(46)		3,736		(265)		4,789		(311)
Total temporarily impaired securities		27	$	7,632	$	(62)	$	18,318	$	(524)	$	25,950	$	(586)
Held to maturity:
U.S. Government sponsored entities		2	$	-	$	-	$	4,316	$	(124)	$	4,316	$	(124)
Residential mortgage-backed securities		3		-		-		2,586		(29)		2,586		(29)
Commercial mortgage-backed securities		1		-		-		1,822		(53)		1,822		(53)
Corporate and other securities		1		-		-		960		(23)		960		(23)
Total temporarily impaired securities		7	$	-	$	-	$	9,684	$	(229)	$	9,684	$	(229)

Unrealized Losses

The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow:

U.S. government sponsored entities and state and political subdivision securities: The unrealized losses on investments in these types of securities were caused by the increase in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of September 30, 2015. There was no impairment on these securities at December 31, 2014.

Residential and commercial mortgage-backed securities: The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The majority of contractual cash flows of these securities are guaranteed by the FNMA, GNMA, and the FHLMC. It is expected that the securities would not be settled at a price significantly less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2015 or December 31, 2014.

Corporate and other securities: Included in this category are corporate debt securities, Community Reinvestment Act (“CRA”) investments, asset-backed securities, and one trust preferred security. The unrealized losses on corporate debt securities were due to widening credit spreads or the increase in interest rates at the long end of the Treasury curve and the unrealized losses on CRA investments were caused by decreases in the market value of underlying bonds and rate changes. The Company evaluated the prospects of the issuers and forecasted a recovery period; and as a result determined it did not consider these investments to be other-than-temporarily impaired as of September 30, 2015 or December 31, 2014. The unrealized loss on the trust preferred security was caused by an inactive trading market and changes in market credit spreads. At September 30, 2015 and December 31, 2014, this category consisted of one single-issuer trust preferred security. The contractual terms do not allow the security to be settled at a price less than the par value. Because the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity, the Company did not consider this security to be other-than-temporarily impaired as of September 30, 2015 or December 31, 2014.

Realized Gains and Losses

Gross realized gains (losses) on securities for the three and nine months ended September 30, 2015 and 2014 are detailed in the table below:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2015		2014		2015		2014
Available for sale:
Realized gains	$	-	$	-	$	28	$	385
Realized losses		-		-		-		(7)
Total securities available for sale		-		-		28		378
Held to maturity:
Realized gains		-		-		-		-
Realized losses		-		-		-		-
Total securities held to maturity		-		-		-		-
Net gains on sales of securities	$	-	$	-	$	28	$	378

The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains. There were no gross realized gains or losses for the three months ended September 30, 2015. For the nine months ended September 30, 2015, there was a gross gain of $28 thousand.

For the nine months ended September 30, 2014, the Company sold one corporate bond totaling $500 thousand in book value, resulting in pre-tax gains of approximately $28 thousand.

There were no realized gains or losses for the three months ended September 30, 2014, and there were gross realized gains of $385 thousand for the nine months ended September 30, 2014. There were no gross realized losses for the three months ended September 30, 2014 and there were gross realized losses of $7 thousand for the nine months ended September 30, 2014. The net realized gains during 2014 were a result of the following:

For the nine months ended September 30, 2014, the Company sold approximately $17.5 million in book value of available for sale municipal securities, mortgage-backed securities, asset-backed securities, and corporate bonds, resulting in pre-tax gains of approximately $385 thousand.

Pledged Securities

Securities with a carrying value of $18.3 million and $50.4 million at September 30, 2015 and December 31, 2014, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law. Securities pledged for Government deposits totaled $0 and $32.1 million at September 30, 2015 and December 31, 2014, respectively. In June 2015, the FHLB issued a letter of credit in the name of Unity Bank naming the NJ Dept. of Banking and Insurance as beneficiary. The letter of credit will take the place of securities previously pledged to the state for the Bank’s municipal deposits. For additional information on amounts pledged to secure Government deposits at September 30, 2015, see section titled “Borrowed Funds and Subordinated Debentures” under Item 2. Management Discussion and Analysis.