The following table summarizes the amortized cost and fair value of securities available-for-sale at September 30, 2019 and December 31, 2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss).

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	23,712	$	824	$	(1	)	$	24,535
Residential mortgage pass-through securities		215,378		1,286		(859	)		215,805
Commercial mortgage pass-through securities		5,017		73		-			5,090
Obligations of U.S. states and political subdivisions		140,870		3,222		(436	)		143,656
Corporate bonds and notes		28,135		308		(193	)		28,250
Asset-backed securities		6,132		3		(41	)		6,094
Certificates of deposit		148		2		-			150
Other securities		2,269		-		-			2,269
Total securities available-for-sale	$	421,661	$	5,718	$	(1,530	)	$	425,849

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2018	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	45,509	$	51	$	(605	)	$	44,955
Residential mortgage pass-through securities		189,721		85		(4,602	)		185,204
Commercial mortgage pass-through securities		3,919		-		(45	)		3,874
Obligations of U.S. states and political subdivisions		141,496		1,091		(3,402	)		139,185
Corporate bonds and notes		26,308		45		(540	)		25,813
Asset-backed securities		9,685		22		(16	)		9,691
Certificates of deposit		319		3		-			322
Other securities		2,990		-		-			2,990
Total securities available-for-sale	$	419,947	$	1,297	$	(9,210	)	$	412,034

Investment securities having a carrying value of approximately $119.6 million and $151.5 million at September 30, 2019 and December 31, 2018, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law. As of September 30, 2019 and December 31, 2018, 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.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

The following table presents information for investments in securities available-for-sale at September 30, 2019, 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.

September 30, 2019

Amortized

Cost

Fair

Value

(dollars in thousands)

Securities available-for-sale:

Due in one year or less

$

4,309

$

4,333

Due after one year through five years

28,344

28,503

Due after five years through ten years

24,060

24,757

Due after ten years

142,284

145,092

Residential mortgage pass-through securities

215,378

215,804

Commercial mortgage pass-through securities

5,017

5,091

Other securities

2,269

2,269

Total securities available-for-sale

$

421,661

$

425,849

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

2019

2018

2019

2018

Proceeds

$

33,432

$

-

$

183,728

$

-

Gross gains on sales of securities

1

-

401

-

Gross losses on sales of securities

(280

)

-

(681

)

-

Net losses on sales of securities

(279

)

-

(280

)

-

Tax provision on net losses

62

-

62

-

Net losses on sales of securities, after tax

$

(217

)

$

-

$

(218

)

$

-

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 restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Temporarily Impaired Securities

The Company does not believe that any of the unrealized losses, which were comprised of 49 and 148 securities as of September 30, 2019 and December 31, 2018, 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 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.

The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. No corporate issuers have defaulted on interest payments. The declines in fair value are due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not OTTI at September 30, 2019 and at December 31, 2018.

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 September 30, 2019 and December 31, 2018:

September 30, 2019

Total

Less than 12 Months

12 Months or Longer

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

(dollars in thousands)

Investment Securities Available-for-Sale:

Federal agency obligation

$

95

$

(1

)

$

-

$

-

$

95

$

(1

)

Residential mortgage pass-through securities

110,586

(859

)

47,169

(210

)

63,417

(649

)

Obligations of U.S. states and political subdivisions

31,550

(436

)

4,054

-

27,496

(436

)

Corporate bonds and notes

5,286

(193

)

2,462

(38

)

2,824

(155

)

Asset-backed securities

5,316

(41

)

2,427

(7

)

2,889

(34

)

Total temporarily impaired securities

$

152,833

$

(1,530

)

$

56,112

$

(255

)

$

96,721

$

(1,275

)

December 31, 2018

Total

Less than 12 Months

12 Months or Longer

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

(dollars in thousands)

Investment Securities Available-for-Sale:

Federal agency obligation

$

35,472

$

(605

)

$

810

$

(1

)

$

34,662

$

(604

)

Residential mortgage pass-through securities

178,365

(4,602

)

42,040

(393

)

136,325

(4,209

)

Commercial mortgage pass-through securities

3,874

(45

)

-

-

3,874

(45

)

Obligations of U.S. states and political subdivisions

64,367

(3,402

)

7,765

(21

)

56,602

(3,381

)

Corporate bonds and notes

15,534

(540

)

7,767

(133

)

7,767

(407

)

Asset-backed securities

3,957

(16

)

2,219

(11

)

1,738

(5

)

Total Temporarily Impaired Securities

$

301,569

$

(9,210

)

$

60,601

$

(559

)

$

240,968

$

(8,651

)