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Securities Available-for-Sale | 9 Months Ended
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Sep. 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 as of September 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 September 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 as of September 30, 2020 and December 31, 2019.
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
|  | Cost |  | Gains |  | Losses |  | Value
September 30, 2020 |  | (dollars in thousands)
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency obligations |  | $ | 44,431 |  | $ | 1,768 |  | $ | (54 | ) |  | $ | 46,145
Residential mortgage pass-through  securities |  |  | 238,193 |  |  | 4,166 |  |  | (135 | ) |  |  | 242,224
Commercial mortgage pass-through  securities |  |  | 6,176 |  |  | 213 |  |  | (142 | ) |  |  | 6,247
Obligations of U.S. states and political subdivisions |  |  | 124,790 |  |  | 3,649 |  |  | (43 | ) |  |  | 128,396
Corporate bonds and notes |  |  | 24,916 |  |  | 256 |  |  | (369 | ) |  |  | 24,803
Asset-backed securities |  |  | 5,023 |  |  | - |  |  | (155 | ) |  |  | 4,868
Certificates of deposit |  |  | 149 |  |  | 2 |  |  | - |  |  |  | 151
Other securities |  |  | 181 |  |  | - |  |  | - |  |  |  | 181
Total securities available-for-sale |  | $ | 443,859 |  | $ | 10,054 |  | $ | (898 | ) |  | $ | 453,015
|  |  |  |  | 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 available-for-sale having a carrying value of approximately $107.1 million and $111.5 million as of September 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 September 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 as of September 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.
|  | September 30, 2020
|  | Amortized |  | Fair
|  | Cost |  | Value
|  | (dollars in thousands)
Securities available-for-sale: |  |  |  |  |  |
Due in one year or less |  | $ | 5,947 |  | $ | 5,982
Due after one year through five years |  |  | 23,657 |  |  | 23,651
Due after five years through ten years |  |  | 21,837 |  |  | 22,345
Due after ten years |  |  | 147,868 |  |  | 152,385
Residential mortgage pass-through securities |  |  | 238,193 |  |  | 242,224
Commercial mortgage pass-through securities |  |  | 6,176 |  |  | 6,247
Other securities |  |  | 181 |  |  | 181
Total securities available-for-sale |  | $ | 443,859 |  | $ | 453,015
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) |
|  | 2020 |  | 2019 |  |  | 2020 |  | 2019 |
Proceeds |  | $ | - |  |  | $ | 33,432 |  |  | $ | 19,624 |  |  | $ | 183,728 |
Gross gains on sales of securities |  |  | - |  |  |  | 1 |  |  |  | 29 |  |  |  | 401 |
Gross losses on sales of securities |  |  | - |  |  |  | (280 | ) |  |  | - |  |  |  | (681 | )
Net losses on sales of securities |  |  | - |  |  |  | (279 | ) |  |  | 29 |  |  |  | (280 | )
Less: tax provision on net losses |  |  | - |  |  |  | 62 |  |  |  | (6 | ) |  |  | 62 |
Net losses on sales of securities, after tax |  | $ | - |  |  | $ | (217 | ) |  | $ | 23 |  |  | $ | (218 | )
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 32 and 53 securities as of September 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 as of September 30, 2020 and December 31, 2019.
| September 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 | $ | 13,305 |  | $ | (54 | ) |  | $ | 13,299 |  | $ | (54 | ) |  | $ | 6 |  | $ | - |
Residential mortgage pass-through securities |  | 70,465 |  |  | (135 | ) |  |  | 70,455 |  |  | (135 | ) |  |  | 10 |  |  | - |
Commercial mortgage pass-through securities |  | 4,016 |  |  | (142 | ) |  |  | 4,016 |  |  | (142 | ) |  |  | - |  |  | - |
Obligations of U.S. states and political subdivisions |  | 8,468 |  |  | (43 | ) |  |  | 8,468 |  |  | (43 | ) |  |  | - |  |  | - |
Corporate bonds and notes |  | 5,610 |  |  | (369 | ) |  |  | 5,610 |  |  | (369 | ) |  |  | - |  |  | - |
Asset-backed securities |  | 4,868 |  |  | (155 | ) |  |  | 1,288 |  |  | (38 | ) |  |  | 3,580 |  |  | (117 | )
Total temporarily impaired securities | $ | 106,732 |  | $ | (898 | ) |  | $ | 103,136 |  | $ | (781 | ) |  | $ | 3,596 |  | $ | (117 | )
| 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 | )

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