The Company’s investment securities are all classified as available-for-sale as of September 30, 2021 and December 31, 2020. 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, 2021 and December 31, 2020. 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 6 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, 2021 and December 31, 2020.

											Allowance
											for
			Gross		Gross						Investment
	Amortized		Unrealized		Unrealized			Fair			Credit
	Cost		Gains		Losses			Value			Losses
September 30, 2021	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	50,016	$	1,032	$	-		$	51,048	$	-
Residential mortgage pass-through securities		255,488		2,640		(2,073	)		256,055		-
Commercial mortgage pass-through securities		10,859		135		(468	)		10,526		-
Obligations of U.S. states and political subdivisions		129,632		1,693		(1,051	)		130,274		-
Corporate bonds and notes		10,965		124		-			11,089		-
Asset-backed securities		2,718		6		(2	)		2,722		-
Certificates of deposit		149		1		-			150		-
Other securities		1,020		-		-			1,020		-
Total securities available-for-sale	$	460,847	$	5,631	$	(3,594	)	$	462,884	$	-

December 31, 2020
Securities available-for-sale
Federal agency obligations	$	37,015	$	1,508	$	(65	)	$	38,458	$	N/A
Residential mortgage pass-through securities		266,114		4,811		(41	)		270,884		N/A
Commercial mortgage pass-through securities		6,906		203		(187	)		6,922		N/A
Obligations of U.S. states and political subdivisions		138,539		4,269		-			142,808		N/A
Corporate bonds and notes		24,925		222		(52	)		25,095		N/A
Asset-backed securities		3,521		-		(41	)		3,480		N/A
Certificates of deposit		149		2		-			151		N/A
Other securities		157		-		-			157		N/A
Total securities available-for-sale	$	477,326	$	11,015	$	(386	)	$	487,955	$	N/A

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

Investment securities having a carrying value of approximately $88.1 million and $107.6 million as of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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, 2021, 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, 2021
	Amortized		Fair
	Cost		Value
	(dollars in thousands)
Securities available-for-sale:
Due in one year or less	$	4,439	$	4,451
Due after one year through five years		9,911		10,024
Due after five years through ten years		7,777		8,029
Due after ten years		171,353		172,779
Residential mortgage pass-through securities		255,488		256,055
Commercial mortgage pass-through securities		10,859		10,526
Other securities		1,020		1,020
Total securities available-for-sale	$	460,847	$	462,884

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

	Three Months Ended September 30,				Nine Months Ended September 30,
		(dollars in thousands)
	2021		2020		2021			2020
Proceeds	$	-	$	-	$	5,185		$	19,624

Gross gains on sales/redemption of securities		-		-		195			29
Gross losses on sales/redemptions of securities		-		-		-			-
Net gains on sales/redemptions of securities		-		-		195			29
Less: tax provision on net gains		-		-		(48	)		(6	)
Net gains on sales/redemptions of securities, after tax	$	-	$	-	$	147		$	23

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

Impairment Analysis of Available-for-Sale Debt Securities

The following tables indicate gross unrealized losses for which an ACL has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of September 30, 2021 and December 31, 2020.

	September 30, 2021
	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:
Residential mortgage pass-through securities	$	171,592	$	(2,073	)	$	171,592	$	(2,073	)	$	-	$	-
Commercial mortgage pass-through securities		6,349		(468	)		2,658		(67	)		3,691		(401	)
Obligations of U.S. states and political subdivisions		71,938		(1,051	)		71,938		(1,051	)		-		-
Asset-backed securities		1,389		(2	)		840		-			549		(2	)
Total temporarily impaired securities	$	251,268	$	(3,594	)	$	247,028	$	(3,191	)	$	4,240	$	(403	)

	December 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 obligations	$	8,978	$	(65	)	$	8,975	$	(65	)	$	3	$	-
Residential mortgage pass-through securities		20,895		(41	)		20,886		(41	)		9		-
Commercial mortgage pass-through securities		3,954		(187	)		3,954		(187	)		-		-
Corporate bonds and notes		3,928		(52	)		3,928		(52	)		-		-
Asset-backed securities		3,083		(41	)		622		-			2,461		(41	)
Total Temporarily Impaired Securities	$	40,838	$	(386	)	$	38,365	$	(345	)	$	2,473	$	(41	)

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

On January 1, 2021, the Company adopted ASU 2016-13 and implemented the CECL methodology for allowance for credit losses on its investment securities available-for-sale. The new CECL methodology replaces the other-than-temporary impairment model that previously existed. The Company did not have a CECL day 1 impact attributable to its investment securities portfolio and did not have an allowance for credit losses as of September 30, 2021. The Company has elected to exclude accrued interest from the amortized cost of its investment securities available-for-sale. Accrued interest receivable for investment securities available for sale as of September 30, 2021 and December 31, 2020, totaled $1.4 million and $1.7 million, respectively.

The Company evaluates securities in an unrealized loss position for impairment related to credit losses on at least a quarterly basis. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses on asset backed securities and state and municipal securities have not been recognized into income because the issuers are of high credit quality, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale securities was recorded as of September 30, 2021.

Federal agency obligations, residential mortgage-backed pass-through securities and commercial mortgage-backed pass-through securities are issued by U.S. Government agencies and U.S. Government sponsored enterprises. Although a government guarantee exists on these investments, these entities are not legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part of the agreement entered into in 2008. Nonetheless, at this time we do not foresee any set of circumstances in which the government would not fund its commitments on these investments as the issuers are an integral part of the U.S. housing market in providing liquidity and stability. Therefore, we concluded that a zero-allowance approach for these investment securities is appropriate.