Note 3 – Investment Securities

Prior to the final determination of Basel III, investments were recorded as held-to-maturity due to the uncertainty of the capital treatment of available-for-sale investments. Upon the issuance of the final ruling, the Company opted out of the Other Comprehensive Income treatment of available-for-sale investments permitted under Basel III. Due to the change in capital treatment under the final ruling of Basel III, the Company’s purpose of recording investments as held-to-maturity changed; therefore, during the period ended March 31, 2016, the Company reclassified $52.4 million, with unrealized holding gains of $1.8 million, of the remaining held-to-maturity investments into available-for-sale investments.

There were no held-to-maturity securities at September 30, 2017 or December 31, 2016.

Amortized cost and fair values of investment securities available-for-sale at September 30, 2017 are summarized as follows:



(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U. S. Agency securities	$	55,895	$	69	$	(347	)	$	55,617
U.S. Sponsored Mortgage-backed securities	55,602		61		(944		)	54,719
Municipal securities	60,822		1,077		(503		)	61,396
Total debt securities	172,319		1,207		(1,794		)	171,732
Equity and other securities	14,991		625		—			15,616
Total investment securities available-for-sale	$	187,310	$	1,832	$	(1,794	)	$	187,348

Amortized cost and fair values of investment securities available-for-sale at December 31, 2016 are summarized as follows:



(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U. S. Agency securities	$	29,234	$	7	$	(425	)	$	28,816
U.S. Sponsored Mortgage-backed securities	56,080		14		(1,362		)	54,732
Municipal securities	72,075		744		(2,023		)	70,796
Total debt securities	157,389		765		(3,810		)	154,344
Equity and other securities	7,643		381		—			8,024
Total investment securities available-for-sale	$	165,032	$	1,146	$	(3,810	)	$	162,368

The following table summarizes amortized cost and fair values of debt securities by maturity:

	September 30, 2017
	Available for sale
(Dollars in thousands)	Amortized Cost		Fair Value
Within one year	$	300	$	301
After one year, but within five	13,311		13,768
After five years, but within ten	32,703		32,449
After ten years	126,005		125,214
Total	$	172,319	$	171,732

Investment securities with a carrying value of $76.0 million at September 30, 2017, were pledged to secure public funds, repurchase agreements, and potential borrowings at the Federal Reserve discount window.

The Company’s investment portfolio includes securities that are in an unrealized loss position as of September 30, 2017, the details of which are included in the following table. Although these securities, if sold at September 30, 2017 would result in a pretax loss of $1.8 million, the Company has no intent to sell the applicable securities at such fair values, and maintains the Company has the ability to hold these securities until all principal has been recovered. Management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis. Declines in the fair values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of September 30, 2017, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in fair value.

The following table discloses investments in an unrealized loss position at September 30, 2017:



(Dollars in thousands)	Less than 12 months					12 months or more
Description and number of positions	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Agency securities (23)	$	29,921	$	(206	)	$	6,859	$	(141	)
U.S. Sponsored Mortgage-backed securities (33)	19,186		(287		)	27,400		(657		)
Municipal securities (48)	7,246		(74		)	18,589		(429		)
Equity and other securities (0)	$	—	$	—		$	—	$	—
	$	56,353	$	(567	)	$	52,848	$	(1,227	)

The following table discloses investments in an unrealized loss position at December 31, 2016:



(Dollars in thousands)	Less than 12 months					12 months or more
Description and number of positions	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Agency securities (16)	$	28,814	$	(425	)	$	—	$	—
U.S. Sponsored Mortgage-backed securities (29)	33,209		(1,040		)	13,919		(322		)
Municipal securities (86)	42,727		(2,023		)	—		—
	$	104,750	$	(3,488	)	$	13,919	$	(322	)

For the three month period ended September 30, 2017 and 2016, the Company sold investments available-for-sale of $19.0 million and $15.7 million, respectively. These sales resulted in gross gains of $111 thousand and $479 thousand and gross losses of $6 thousand and $0, respectively.

For the nine month period ended September 30, 2017 and 2016, the Company sold investments available-for-sale of $52.1 million and $55.2 million, respectively. These sales resulted in gross gains of $827 thousand and $1.1 million and gross losses of $372 thousand and $2 thousand, respectively.

For the three and nine month periods ended September 30, 2017 and 2016, the Company sold no investments held-to-maturity.