Note 4: Investment Securities

The amortized cost and estimated fair value of investment securities are summarized as follows:


	September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		Losses		Value
Available-for-Sale Portfolio
U.S. Government and agency obligations	$	13,610	$	1	$	(14)	$	13,597
Mortgage-backed securities – residential		4,416		17		(30)		4,403
Total available-for-sale	$	18,026	$	18	$	(44)	$	18,000

Held-to-Maturity Portfolio
Mortgage-backed securities – residential	$	434	$	7	$	–	$	441
State and municipal securities		5,577		119		–		5,696
Total held-to-maturity	$	6,011	$	126	$	–	$	6,137


	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		Losses		Value
Available-for-Sale Portfolio
U.S. Government and agency obligations	$	12,610	$	7	$	(162)	$	12,455
Mortgage-backed securities – residential		5,953		24		(101)		5,876
Total available-for-sale	$	18,563	$	31	$	(263)	$	18,331

Held-to-Maturity Portfolio
Mortgage-backed securities – residential	$	458	$	6	$	(1)	$	463
State and municipal securities		5,594		29		(56)		5,567
Total held-to-maturity	$	6,052	$	35	$	(57)	$	6,030

The amortized cost and estimated fair value of debt investments at September 30, 2019 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.


	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Due in one year or less	$	–	$	–	$	1,563	$	1,565
Due after one year through five years		10,610		10,597		2,418		2,446
Due after five years through ten years		3,000		3,000		1,596		1,685
Sub-total	$	13,610	$	13,597	$	5,577	$	5,696
Mortgage-backed securities – residential		4,416		4,403		434		441
Totals	$	18,026	$	18,000	$	6,011	$	6,137

The Company’s investment securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


	September 30, 2019
	Less than Twelve Months					Twelve Months or More					Total
	Number of					Number of					Number of
	Individual	Unrealized		Fair		Individual	Unrealized		Fair		Individual	Unrealized		Fair
(Dollars in thousands)	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
Available-for-Sale
U.S. Government and agency obligations	1	$	4	$	1,000	5	$	10	$	6,595	6	$	14	$	7,595
Mortgage-backed securities - residential(1)	1		–		139	4		30		3,162	5		30		3,301
Totals	2	$	4	$	1,139	9	$	40	$	9,757	11	$	44	$	10,896
Held-to-Maturity
Mortgage-backed securities – residential	–	$	–	$	–	–	$	–	$	–	–	$	–	$	–
State and municipal securities(1)	1		–		340	–		–		–	1		–		340
Totals	1	$	–	$	340	–	$	–	$	–	1	$	–	$	340


	December 31, 2018
	Less than Twelve Months					Twelve Months or More					Total
	Number of					Number of					Number of
	Individual	Unrealized		Fair		Individual	Unrealized		Fair		Individual	Unrealized		Fair
(Dollars in thousands)	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
Available-for-Sale
U.S. Government and agency obligations	–	$	–	$	–	8	$	162	$	9,445	8	$	162	$	9,445
Mortgage-backed securities - residential(1)	1		–		203	4		101		3,749	5		101		3,952
Totals	1	$	–	$	203	12	$	263	$	13,194	13	$	263	$	13,397
Held-to-Maturity
Mortgage-backed securities – residential	–	$	–	$	–	1	$	1	$	165	1	$	1	$	165
State and municipal securities	3		4		1,039	15		52		3,021	18		56		4,060
Totals	3	$	4	$	1,039	16	$	53	$	3,186	19	$	57	$	4,225

⁽¹⁾

Aggregate unrealized loss position of these securities is less than $500.

The Company conducts a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). The Company assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the consolidated balance sheet date. Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis. The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment. Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI. The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

There were 12 securities in an unrealized loss position at September 30, 2019, of which nine have been in loss positions for a period greater than twelve months and three have been in a loss position for a period less than twelve months. This compares to 32 securities in an unrealized loss position at December 31, 2018, of which 28 had been in loss positions for a period greater than twelve months and four had been in loss positions for a period less than twelve months. These issuing entities are currently rated Aaa by Moody’s Investor Services and AA+ by Standard and Poors. Among the nine securities in loss positions for a period greater than twelve months at September 30, 2019, all were either direct issuances of, or mortgage-backed securities or collateralized mortgage obligations issued by, the following entities sponsored and guaranteed by the United States Government: GNMA, FNMA, and FHLMC. The unrealized losses reflected are primarily attributable to changes in interest rates since the securities were acquired.

Among the three securities in an unrealized loss position at September 30, 2019 for less than twelve months, two were either direct issuances of, or mortgage-backed securities or collateralized mortgage obligations issued by, the following entities sponsored and guaranteed by the United States Government: FAMCA and FHLMC. The remaining security that has been in a loss position for a period less than twelve months was issued by a local municipality. The unrealized loss reflected is primarily attributable to changes in interest rates since the securities were acquired. The Company does not intend to sell these securities, nor is it more likely than not, that the Company will be required to sell these securities prior to recovery of the amortized cost. As such, management does not believe any individual unrealized loss as of September 30, 2019 represents OTTI.

There were no realized gains or losses on sales of securities for the three or nine months ended September 30, 2019 and September 30, 2018.

As of September 30, 2019 and December 31, 2018, no securities were pledged to secure public deposits or for any other purpose required or permitted by law.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of investing in, or originating, these types of investments or loans.