Note 4: Investment Securities

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

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
U.S. Government and agency obligations	$	7,106	$	5	$	(4	)	$	7,107
Mortgage-backed securities – residential		10,514		55		(24	)		10,545
Total available-for-sale	$	17,620	$	60	$	(28	)	$	17,652
Held-to-Maturity Portfolio
Mortgage-backed securities – residential	$	802	$	18	$	-		$	820
U.S. Government and agency obligations		-		-		-			-
State and municipal securities		5,567		104		(2	)		5,669
Total held-to-maturity	$	6,369	$	122	$	(2	)	$	6,489

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
U.S. Government and agency obligations	$	6,000	$	-	$	(32	)	$	5,968
Mortgage-backed securities – residential		13,974		101		(75	)		14,000
Total available-for-sale	$	19,974	$	101	$	(107	)	$	19,968
Held-to-Maturity Portfolio
Mortgage-backed securities – residential	$	1,535	$	39	$	-		$	1,574
U.S. Government and agency obligations		6,793		129		-			6,922
State and municipal securities		4,651		76		(1	)		4,726
Total held-to-maturity	$	12,979	$	244	$	(1	)	$	13,222

The amortized cost and estimated fair value of debt investments at September 30, 2016 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				Amortized
(In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	371	$	371
Due after one year through five years		6,106		6,102		3,193		3,247
Due after five years through ten years		-		-		2,003		2,051
Due after ten years		1,000		1,005		-		-
Sub-total	$	7,106	$	7,107	$	5,567	$	5,669
Mortgage-backed securities – residential		10,514		10,545		802		820
Totals	$	17,620	$	17,652	$	6,369	$	6,489

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, 2016
	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		3	$	4	$	4,102		-	$	-	$	-		3	$	4	$	4,102
Mortgage-backed securities - residential		2		9		3,021		2		15		1,092		4		24		4,113
Totals		5	$	13	$	7,123		2	$	15	$	1,092		7	$	28	$	8,215
Held-to-Maturity
State and municipal securities⁽¹⁾		3	$	2	$	560		1	$	-	$	45		4	$	2	$	605
Totals		3	$	2	$	560		1	$	-	$	45		4	$	2	$	605

	December 31, 2015
	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		6	$	32	$	5,968		-	$	-	$	-		6	$	32	$	5,968
Mortgage-backed securities - residential		5		61		6,283		1		14		821		6		75		7,104
Totals		11	$	93	$	12,251		1	$	14	$	821		12	$	107	$	13,072
Held-to-Maturity
State and municipal securities⁽¹⁾		2	$	-	$	455		2	$	1	$	126		4	$	1	$	581
Totals		2	$	-	$	455		2	$	1	$	126		4	$	1	$	581

⁽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 statement of condition 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 11 securities in an unrealized loss position at September 30, 2016, of which three have been in loss positions for a period greater than twelve months and eight have been in loss positions for a period less than twelve months. This compares to 16 securities in an unrealized loss position at December 31, 2015, of which three had been in loss positions for a period greater than twelve months and 13 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 three securities in loss positions for a period greater than twelve months at September 30, 2016, two were mortgage-backed securities issued by GNMA and guaranteed by the United States Government. The remaining security that has been in a loss position for a period greater than twelve months was issued by a state subdivision. The unrealized losses reflected are primarily attributable to changes in interest rates since the securities were acquired.

Among the eight securities in an unrealized loss position at September 30, 2016 for less than twelve months, five 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: FNMA, FHLMC, FHLB and FFCB. The remaining three securities were issued by a state or political subdivision. The unrealized losses reflected are 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, 2016 represents OTTI.

There were $24,000 of gross realized gains on sales of securities available-for-sale and $12,000 of gross realized gains on sales of securities held-to-maturity resulting from proceeds of $2,606,000 for the three months and nine months ended September 30, 2016. There were $64,000 of gross realized gains on sales of securities available-for-sale and $42,000 of gross realized gains on sales of securities held-to-maturity resulting from proceeds of $3,430,000 for the three months and nine months ended September 30, 2015. In accordance with accounting guidance, the Company was able to sell securities classified as held-to-maturity after the Company had already collected a substantial portion (at least 85%) of the principal outstanding at acquisition due either to prepayments or to scheduled principal and interest payments on debt securities.

As of September 30, 2016 and December 31, 2015, 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.