5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2020, the Company had $971,000 in equity securities recorded at fair value and $1,144,000 in equity securities recorded at fair value at December 31, 2019. The Company recorded a net loss of $172,000 during the three months ended March 31, 2020 and a net gain of $9,000 during the three months ended March 31, 2019 as a result of the change in fair value of the Company’s equity securities during the applicable period.

Debt Securities Available for Sale

Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Interest and dividends are recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, determined on a specific identification basis.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 5% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 91%), municipal bonds (approximately 3%) and a corporate debt security (approximately 1%) as of March 31, 2020. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

The amortized cost and fair value of securities available for sale as of March 31, 2020 and December 31, 2019, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.


(Dollars in thousands)	March 31, 2020
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	6,000	$	6,015	$	15	$	—
After five years but within ten years		4,000		4,030		30		—
		10,000		10,045		45		—
Obligations of state and political subdivisions
Within one year		850		853		3		—
After one year but within five years		2,808		2,823		15		—
After five years but within ten years		2,790		2,936		146		—
		6,448		6,612		164		—
Corporate debt securities
Within one year		1,023		1,035		12		—
		1,023		1,035		12		—
Mortgage-backed securities		177,584		182,946		5,363		(1)
Total	$	195,055	$	200,638	$	5,584	$	(1)


(Dollars in thousands)	December 31, 2019
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	14,998	$	14,970	$	1	$	(29)
After five years but within ten years		6,000		5,950		—		(50)
		20,998		20,920		1		(79)
Obligations of state and political subdivisions
Within one year		1,020		1,024		4		—
After one year but within five years		2,810		2,823		13		—
After five years but within ten years		723		728		5		—
		4,553		4,575		22		—
Mortgage-backed securities		184,488		185,191		1,132		(429)
Total	$	210,039	$	210,686	$	1,155	$	(508)

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $55,511,000 and $50,365,000 at March 31, 2020 and December 31, 2019, respectively.

In addition to cash received from the scheduled maturities of investment securities, some securities available for sale are sold or called at current market values during the course of normal operations.

The following table summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and losses during the three months ended March 31, 2020 and 2019.


(Dollars in thousands)	Three Months Ended
	March 31,
	2020		2019
Gross proceeds from sales and calls of securities	$	15,704	$	11,107
Securities available for sale:
Gross realized gains from sold and called securities	$	41	$	5
Gross realized losses from sold and called securities		(30)		(61)
Net losses from sales and calls of securities	$	11	$	(56)

Topic 320 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. Management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

The following tables show gross unrealized losses and fair values of debt securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019:


	Unrealized Losses at March 31, 2020
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Mortgage-backed securities	2	$	1,186	$	(1)	—	$	—	$	—	2	$	1,186	$	(1)
Total temporarily impaired securities	2	$	1,186	$	(1)	—	$	—	$	—	2	$	1,186	$	(1)


	Unrealized Losses at December 31, 2019
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	9	$	16,919	$	(79)	—	$	—	$	—	9	$	16,919	$	(79)
Mortgage-backed securities	13		47,466		(204)	16		22,049		(225)	29		69,515		(429)
Total temporarily impaired securities	22	$	64,385	$	(283)	16	$	22,049	$	(225)	38	$	86,434	$	(508)

At March 31, 2020, two mortgage-backed securities had an unrealized loss. Neither of these securities have been in a continuous loss position for twelve months or more. The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (“GSE”) pass-through instruments issued by the Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

The unrealized losses noted in the tables above are considered to be temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Because the Company does not intend to sell the securities, does not believe the Company will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, no debt securities were deemed to be other-than-temporarily impaired for the periods ended March 31, 2020 and December 31, 2019, respectively.