NOTE

–

INVESTMENT

AND EQUITY

SECURITIES

The amortized cost and fair values of investment securities are as follows:

	March 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value

U.S. government agency securities	$	8,342	$	70	$	(107	)	$	8,305
Obligations of states and political subdivisions:
Taxable		504		14		-			518
Tax-exempt		64,986		829		(754	)		65,061
Mortgage-backed securities in government-sponsored entities		17,900		66		(588	)		17,378
Total	$	91,732	$	979	$	(1,449	)	$	91,262

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value

U.S. government agency securities	$	8,664	$	126	$	(71	)	$	8,719
Obligations of states and political subdivisions:
Taxable		504		8		-			512
Tax-exempt		65,408		1,547		(38	)		66,917
Mortgage-backed securities in government-sponsored entities		18,640		157		(287	)		18,510
Total debt securities		93,216		1,838		(396	)		94,658
Equity securities in financial institutions		415		210		-			625
Total	$	93,631	$	2,048	$	(396	)	$	95,283

The following table presents the carrying amount of the Company’s equity investments without readily determinable fair values the annual and cumulative amount of impairment, and the annual and cumulative amount of observable price changes for orderly transactions for the identical or a similar investment of the same issuer:

	2018
	Year-to-Date		Life-to-Date
Amortized cost	$	232	$	232
Impairment		-		-
Observable price changes		18		18
Carrying value	$	250	$	250

The following table presents the net gains and losses on the Company’s equity investments recognized in earnings during the

three

months ended

March 31, 2018,

and the portion of unrealized gains and losses for the period that relates to equity investments held at

March 31, 2018.

	2018
(Dollar amounts in thousands)
Net gains recognized in equity securities during the period	$	18
Less: Net gains realized on the sale of equity securities during the period		-
Unrealized gains recognized in equity securities held at reporting date	$	18

The amortized cost and fair value of debt securities at

March 31, 2018,

by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value

Due in one year or less	$	4,252	$	4,303
Due after one year through five years		7,607		7,713
Due after five years through ten years		12,489		12,420
Due after ten years		67,384		66,826
Total	$	91,732	$	91,262

Proceeds from the sales of investment securities and the gross realized gains and losses are as follows:

	For the Three Months
(Dollar amounts in thousands)	Ended March 31,
	2018		2017
Proceeds from sales	$	-	$	-
Gross realized gains		-		488	(1)
Gross realized losses		-		-

(

)

Prior to the acquisition of Liberty Bank, N.A., the Company had a previously held equity interest in Liberty which was re-measured at fair value on the acquisition date and resulted in a gain of

$488,000,

which was recorded in Equity Securities, Unrealized Gains on the consolidated Income Statement for the

three

months ended

March 31, 2017.

Investment securities with an approximate carrying value of

$61.7

million and

$57.9

million at

March 31, 2018

and

December 31, 2017,

respectively, were pledged to secure deposits and other purposes as required by law.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	March 31, 2018
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses

U.S. government agency securities	$	548	$	(12	)	$	3,899	$	(95	)	$	4,447	$	(107	)
Obligations of states and political subdivisions:
Tax-exempt		25,087		(660	)		2,721		(94	)		27,808		(754	)
Mortgage-backed securities in government-sponsored entities		5,941		(203	)		8,136		(385	)		14,077		(588	)
Total	$	31,576	$	(875	)	$	14,756	$	(574	)	$	46,332	$	(1,449	)

	December 31, 2017
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses			Value		Losses			Value		Losses

U.S. government agency securities	$	557	$	(4	)	$	4,036	$	(67	)	$	4,593	$	(71	)
Obligations of states and political subdivisions:
Tax-exempt		1,009		(6	)		2,784		(32	)		3,793		(38	)
Mortgage-backed securities in government-sponsored entities		5,698		(71	)		8,734		(216	)		14,432		(287	)
Total	$	7,264	$	(81	)	$	15,554	$	(315	)	$	22,818	$	(396	)

There were

securities considered temporarily impaired at

March 31, 2018.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than

not

that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does

not

expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does

not

intend to sell the underlying debt security and it is “more likely than

not”

that the Company will

not

have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for

100%

of the total available-for-sale portfolio as of

March 31, 2018

and

credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

	•	The length of time and the extent to which the fair value has been less than the amortized cost basis.
	•	Changes in the near-term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;
	•	The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and,
	•	Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the

three

months ended

March 31, 2018

and

2017,

there were

available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does

not

believe any individual unrealized loss as of

March 31, 2018

December 31, 2017

represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will

not

prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.