NOTE 3 Investment Securities

The following tables present amortized cost, gross unrealized gain and losses, and fair value of the available-for-sale investment securities as of September 30, 2019 and December 31, 2018:


	September 30, 2019
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	21,607	$	29	$	(34)	$	21,602
Obligations of state and political agencies		47,227		703		(74)		47,856
Mortgage backed securities
Residential agency		165,995		3,467		(125)		169,337
Commercial		32,546		139		(33)		32,652
Asset backed securities		152		5		—		157
Corporate bonds		7,069		43		—		7,112
Total available-for-sale investment securities	$	274,596	$	4,386	$	(266)	$	278,716


	December 31, 2018
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	19,364	$	—	$	(222)	$	19,142
Obligations of state and political agencies		67,662		171		(1,446)		66,387
Mortgage backed securities
Residential agency		129,906		210		(3,118)		126,998
Commercial		29,050		20		(303)		28,767
Asset backed securities		398		5		(4)		399
Corporate bonds		8,602		—		(121)		8,481
Total available-for-sale investment securities	$	254,982	$	406	$	(5,214)	$	250,174

The following tables present unrealized losses and fair values for available-for-sale investment securities as of September 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	September 30, 2019
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	(3)	$	1,757	$	(31)	$	9,969	$	(34)	$	11,726
Obligations of state and political agencies		(23)		5,965		(51)		5,999		(74)		11,964
Mortgage backed securities
Residential agency		(44)		10,020		(81)		17,138		(125)		27,158
Commercial		(18)		9,215		(15)		3,126		(33)		12,341
Asset backed securities		—		2		—		—		—		2
Corporate bonds		—		—		—		—		—		—
Total available-for-sale investment securities	$	(88)	$	26,959	$	(178)	$	36,232	$	(266)	$	63,191


	December 31, 2018
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	(8)	$	5,288	$	(214)	$	11,598	$	(222)	$	16,886
Obligations of state and political agencies		—		389		(1,446)		55,770		(1,446)		56,159
Mortgage backed securities
Residential agency		(44)		7,352		(3,074)		112,293		(3,118)		119,645
Commercial		(39)		7,844		(264)		9,741		(303)		17,585
Asset backed securities		—		2		(4)		155		(4)		157
Corporate bonds		—		—		(121)		8,481		(121)		8,481
Total available-for-sale investment securities	$	(91)	$	20,875	$	(5,123)	$	198,038	$	(5,214)	$	218,913

For all of the above investment securities, the unrealized losses are generally due to changes in interest rates and unrealized losses are considered to be temporary as the fair value is expected to recover as the securities approach maturity date. The Company evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, consideration is given to the severity and duration of the impairment; the financial condition and near-term prospects of the issuer, which for debt securities, considers external credit ratings and recent downgrades; and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value.

For the three and nine months ended September 30, 2019 and 2018, the Company did not recognize OTTI losses on its investment securities.

The following table presents amortized cost and estimated fair value of the available-for-sale investment securities as of September 30, 2019, by contractual maturity:


	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year or less	$	3,016	$	3,026
Due after one year through five years		35,948		35,989
Due after five years through ten years		78,983		80,405
Due after 10 years		156,649		159,296
Total available-for-sale investment securities	$	274,596	$	278,716

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities with carrying value of $141.1 million and $149.0 million were pledged as of September 30, 2019 and December 31, 2018, respectively, to secure public deposits and for other purposes required or permitted by law.

Proceeds from the sale of available‑for‑sale investment securities, for the three and nine months ended September 30, 2019 and 2018, are displayed in the table below:


	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands)	2019		2018		2019		2018
Proceeds	$	10,934	$	2,021	$	32,565	$	2,466
Realized gains		59		—		357		105
Realized losses		11		—		22		5

As of September 30, 2019 and December 31, 2018, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines (“FHLB”) stock was as follows:


	September 30,		December 31,
(dollars in thousands)	2019		2018
Federal Reserve	$	2,675	$	2,675
FHLB		3,121		6,875

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of September 30, 2019, the conversion ratio was 1.6298. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,285 Class A equivalents) that the Company owns as of September 30, 2019 and December 31, 2018, are carried at a zero cost basis.