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, 2020 and December 31, 2019:


	September 30, 2020
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	16,075	$	34	$	(17)	$	16,092
Obligations of state and political agencies		142,308		4,908		—		147,216
Mortgage backed securities
Residential agency		203,812		7,933		(45)		211,700
Commercial		86,502		1,092		(52)		87,542
Asset backed securities		123		8		—		131
Corporate bonds		32,518		244		(29)		32,733
Total available-for-sale investment securities	$	481,338	$	14,219	$	(143)	$	495,414


	December 31, 2019
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	21,246	$	9	$	(15)	$	21,240
Obligations of state and political agencies		68,162		647		(161)		68,648
Mortgage backed securities
Residential agency		180,411		2,258		(131)		182,538
Commercial		30,752		101		(168)		30,685
Asset backed securities		139		5		—		144
Corporate bonds		7,054		41		—		7,095
Total available-for-sale investment securities	$	307,764	$	3,061	$	(475)	$	310,350

The following tables present unrealized losses and fair values for available-for-sale investment securities as of September 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	September 30, 2020
	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	$	(9)	$	4,694	$	(8)	$	1,309	$	(17)	$	6,003
Obligations of state and political agencies		—		590		—		—		—		590
Mortgage backed securities
Residential agency		(45)		15,481		—		—		(45)		15,481
Commercial		(48)		25,292		(4)		2,603		(52)		27,895
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(29)		5,971		—		—		(29)		5,971
Total available-for-sale investment securities	$	(131)	$	52,028	$	(12)	$	3,914	$	(143)	$	55,942


	December 31, 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	$	(5)	$	1,740	$	(10)	$	9,990	$	(15)	$	11,730
Obligations of state and political agencies		(140)		11,959		(21)		5,798		(161)		17,757
Mortgage backed securities
Residential agency		(52)		17,131		(79)		14,036		(131)		31,167
Commercial		(116)		15,235		(52)		6,195		(168)		21,430
Asset backed securities		—		2		—		—		—		2
Corporate bonds		—		—		—		—		—		—
Total available-for-sale investment securities	$	(313)	$	46,067	$	(162)	$	36,019	$	(475)	$	82,086

For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their maturity dates. The Company evaluates securities for other-than-temporary impairment, or 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, 2020 and 2019, 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, 2020, by contractual maturity:


	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year or less	$	16,132	$	16,211
Due after one year through five years		26,821		27,459
Due after five years through ten years		145,310		150,121
Due after 10 years		293,075		301,623
Total available-for-sale investment securities	$	481,338	$	495,414

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 a total carrying value of $115.4 million and $136.2 million were pledged as of September 30, 2020 and December 31, 2019, respectively, to secure public deposits and for other purposes required or permitted by law.

Proceeds from the sale or call of available‑for‑sale investment securities, for the three and nine months ended September 30, 2020 and 2019, are displayed in the table below:


	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands)	2020		2019		2020		2019
Proceeds	$	35,125	$	10,934	$	74,630	$	32,565
Realized gains		1,428		59		2,722		357
Realized losses		—		(11)		—		(22)

As of September 30, 2020 and December 31, 2019, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines, or FHLB, stock was as follows:


	September 30,		December 31,
(dollars in thousands)	2020		2019
Federal Reserve	$	2,675	$	2,675
FHLB		3,169		3,080

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, 2020, the conversion ratio was 1.6228. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,236 Class A equivalents) that the Company owned as of September 30, 2020 and December 31, 2019, are carried at a zero cost basis.