6. Securities

On January 1, 2018, the Company adopted ASU 2016-01, Measurement of Financial Assets Instruments. Upon adoption, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in net income. For periods prior to January 1, 2018, equity securities were classified as available for sale and stated at fair value with unrealized gains and losses reported as a separate component of AOCI, net of tax. At December 31, 2017, the fair value of equity securities classified as available for sale was $1,119,000. The adoption of ASU 2016-01 resulted in a reclassification of $156,000 in net unrealized gains from AOCI to retained earnings. As of September 30, 2018, the Company had $1,162,000 in equity investments recorded at fair value.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored agencies (approximately 24% of the investment portfolio), mortgage-backed securities issued by Government-sponsored agencies and backed by residential mortgages (approximately 62%) and municipal bonds (approximately 14%) as of September 30, 2018. 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 September 30, 2018 and December 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.


		September 30, 2018
(Dollars in thousands)						Gross		Gross
		Amortized		Fair		Unrealized		Unrealized
Securities Available for Sale		Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government agencies and corporations
Within one year	$	6,000	$	5,997	$	-	$	(3)
After one year but within five years		24,997		23,916		-		(1,081)
After five years but within ten years		3,999		3,789		-		(210)
		34,996		33,702		-		(1,294)
Obligations of state and political subdivisions
Within one year		1,053		1,051		-		(2)
After one year but within five years		14,250		14,016		6		(240)
After five years but within ten years		4,648		4,448		2		(202)
		19,951		19,515		8		(444)
Mortgage-backed securities		89,357		85,433		-		(3,924)
Total securities available for sale	$	144,304	$	138,650	$	8	$	(5,662)


		December 31, 2017
(Dollars in thousands)						Gross		Gross
		Amortized		Fair		Unrealized		Unrealized
Securities Available for Sale		Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government agencies and corporations
Within one year	$	6,000	$	5,969	$	-	$	(31)
After one year but within five years		15,000		14,689		-		(311)
After five years but within ten years		13,998		13,556		-		(442)
		34,998		34,214		-		(784)
Obligations of state and political subdivisions
Within one year		2,521		2,516		-		(5)
After one year but within five years		13,959		13,955		50		(54)
After five years but within ten years		8,611		8,510		18		(119)
		25,091		24,981		68		(178)
Mortgage-backed securities		94,945		93,510		38		(1,473)
Equity securities		922		1,119		197		-
Total	$	155,956	$	153,824	$	303	$	(2,435)

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 $57,618,000 and $47,825,000 at September 30, 2018 and December 31, 2017, respectively.

In addition to cash received from the scheduled maturities of securities, some investment 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.


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,
	2018		2017		2018		2017
Gross proceeds from sales and calls of securities	$	-	$	10,166	$	4,285	$	21,800
Securities available for sale:
Gross realized gains from sold and called securities	$	-	$	30	$	-	$	539
Gross realized losses from sold and called securities		-		(28)		(15)		(32)
Gross gains from business combinations		-		-		-		3
Net (losses) gains	$	-	$	2	$	(15)	$	510

As of January 1, 2018, upon the adoption of ASU 2016-01, all of the Company’ equity securities are within the scope of ASC Topic 321, Investments – Equity Securities. ASC 321 requires all equity investments within its scope to be measured at fair value with changes in fair value recognized in net income. The Company recorded a decline of $4,000 during the three months ended September 30, 2018 and an increase of $42,000 during the nine months ended September 30, 2018 for the change in fair value of equity securities on the consolidated statements of income.

ASC Topic 320, Investments – Debt and Equity Securities, 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 (loss).

The following tables show gross unrealized losses and fair values of securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position, at September 30, 2018 and December 31, 2017:


	Unrealized Losses at September 30, 2018
	Less Than 12 Months					12 Months or More					Total
	Number					Number					Number
(Dollars in thousands)	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S.
Government agencies
and corporations	-	$	-	$	-	20	$	33,702	$	(1,294)	20	$	33,702	$	(1,294)
Obligations of state and
political subdivisions	21		10,804		(121)	8		6,208		(323)	29		17,012		(444)
Mortgage-backed
securities	9		19,484		(609)	37		65,949		(3,315)	46		85,433		(3,924)
Total temporarily
impaired
securities	30	$	30,288	$	(730)	65	$	105,859	$	(4,932)	95	$	136,147	$	(5,662)


	Unrealized Losses at December 31, 2017
	Less Than 12 Months					12 Months or More					Total
	Number					Number					Number
(Dollars in thousands)	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S.
Government agencies
and corporations	5	$	10,845	$	(157)	15	$	23,369	$	(627)	20	$	34,214	$	(784)
Obligations of state and
political subdivisions	23		10,491		(70)	6		3,862		(108)	29		14,353		(178)
Mortgage-backed
securities	23		51,050		(518)	20		38,740		(955)	43		89,790		(1,473)
Total debt securities	51		72,386		(745)	41		65,971		(1,690)	92		138,357		(2,435)
Equity securities	1		9		-	1		4		-	2		13		-
Total temporarily
impaired
securities	52	$	72,395	$	(745)	42	$	65,975	$	(1,690)	94	$	138,370	$	(2,435)

At September 30, 2018, 20 U.S. Government agency and corporation securities had unrealized losses that, in the aggregate, did not exceed 1.0% of the amortized cost of the securities portfolio. All of these securities have been in a continuous loss position for 12 months or more.

At September 30, 2018, 29 obligations of state and political subdivisions had unrealized losses that, in the aggregate, did not exceed 1.0% of the amortized cost of the securities portfolio. Eight of these securities has been in a continuous loss position for 12 months or more.

At September 30, 2018, 46 mortgage-backed securities had an unrealized loss that did not exceed 3.0% of the amortized cost of the securities portfolio. Thirty-seven of these securities has been in a continuous loss position for 12 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 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, none of the debt securities are deemed to be other-than-temporarily impaired for the periods ended, September 30, 2018, September 30, 2017 and December 31, 2017, respectively.

Equity securities owned by the Company consist of common stock of various financial services providers. Management identified no other-than-temporary impairment as of, or for the periods ended December 31, 2017 and September 30, 2017.