5. Investment Securities

9 Months Ended

Sep. 30, 2018

Notes

5. Investment Securities

5.  Investment Securities

The following is a summary of the Company's investment portfolio: 

(In 000’s)	September 30, 2018
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
Available-for-sale:
U.S. Government agency securities	$ 2,349	$ -	$ (116)	$ 2,233
Government Sponsored Enterprises residential mortgage-backed securities	2,432	10	(88)	2,354
	$ 4,781	10	(204)	$ 4,587

	December 31, 2017
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
Available-for-sale:
U.S. Government agency securities	$ 2,349	$ -	$ (76)	$ 2,273
Government Sponsored Enterprises residential mortgage-backed securities	2,737	21	(18)	2,740
Investments in money market funds	132	-	-	132
	$ 5,218	$ 21	$ (94)	$ 5,145

Effective January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments as describe in Note 4.  As a result, the Investment in Money Market Mutual Funds was reclassed to Federal Funds Sold and other cash equivalents.

The amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of September 30, 2018, are as follows:

(In 000’s)	Amortized Cost	Fair Value
Due in one year	$ -	$ -
Due after one year through five years	-	-
Due after five years through ten years	2,349	2,233
Government Sponsored Enterprises residential mortgage-backed securities	2,432	2,354
	$ 4,781	$ 4,587

Expected maturities will differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without any penalties.

There were no sales of securities during the three and nine months ended September 30, 2018 and 2017.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at September 30, 2018:

(in 000’s)	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	Securities	Value	Losses	Value	losses	Value	Losses
U.S. Government agency securities	7	$ -	$ -	$ 2,233	$ (116)	$ 2,233	$ (116)

Government Sponsored Enterprises residential mortgage-backed securities	14	1,374	(48)	700	(40)	2,044	(88)
Total temporarily impaired investment Securities	21	$ 1,374	$ (48)	$ 2,903	$ (156)	$ 4,277	$ (204)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2017:

(in 000’s)	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	securities	Value	Losses	Value	losses	Value	Losses
U.S. Government agency securities	7	$ 245	$ (5)	$2,028	$ (71)	$2,273	$ (76)
Government Sponsored Enterprises residential mortgage-backed securities	8	1,124	(7)	377	(11)	1,501	(18)
Total temporarily impaired investment Securities	15	$1,369	$ (12)	$ 2,405	$(82)	$ 3,774	$ (94)

Government Sponsored Enterprises residential mortgage-backed securities. Unrealized losses on the Company’s investment in Government Sponsored Enterprises residential mortgage-backed securities were caused by market interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by market interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary.  This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.  On a quarterly basis, the Company reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company’s ability and intent to hold the security for a period of time that allows for the recovery in value.  

As of September 30, 2018 and December 31, 2017, investment securities with a carrying value of $3,567,000 and $4,297,000, respectively, were pledged as collateral to secure public deposits and contingent borrowing at the Federal Reserve Discount Window.