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NOTE 5: INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2019

NOTE 5: INVESTMENT SECURITIES

NOTE 5: INVESTMENT SECURITIES

The amortized cost and fair values of securities classified as available-for-sale were as follows:

	March 31, 2019
			Gross		Gross				Tax
	Amortized		Unrealized		Unrealized		Fair		Equivalent
	Cost		Gains		Losses		Value		Yield
	(In Thousands)

AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$ 178,170		$ 3,587		$ 1,561		$ 180,196		3.05%
Agency collateralized mortgage obligations	52,414		592		—		53,006		3.31
States and political subdivisions	42,955		1,593		—		44,548		4.92
	$ 273,539		$ 5,772		$ 1,561		$ 277,750		3.40%

	December 31, 2018
			Gross		Gross				Tax
	Amortized		Unrealized		Unrealized		Fair		Equivalent
	Cost		Gains		Losses		Value		Yield
	(In Thousands)

AVAILABLE-FOR-SALE SECURITIES:
Agency mortgage-backed securities	$ 154,557		$ 1,272		$ 2,571		$ 153,258		2.83%
Agency collateralized mortgage obligations	39,024		250		14		39,260		3.18
States and political subdivisions	50,022		1,428		—		51,450		4.81
	$ 243,603		$ 2,950		$ 2,585		$ 243,968		3.29%

The amortized cost and fair value of available-for-sale securities at March 31, 2019, by contractual maturity, are shown below. 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.

	Amortized		Fair
	Cost		Value
	(In Thousands)

One year or less	$ —		$ —
After one through five years	859		934
After five through ten years	9,617		9,918
After ten years	32,479		33,696
Securities not due on a single maturity date	230,584		233,202

	$ 273,539		$ 277,750

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2019 and December 31, 2018, was approximately $67.1 million and $95.7 million, respectively, which is approximately 24.2% and 39.2% of the Company’s available-for-sale investment portfolio, respectively.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018:

March 31, 2019

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

Value

Losses

Value

Losses

Value

Losses

(In Thousands)

Agency mortgage-backed securities

$ 1,797

$ (8)

$ 65,335

$ (1,553)

$ 67,132

$ (1,561)

		December 31, 2018
		Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities		Value		Losses		Value		Losses		Value		Losses
		(In Thousands)

Agency mortgage-backed securities		$ 11,255		$ (82)		$ 74,186		$ (2,489)		$ 85,441		$ (2,571)
Agency collateralized mortgage obligations		9,725		(14)		—		—		9,725		(14)
State and political subdivisions		511		—		—		—		511		—
		$ 21,491		$ (96)		$ 74,186		$ (2,489)		$ 95,677		$ (2,585)

Gross gains of $226,000 and gross losses of $216,000 resulting from sales of available-for-sale securities were realized during the three months ended March 31, 2019. There were no sales of available-for-sale securities during the three months ended March 31, 2018. Gains and losses on sales of securities are determined on the specific-identification method.

Other-than-temporary Impairment. Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities. For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model. The Company does not currently have securities within the scope of this guidance for beneficial interests in securitized financial assets.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors. If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an unrealized loss is other-than-temporary. The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange. For non-agency collateralized mortgage obligations, to determine if the unrealized loss is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows. If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

During the three months ended March 31, 2019 and 2018, respectively, no securities were determined to have impairment that had become other-than-temporary.

Credit Losses Recognized on Investments. During the three months ended March 31, 2019 and 2018, respectively, there were no debt securities that had experienced fair value deterioration due to credit losses, or due to other market factors, but were not otherwise other-than-temporarily impaired.

Amounts Reclassified Out of Accumulated Other Comprehensive Income. Amounts reclassified from accumulated other comprehensive income and the affected line items in the statements of income during the three months ended March 31, 2019 and 2018, are shown below. The FASB previously issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). The amendment allows an entity to elect to reclassify the stranded tax effects resulting from the change in income tax rate from H.R.1, originally known as the “Tax Cuts and Jobs Act” (the “Tax Act”), from accumulated other comprehensive income to retained earnings. The Company chose to early adopt ASU 2018-02 effective January 1, 2018. The stranded tax amount related to unrealized gains and losses on available for sale securities, which was reclassified from accumulated other comprehensive income to retained earnings at the time of adoption, was $272,000. There were no other income tax effects related to the application of the Tax Act to be reclassified from AOCI to retained earnings.

	Amounts Reclassified from Accumulated Other
	Comprehensive Income Three Months Ended March 31,				Affected Line Item in the
	2019		2018		Statements of Income
	(In Thousands)

Unrealized gains on available-					Net realized gains on sales of
for-sale securities	$ 10		$ --		available-for-sale securities
					(Total reclassified amount before tax)
Income Taxes	(2)		--		Provision for income taxes
Total reclassifications out of
accumulated other
comprehensive income	$ 8		$ --