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Note 6 - Investment Securities Available for Sale
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
NOTE
6
- INVESTMENT SECURITIES AVAILABLE FOR SALE
 
The amortized cost and fair values of securities available for sale are as follows:
 
   
September 30, 2017
  
           
Gross
    
Gross
          
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
(Dollar amounts in thousands)
  
Cost
    
Gains
    
Losses
    
Value
  
                                 
U.S. government agency
securities
   $
9,004
     $
146
     $
(56
 )   $
9,094
  
Obligations of states and
political subdivisions:
                                
Taxable
    
505
      
12
      
-
      
517
  
Tax-exempt
    
69,750
      
1,886
      
(59
 )    
71,577
  
Mortgage-backed securities in
government-sponsored entities
    
16,574
      
175
      
(170
 )    
16,579
  
Total debt securities
    
95,833
      
2,219
      
(285
 )    
97,767
  
Equity securities in financial institutions
    
415
      
152
      
-
      
567
  
Total
   $
96,248
     $
2,371
     $
(285
 )   $
98,334
  
 
   
December 31, 2016
  
           
Gross
    
Gross
          
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
Losses
    
Value
  
                                 
U.S. government agency
securities
   $
10,158
     $
174
     $
(96
 )   $
10,236
  
Obligations of states and
political subdivisions:
                                
Taxable
    
1,615
      
129
      
(4
 )    
1,740
  
Tax-exempt
    
78,327
      
1,678
      
(522
 )    
79,483
  
Mortgage-backed securities in
government-sponsored entities
    
20,128
      
202
      
(261
 )    
20,069
  
Private-label mortgage-backed securities
    
1,579
      
130
      
-
      
1,709
  
Total debt securities
    
111,807
      
2,313
      
(883
 )    
113,237
  
Equity securities in financial institutions
    
750
      
389
      
-
      
1,139
  
Total
   $
112,557
     $
2,702
     $
(883
 )   $
114,376
  
 
The amortized cost and fair value of debt securities at
September 30, 2017,
by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers
may
have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Amortized
    
Fair
  
(Dollar amounts in thousands)
  
Cost
    
Value
  
                 
Due in one year or less
   $
4,689
     $
4,742
  
Due after one year through five years
    
9,884
      
10,193
  
Due after five years through ten years
    
9,643
      
9,783
  
Due after ten years
    
71,617
      
73,049
  
Total
   $
95,833
     $
97,767
  
 
 
Proceeds from the sales of securities available
for sale and the gross realized gains and losses are as follows:
 
(Dollar amounts in thousands)
  
For the Three Months
Ended September 30,
    
For the Nine Months
Ended September 30,
  
   
2017
    
2016
    
2017
    
2016
  
Proceeds from sales
   $
3,787
     $
-
     $
6,474
     $
9,115
  
Gross realized gains
    
430
      
-
      
918
*
    
306
  
Gross realized losses
    
(32
 )    
-
      
(32
 )    
(3
 )
 
*Prior to the acquisition of Liberty Bank, N.A., the Company had a previously held equity interest in Liberty which was re-measured at fair value on the acquisition date and resulted in a gain of
$488,000,
which was recorded in Investment Securities Gains on the consolidated Income Statement for the
nine
months ended
September 30, 2017.
 
Investment securities with an approximate carrying value of $
64.9
million and
$60.3
million at
September 30, 2017
and
December 31, 2016,
respectively, were pledged to secure deposits and other purposes as required by law. Cash of
$4.5
million at
September 30, 2017
was also pledged to secure deposits and other purposes as required by law.
 
The following table
s show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
   
September 30, 2017
  
   
Less than Twelve Months
    
Twelve Months or Greater
    
Total
  
           
Gross
            
Gross
            
Gross
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
(Dollar amounts in thousands)
  
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
                                                 
U.S. government agency securities
   $
952
     $
(9
 )   $
3,211
     $
(47
 )   $
4,163
     $
(56
 )
Obligations of states and political
subdivisions
                                                
Tax-exempt
    
3,008
      
(18
 )    
2,112
      
(41
 )    
5,120
      
(59
 )
Mortgage-backed securities in
government-sponsored entities
    
7,997
      
(57
 )    
3,798
      
(113
 )    
11,795
      
(170
 )
Total
   $
11,957
     $
(84
 )   $
9,121
     $
(201
 )   $
21,078
     $
(285
 )
 
   
December 31, 2016
  
   
Less than Twelve Months
    
Twelve Months or Greater
    
Total
  
           
Gross
            
Gross
            
Gross
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
                                                 
U.S. government agency securities
   $
3,803
     $
(47
 )   $
1,316
     $
(49
 )   $
5,119
     $
(96
 )
Obligations of states and political
subdivisions
                                                
Taxable
    
502
      
(4
 )    
-
      
-
      
502
      
(4
 )
Tax-exempt
    
23,554
      
(522
 )    
-
      
-
      
23,554
      
(522
 )
Mortgage-backed securities in
government-sponsored entities
    
9,066
      
(126
 )    
4,438
      
(135
 )    
13,504
      
(261
 )
Total
   $
36,925
     $
(699
 )   $
5,754
     $
(184
 )   $
42,679
     $
(883
 )
 
 
There were
28
securities considered temporarily impaired at
September 30, 2017.
 
On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assess
es whether the unrealized loss is other than temporary.
 
OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than
not
that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does
not
expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.
 
A
n unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does
not
intend to sell the underlying debt security and it is “more likely than
not”
that the Company will
not
have to sell the debt security prior to recovery.
 
Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for
99%
of the total available-for-sale portfolio as of
September 30, 2017
and
no
credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:
 
 
•
The length of time and the extent to which the fair value has been less than the amortized cost basis.
     
 
•
Changes in the near-
term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;
 
 
•
The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and
     
 
•
Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer
’s industry and actions taken by the issuer to deal with the present economic climate.
 
For the
nine
months ended
September 30, 2017
and
2016,
there were
no
available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does
not
believe any individual unrealized loss as of
September 30, 2017
or
December 31, 2016
represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will
not
prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.