3. INVESTMENT SECURITIES

The cost basis and fair values of investment securities are summarized as follows:

Investment securities available for sale:

AT DECEMBER 31, 2017

COST
BASIS

GROSS
UNREALIZED
GAINS

GROSS
UNREALIZED
LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency

6,612

—

(40

)

6,572

Taxable municipal

7,198

(189

)

7,036

Corporate bonds

35,886

322

(424

)

35,784

U.S. Agency mortgage-backed securities

79,854

611

(719

)

79,746

Total

129,550

960

(1,372

)

129,138

Investment securities held to maturity:

AT DECEMBER 31, 2017

COST
BASIS

GROSS
UNREALIZED
GAINS

GROSS
UNREALIZED
LOSSES

FAIR
VALUE

(IN THOUSANDS)

U.S. Agency mortgage-backed securities

9,740

149

(45

)

9,844

Taxable municipal

22,970

203

(238

)

22,935

Corporate bonds and other securities

6,042

(48

)

6,032

Total

38,752

390

(331

)

38,811

Investment securities available for sale:

	AT DECEMBER 31, 2016
	COST BASIS		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			FAIR VALUE
	(IN THOUSANDS)
U.S. Agency	$	400	$	—	$	(2	)	$	398
Taxable municipal		3,793		3		(174	)		3,622
Corporate bonds		34,403		194		(724	)		33,873
U.S. Agency mortgage-backed securities		88,738		1,132		(686	)		89,184
Total	$	127,334	$	1,329	$	(1,586	)	$	127,077

Investment securities held to maturity:

	AT DECEMBER 31, 2016
	COST BASIS		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			FAIR VALUE
	(IN THOUSANDS)
U.S. Agency mortgage-backed securities	$	11,177	$	180	$	(79	)	$	11,278
Taxable municipal		13,441		70		(348	)		13,163
Corporate bonds and other securities		6,047		15		(83	)		5,979
Total	$	30,665	$	265	$	(510	)	$	30,420

Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investors Service or Standard &; Poor’s rating of A. At December 31, 2017, 57.8% of the portfolio was rated AAA as compared to 63.5% at December 31, 2016. 9.7% of the portfolio was rated below A or unrated on December 31, 2017. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. Treasury and U.S. Agencies, that exceeded 10% of shareholders’ equity at December 31, 2017.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits, and certain Federal Home Loan Bank borrowings was $117,181,000 at December 31, 2017 and $104,953,000 at December 31, 2016.

The Company realized $115,000 of gross investment security gains in 2017 and 183,000 of gross investment security gains and $6,000 of gross investment security losses in 2016, and $107,000 of gross investment gains and $36,000 of gross investment security losses in 2015. On a net basis, the realized gain for 2017 was $76,000 after factoring in tax expense of $39,000 and the realized gain for 2016 was $117,000 after factoring in tax expense of $60,000, and the realized gain for 2015 was $46,000 after factoring in tax expense of $25,000. Proceeds from sales of investment securities available for sale were $8.1 million for 2017, $9.0 million for 2016, and $3.6 million during 2015.

The following table sets forth the contractual maturity distribution of the investment securities, cost basis and fair market values, and the weighted average yield for each type and range of maturity as of December 31, 2017. Yields are not presented on a tax-equivalent basis, but are based upon the cost basis and are weighted for the scheduled maturity. The Company’s consolidated investment securities portfolio had an effective duration of approximately 3.69 years. The weighted average expected maturity for available for sale securities at December 31, 2017 for U.S. Agency, U.S. Agency Mortgage-Backed and Corporate Bond securities was 10.38, 4.60 and 5.44 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2017 for U.S. Agency Mortgage-Backed and Corporate Bonds/Taxable Municipals and other securities were 4.57 and 6.51 years.

Investment securities available for sale:

AT DECEMBER 31, 2017

U. S. AGENCY

U.S. AGENCY
MORTGAGE-BACKED
SECURITIES

CORPORATE
BONDS AND OTHER

TOTAL INVESTMENT
SECURITIES
AVAILABLE
FOR SALE

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS

Within 1 year

400

1.03

6.00

—

—%

401

1.04

After 1 year but within 5 years

—

848

2.09

10,938

2.99

11,786

2.93

After 5 years but within 10 years

3,230

2.75

14,623

2.91

30,646

3.64

48,499

3.36

After 10 years but within 15 years

—

24,516

2.30

1,500

3.98

26,016

2.39

Over 15 years

2,982

2.69

39,866

2.52

—

42,848

2.53

Total

6,612

2.62

79,854

2.52

43,084

3.49

129,550

2.84

FAIR VALUE

Within 1 year

399

—

400

After 1 year but within 5 years

—

843

10,924

11,767

After 5 years but within 10 years

3,220

14,859

30,477

48,556

After 10 years but within 15 years

—

24,301

1,419

25,720

Over 15 years

2,953

39,742

—

42,695

Total

6,572

79,746

42,820

129,138

Investment securities held to maturity:

AT DECEMBER 31, 2017

U.S. AGENCY MORTGAGE-BACKED SECURITIES

CORPORATE
BONDS AND OTHER

TOTAL INVESTMENT SECURITIES HELD TO MATURITY

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS

Within 1 year

—

—%

2,000

1.78

2,000

1.78

After 1 year but within 5 years

688

2.11

1,751

2.29

2,439

2.24

After 5 years but within 10 years

2,081

2.49

12,797

3.57

14,878

3.42

After 10 years but within 15 years

2,604

3.30

11,643

3.64

14,247

3.58

Over 15 years

4,367

3.07

821

4.75

5,188

3.34

Total

9,740

2.94

29,012

3.43

38,752

3.31

FAIR VALUE

Within 1 year

—

1,976

After 1 year but within 5 years

677

1,734

2,411

After 5 years but within 10 years

2,075

12,815

14,890

After 10 years but within 15 years

2,685

11,597

14,282

Over 15 years

4,407

845

5,252

Total

9,844

28,967

38,811

The following tables present information concerning investments with unrealized losses as of December 31, 2017 (in thousands):

Total investment securities:

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR
VALUE

UNREALIZED
LOSSES

FAIR
VALUE

UNREALIZED
LOSSES

FAIR
VALUE

UNREALIZED
LOSSES

U.S. Agency

5,923

(39

)

399

(1)

6,322

(40

)

U.S. Agency mortgage-backed securities

36,783

(253

)

22,625

(511

)

59,408

(764

)

Taxable municipal

8,657

(109

)

7,727

(318

)

16,384

(427

)

Corporate bonds and other securities

7,123

(71

)

13,655

(401

)

20,778

(472

)

Total

58,486

(472

)

44,406

(1,231

)

102,892

(1,703

)

The following tables present information concerning investments with unrealized losses as of December 31, 2016 (in thousands):

Total investment securities:	LESS THAN 12 MONTHS					12 MONTHS OR LONGER					TOTAL
Total investment securities:	FAIR VALUE		UNREALIZED LOSSES			FAIR VALUE		UNREALIZED LOSSES			FAIR VALUE		UNREALIZED LOSSES
U.S. Agency	$	398	$	(2	)	$	—	$	—		$	398	$	(2	)
U.S. Agency mortgage-backed securities		49,918		(703	)		1,576		(62	)		51,494		(765	)
Taxable municipal		13,301		(522	)		—		—			13,301		(522	)
Corporate bonds and other securities		20,380		(570	)		6,762		(237	)		27,142		(807	)
Total	$	83,997	$	(1,797	)	$	8,338	$	(299	)	$	92,335	$	(2,096	)

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 133 positions that are considered temporarily impaired at December 31, 2017. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature.