NOTE 2 – SECURITIES

Available for Sale

The amortized cost and approximate fair value of securities available for sale as of September 30, 2015 and December 31, 2014 are summarized as follows:



				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)		Cost		Gains		Losses		Value

September 30, 2015
U.S. government agencies	$	11,959	$	51	$	(48)	$	11,962
State and political subdivisions		37,889		172		(364)		37,697
Mortgage-backed securities -
U.S. government-sponsored enterprises		44,658		463		(90)		45,031
Equity securities-financial services industry and other		8		4		-		12
	$	94,514	$	690	$	(502)	$	94,702

December 31, 2014
U.S. government agencies	$	7,873	$	17	$	(32)	$	7,858
State and political subdivisions		26,432		158		(206)		26,384
Mortgage-backed securities -
U.S. government-sponsored enterprises		43,382		500		(158)		43,724
Equity securities-financial services industry and other		8		2		-		10
	$	77,695	$	677	$	(396)	$	77,976

Securities with a carrying value of approximately $33.0 million and $32.8 million at September 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits and for other purposes required or permitted by applicable laws and regulations.

The amortized cost and fair value of securities available for sale at September 30, 2015 are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Amortized		Fair
(Dollars in thousands)	Cost		Value

Due in one year or less	$	-	$	-
Due after one year through five years		501		504
Due after five years through ten years		3,021		3,022
Due after ten years		34,367		34,171
Total bonds and obligations		37,889		37,697
U.S. government agencies		11,959		11,962
Mortgage-backed securities:
U.S. government-sponsored enterprises		44,658		45,031
Equity securities-financial services industry and other		8		12
Total available for sale securities	$	94,514	$	94,702

Gross realized gains on sales of securities available for sale were $64 thousand and $242 thousand and gross realized losses were $53 thousand and $78 thousand for the three months ended September 30, 2015 and 2014, respectively.

Gross realized gains on sales of securities were $368 thousand and $360 thousand and gross losses were $101 thousand and $102 thousand for the nine months ended September 30, 2015 and 2014, respectively.

Temporarily Impaired Securities

The following table shows gross unrealized losses and fair value of securities with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by category and length of time that individual available for sale securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014.



	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses

September 30, 2015
U.S. government agencies	$	4,776	$	(18)	$	2,554	$	(30)	$	7,330	$	(48)
State and political subdivisions		21,760		(322)		1,841		(42)		23,601		(364)
Mortgage-backed securities -
U.S. government-sponsored enterprises		11,385		(90)		-		-		11,385		(90)
Total temporarily impaired securities	$	37,921	$	(430)	$	4,395	$	(72)	$	42,316	$	(502)

December 31, 2014
U.S. government agencies	$	-	$	-	$	2,905	$	(32)	$	2,905	$	(32)
State and political subdivisions		7,603		(112)		5,713		(94)		13,316		(206)
Mortgage-backed securities -
U.S. government-sponsored enterprises		15,679		(94)		3,432		(64)		19,111		(158)
Total temporarily impaired securities	$	23,282	$	(206)	$	12,050	$	(190)	$	35,332	$	(396)

For each security whose fair value is less than their amortized cost basis, a review is conducted to determine if an other-than-temporary impairment has occurred. As of September 30, 2015, we reviewed our available for sale securities portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt and equity securities are evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position.

U.S. Government Agencies

At September 30, 2015 and December 31, 2014, the decline in fair value and the unrealized losses for our U.S. government agencies securities were primarily due to changes in spreads and market conditions and not credit quality. At September 30, 2015, there were five securities with a fair value of $7.3 million that had an unrealized loss that amounted to $48 thousand. As of September 30, 2015, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of the U.S. government agency securities at September 30, 2015 were deemed to be other-than-temporarily impaired (“OTTI”).

At December 31, 2014, there were two securities with a fair value of $2.9 million that had an unrealized loss that amounted to $32 thousand.

State and Political Subdivisions

At September 30, 2015 and December 31, 2014, the decline in fair value and the unrealized losses for our state and political subdivisions securities were caused by changes in interest rates and spreads and were not the result of credit quality. At September 30, 2015, there were 36 securities with a fair value of $23.6 million that had an unrealized loss that amounted to $364 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of September 30, 2015, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at September 30, 2015 were deemed to be OTTI.

At December 31, 2014, there were 22 securities with a fair value of $13.3 million that had an unrealized loss that amounted to $206 thousand.

Mortgage-Backed Securities

At September 30, 2015 and December 31, 2014, the decline in fair value and the unrealized losses for our mortgage-backed securities guaranteed by U.S. government-sponsored enterprises were primarily due to changes in spreads and market conditions and not credit quality. At September 30, 2015, there were 7 securities with a fair value of $11.4 million that had an unrealized loss that amounted to $90 thousand. As of September 30, 2015, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our mortgage-backed securities at September 30, 2015 were deemed to be OTTI.

At December 31, 2014, there were 13 securities with a fair value of $19.1 million that had an unrealized loss that amounted to $158 thousand.

Equity Securities

Our marketable equity securities portfolio consists primarily of common stock of an entity in the insurance services industry. At September 30, 2015, we did not have any securities in an unrealized loss position.

At December 31, 2014, we did not have any securities in an unrealized loss position.

We continue to closely monitor the performance of the securities we own as well as the impact from any further deterioration in the economy or in the banking industry that may adversely affect these securities. We will continue to evaluate them for other-than-temporary impairment, which could result in a future non-cash charge to earnings.

Held to Maturity Securities

The amortized cost and approximate fair value of securities held to maturity as of September 30, 2015 and December 31, 2014 are summarized as follows:



				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)		Cost		Gains		Losses		Value

September 30, 2015
State and political subdivisions	$	5,857	$	179	$	(2)	$	6,034

December 31, 2014
State and political subdivisions	$	6,006	$	189	$	(5)	$	6,190

The amortized cost and carrying value of securities held to maturity at September 30, 2015 are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



		Amortized		Fair
(Dollars in thousands)		Cost		Value

Due in one year or less	$	1,969	$	1,969
Due after one year through five years		-		-
Due after five years through ten years		2,837		2,907
Due after ten years		1,051		1,158
Total held to maturity securities	$	5,857	$	6,034

Temporarily Impaired Securities

The following table shows gross unrealized losses and fair value of held to maturity securities with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by category and length of time that individual held to maturity securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014:



	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses

September 30, 2015
State and political subdivisions	$	804	$	(2)	$	-	$	-	$	804	$	(2)

December 31, 2014
State and political subdivisions	$	-	$	-	$	811	$	(5)	$	811	$	(5)

For each security whose fair value is less than their amortized cost basis, a review is conducted to determine if an other-than-temporary impairment has occurred. As of September 30, 2015, we reviewed our held to maturity securities portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt and equity securities are evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position.

At September 30, 2015 and December 31, 2014, the decline in fair value and the unrealized losses for our state and political subdivisions securities were caused by changes in interest rates and spreads and were not the result of credit quality. At September 30, 2015, there were two securities with a fair value of $804 thousand that had an unrealized loss that amounted to $2 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of September 30, 2015, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at September 30, 2015 were deemed to be OTTI.

At December 31, 2014, there were two securities with a fair value of $811 thousand that had an unrealized loss that amounted to $5 thousand.