NOTE 5 – SECURITIES

Available for Sale

The amortized cost and fair value of securities available for sale as of December 31, 2017 and 2016 are summarized as follows:



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2017
U.S. government agencies	$	18,799	$	90	$	(28	)	$	18,861
U.S. government sponsored agencies	6,054		8		(1		)	6,061
State and political subdivisions	40,470		896		(132		)	41,234
Mortgage-backed securities -
U.S. government-sponsored enterprises	30,958		65		(479		)	30,544
Corporate debt	2,000		30		—			2,030
	$	98,281	$	1,089	$	(640	)	$	98,730
December 31, 2016
U.S. government agencies	$	13,115	$	29	$	(57	)	$	13,087
State and political subdivisions	41,255		203		(770		)	40,688
Mortgage-backed securities -
U.S. government-sponsored enterprises	33,483		126		(755		)	32,854
Corporate debt	2,000		—		(18		)	1,982
	$	89,853	$	358	$	(1,600	)	$	88,611

Securities with a carrying value of approximately $17.3 million and $34.3 million at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and for borrowings at the Federal Reserve Bank as required or permitted by applicable laws and regulations.

The amortized cost and fair value of securities available for sale at December 31, 2017 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. Investments which pay principal on a periodic basis are not included in the maturity categories.



(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	4,953		4,957
Due after ten years	37,517		38,307
Total bonds and obligations	42,470		43,264
U.S. government agencies	18,799		18,861
U.S. government sponsored agencies	6,054		6,061
Mortgage-backed securities:
U.S. government-sponsored enterprises	30,958		30,544
Total available for sale securities	$	98,281	$	98,730

Gross gains on sales of securities available for sale were $339 thousand and $476 thousand and gross losses were $348 thousand and $40 thousand for the years ended December 31, 2017 and 2016, respectively.

Temporarily Impaired Securities

The following table shows our investments’ gross unrealized losses and fair values with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position, at December 31, 2017 and 2016.



	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2017
U.S. government agencies	$	5,280	$	(28	)	$	—	$	—		$	5,280	$	(28	)
U.S. government sponsored agencies	3,469		(1		)	—		—			3,469		(1		)
State and political subdivisions	5,212		(42		)	3,701		(90		)	8,913		(132		)
Mortgage-backed securities -
U.S. government-sponsored enterprises	8,403		(212		)	12,935		(267		)	21,338		(479		)
Total temporarily impaired securities	$	22,364	$	(283	)	$	16,636	$	(357	)	$	39,000	$	(640	)
December 31, 2016
U.S. government agencies	$	4,952	$	(15	)	$	2,126	$	(42	)	$	7,078	$	(57	)
State and political subdivisions	23,989		(770		)	—		—			23,989		(770		)
Mortgage-backed securities -
U.S. government-sponsored enterprises	23,299		(752		)	639		(3		)	23,938		(755		)
Corporate debt	1,982		(18		)	—		—			1,982		(18		)
Total temporarily impaired securities	$	54,222	$	(1,555	)	$	2,765	$	(45	)	$	56,987	$	(1,600	)

As of December 31, 2017, we reviewed our investment 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 securities is 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. For each security (including but not limited to those whose fair value is less than their amortized cost basis), a review is conducted to determine if an other-than-temporary impairment has occurred.

U.S. Government Agencies

At December 31, 2017 and 2016, 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 December 31, 2017, there were three securities with a fair value of $5.3 million that had an unrealized loss that amounted to $28 thousand. As of December 31, 2017, 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 December 31, 2017, were deemed to be other-than-temporarily impaired.

At December 31, 2016, there were five securities with a fair value of $7.1 million that had an unrealized loss that amounted to $57 thousand.

U.S. Government Sponsored Agencies

At December 31, 2017, the decline in fair value and the unrealized losses for our U.S. government sponsored agencies securities were primarily due to changes in spreads and market conditions and not credit quality. At December 31, 2017, there were two securities with a fair value of $3.5 million that had an unrealized loss that amounted to $1 thousand. As of December 31, 2017, 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 sponsored agency securities at December 31, 2017, were deemed to be other-than-temporarily impaired.

State and Political Subdivisions

At December 31, 2017 and 2016, 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 December 31, 2017, there were 9 securities with a fair value of $8.9 million that had an unrealized loss that amounted to $132 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 December 31, 2017, 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 December 31, 2017, were deemed to be other-than-temporarily-impaired.

At December 31, 2016, there were 31 securities with a fair value of $24.0 million that had an unrealized loss of $770 thousand.

Mortgage-Backed Securities

At December 31, 2017 and 2016, the decline in fair value and the unrealized losses for our mortgaged-backed securities guaranteed by U.S. government-sponsored enterprises were primarily due to changes in spreads and market conditions and not credit quality. At December 31, 2017, there were 16 securities with a fair value of $21.3 million that had an unrealized loss of $479 thousand. As of December 31, 2017, 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 December 31, 2017, were deemed to be other-than-temporarily impaired.

At December 31, 2016, there were 16 securities with a fair value of $23.9 million that had an unrealized loss of $755 thousand.

Corporate Debt

At December 31, 2017, the change in fair value and the unrealized gains for our corporate debt was caused by changes in interest rates and spreads and were not the result of credit quality. At December 31, 2017, there were no securities with an unrealized loss. These securities typically have maturity dates greater than five years and the fair values are more sensitive to changes in market interest rates. As of December 31, 2017, we did not intend to sell and it was 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 corporate debt at December 31, 2017, were deemed to be other-than-temporarily-impaired.

At December 31, 2016, there was one security with a fair value $2.0 million that had an unrealized loss of $18 thousand.

Held to Maturity Securities

The amortized cost and fair value of securities held to maturity as of December 31, 2017 and 2016 are summarized as follows:



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2017
State and political subdivisions	$	5,304	$	127	$	(1	)	$	5,430
December 31, 2016
State and political subdivisions	$	11,618	$	123	$	(2	)	$	11,739

During the twelve months ended December 31, 2017, the Company did not sell any securities out of its held to maturity portfolio.

During the twelve months ended December 31, 2016, the Company sold a security out of its held to maturity portfolio due to continued credit deterioration. The gross realized gain on the sale of the security was $8 thousand for the twelve months ended December 31, 2016.

The amortized cost and fair value of securities held to maturity at December 31, 2017 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.



(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,477	$	2,478
Due after one year through five years	254		254
Due after five years through ten years	2,040		2,136
Due after ten years	533		562
Total held to maturity securities	$	5,304	$	5,430

Temporarily Impaired Securities

The following table shows our held to maturity investments’ gross unrealized losses and fair value with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual held to maturity securities have been in a continuous unrealized loss position, at December 31, 2017 and 2016.



	Less Than 12 Months					12 Months or More				Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2017
State and political subdivisions	$	254	$	(1	)	$	—	$	—	$	254	$	(1	)

December 31, 2016
State and political subdivisions	$	789	$	(2	)	$	—	$	—	$	789	$	(2	)

As of December 31, 2017, we reviewed our held to maturity investment 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 securities is 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. 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.

State and Political Subdivisions

At December 31, 2017, there was one security with a fair value of $254 thousand that had an unrealized loss of $1 thousand. At December 31, 2017, 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. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates.

At December 31, 2016, there were two securities with a fair value $789 thousand that had an unrealized loss of $2 thousand.