Note 5 – Investment Securities

Carrying amounts and fair values of securities available for sale and held to maturity are summarized below:


September 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Treasury	$	7,038	$	79	$	—	$	7,117
U.S. Government agencies		36,536		266		54		36,748
GSE - Mortgage-backed securities and CMO’s		31,715		141		213		31,643
State and political subdivisions		13,748		277		6		14,019
Corporate bonds		7,437		—		37		7,400

Total securities available for sale	$	96,474	$	763	$	310	$	96,927


September 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities held to maturity
U.S. Government agencies	$	1,915	$	—	$	1	$	1,914
State and political subdivisions		6,003		14		22		5,995
Corporate bonds		3,356		11		—		3,367

Total securities held to maturity	$	11,274	$	25	$	23	$	11,276


December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Treasury	$	19,030	$	362	$	6	$	19,386
U.S. Government agencies		50,969		96		290		50,775
GSE - Mortgage-backed securities and CMO’s		27,748		133		309		27,572
State and political subdivisions		11,575		505		—		12,080
Corporate bonds		3,040		—		29		3,011

Total securities available for sale	$	112,362	$	1,096	$	634	$	112,824


December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities held to maturity
U.S. Government agencies	$	2,085	$	—	$	32	$	2,053
Corporate bonds		3,411		—		14		3,397

Total securities held to maturity	$	5,496	$	—	$	46	$	5,450

At September 30, 2015 and December 31, 2014, the Company owned Federal Reserve Bank stock reported at cost of $507,000 and $506,000, respectively. Also at September 30, 2015 and December 31, 2014, the Company owned Federal Home Loan Bank Stock (FHLB) of $533,000 and $532,000, respectively. The investments in Federal Reserve stock and FHLB stock are required investments related to the Company’s membership in, and borrowings with, these banks and classified as restricted stock on the consolidated balance sheet. These investments are carried at cost since there is no ready market and redemption has historically been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at September 30, 2015.

Results from sales and calls of securities available for sale for the three and nine month periods ended September 30, 2015 and September 30, 2014 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(dollars in thousands)

Gross proceeds from sales and calls	$	—	$	4,405	$	29,739	$	4,733


Realized gains from sales and calls	$	—	$	5	$	502	$	26
Realized losses from sales and calls		—		—		—		—

Net Realized gains	$	—	$	5	$	502	$	26

At September 30, 2015 and December 31, 2014, securities available for sale with a carrying amount of $71.6 million and $84.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2015 and December 31, 2014. We believe these unrealized losses on investment securities are a result of a volatile market and fluctuations in market prices due to a rise in interest rates, which will adjust if rates decline. Management does not believe these fluctuations are a reflection of the quality of the investments. At September 30, 2015, the unrealized losses on available for sale securities less than twelve months related to two government agency bonds, six government sponsored enterprise (GSE) mortgage backed securities and three corporate bonds. The Company had five government agency bonds, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months. At September 30, 2015, the unrealized losses on held to maturity securities related to one government agency security and five state and political subdivision bonds. At December 31, 2014, the unrealized losses on available for sale securities related to one United States Treasury note, thirteen government agency bonds, eight GSE mortgage backed securities and two corporate bonds. At December 31, 2014, the unrealized losses on held to maturity securities related to one government agency security and two corporate bonds.


	Less than 12 Months				12 Months or More				Total
September 30, 2015	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities available for sale temporary impairment
U.S. Gov’t agencies	$	1,513	$	4	$	4,648	$	50	$	6,161	$	54
GSE-Mortgage-backed securities and CMO’s		13,532		65		7,686		148		21,218		213
State & political subdivisions		466		6		—		—		466		6
Corporate bonds		6,601		21		799		16		7,400		37

Total securities available for sale	$	22,112	$	96	$	13,133	$	214	$	35,245	$	310


	Less than 12 Months				12 Months or More				Total
September 30, 2015	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Held to maturity temporary impairment
U.S. Gov’t agencies	$	1,914	$	1	$	—	$	—	$	1,914	$	1
State & political subdivisions		3,209		22		—		—		3,209		22

Total securities held to maturity	$	5,123	$	23	$	—	$	—	$	5,123	$	23


	Less than 12 Months				12 Months or More				Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities available for sale temporary impairment
U.S. Treasury	$	3,143	$	6	$	—	$	—	$	3,143	$	6
U.S. Gov’t agencies		9,690		23		17,776		267		27,466		290
GSE-Mortgage-backed securities and CMO’s		1,990		4		14,168		305		16,158		309
Corporate bonds		3,011		29		—		—		3,011		29

Total securities available for sale	$	17,834	$	62	$	31,944	$	572	$	49,778	$	634


	Less than 12 Months				12 Months or More				Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Held to maturity temporary impairment
U.S. Gov’t agencies	$	2,053	$	32	$	—	$	—	$	2,053	$	32
Corporate bonds		3,397		14		—		—		3,397		14

Total securities held to maturity	$	5,450	$	46	$	—	$	—	$	5,450	$	46

The Company had five government agency securities, four GSE mortgage backed securities and one corporate bond that had been in a loss position for more than twelve months as of September 30, 2015. Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment management considers among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability of the Company to hold the investment until the loss position is recovered.

Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of quality but that the losses are temporary in nature. At September 30, 2015, the Company does not intend to sell and is not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

The aggregate amortized cost and fair value of the available for sale securities portfolio at September 30, 2015 by remaining contractual maturity are as follows:


	September 30, 2015
	Amortized Cost		Estimated Fair Value		Book Yield
	(dollars in thousands)
Securities available for sale

U. S. Treasury
Due within twelve months		3,010		3,066		2.80	%
Due after one but within five years		4,028		4,051		1.13	%

		7,038		7,117		1.84	%

U.S. Government agencies
Due after one but within five years		27,704		27,963		1.43	%
Due after five but within ten years		1,376		1,381		0.76	%
Due after ten years		7,456		7,404		1.68	%

		36,536		36,748		1.45	%

Mortgage-backed securities
Due after one but within five years		3,467		3,445		1.69	%
Due after five but within ten years		4,260		4,313		2.23	%
Due after ten years		23,988		23,885		1.92	%

		31,715		31,643		1.94	%

State and political subdivisions
Due within twelve months		472		479		5.77	%
Due after one but within five years		1,896		2,022		4.77	%
Due after five but within ten years		2,823		2,852		4.43	%
Due after ten years		8,557		8,666		3.79	%

		13,748		14,019		4.12	%

Corporate Bonds
Due within twelve months		2,401		2,400		1.16	%
Due after one but within five years		2,815		2,798		1.79	%
Due after five but within ten years		2,221		2,202		1.21	%

		7,437		7,400		1.41	%

Total Securities available for sale
Due within twelve months		5,883		5,945		2.37	%
Due after one but within five years		39,910		40,279		1.60	%
Due after five but within ten years		10,680		10,748		2.41	%
Due after ten years		40,001		39,955		2.28	%

	$	96,474	$	96,927		2.02	%


	September 30, 2015
	Amortized Cost		Estimated Fair Value		Book Yield
	(dollars in thousands)
Held to maturity

U. S. Government agencies
Due after five but within ten years		1,915		1,914		2.39	%

		1,915		1,914		2.39	%

State and political subdivisions
Due after one but within five years		1,533		1,536		2.24	%
Due after five but within ten years		4,470		4,459		2.89	%

		6,003		5,995		2.68	%

Corporate Bonds
Due after one but within five years		3,356		3,367		2.76	%

		3,356		3,367		2.76	%

Total Securities held for maturity
Due after one but within five years		1,533		1,536		2.60	%
Due after five but within ten years		9,741		9,740		2.74	%

	$	11,274	$	11,276		2.68	%