Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at September 30, 2016 and December 31, 2015 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:


	(Dollars in Thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2016
U. S. government agencies and government sponsored entities	$	1,998	$	2	$	—	$	2,000
Agency mortgage-backed securities: residential		28,798		567		(19)		29,346
State and municipal		21,226		611		(8)		21,829
Trust preferred security		1,883		—		(643)		1,240
Corporate bonds		1,000		9		—		1,009
Total Available-for-Sale Securities	$	54,905	$	1,189	$	(670)	$	55,424

December 31, 2015
U. S. government agencies and government sponsored entities	$	2,998	$	3	$	(7)	$	2,994
Agency mortgage-backed securities: residential		29,446		259		(48)		29,657
State and municipal		24,641		615		(34)		25,222
Trust preferred security		1,880		—		(540)		1,340
Corporate bonds		1,000		—		(13)		987
Total Available-for-Sale Securities	$	59,965	$	877	$	(642)	$	60,200

The amortized cost and fair value of investment securities at September 30, 2016 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


	September 30, 2016
	(Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	1,305	$	1,310
Due from one to five years		11,714		11,866
Due from five to ten years		8,825		9,170
Due after ten years		4,263		3,732
Agency mortgage-backed: residential		28,798		29,346
Total	$	54,905	$	55,424

The following table summarizes the investment securities with unrealized losses by portfolio segment at September 30, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:


	(Dollars in Thousands)
	Less than 12 Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
September 30, 2016:
U.S. government agencies and government sponsored entities	$	—	$	—	$	—	$	—	$	—	$	—
Agency mortgage-backed: residential		1,867		(19)		—		—		1,867		(19)
State and municipal		2,492		(8)		—		—		2,492		(8)
Trust preferred security		—		—		1,240		(643)		1,240		(643)
Corporate Bonds		—		—		—		—		—		—
Total temporarily impaired	$	4,359	$	(27)	$	1,240	$	(643)	$	5,599	$	(670)


	(Dollars in Thousands)
	Less than 12 Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2015:
U.S. government agencies and government sponsored entities	$	—	$	—	$	992	$	(7)	$	992	$	(7)
Agency mortgage-backed: residential		7,009		(25)		1,475		(23)		8,484		(48)
State and municipal		3,797		(19)		617		(15)		4,414		(34)
Trust preferred security		—		—		1,340		(540)		1,340		(540)
Corporate bonds		987		(13)		—		—		987		(13)
Total temporarily impaired	$	11,793	$	(57)	$	4,424	$	(585)	$	16,217	$	(642)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

All rated securities are investment grade. For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment. Declines in fair value are a function of rate differences in the market and market illiquidity. The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

All of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security. The security is a single-issuer trust preferred that is not rated. No impairment charge is being taken as no loss of principal or interest is anticipated. All principal and interest payments are being received as scheduled. On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky. Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss. The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities. We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis. This security continues to pay interest as agreed and future payments are expected to be made as agreed. This security is not considered to be other-than-temporarily impaired.