Note 2. Securities

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU requires an entity, among other things, to measure equity investments at fair value through net income, with certain exceptions. The Company began measuring its equity investments at fair value through net income and reclassified $10,000 of Accumulated Other Comprehensive Income (“AOCI”) to retained earnings for the six months ended June 30, 2018, with no effect on total shareholders' equity.

The amortized cost and fair value of securities available for sale, with unrealized gains and losses follows:

	June 30, 2018
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	59,153	$	25	$	(1,543	)	$	57,635
Obligations of states and political subdivisions		14,705		70		(181	)		14,594
Corporate bonds		669		181		-			850
	$	74,527	$	276	$	(1,724	)	$	73,079

	December 31, 2017
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	52,872	$	113	$	(608	)	$	52,377
Obligations of states and political subdivisions		15,124		191		(60	)		15,255
Corporate bonds		3,816		476		(153	)		4,139
Mutual funds		386		-		(4	)		382
	$	72,198	$	780	$	(825	)	$	72,153

The amortized cost and fair value of securities available for sale, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	June 30, 2018
(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,003	$	1,999
Due after one year through five years		4,316		4,208
Due after five years through ten years		26,594		25,911
Due after ten years		41,614		40,961
	$	74,527	$	73,079

During the six months ended June 30, 2018, no securities were sold, proceeds from calls and principal repayments were $7.4 million and securities totaling $9.4 million were purchased. During the six months ended June 30, 2017, no securities were sold, proceeds from calls and principal repayments were $7.6 million and securities totaling $20.5 million were purchased. There were no impairment losses on securities during the six months ended June 30, 2018 and 2017 respectively.

The following table shows the Company’s securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2018 and December 31, 2017, respectively.

(In thousands)	Less than 12 Months					12 Months or More					Total
June 30, 2018	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)
Obligations of U.S. Government corporations and agencies	$	42,118	$	(1,089	)	$	9,255	$	(454	)	$	51,373	$	(1,543	)
Obligations of states and political subdivisions		7,839		(161	)		587		(20	)		8,426		(181	)
Total temporary impaired securities	$	49,957	$	(1,250	)	$	9,842	$	(474	)	$	59,799	$	(1,724	)

(In thousands)	Less than 12 Months					12 Months or More					Total
December 31, 2017	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)
Obligations of U.S. Government corporations and agencies	$	32,512	$	(330	)	$	10,008	$	(278	)	$	42,520	$	(608	)
Obligations of states and political subdivisions		4,172		(60	)		-		-			4,172		(60	)
Corporate bonds		-		-			1,540		(153	)		1,540		(153	)
Mutual funds		382		(4	)		-		-			382		(4	)
Total temporary impaired securities	$	37,066	$	(394	)	$	11,548	$	(431	)	$	48,614	$	(825	)

At June 30, 2018 there were approximately 70 securities that were in a loss position due to market conditions, primarily interest rates, and not due to credit concerns.

The nature of securities which were temporarily impaired at June 30, 2018 included one corporate bond with a cost basis net of other-than-temporary impairment (“OTTI”) totaling $669,000. The value of this bond is based on quoted market prices for similar assets and is a “Class B” or subordinated “mezzanine” tranche of pooled trust preferred securities. Trust preferred securities are collateralized by the interest and principal payments made on trust preferred capital offerings by a geographically diversified pool of several different financial institutions. This bond has an estimated maturity of 16 years and could have been called at par on the five year anniversary date of issuance, which has already passed. The bond reprices every three months at a fixed rate index above the three-month London Interbank Offered Rate (“LIBOR”) and has sufficient collateralization and cash flow projections to satisfy its valuation as of June 30, 2018. This bond is projected to repay the full outstanding interest and principal and is classified as performing. During the three months ended June 30, 2018, one corporate bond, previously held by the Company, went to auction and was settled at its par value of $2.0 million, resulting in a gain of $303,000. During the six months ended June 30, 2018, two corporate bonds, previously held by the Company, went to auction and were settled at their par value of $4.0 million, resulting in gains of $838,000. During the three months ended June 30, 2018 and 2017, $28,000 and $53,000 of interest income was recorded, respectively. During the six months ended June 30, 2018 and 2017, $79,000 and $104,000 of interest income was recorded, respectively.

Additional information regarding each of the pooled trust preferred securities as of June 30, 2018 follows:

(Dollars in thousands)

Cost, net of OTTI

Fair Value ⁽¹⁾

Percent of Underlying Collateral Performing

Percent of Underlying Collateral in Deferral

Percent of Underlying Collateral in Default

Cumulative Amount of OTTI

Cumulative Other Comprehensive Income,

net of tax

669

850

88.6

4.5

6.9

331

(143

)

⁽¹⁾	Current Moody’s Ratings is B2.

The following roll forward reflects the amount related to credit losses recognized in earnings:

(In thousands)
Beginning balance as of December 31, 2017	$	1,201
Increases in cash flows expected to be collected that are recognized over the remaining life of the securities		(32	)
Reduction for securities called during the period		(838	)
Ending balance as of June 30, 2018	$	331

The carrying value of securities pledged to secure deposits and for other purposes amounted to $51.8 million and $47.6 million at June 30, 2018 and December 31, 2017, respectively.