NOTE 3, Securities Portfolio

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2017
Obligations of U.S. Government agencies	$	9,530	$	27	$	(122	)	$	9,435
Obligations of state and political subdivisions		64,413		489		(137	)		64,765
Mortgage-backed securities		75,906		-		(1,610	)		74,296
Money market investments		1,194		-		-			1,194
Corporate bonds and other securities		7,049		195		(10	)		7,234
Other marketable equity securities		100		97		-			197
Total	$	158,192	$	808	$	(1,879	)	$	157,121

December 31, 2016
U.S. Treasury securities	$	20,000	$	-	$	-		$	20,000
Obligations of U.S. Government agencies		9,361		-		(166	)		9,195
Obligations of state and political subdivisions		78,645		358		(1,016	)		77,987
Mortgage-backed securities		85,649		18		(1,973	)		83,694
Money market investments		647		-		-			647
Corporate bonds and other securities		7,598		92		(12	)		7,678
Other marketable equity securities		100		64		-			164
Total	$	202,000	$	532	$	(3,167	)	$	199,365

Securities with a fair value of $66.6 million and $72.9 million at December 31, 2017 and 2016, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, FHLB advances and for other purposes required or permitted by law.

At December 31, 2017, the Company held no securities of any single issuer (excluding U.S. Government agencies) with a book value that exceeded 10 percent of stockholders' equity.

The amortized cost and fair value of securities by contractual maturity are shown below.

		December 31, 2017 Available-for-Sale
		Amortized Cost		Fair Value
	(in thousands)

Due in one year or less		$	4,015	$	4,009
Due after one year through five years			23,293		23,126
Due after five years through ten years			38,197		37,997
Due after ten years			91,393		90,598
Total debt securities			156,898		155,730
Other securities without stated maturities			1,294		1,391

Total securities		$	158,192	$	157,121

The following table provides information about securities sold in the years ended December 31:

		2017		2016		2015
	(in thousands)

Proceeds from sales		$	4,480	$	107,647	$	23,005

Gross realized gains		$	96	$	578	$	76

Gross realized losses		$	-	$	56	$	-

OTHER-THAN-TEMPORARILY IMPAIRED SECURITIES

Management assesses whether the Company intends to sell or it is more-likely-than-not that the Company will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the Company separates the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security's amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security's fair value and the present value of expected future cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The present value of expected future cash flows is determined using the best-estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best-estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds, and structural support, including subordination and guarantees.

The Company has a process in place to identify debt securities that could potentially have a credit or interest-rate related impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts, and cash flow projections as indicators of credit issues. On a quarterly basis, management reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. Management considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (a) the extent and length of time the fair value has been below cost; (b) the reasons for the decline in value; (c) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (d) for fixed maturity securities, the Company's intent to sell a security or whether it is more-likely-than-not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company's ability and intent to hold the security for a period of time that allows for the recovery in value.

The Company has not recorded impairment charges on securities for the years ended December 31, 2017 and 2016.

The following table shows the number of securities with unrealized losses, the gross unrealized losses and fair value of the Company's investments with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated:

	December 31, 2017
		Less Than Twelve Months				More Than Twelve Months				Total
			Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value	Number of Securities
	(dollars in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies		$	11	$	3,189	$	111	$	3,089	$	122	$	6,278	13
Obligations of state and political subdivisions			32		11,141		105		10,999		137		22,140	29
Mortgage-backed securities			67		9,742		1,543		64,554		1,610		74,296	24
Corporate bonds and other securities			2		1,098		8		792		10		1,890	11
Total securities available-for-sale		$	112	$	25,170	$	1,767	$	79,434	$	1,879	$	104,604	77

	December 31, 2016
			Less Than Twelve Months			More Than Twelve Months				Total
		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Number of Securities
	(dollars in thousands)
Securities Available-for-Sale
Obligations of U. S. Government agencies		$	166	$	9,195	$	-	$	-	$	166	$	9,195		6
Obligations of state and political subdivisions			1,016		38,020		-		-		1,016		38,020		56
Mortgage-backed securities			1,973		80,680		-		-		1,973		80,680		23
Corporate bonds and other securities			11		1,787		1		100		12		1,887		13
Total securities available-for-sale		$	3,166	$	129,682	$	1	$	100	$	3,167	$	129,782		98

Certain investments within the Company's portfolio had unrealized losses at December 31, 2017 and December 31, 2016, as shown in the tables above. The unrealized losses were caused by increases in market interest rates. The Company purchases only highly-rated securities, including U.S. government agencies and mortgage-backed securities guaranteed by government-sponsored entities. The municipal and corporate securities portfolios are reviewed regularly to ensure that ratings of individual securities have not deteriorated below the threshold established by the Company's policy.

Because the Company does not intend to sell the investments and management believes it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider the investments to be other-than-temporarily impaired at December 31, 2017 or December 31, 2016.

Restricted Stock

The restricted stock category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, FHLB and Federal Reserve Bank stock is carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered.