Note 2 - Investment Securities

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

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Treasury	$	4,017	$	—	$	3	$	4,014
U.S. Government agencies		58,506		28		863		57,671
GSE - Mortgage-backed securities and CMO’s		26,195		39		586		25,648
State and political subdivisions		14,123		71		658		13,536
Corporate bonds		5,054		14		38		5,030
Total securities available for sale	$	107,895	$	152	$	2,148	$	105,899

Note 2 - Investment Securities (Continued)

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities held to maturity
U.S. Government agencies	$	1,754	$	—	$	17	$	1,737
State and political subdivisions		6,974		7		60		6,921
Corporate bonds		3,262		14		—		3,276
Total securities held to maturity	$	11,990	$	21	$	77	$	11,934

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Treasury	$	4,026	$	—	$	14	$	4,012
U.S. Government agencies		36,159		99		188		36,070
GSE - Mortgage-backed securities and CMO’s		30,269		53		549		29,773
State and political subdivisions		13,691		351		3		14,039
Corporate bonds		5,435		—		71		5,364
Total securities available for sale	$	89,580	$	503	$	825	$	89,258

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands)
Securities held to maturity
U.S. Government agencies	$	1,911	$	—	$	5	$	1,906
State and political subdivisions		5,993		30		5		6,018
Corporate bonds		3,338		—		20		3,318
Total securities held to maturity	$	11,242	$	30	$	30	$	11,242

At both December 31, 2016 and December 31, 2015, the Company owned Federal Reserve Bank stock reported at cost of $507,000. Also at December 31, 2016 and December 31, 2015, the Company owned Federal Home Loan Bank Stock (FHLB) of $545,000 and $533,000, 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 December 31, 2016.

Results from sales and calls of securities available for sale for the years ended December 31, 2016, 2015 and 2014 are as follows:

	2016		2015		2014
	(dollars in thousands)
Gross proceeds from sales and calls	$	20,225	$	32,780	$	11,592
Realized gains from sales	$	544	$	536	$	28
Realized losses from sales		—		—		(30	)
Net realized gains (losses)	$	544	$	536	$	(2	)

At December 31, 2016, 2015 and 2014 securities available for sale with a carrying amount of $96.8 million, $68.8 million and $84.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

Note 2 - Investment Securities (Continued)

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 December 31, 2016 and December 31, 2015. 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 credit quality of the investments. At December 31, 2016, the unrealized losses on available for sale securities less than twelve months related to one U.S. Treasury, seventeen government agency bonds, ten government sponsored enterprise (GSE) mortgage backed securities, one corporate bonds and seven state and political subdivision bond. The Company had six 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 December 31, 2016, the unrealized losses on held to maturity securities related to one government agency security and eight state and political subdivision bonds. At December 31, 2015, the unrealized losses on available for sale securities related to one United States Treasury note, eleven government agency bonds, twelve GSE mortgage backed securities, three corporate bonds and one state and political subdivision bond. At December 31, 2015, the unrealized losses on held to maturity securities related to one government agency security, two corporate bonds and two state and political subdivision bonds.

December 31, 2016	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities available for sale temporary impairment
U.S. Treasury	$	4,014	$	3	$	—	$	—	$	4,014	$	3
U.S. Gov’t agencies		48,192		807		4,164		56		52,356		863
GSE-Mortgage-backed securities and CMO’s		16,250		395		5,251		191		21,501		586
State and political		9,994		658		—		—		9,994		658
Corporate bonds		1,999		27		800		11		2,799		38
Total securities available for sale	$	80,449	$	1,890	$	10,215	$	258	$	90,664	$	2,148

December 31, 2016	Less than 12 Months				12 Months or More				Total
	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	$	1,895	$	17	$	—	$	—	$	1,895	$	17
State and political		6,056		60		—		—		6,056		60
Total securities held to maturity	$	7,951	$	77	$	—	$	—	$	7,951	$	77

December 31, 2015	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
Securities available for sale temporary impairment
U.S. Treasury	$	4,013	$	14	$	—	$	—	$	4,013	$	14
U.S. Gov’t agencies		16,692		128		5,048		60		21,740		188
GSE-Mortgage-backed securities and CMO’s		15,620		290		7,230		259		22,850		549
State and political		465		3		—		—		465		3
Corporate bonds		4,566		55		798		16		5,364		71
Total securities available for sale	$	41,356	$	490	$	13,076	$	335	$	54,432	$	825

Note 2 - Investment Securities (Continued)

December 31, 2015	Less than 12 Months				12 Months or More				Total
	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	$	1,906	$	5	$	—	$	—	$	1,906	$	5
State and political		3,318		5		—		—		3,318		5
Corporate bonds		1,312		20		—		—		1,312		20
Total securities held to maturity	$	6,536	$	30	$	—	$	—	$	6,536	$	30

The Company has six government agency securities, four GSE mortgage backed securities and one corporate bond that have been in a loss position for more than twelve months that are in the investments available for sale portfolio at December 31, 2016. 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 credit quality but that the losses are temporary in nature. At December 31, 2016, 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 following table shows contractual maturities of the entire investment portfolio as of December 31, 2016:

	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within one year	$	—	$	—
Due after one but within five years		50,029		49,608
Due after five but within ten years		28,586		28,132
Due after ten years		15,075		14,445
Mortgage backed securities		26,195		25,648
	$	119,885	$	117,833

The mortgage-backed securities are shown separately as they are not due at a single maturity date.