Note 3 - Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:


	(In Thousands)
	2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Available-for-Sale:
U.S. Treasury	$	21,219	$	—	$	(241	)	$	20,978
U.S. Government agencies		82,198		—		(1,732	)		80,466
Mortgage-backed securities		40,236		64		(790	)		39,510
State and local governments		55,512		437		(505	)		55,444

Total available-for-sale securities	$	199,165	$	501	$	(3,268	)	$	196,398


	(In Thousands)
	2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Available-for-Sale:
U.S. Treasury	$	24,920	$	1	$	(146	)	$	24,775
U.S. Government agencies		84,266		3		(1,795	)		82,474
Mortgage-backed securities		49,155		185		(879	)		48,461
State and local governments		63,173		634		(990	)		62,817

Total available-for-sale securities	$	221,514	$	823	$	(3,810	)	$	218,527

Investment securities will at times depreciate to an unrealized loss position. The Bank utilizes the following criteria to assess whether impairment is other than temporary. No one item by itself will necessarily signal that a security should be recognized as an other than temporary impairment.

The fair value of the security has significantly declined from book value.

A downgrade has occurred that lowered the credit rating to below investment grade (below Baa3 by Moody and BBB – by Standard and Poors.)

Dividends have been reduced or eliminated or scheduled interest payments have not been made.

The underwater security has longer than 10 years to maturity and the loss position had existed for more than 3 years.

Management does not possess both the intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

If the impairment is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value, thereby establishing a new cost basis. The new cost basis shall not be changed for subsequent recoveries in fair value. The amount of the write down shall be included in current earnings as a realized loss. The recovery in fair value, if any, shall be recognized in earnings when the security is sold. The table below is presented by category of security and length of time in a continuous loss position. The Bank currently does not hold any securities with other than temporary impairment.

Information pertaining to securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:


	2017
	(In Thousands) Less Than Twelve Months					(In Thousands) Twelve Months & Over
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	(36	)	$	6,924	$	(205	)	$	14,054
U.S. Government agencies		(314	)		27,328		(1,418	)		53,139
Mortgage-backed securities		(70	)		7,149		(720	)		28,080
State and local governments		(205	)		24,999		(300	)		11,567

Total available-for-sales securities	$	(625	)	$	66,400	$	(2,643	)	$	106,840


	2016
	(In Thousands) Less Than Twelve Months					(In Thousands) Twelve Months & Over
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	(146	)	$	15,745	$	—		$	—
U.S. Government agencies		(1,795	)		77,471		—			—
Mortgage-backed securities		(879	)		36,474		—			—
State and local governments		(983	)		37,540		(7	)		526

Total available-for-sales securities	$	(3,803	)	$	167,230	$	(7	)	$	526

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by rate changes, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

Sales of $13.6, $85.7, and $47.0 million for 2017, 2016, and 2015 respectively, generated gross realized gains and losses for the years ended December 31, as presented below:


	(In Thousands)
	2017			2016			2015
Gross realized gains	$	58		$	598		$	451
Gross realized losses		(11	)		(10	)		—

Net realized gains	$	47		$	588		$	451

Tax expense related to net realized gains	$	16		$	200		$	153

The net realized gain on sales and related tax expense is a reclassification out of accumulated other comprehensive income. The net realized gain is included in net gain on sale of securities available-for-sale and the related tax expense is included in income tax expense in the consolidated statements of income and comprehensive income (loss).

The amortized cost and fair value of debt securities at December 31, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	(In Thousands)
	Amortized Cost		Fair Value
One year or less	$	21,644	$	21,618
After one year through five years		84,514		83,685
After five years through ten years		49,908		48,810
After ten years		2,863		2,775

Total	$	158,929	$	156,888
Mortgage-backed securities		40,236		39,510

Total	$	199,165	$	196,398

Investments with a carrying value and fair value of $82.9 million at December 31, 2017 and $129.4 million at December 31, 2016 were pledged to secure public deposits and securities sold under repurchase agreements.

Other securities include Federal Home Loan Bank of Cincinnati and Farmer Mac stock as of December 31, 2017 and 2016.