NOTE 3 – SECURITIES

The amortized cost and appropriate fair values, together with gross unrealized gains and losses, of securities at September 30, 2018 and December 31, 2017 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
($ in thousands)	Cost		Gains		Losses			Fair Value
Available for Sale Securities:
September 30, 2018
U.S. Treasury and Government agencies	$	11,897	$	5	$	(326	)	$	11,576
Mortgage-backed securities		63,312		34		(1,876	)		61,470
State and political subdivisions		10,998		127		(57	)		11,068

	$	86,207	$	166	$	(2,259	)	$	84,114

			Gross		Gross
	Amortized		Unrealized		Unrealized
($ in thousands)	Cost		Gains		Losses			Fair Value
Available for Sale Securities:
December 31, 2017:
U.S. Treasury and Government agencies	$	12,715	$	62	$	(69	)	$	12,708
Mortgage-backed securities		57,355		97		(690	)		56,762
State and political subdivisions		12,829		439		(18	)		13,250
Equity securities		70		-		-			70

	$	82,969	$	598	$	(777	)	$	82,790

The amortized cost and fair value of securities available for sale at September 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized		Fair
($ in thousands)	Cost		Value

Within one year	$	2,118	$	2,135
Due after one year through five years		7,516		7,444
Due after five years through ten years		9,692		9,486
Due after ten years		3,569		3,579
		22,895		22,644

Mortgage-backed securities		63,312		61,470

Totals	$	86,207	$	84,114

The fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $44.0 million at September 30, 2018 and $38.9 million at December 31, 2017. The fair value of securities delivered for repurchase agreements was $18.7 million at September 30, 2018 and $19.1 million at December 31, 2017.

For the nine months ended September 30, 2018, there were gross gains of $0.07 million resulting from sales of available-for-sale securities, which was a reclassification from accumulated other comprehensive income (OCI) and was included in the net gain on sale of securities. The related $0.02 million in tax expense was a reclassification from OCI and was included in the income tax expense line item in the income statement. For the nine months ended September 30, 2017, there were gross gains of $0.12 million resulting from sales of available-for-sale securities, which was a reclassification from accumulated other comprehensive income (OCI) and was included in the net gain on sale of securities. The related $0.04 million in tax expense was a reclassification from OCI and was included in the income tax expense line item in the income statement.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments was $74.4 million at September 30, 2018, and $59.3 million at December 31, 2017, which was approximately 88 and 72 percent, respectively, of the Company’s available-for-sale investment portfolio at such dates. Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

Securities with unrealized losses, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2018 and December 31, 2017 are as follows:

	Less than 12 Months					12 Months or Longer					Total
($ in thousands) September 30, 2018	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities:
U.S. Treasury and Government agencies	$	7,409	$	(224	)	$	3,660	$	(103	)	$	11,069	$	(327	)
Mortgage-backed securities		31,685		(701	)		28,312		(1,174	)		59,997		(1,875	)
State and Political subdivisions		2,942		(32	)		440		(25	)		3,382		(57	)

	$	42,036	$	(957	)	$	32,412	$	(1,302	)	$	74,448	$	(2,259	)

	Less than 12 Months					12 Months or Longer					Total
($ in thousands) December 31, 2017	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities:
U.S. Treasury and Government agencies	$	5,675	$	(27	)	$	2,559	$	(42	)	$	8,234	$	(69	)
Mortgage-backed securities		35,205		(319	)		14,673		(371	)		49,878		(690	)
State and political subdivisions		905		(4	)		326		(14	)		1,231		(18	)

	$	41,785	$	(350	)	$	17,558	$	(427	)	$	59,343	$	(777	)

The total potential unrealized loss as of September 30, 2018 in the securities portfolio was $2.3 million, compared to a $0.78 million unrealized loss at December 31, 2017. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. Consideration is given to (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, and (3) the intent of the Company to not sell the investment and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost. Management has determined there is no other-than-temporary-impairment on these securities.