2. Investment Securities

The amortized cost, fair values, and unrealized gains and losses of the securities available-for-sale are as follows

(in thousands):

	Amortized		Gross Unrealized				Fair/Book
September 30, 2014	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	13,220	$	141	$	-	$	13,361
Mortgage Backed Securities⁽¹⁾		321,187		3,936		2,443		322,680
Other		485		-		-		485
Total	$	334,892	$	4,077	$	2,443	$	336,526

	Amortized		Gross Unrealized				Fair/Book
December 31, 2013	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	28,287	$	149	$	-	$	28,436
Mortgage Backed Securities⁽¹⁾		329,469		3,026		7,566		324,929
Corporate Securities		49,247		280		147		49,380
Other		1,894		-		-		1,894
Total	$	408,897	$	3,455	$	7,713	$	404,639

	Amortized		Gross Unrealized				Fair/Book
September 30, 2013	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	28,404	$	239	$	-	$	28,643
Mortgage Backed Securities⁽¹⁾		342,963		4,928		5,814		342,077
Corporate Securities		49,696		250		185		49,761
Other		1,284		-		-		1,284
Total	$	422,347	$	5,417	$	5,999	$	421,765

⁽¹⁾All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

The book values, estimated fair values and unrealized gains and losses of investments classified as held-to-maturity are as follows (in thousands):

	Book		Gross Unrealized				Fair
September 30, 2014	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,206	$	725	$	17	$	67,914
Other		2,235		-		-		2,235
Total	$	69,441	$	725	$	17	$	70,149

	Book		Gross Unrealized				Fair
December 31, 2013	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	65,685	$	812	$	627	$	65,870
Mortgage Backed Securities⁽¹⁾		45		-		-		45
Other		2,775		-		-		2,775
Total	$	68,505	$	812	$	627	$	68,690

	Book		Gross Unrealized				Fair
September 30, 2013	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	67,717	$	965	$	741	$	67,941
Mortgage Backed Securities⁽¹⁾		121		1		-		122
Other		3,123		-		-		3,123
Total	$	70,961	$	966	$	741	$	71,186

⁽¹⁾All Mortgage Backed Securities consist of securities collateralized by residential real estate and were issued by an agency or government sponsored entity of the U.S. government.

Fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for similar securities.

In June 2014, the Company sold $375,000 of municipal bonds from a single issuer. The Company took this action under the provisions of ASC 320-10-25-6(a), which allow for the sale of HTM securities where there is “evidence of a significant deterioration in the issuer’s creditworthiness.” The resulting income statement impact was not material.

The amortized cost and estimated fair values of investment securities at September 30, 2014 by contractual maturity are shown in the following tables (in thousands):

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair/Book		Book		Fair
September 30, 2014	Cost		Value		Value		Value
Within one year	$	10,473	$	10,496	$	4,115	$	4,117
After one year through five years		3,232		3,350		17,518		17,814
After five years through ten years		-		-		13,440		13,589
After ten years		-		-		34,368		34,629
		13,705		13,846		69,441		70,149

Investment securities not due at a single maturity date:
Mortgage-backed securities		321,187		322,680		-		-

Total	$	334,892	$	336,526	$	69,441	$	70,149

Expected maturities of mortgage backed securities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

The following tables show those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at the dates indicated (in thousands):

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2014	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Mortgage Backed Securities	$	62,825	$	240	$	64,968	$	2,203		127,793	$	2,443
Total	$	62,825	$	240	$	64,968	$	2,203	$	127,793	$	2,443

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17
Total	$	1,943	$	11	$	2,556	$	6	$	4,499	$	17

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2013	Value		Loss		Value		Loss		Value		Loss

Securities Available-for-Sale
Mortgage Backed Securities	$	195,736	$	7,566	$	-	$	-	$	195,736	$	7,566
Corporate Securities		15,297		106		2,457		41		17,754		147
Total	$	211,033	$	7,672	$	2,457	$	41	$	213,490	$	7,713

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	9,518	$	627	$	-	$	-	$	9,518	$	627
Total	$	9,518	$	627	$	-	$	-	$	9,518	$	627

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2013	Value		Loss		Value		Loss		Value		Loss
Securities Available-for-Sale
Mortgage Backed Securities	$	129,198	$	5,814	$	-	$	-	$	129,198	$	5,814
Corporate Securities		19,881		185		-		-		19,881		185
Total	$	149,079	$	5,999	$	-	$	-	$	149,079	$	5,999

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	9,411	$	741	$	-	$	-	$	9,411	$	741
Total	$	9,411	$	741	$	-	$	-	$	9,411	$	741

As of September 30, 2014, the Company held 280 investment securities of which 15 were in a loss position for less than twelve months. 12 securities were in a loss position for twelve months or more. Management periodically evaluates each investment security for other-than-temporary impairment relying primarily on industry analyst reports and observations of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities.

Securities of Government Agency and Government Sponsored Entities – There were no unrealized losses on the Company’s investments in securities of government agency and government sponsored entities at September 30, 2014, December 31, 2013 and September 30, 2013.

Mortgage Backed Securities - The unrealized losses on the Company's investment in mortgage backed securities were $2.4 million, $7.6 million, and $5.8 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively. The unrealized losses on the Company’s investment in mortgage backed securities were caused by interest rate fluctuations. The contractual cash flows of these investments are guaranteed by an agency or government sponsored entity of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

Obligations of States and Political Subdivisions - The financial problems experienced by certain municipalities over the past five years, along with the financial stresses exhibited by some of the large monoline bond insurers have increased the overall risk associated with bank-qualified municipal bonds. As of September 30, 2014, over ninety-six percent of the Company’s bank-qualified municipal bond portfolio is rated at either the issue or issuer level, and all of these ratings are “investment grade.” The Company monitors the status of the four percent of the portfolio that is not rated and at the current time does not believe any of them to be exhibiting financial problems that could result in a loss in any individual security. In June 2014, the Company sold $375,000 of municipal bonds from a single issuer. The Company took this action under the provisions of ASC 320-10-25-6(a), which allow for the sale of HTM securities where there is “evidence of a significant deterioration in the issuer’s creditworthiness.” The resulting income statement impact was not material.

The unrealized losses on the Company’s investment in obligation of states and political subdivision were $17,000, $627,000, and $741,000 at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. Management believes that any unrealized losses on the Company's investments in obligations of states and political subdivisions were primarily caused by interest rate fluctuations. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

Corporate Securities – The Company did not hold any corporate securities at September 30, 2014. The unrealized losses on the Company’s investment in corporate securities at December 31, 2013, and September 30, 2013, were $147,000, and $185,000, respectively. Changes in the prices of corporate securities are primarily influenced by: (1) changes in market interest rates; (2) changes in perceived credit risk in the general economy or in particular industries; (3) changes in the perceived credit risk of a particular company; and (4) day to day trading supply, demand and liquidity. Because the Company does not intend to sell the securities and it is more likely than not that the Company will not have to sell the securities before recovery of their cost basis, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2013 and September 30, 2013, respectively.

Proceeds from sales and calls of securities were as follows:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(in thousands)	2014		2013		2014		2013
Proceeds	$	85,433	$	28,297	$	95,349	$	77,912
Gains		811		285		845		1,189
Losses		807		1,422		807		1,437

Pledged Securities

As of September 30, 2014, securities carried at $360.0 million were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) borrowings, and other government agency deposits as required by law. This amount was $334.8 million at December 31, 2013, and $310.5 million at September 30, 2013.