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, 2016	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	83,129	$	165	$	1	$	83,293
US Treasury Notes		85,470		211		-		85,681
Mortgage Backed Securities⁽¹⁾		183,268		5,605		-		188,873
Other		1,010		-		-		1,010
Total	$	352,877	$	5,981	$	1	$	358,857

	Amortized		Gross Unrealized				Fair/Book
December 31, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	33,536	$	134	$	419	$	33,251
US Treasury Notes		73,048		-		164		72,884
Mortgage Backed Securities⁽¹⁾		261,016		2,708		1,231		262,493
Other		509		-		-		509
Total	$	368,109	$	2,842	$	1,814	$	369,137

	Amortized		Gross Unrealized				Fair/Book
September 30, 2015	Cost		Gains		Losses		Value
Government Agency & Government-Sponsored Entities	$	41,448	$	65	$	-	$	41,513
US Treasury Notes		30,069		231		-		30,300
Mortgage Backed Securities⁽¹⁾		251,483		5,024		312		256,195
Corporate Securities		16,235		-		-		16,235
Other		485		-		-		485
Total	$	339,720	$	5,320	$	312	$	344,728

⁽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, 2016	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	58,905	$	1,549	$	-	$	60,454
Total	$	58,905	$	1,549	$	-	$	60,454

	Book		Gross Unrealized				Fair
December 31, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	61,396	$	993	$	1	$	62,388
Total	$	61,396	$	993	$	1	$	62,388

	Book		Gross Unrealized				Fair
September 30, 2015	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	64,134	$	658	$	26	$	64,766
Other		2,123		-		-		2,123
Total	$	66,257	$	658	$	26	$	66,889

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.

The amortized cost and estimated fair values of investment securities at September 30, 2016 by contractual maturity are shown in the following table (in thousands):

	Available-for-Sale				Held-to-Maturity
September 30, 2016	Amortized Cost		Fair/Book Value		Book Value		Fair Value
Within one year	$	100,999	$	100,998	$	1,211	$	1,213
After one year through five years		68,610		68,986		10,906		10,943
After five years through ten years		-		-		11,644		11,878
After ten years		-		-		35,144		36,420
		169,609		169,984		58,905		60,454

Investment securities not due at a single maturity date:
Mortgage Backed Securities		183,268		188,873		-		-

Total	$	352,877	$	358,857	$	58,905	$	60,454

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 tables below 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
September 30, 2016	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	59,993	$	1	$	-	$	-	$	59,993	$	1
Total	$	59,993	$	1	$	-	$	-	$	59,993	$	1

	Less Than 12 Months				12 Months or More				Total
December 31, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
Government Agency & Government-Sponsored Entities	$	29,944	$	419	$	-	$	-	$	29,944	$	419
US Treasury Notes		44,887		164		-		-		44,887		164
Mortgage Backed Securities		78,899		1,089		7,277		142		86,176		1,231
Total	$	153,730	$	1,672	$	7,277	$	142	$	161,007	$	1,814

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	839	$	1	$	-	$	-	$	839	$	1
Total	$	839	$	1	$	-	$	-	$	839	$	1

	Less Than 12 Months				12 Months or More				Total
September 30, 2015	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Securities Available-for-Sale
Mortgage Backed Securities	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312
Total	$	36,898	$	256	$	7,593	$	56	$	44,491	$	312

Securities Held-to-Maturity
Obligations of States and Political Subdivisions	$	1,991	$	26	$	-	$	-	$	1,991	$	26
Total	$	1,991	$	26	$	-	$	-	$	1,991	$	26

As of September 30, 2016, the Company held 244 investment securities which 3 were in a loss position for less than twelve months. No 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 – The unrealized losses on the Company’s investment in securities of government agency and government sponsored entities were $1, $419,000, and $0 at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. The unrealized losses were caused by interest rate fluctuations. Repayment of these investments is 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 did not consider these investments to be other-than-temporarily impaired at September 30, 2016, December 31, 2015, and September 30, 2015.

Mortgage Backed Securities – The unrealized losses on the Company's investment in mortgage backed securities were $0, $1.2 million, and $312,000 at September 30, 2016, December 31, 2015, September 30, 2015, 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, 2016, December 31, 2015 and September 30, 2015, respectively.

Obligations of States and Political Subdivisions - As of September 30, 2016, over ninety-eight 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 two 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.

The unrealized losses on the Company’s investment in obligations of states and political subdivisions were $0, $1,400, and $26,000 at September 30, 2016, December 31, 2015 and September 30, 2015, 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, 2016, December 31, 2015 and September 30, 2015, respectively.

US Treasury Notes – The unrealized losses on the Company's investments in US treasury notes were $0, $164,000, and $0 at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. The unrealized losses were caused by interest rate fluctuations. 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 did not consider these investments to be other-than-temporarily impaired at September 30, 2016, December 31, 2015 and September 30, 2015, respectively.

Proceeds from sales and calls of securities were as follows:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(in thousands)	2016		2015		2016		2015
Proceeds	$	1,855	$	53,465	$	104,750	$	58,000
Gains		3		266		248		272
Losses		-		-		534		-

Pledged Securities

As of September 30, 2016, securities carried at $185.1 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 $189.2 million at December 31, 2015, and $197.8 million at September 30, 2015.