Note 3. Investment Securities

The following table sets forth the amortized cost and fair values of the Company’s investment securities, all of which are reported as available for sale at June 30, 2016 and December 31, 2015:

	June 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(dollars in thousands)
Obligations of U.S. government agencies	$	58,070	$	366	$	(420)	$	58,016
Mortgage backed securities
U.S. government sponsored entities and agencies	238,974		2,634		(770)		240,838
Non-agency	26,624		252		(127)		26,749
State and municipal securities	104,514		7,030		-		111,544
Asset backed securities	10,088		-		(358)		9,730

Total available for sale securities	$	438,270	$	10,282	$	(1,675)	$	446,877

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(dollars in thousands)
Obligations of U.S. government agencies	$	47,478	$	269	$	(429)	$	47,318
Mortgage backed securities
U.S. government sponsored entities and agencies	246,561		986		(2,312)		245,235
Non-agency	34,645		-		(328)		34,317
State and municipal securities	105,164		3,486		(244)		108,406
Asset backed securities	16,183		-		(556)		15,627
Other investments	100		-		(68)		32

Total available for sale securities	$	450,131	$	4,741	$	(3,937)	$	450,935

Available for sale investment securities which have an unrealized loss position at June 30, 2016 and December 31, 2015 are detailed below:

	June 30, 2016
	Less Than Twelve Months				Twelve Months or More					Total
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	Value		Loss		Value		Loss			Value		Loss
	(dollars in thousands)
Obligations of U.S. government agencies	$	7,769	$	(35)	$	24,004	$	(385)		$	31,773	$	(420)
Mortgage backed securities
U.S. government sponsored entities and agencies	42,250		(435)		16,248		(335)			58,498		(770)
Non-agency	6,911		(89)		2,679		(38)			9,590		(127)
State and municipal securities	-		-		-		-			-		-
Asset backed securities	-		-		9,729		(358)			9,729		(358)

Total	$	56,930	$	(559)	$	52,660	$	(1,116)		$	109,590	$	(1,675)


	December 31, 2015

	Less Than Twelve Months				Twelve Months or More					Total

	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	Value		Loss		Value		Loss			Value		Loss

	(dollars in thousands)
Obligations of U.S. government agencies	$	34,533	$	(429)	$	-	$	-		$	34,533	$	(429)
Mortgage backed securities
U.S. government sponsored entities and agencies	131,570		(1,485)		31,558		(827)			163,128		(2,312)
Non-agency	31,400		(317)		2,917		(11)			34,317		(328)
State and municipal securities	15,660		(243)		235		(1)			15,895		(244)
Asset backed securities	-		-		15,626		(556)			15,626		(556)
Other investments		32		(68)		-	-				32		(68)


Total	$	213,195	$	(2,542)	$	50,336	$		(1,395)	$	263,531	$	(3,937)

A total of 42 and 104 securities were in an unrealized loss position as of June 30, 2016 and December 31, 2015, respectively. As of June 30, 2016, the Company believes that unrealized losses on its investment securities are not attributable to credit quality, but rather fluctuations in market prices. In the case of the agency mortgage related securities, contractual cash flows are guaranteed by agencies of the U.S. Government. While the Company’s investment security holdings have contractual maturity dates that range from 1 to 40 years, they have a much shorter effective duration depending on the instrument’s priority in the overall cash flow structure and the characteristics of the loans underlying the investment security.

Management does not intend to sell and it is unlikely that management will be required to sell these securities prior to their anticipated recovery. As of June 30, 2016, the Company does not believe unrealized losses related to any of its securities are other than temporary.

The proceeds from the sales and calls of securities and the associated gains and losses for the three and six months ended June 30, 2016 and 2015 are listed below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(dollars in thousands)
Proceeds	$	18,298	$	-	$	75,577	$	46,528
Gross gains	149		-		1,020		679
Gross losses	(62)		-		(382)		(174)

The income tax expense related to these net realized gains was $37 thousand and $0 for the three months ended June 30, 2016 and 2015, respectively, and $0.3 million and $0.2 million for the six months ended June 30, 2016 and 2015, respectively.

The table below provides a maturity distribution of available for sale investment securities at June 30, 2016 and December 31, 2015. The table reflects the expected lives of mortgage-backed securities, based on the Company’s historical prepayment experience, because borrowers have the right to prepay obligations without prepayment penalties. Included in the Company’s mortgage-backed securities are home equity conversion mortgages, which typically possess prepayment characteristics that differ from traditional mortgage-backed securities, such that prepayment activity is not as closely correlated with changes in interest rates. Contractual maturities are reflected for all other security types. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2016				December 31, 2015
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
	(dollars in thousands)
Due one year or less	$	39,563	$	39,648	$	51,049	$	50,978
Due after one year through five years	149,395		150,587		153,444		152,916
Due after five years through ten years	167,301		173,908		182,996		184,870
Due after ten years	82,011		82,734		62,642		62,171

Total	$	438,270	$	446,877	$	450,131	$	450,935

Securities having an amortized cost and a fair value of $165.6 million and $170.2 million, respectively at June 30, 2016, and $153.9 million and $155.2 million, respectively at December 31, 2015 were pledged to secure public deposits. At June 30, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of total securities.

The following table summarizes earnings on investment securities, both taxable, and those that are exempt from federal taxation for the three and six months ended June 30, 2016 and 2015:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(dollars in thousands)
Taxable earnings on investment securities
Mortgage backed securities	$	1,204	$	738	$	2,458	$	1,591
Obligations of U.S. government agencies	207		191		345		326
State and municipal securities	145		126		332		188
Asset backed securities	26		32		68		80
Earnings on investment securities exempt from federal taxation
State and municipal securities	607		575		1,186		1,144

Total	$	2,189	$	1,662	$	4,389	$	3,329