NOTE 2. SECURITIES

Information related to the fair ~~value~~ and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income is provided in the tables below.

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
(dollars in thousands)	Cost	Gain	Losses	Value
June 30, 2018
U.S. Treasury securities	$992	$0	$(13)	$979
U.S. government sponsored agencies	4,894	0	(131)	4,763
Mortgage-backed securities: residential	338,057	1,071	(8,347)	330,781
Mortgage-backed securities: commercial	34,890	0	(756)	34,134
State and municipal securities	194,573	1,119	(3,122)	192,570
Total	$573,406	$2,190	$(12,369)	$563,227

December 31, 2017
U.S. Treasury securities	$992	$5	$0	$997
U.S. government sponsored agencies	5,191	0	(69)	5,122
Mortgage-backed securities: residential	314,650	2,099	(2,975)	313,774
Mortgage-backed securities: commercial	44,208	75	(72)	44,211
State and municipal securities	172,375	2,990	(976)	174,389
Total	$537,416	$5,169	$(4,092)	$538,493

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of June 30, 2018 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.

	Amortized	Fair
(dollars in thousands)	Cost	Value
Due in one year or less	$2,303	$2,324
Due after one year through five years	23,944	24,077
Due after five years through ten years	35,390	35,273
Due after ten years	138,822	136,638
	200,459	198,312
Mortgage-backed securities	372,947	364,915
Total debt securities	$573,406	$563,227

Securities proceeds, gross gains and gross losses are presented below.

	Three months ended June 30,		Six months ended June 30,
(dollars in thousands)	2018	2017	2018	2017
Sales of securities available for sale
Proceeds	$0	$19,034	$12,322	$35,845
Gross gains	0	59	21	256
Gross losses	0	(10)	(27)	(204)

The Company sold 22 securities with a total book value and a total fair value of $12.3 million during the first six months of 2018. The Company sold eight securities with a total book value and a total fair value of $19.0 million during the second quarter of 2017. The Company sold 35 securities with a total book value and a total fair value of $35.8 million during the first six months of 2017. No sales occurred during the second quarter of 2018.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over the estimated lives of mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $189.3 million and $171.1 million were pledged as of June 30, 2018 and December 31, 2017, respectively, as collateral for securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of June 30, 2018 and December 31, 2017 is presented below. The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

	Less than 12 months		12 months or more		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	Value	Losses	Value	Losses	Value	Losses
June 30, 2018
US Treasury	$979	$13	$0	$0	$979	$13
U.S. government sponsored agencies	2,210	51	2,553	80	4,763	131
Mortgage-backed securities: residential	231,456	5,493	56,429	2,854	287,885	8,347
Mortgage-backed securities: commercial	34,134	756	0	0	34,134	756
State and municipal securities	63,633	914	48,071	2,208	111,704	3,122
Total temporarily impaired	$332,412	$7,227	$107,053	$5,142	$439,465	$12,369

December 31, 2017
U.S. government sponsored agencies	$2,353	$6	$2,769	$63	$5,122	$69
Mortgage-backed securities: residential	142,834	1,412	59,024	1,563	201,858	2,975
Mortgage-backed securities: commercial	23,505	72	0	0	23,505	72
State and municipal securities	8,585	47	49,552	929	58,137	976
Total temporarily impaired	$177,277	$1,537	$111,345	$2,555	$288,622	$4,092

The total number of securities with unrealized losses as of June 30, 2018 and December 31, 2017 is presented below.

	Less than	12 months
	12 months	or more	Total
June 30, 2018
US Treasury	1	0	1
U.S. government sponsored agencies	1	1	2
Mortgage-backed securities: residential	79	22	101
Mortgage-backed securities: commercial	8	0	8
State and municipal securities	82	62	144
Total temporarily impaired	171	85	256

December 31, 2017
U.S. government sponsored agencies	1	1	2
Mortgage-backed securities: residential	46	21	67
Mortgage-backed securities: commercial	5	0	5
State and municipal securities	17	62	79
Total temporarily impaired	69	84	153

The following factors are considered in determining whether or not the impairment of these securities is other-than-temporary. In making this determination, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer, as well as the underlying fundamentals of the relevant market and the outlook for such market in the near future. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. Credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. As of June 30, 2018 and December 31, 2017, all of the securities in the Company's portfolio were backed by the U.S. government, government agencies, government sponsored entities or were A-rated or better, except for certain non-local or local municipal securities, which are not rated. For the government, government agency, government-sponsored entity and municipal securities, management did not believe that there would be credit losses or that full principal would not be received. Management considers the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold. However, at this time management does not have the intent to sell, and it is more likely than not that the Company will not be required to sell these securities before the recovery of their amortized cost basis.