Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income (loss).

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) if management does not expect to recover the entire amortized cost basis. In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Amortized cost and fair value of securities at March 31, 2017, and December 31, 2016, were as follows:



In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

SECURITIES AVAILABLE FOR SALE

MARCH 31, 2017
U.S. Government and agencies	$	79,977	$	37	$	1,311	$	78,703
Mortgage-backed securities, residential	29,089		754		63		29,780
State and municipal	21,658		217		52		21,823
Corporate bonds	5,000		126		—		5,126
CRA mutual fund	1,044		—		9		1,035
Stock in other banks	498		134		—		632
	$	137,266	$	1,268	$	1,435	$	137,099

DECEMBER 31, 2016
U.S. Government and agencies	$	81,065	$	43	$	1,529	$	79,579
Mortgage-backed securities, residential	31,272		782		81		31,973
State and municipal	24,514		240		94		24,660
Corporate bonds	5,000		62		—		5,062
CRA mutual fund	1,044		—		9		1,035
Stock in other banks	498		183		—		681
	$	143,393	$	1,310	$	1,713	$	142,990

SECURITIES HELD TO MATURITY

MARCH 31, 2017
U.S. Government and agencies	$	23,013	$	31	$	50	$	22,994
Mortgage-backed securities, residential	30,781		196		310		30,667
	$	53,794	$	227	$	360	$	53,661
DECEMBER 31, 2016
U.S. Government and agencies	$	23,017	$	26	$	54	$	22,989
Mortgage-backed securities, residential	32,551		210		325		32,436
	$	55,568	$	236	$	379	$	55,425

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2017, and December 31, 2016:



	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

SECURITIES AVAILABLE FOR SALE

MARCH 31, 2017
U.S. Government and agencies	$	72,666	$	1,311	$	—	$	—	$	72,666	$	1,311
Mortgage-backed securities, residential	3,200		63		—		—		3,200		63
State and municipal	3,037		52		—		—		3,037		52
CRA Mutual Fund	1,035		9		—		—		1,035		9
	$	79,938	$	1,435	$	—	$	—	$	79,938	$	1,435

DECEMBER 31, 2016
U.S. Government and agencies	$	71,454	$	1,529	$	—	$	—	$	71,454	$	1,529
Mortgage-backed securities, residential	8,966		81		—		—		8,966		81
State and municipal	4,933		94		—		—		4,933		94
CRA Mutual Fund	1,035		9		—		—		1,035		9
	$	86,388	$	1,713	$	—	$	—	$	86,388	$	1,713

SECURITIES HELD TO MATURITY

MARCH 31, 2017
U.S. Government and agencies	$	11,950	$	50	$	—	$	—	$	11,950	$	50
Mortgage-backed securities, residential	13,432		310		—		—		13,432		310
	$	25,382	$	360	$	—	$	—	$	25,382	$	360

DECEMBER 31, 2016
U.S. Government and agencies	$	12,946	$	54	$	—	$	—	$	12,946	$	54
Mortgage-backed securities, residential	12,956		325		—		—		12,956		325
	$	25,902	$	379	$	—	$	—	$	25,902	$	379

All mortgage-backed security investments are government sponsored enterprise (GSE) pass-through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments.

At March 31, 2017, forty available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 5% of amortized cost. These securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At March 31, 2017, three available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 3% of amortized cost. These securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At March 31, 2017, twelve available for sale state and municipal securities had unrealized losses that individually did not exceed 7% of amortized cost. These securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At March 31, 2017, the CRA Mutual Fund had an unrealized loss that did not exceed 1% of amortized cost. This security has not been in a continuous loss position for 12 months or more. This unrealized loss relates principally to changes in interest rates subsequent to the acquisition of the specific security.

At March 31, 2017, nine held to maturity U.S. Government and agency securities had unrealized losses that individually did not exceed 1% of amortized cost. These securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At March 31, 2017, fourteen held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 4% of amortized cost. These securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

In analyzing the issuer’s financial condition, management considers industry analysts’ reports, financial performance, and projected target prices of investment analysts within a one-year time frame. Based on the above information, management has determined that none of these investments are other-than-temporarily impaired.

The fair values of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2) which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing.

Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio. At March 31, 2017, management had not identified any securities with an unrealized loss that it intends to sell or will be required to sell. In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) if management does not expect to recover the entire amortized cost basis. In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses.

Amortized cost and fair value at March 31, 2017, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.



	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value

1 year or less	$	2,638	$	2,653	$	6,013	$	6,003
Over 1 year through 5 years	85,545		84,650		17,000		16,991
Over 5 years through 10 years	18,452		18,349		—		—
Over 10 years	—		—		—		—
Mortgage-backed securities, residential	29,089		29,780		30,781		30,667
CRA mutual fund	1,044		1,035		—		—
Stock in other banks	498		632		—		—
	$	137,266	$	137,099	$	53,794	$	53,661

The Corporation did not sell any securities available for sale during the first quarter of 2017 or 2016.

At March 31, 2017, and December 31, 2016, securities with a carrying value of $133,010,000 and $134,763,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.