INVESTMENT SECURITIES

The fair value of the available-for-sale investment portfolio reflected an unrealized loss of $(6,257,000) at December 31, 2018 compared to an unrealized gain of $4,089,000 at December 31, 2017. The unrealized (loss)/gain recorded is net of $(1,850,000) and $1,186,000 in tax (benefits) liabilities as accumulated other comprehensive income within shareholders’ equity at December 31, 2018 and 2017, respectively.

The following tables set forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands):



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-Sale Securities
Debt Securities:
U.S. Government agencies	$	21,723	$	—	$	(402	)	$	21,321
Obligations of states and political subdivisions	79,886		2,205		(587		)	81,504
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	239,388		253		(4,711		)	234,930
Private label mortgage and asset backed securities	129,165		756		(3,771		)	126,150
	$	470,162	$	3,214	$	(9,471	)	$	463,905



	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-Sale Securities
Debt Securities:
U.S. Government agencies	$	65,994	$	667	$	(74	)	$	66,587
Obligations of states and political subdivisions	136,955		6,240		(90		)	143,105
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	237,210		601		(2,903		)	234,908
Private label mortgage and asset backed securities	91,033		924		(1,276		)	90,681
`	$	531,192	$	8,432	$	(4,343	)	$	535,281

Proceeds and gross realized gains (losses) on investment securities for the years ended December 31, 2018, 2017, and 2016 are shown below (in thousands):



	Years Ended December 31,
	2018			2017			2016
Available-for-Sale Securities
Proceeds from sales or calls	$	246,824		$	228,405		$	167,163
Gross realized gains from sales or calls	$	1,976		$	4,701		$	2,223
Gross realized losses from sales or calls	$	(662	)	$	(1,899	)	$	(999	)
Held-to-Maturity Securities
Proceeds from sales and calls	$	—		$	—		$	9,257
Gross realized gains from sales or calls	$	—		$	—		$	696

Losses recognized in 2018, 2017, and 2016 were incurred in order to reposition the investment securities portfolio based on the current rate environment. The securities which were sold at a loss were acquired when the rate environment was not as volatile. The securities which were sold were primarily purchased several years ago to serve a purpose in the rate environment in which the securities were purchased. The Company addressed risks in the security portfolio by selling these securities and using the proceeds to purchase securities that fit with the Company’s current risk profile.

The provision (benefit) for income taxes includes $388,000, $1,178,000, and $515,000 income tax impact from the reclassification of unrealized net gains on available-for-sale securities to realized net gains on available-for-sale securities for the years ended December 31, 2018, 2017, and 2016, respectively.

Investment securities with unrealized losses at December 31, 2018 and 2017 are summarized and classified according to the duration of the loss period as follows (in thousands):



	December 31, 2018
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale Securities
Debt Securities:
U.S. Government agencies	$	14,891	$	(254	)	$	6,430	$	(148	)	$	21,321	$	(402	)
Obligations of states and political subdivisions	10,056		(99		)	22,945		(488		)	33,001		(587		)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	61,866		(424		)	124,673		(4,287		)	186,539		(4,711		)
Private label residential mortgage and asset backed securities	31,325		(195		)	84,784		(3,576		)	116,109		(3,771		)
	$	118,138	$	(972	)	$	238,832	$	(8,499	)	$	356,970	$	(9,471	)



	December 31, 2017
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale Securities
Debt Securities:
U.S. Government agencies	$	8,201	$	(47	)	$	6,741	$	(27	)	$	14,942	$	(74	)
Obligations of states and political subdivisions	1,627		(3		)	3,357		(87		)	4,984		(90		)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	82,604		(822		)	64,488		(2,081		)	147,092		(2,903		)
Private label residential mortgage backed securities	88,312		(1,276		)	—		—			88,312		(1,276		)
	$	180,744	$	(2,148	)	$	74,586	$	(2,195	)	$	255,330	$	(4,343	)

We periodically evaluate each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings. The discount rate in this analysis is the original yield expected at time of purchase.

As of December 31, 2018, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). Management evaluated all investment securities with an unrealized loss at December 31, 2018, and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at December 31, 2018 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000. Management also analyzed any securities that may have been downgraded by credit rating agencies.

For those bonds that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those bonds. For those bonds that were obligations of states and political subdivisions with an investment grade rating by the rating agencies, management also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded during March 2016 that a $136,000 credit related impairment related to one security with a fair value of $2,995,000 and a pre-impairment amortized cost of $3,131,000 existed. The Company recorded an other-than-temporary impairment loss of $136,000 during the twelve months ended December 31, 2016. There were no OTTI losses recorded during the twelve months ended December 31, 2018 or December 31,2017.

U.S. Government Agencies - At December 31, 2018, the Company held six U.S. Government agency securities of which four were in a loss position for less than 12 months and two were in a loss position and had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in U.S. Government Agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2018.

Obligations of States and Political Subdivisions - At December 31, 2018, the Company held 52 obligations of states and political subdivision securities of which two were in a loss position for less than 12 months and eight were in a loss position or had been in a loss position for 12 months or more. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate changes. 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2018.

U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations - At December 31, 2018, the Company held 137 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligation securities of which 23 were in a loss position for less than 12 months and 60 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entity and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2018.

Private Label Mortgage and Asset Backed Securities - At December 31, 2018, the Company had a total of 36 PLMBS with a remaining principal balance of $129,165,000 and a gross and net unrealized loss of approximately $3,016,000. Seven of these securities were in a loss position for less than 12 months and 18 have been in a loss position for more than 12 months at December 31, 2018. Eight of these PLMBS with a remaining principal balance of $1,137,000 had credit ratings below investment grade. The Company continues to monitor these securities for changes in credit ratings or other indications of credit deterioration. 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, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2018.

The following table provides a rollforward for the years ended December 31, 2018 and 2017 of investment securities credit losses recorded in earnings (in thousands). The beginning balance represents the credit loss component for which OTTI occurred on debt securities in prior periods. Additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred on securities for which OTTI credit losses have been previously recognized.



	Years ended December 31,
	2018		2017
Beginning balance of credit losses recognized	$	874	$	874
Amounts related to credit loss for which an OTTI charge was not previously recognized	—		—
Realized losses for securities sold	—		—
Ending balance of credit losses recognized	$	874	$	874

The amortized cost and estimated fair value of available-for-sale investment securities at December 31, 2018 and 2017 by contractual maturity are shown in the two tables below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.



	December 31, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	—	$	—	$	1,893	$	1,914
After one year through five years	2,769		2,899		7,149		7,316
After five years through ten years	21,831		22,278		22,043		22,696
After ten years	55,286		56,327		105,870		111,179
	79,886		81,504		136,955		143,105
Investment securities not due at a single maturity date:
Treasuries	—		—		—		—
U.S. Government agencies	21,723		21,321		65,994		66,587
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	239,388		234,930		237,210		234,908
Private label mortgage and asset backed securities	129,165		126,150		91,033		90,681
	$	470,162	$	463,905	$	531,192	$	535,281

Investment securities with amortized costs totaling $80,001,000 and $88,930,000 and fair values totaling $79,662,000 and $90,541,000 were pledged as collateral for borrowing arrangements, public funds and for other purposes at December 31, 2018 and 2017, respectively.