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 September 30, 2015, and December 31, 2014, were as follows:



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

SECURITIES AVAILABLE FOR SALE

SEPTEMBER 30, 2015
U.S. Government and agencies	$	23,929	$	296	$	—	$	24,225
Mortgage-backed securities, residential	44,333		1,770		—		46,103
State and municipal	28,818		726		1		29,543
Corporate bonds	7,000		44		—		7,044
CRA mutual fund	1,044		19		—		1,063
Stock in other banks	702		52		24		730
	$	105,826	$	2,907	$	25	$	108,708

DECEMBER 31, 2014
U.S. Government and agencies	$	16,980	$	337	$	—	$	17,317
Mortgage-backed securities, residential	51,076		2,187		1		53,262
State and municipal	34,378		1,072		5		35,445
Corporate bonds	10,001		82		—		10,083
CRA mutual fund	1,044		14		—		1,058
Stock in other banks	627		208		—		835
	$	114,106	$	3,900	$	6	$	118,000

SECURITIES HELD TO MATURITY

SEPTEMBER 30, 2015
U.S. Government and agencies	$	31,059	$	155	$	21	$	31,193
Mortgage-backed securities, residential	42,448		507		79		42,876
	$	73,507	$	662	$	100	$	74,069
DECEMBER 31, 2014
U.S. Government and agencies	$	24,497	$	11	$	348	$	24,160
Mortgage-backed securities, residential	48,849		305		257		48,897
	$	73,346	$	316	$	605	$	73,057

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 September 30, 2015, and December 31, 2014:



	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

SEPTEMBER 30, 2015
State and municipal	$	—	$	—	$	156	$	1	$	156	$	1
Stock in other banks	180		24		—		—		180		24
	$	180	$	24	$	156	$	1	$	336	$	25

DECEMBER 31, 2014
Mortgage-backed securities, residential	$	2,038	$	1	$	—	$	—	$	2,038	$	1
State and municipal	—		—		1,059		5		1,059		5
	$	2,038	$	1	$	1,059	$	5	$	3,097	$	6

SECURITIES HELD TO MATURITY

SEPTEMBER 30, 2015
U.S. Government and agencies	$	—	$	—	$	6,979	$	21	$	6,979	$	21
Mortgage-backed securities, residential	—		—		16,121		79		16,121		79
	$	—	$	—	$	23,100	$	100	$	23,100	$	100

DECEMBER 31, 2014
U.S. Government and agencies	$	—	$	—	$	21,149	$	348	$	21,149	$	348
Mortgage-backed securities, residential	—		—		21,666		257		21,666		257
	$	—	$	—	$	42,815	$	605	$	42,815	$	605

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 September 30, 2015, one available for sale state and municipal bond had an unrealized loss that did not exceed 1% of amortized cost. This security has 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 security.

At September 30, 2015, one available for sale Stock in other banks had an unrealized loss that did not exceed 12% 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 security.

At September 30, 2015, three held to maturity U.S. Government and agency securities had unrealized losses that individually did not exceed 1% of amortized cost. All of these securities have 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 September 30, 2015, thirteen held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 2% of amortized cost. All of these securities have 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 September 30, 2015, 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 September 30, 2015, 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	$	9,038	$	9,130	$	—	$	—
Over 1 year through 5 years	32,533		33,177		29,059		29,139
Over 5 years through 10 years	17,510		17,834		2,000		2,054
Over 10 years	666		671		—		—
Mortgage-backed securities, residential	44,333		46,103		42,448		42,876
CRA mutual fund	1,044		1,063		—		—
Stock in other banks	702		730		—		—
	$	105,826	$	108,708	$	73,507	$	74,069

The Corporation realized $158,000 gross gains and $0 gross losses on sales of securities available for sale during the three month period ended September 30, 2015. The Corporation realized gross gains of $259,000 and $0 in gross losses on sales of securities available for sale during the nine month period ended September 30, 2015. The Corporation realized $2,000 in gross gains and $0 in gross losses on sales of securities available for sale during the three month period ended September 30, 2014. The Corporation realized gross gains of $54,000 and $0 in gross losses on sales of securities available for sale during the nine month period ended September 30, 2014.

At September 30, 2015, and December 31, 2014, securities with a carrying value of $141,544,000 and $128,710,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.