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. Debt securities not classified as held to maturity or trading 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). As of January 1, 2018, equity securities with readily determinable fair values are recorded at fair value with changes in fair value recognized in net income. Prior to 2018, fair value changes were 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 June 30, 2019, and December 31, 2018, were as follows:



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

SECURITIES AVAILABLE FOR SALE

JUNE 30, 2019
U.S. Government and agencies	$	117,743	$	740	$	474	$	118,009
Mortgage-backed securities, residential	48,160		890		8		49,042
State and municipal	8,587		79		5		8,661
	$	174,490	$	1,709	$	487	$	175,712

DECEMBER 31, 2018
U.S. Government and agencies	$	120,420	$	142	$	2,149	$	118,413
Mortgage-backed securities, residential	33,960		194		343		33,811
State and municipal	9,482		60		36		9,506
	$	163,862	$	396	$	2,528	$	161,730

SECURITIES HELD TO MATURITY

JUNE 30, 2019
U.S. Government and agencies	$	7,000	$	6	$	12	$	6,994
Mortgage-backed securities, residential	17,722		69		13		17,778
	$	24,722	$	75	$	25	$	24,772
DECEMBER 31, 2018
U.S. Government and agencies	$	7,000	$	—	$	69	$	6,931
Mortgage-backed securities, residential	20,266		4		290		19,980
	$	27,266	$	4	$	359	$	26,911

The Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities effective January 1, 2018. The required fair value disclosures are as follows:



In thousands	Fair Value at January 1, 2019		Unrealized Gains		Unrealized Losses		Fair Value at June 30, 2019
JUNE 30, 2019
CRA Mutual Fund	$	1,012	$	30	$	—	$	1,042
Stock in other banks	827		132		—		959
	$	1,839	$	162	$	—	$	2,001



In thousands	Fair Value at January 1, 2018		Unrealized Gains		Unrealized Losses		Fair Value at June 30, 2018
JUNE 30, 2018
CRA Mutual Fund	$	1,044	$	—	$	32	$	1,012
Stock in other banks	749		22		16		755
	$	1,793	$	22	$	48	$	1,767



In thousands	Fair Value at January 1, 2018		Unrealized Gains		Unrealized Losses		Fair Value at December 31, 2018
DECEMBER 31, 2018
CRA Mutual Fund	$	1,044	$	—	$	32	$	1,012
Stock in other banks	749		247		169		827
	$	1,793	$	247	$	201	$	1,839

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 June 30, 2019, and December 31, 2018:



	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

JUNE 30, 2019
U.S. Government and agencies	$	—	$	—	$	64,265	$	474	$	64,265	$	474
Mortgage-backed securities, residential	—		—		2,893		8		2,893		8
State and municipal	—		—		1,308		5		1,308		5
	$	—	$	—	$	68,466	$	487	$	68,466	$	487

DECEMBER 31, 2018
U.S. Government and agencies	$	1,997	$	5	$	87,216	$	2,144	$	89,213	$	2,149
Mortgage-backed securities, residential	9,410		134		8,586		209		17,996		343
State and municipal	—		—		2,696		36		2,696		36
	$	11,407	$	139	$	98,498	$	2,389	$	109,905	$	2,528

SECURITIES HELD TO MATURITY

JUNE 30, 2019
U.S. Government and agencies	$	—	$	—	$	4,988	$	12	$	4,988	$	12
Mortgage-backed securities, residential	—		—		7,727		13		7,727		13
	$	—	$	—	$	12,715	$	25	$	12,715	$	25

DECEMBER 31, 2018
U.S. Government and agencies	$	2,975	$	25	$	3,956	$	44	$	6,931	$	69
Mortgage-backed securities, residential	5,408		59		12,636		231		18,044		290
	$	8,383	$	84	$	16,592	$	275	$	24,975	$	359

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 June 30, 2019, thirty-four available for sale U.S. Government and agency 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.

At June 30, 2019, five available for sale residential mortgage-backed 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 June 30, 2019, five available for sale state and municipal 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 June 30, 2019, four 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 June 30, 2019, fourteen held to maturity residential mortgage-backed 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.

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 June 30, 2019, 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 June 30, 2019, 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	$	9,613	$	9,603	$	5,000	$	4,988
Over 1 year through 5 years	116,518		116,866		2,000		2,006
Over 5 years through 10 years	199		201		—		—
Over 10 years	—		—		—		—
Mortgage-backed securities, residential	48,160		49,042		17,722		17,778
	$	174,490	$	175,712	$	24,722	$	24,772

The Corporation did not sell any securities available for sale during the first six months of 2019. The Corporation realized $12,500 gross gains on sales of securities available for sale during the three and six month periods ended June 30, 2018.

At June 30, 2019, and December 31, 2018, securities with a carrying value of $138,082,000 and $165,792,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.