Investment Securities

The following tables set forth investment securities available-for-sale and held-to-maturity at the dates indicated:



	At September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
Debt securities:
GSE debentures	$	64,713	$	1,639	$	13	$	66,339
GSE CMOs	172,606		683		484		172,805
GSE MBSs	229,040		4,410		27		233,423
SBA commercial loan asset-backed securities	112		—		1		111
Corporate debt obligations	48,306		1,014		16		49,304
Trust preferred securities	1,468		—		155		1,313
Total debt securities	516,245		7,746		696		523,295
Marketable equity securities	964		36		—		1,000
Total investment securities available-for-sale	$	517,209	$	7,782	$	696	$	524,295
Investment securities held-to-maturity:
GSE debentures	$	14,734	$	3	$	32	$	14,705
GSEs MBSs	18,710		48		6		18,752
Municipal obligations	43,150		986		5		44,131
Foreign government obligations	500		—		9		491
Total investment securities held-to-maturity	$	77,094	$	1,037	$	52	$	78,079



	At December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
Debt securities:
GSE debentures	$	40,658	$	141	$	172	$	40,627
GSE CMOs	198,000		45		4,229		193,816
GSE MBSs	230,213		1,098		1,430		229,881
SBA commercial loan asset-backed securities	148		—		1		147
Corporate debt obligations	46,160		344		18		46,486
Trust preferred securities	1,466		—		199		1,267
Total debt securities	516,645		1,628		6,049		512,224
Marketable equity securities	956		21		—		977
Total investment securities available-for-sale	$	517,601	$	1,649	$	6,049	$	513,201
Investment securities held-to-maturity:
GSE debentures	$	34,915	$	9	$	105	$	34,819
GSEs MBSs	19,291		—		305		18,986
Municipal obligations	39,051		364		25		39,390
Foreign government obligations	500		—		—		500
Total investment securities held-to-maturity	$	93,757	$	373	$	435	$	93,695

At September 30, 2016, the fair value of all investment securities available-for-sale was $524.3 million, with a net unrealized gain of $7.1 million, compared to a fair value of $513.2 million and net unrealized losses of $4.4 million at December 31, 2015. At September 30, 2016, $78.1 million, or 14.9% of the portfolio, had gross unrealized losses of $0.7 million, compared to $368.1 million, or 71.7%, with gross unrealized losses of $6.0 million at December 31, 2015.

At September 30, 2016, the fair value of all investment securities held-to-maturity was $78.1 million, with net unrealized gains of $1.0 million, compared to a fair value of $93.7 million with net unrealized losses of $62.0 thousand at December 31, 2015. At September 30, 2016, $19.1 million, or 24.5% of the portfolio, had gross unrealized losses of $52.0 thousand, compared to $52.3 million, or 55.8% with gross unrealized losses of $0.4 million at December 31, 2015.

Investment Securities as Collateral

At September 30, 2016 and December 31, 2015, respectively, $443.5 million and $486.4 million of investment securities were pledged as collateral for repurchase agreements, municipal deposits, treasury, tax, and loan deposits; swap agreements, and FHLBB borrowings. The decrease in investment securities pledged as collateral was primarily due to a decrease in municipal deposits which require collateral.

Other-Than-Temporary Impairment (“OTTI”)

Investment securities at September 30, 2016 and December 31, 2015 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:



	At September 30, 2016
	Less than Twelve Months				Twelve Months or Longer				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	6,126	$	13	$	—	$	—	$	6,126	$	13
GSE CMOs	19,232		88		42,424		$	396	61,656		484
GSE MBSs	6,142		23		246		4		6,388		27
SBA commercial loan asset-backed securities	29		—		74		1		103		1
Corporate debt obligations	2,492		16		—		—		2,492		16
Trust preferred securities	—		—		1,313		155		1,313		155
Temporarily impaired debt securities available-for-sale	34,021		140		44,057		556		78,078		696
Investment securities held-to-maturity:
GSE debentures	11,702		32		—		—		11,702		32
GSEs MBSs	4,462		6		—		—		4,462		6
Municipal obligations	2,445		5		—		—		2,445		5
Foreign government obligations	491		9		—		—		491		9
Temporarily impaired debt securities held-to-maturity	19,100		52		—		—		19,100		52
Total temporarily impaired investment securities	$	53,121	$	192	$	44,057	$	556	$	97,178	$	748



	At December 31, 2015
	Less than Twelve Months				Twelve Months or Longer				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	19,633	$	172	$	—	$	—	$	19,633	$	172
GSE CMOs	89,680		1,294		100,473		2,935		190,153		4,229
GSE MBSs	133,779		845		16,968		585		150,747		1,430
SBA commercial loan asset-backed securities	—		—		139		1		139		1
Corporate debt obligations	6,181		18		—		—		6,181		18
Trust preferred securities	—		—		1,267		199		1,267		199
Temporarily impaired debt securities available-for-sale	249,273		2,329		118,847		3,720		368,120		6,049
Investment securities held-to-maturity:
GSE debentures	25,837		105		—		—		25,837		105
GSEs MBSs	18,834		305		—		—		18,834		305
Municipal obligations	7,629		25		—		—		7,629		25
Temporarily impaired debt securities held-to-maturity	52,300		435		—		—		52,300		435
Total temporarily impaired investment securities	$	301,573	$	2,764	$	118,847	$	3,720	$	420,420	$	6,484

The Company performs regular analysis on the investment securities portfolio to determine whether a decline in fair value indicates that an investment security is OTTI. In making these OTTI determinations, management considers, among other factors, the length of time and extent to which the fair value has been less than amortized cost; projected future cash flows; credit subordination and the creditworthiness; capital adequacy; and near-term prospects of the issuers.

Management also considers the Company’s capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a decline in fair value is OTTI and that it is more likely than not that the Company will not sell or be required to sell the investment security before recovery of its amortized cost, the credit portion of the impairment loss is recognized in the Company's unaudited consolidated statements of income and the noncredit portion is recognized in accumulated other comprehensive income. The credit portion of the OTTI impairment represents the difference between the amortized cost and the present value of the expected future cash flows of the investment security. If the Company determines that a decline in fair value is OTTI and it is more likely than not that it will sell or be required to sell the investment security before recovery of its amortized cost, the entire difference between the amortized cost and the fair value of the investment security will be recognized in the Company's unaudited consolidated statements of income.

Investment Securities Available-For-Sale Impairment Analysis

The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were OTTI at September 30, 2016. Based on the analysis below, it is more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not OTTI at September 30, 2016. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI in future periods.

U.S. Government-Sponsored Enterprises

The Company invests in securities issued by U.S. Government-sponsored enterprises (“GSEs”), including GSE debt securities, mortgage-backed securities (“MBSs”), and collateralized mortgage obligations (“CMOs”). GSE securities include obligations issued by the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the Government National Mortgage Association (“GNMA”), the Federal Home Loan Banks ("FHLB"), and the Federal Farm Credit Bank. At September 30, 2016, only GNMA MBSs and CMOs, and Small Business Administration (“SBA”) commercial loan asset-backed securities with an estimated fair value of $27.9 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $21.8 million at December 31, 2015.

At September 30, 2016, the Company held 21 GSE debentures with a total fair value of $66.3 million with a net unrealized gain of $1.6 million. At December 31, 2015, the Company held thirteen GSE debentures with a total fair value of $40.6 million, and a net unrealized loss of $31.0 thousand. At September 30, 2016, two of the twenty-one securities in this portfolio were in unrealized loss positions. At December 31, 2015, seven of the thirteen securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB / FNMA / FHLMC) or explicit (GNMA / SBA) guarantee of the U.S. Government. During the nine months ended September 30, 2016 and 2015, the Company purchased $32.3 million and $11.8 million of GSE debentures, respectively.

At September 30, 2016, the Company held 62 GSE CMOs with a total fair value of $172.8 million with a net unrealized gain of $0.2 million. At December 31, 2015, the Company held 63 GSE CMOs with a total fair value of $193.8 million with a net unrealized loss of $4.2 million. At September 30, 2016, 17 of the 62 securities in this portfolio were in unrealized loss positions, compared to 45 of the 63 securities at December 31, 2015. All securities are performing and backed by the implicit (FHLB / FNMA / FHLMC) or explicit (GNMA) guarantee of the U.S. Government. During the nine months ended September 30, 2016, the Company purchased $3.1 million in GSE CMOs. The Company did not make any purchases during the same period in 2015.

At September 30, 2016, the Company held 196 GSE MBSs with a total fair value of $233.4 million with a net unrealized gain of $4.4 million. At December 31, 2015, the Company held 186 GSE MBSs with a total fair value of $229.9 million with a net unrealized loss of $0.3 million. At September 30, 2016, 11 of the 196 securities in this portfolio were in unrealized loss positions, compared to 56 of the 186 securities at December 31, 2015. All securities are performing and backed by the implicit (FHLB / FNMA / FHLMC) or explicit (GNMA) guarantee of the U.S. Government. During the nine months ended September 30, 2016 and 2015, the Company purchased $36.7 million and $29.4 million in GSE MBSs, respectively.

SBA Commercial Loan Asset-Backed Securities

At September 30, 2016, the Company held six SBA securities with a total fair value of $0.1 million which approximated cost as compared to December 31, 2015, where the Company held seven SBA securities with a total fair value of $0.1 million, which approximated amortized cost. At September 30, 2016, five of the six securities in this portfolio were in unrealized loss positions and at December 31, 2015, six of the seven securities in this portfolio were in unrealized loss positions. All securities are performing and are backed by the explicit (SBA) guarantee of the U.S. Government.

Corporate Obligations

From time to time, the Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. At September 30, 2016, the Company held sixteen corporate obligation securities with a total fair value of $49.3 million and unrealized gains of $1.0 million. At December 31, 2015, the Company held fifteen corporate obligation securities with a total fair value of $46.5 million and a net unrealized gain of $0.3 million. At September 30, 2016, one of the sixteen securities in this portfolio was in an unrealized loss position. At December 31, 2015, two of the fifteen securities in this portfolio were in an unrealized loss position. Full collection of the obligation is expected because the financial condition of the issuer is sound, and the issuer has not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the nine months ended September 30, 2016 and 2015, the Company purchased $5.1 million and $9.3 million in corporate obligations, respectively.

Trust Preferred Securities

Trust preferred securities represent subordinated debt issued by financial institutions. At September 30, 2016, the Company owned two trust preferred securities with a total fair value of $1.3 million and an unrealized loss of $0.2 million. This compares to two trust preferred securities with a total fair value of $1.3 million and an unrealized loss of $0.2 million at December 31, 2015. At September 30, 2016 and December 31, 2015, both of the securities in this portfolio were in unrealized loss positions. Full collection of the obligations is expected because the financial condition of the issuers is sound, none of the issuers has defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost.

Marketable Equity Securities

At September 30, 2016 and December 31, 2015, the Company owned two marketable equity securities with a fair value of $1.0 million, and unrealized gains of $36.0 thousand and $21.0 thousand, respectively. At September 30, 2016 and December 31, 2015, neither of the securities in this portfolio was in an unrealized loss position.

Investment Securities Held-to-Maturity Impairment Analysis

The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s held-to-maturity portfolio were OTTI at September 30, 2016. Management does not intend to sell these securities prior to maturity.

U.S. Government-Sponsored Enterprises

The Company invests in securities issued by GSEs including GSE debentures and MBSs. GSE securities include obligations issued by FNMA, FHLMC, GNMA, FHLB, and the Federal Farm Credit Bank.

At September 30, 2016, the Company held six GSE debentures with a total fair value of $14.7 million, and a net unrealized loss of $29.0 thousand. At December 31, 2015, the Company held twelve GSE debentures with a total fair value of $34.8 million and a net unrealized loss of $96.0 thousand. At September 30, 2016, four of the six securities in this portfolio were in unrealized loss positions. At December 31, 2015, nine of the twelve securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S. Government. During the nine months ended September 30, 2016 and 2015, the Company purchased $17.7 million and $26.9 million of GSE debentures, respectively.

At September 30, 2016, the Company held eleven GSE MBSs with a total fair value of $18.8 million and a net unrealized gain of $42.0 thousand. At December 31, 2015, the Company held ten GSE MBSs with a total fair value of $19.0 million and an unrealized loss of $0.3 million. As of September 30, 2016, two of the eleven securities were in unrealized loss positions as compared to December 31, 2015, when seven of the ten securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the nine months ended September 30, 2016 and 2015, the Company purchased $2.4 million and $21.3 million of GSE MBSs, respectively.

Municipal Obligations

At September 30, 2016, the Company held 84 municipal obligation securities with a total fair value of $44.1 million and and a net unrealized gain of $1.0 million. At December 31, 2015, the Company held 72 municipal obligations with a total fair value of $39.4 million and a net unrealized gain of $0.3 million. As of September 30, 2016, six of the eighty-four securities in this portfolio were in unrealized loss positions as compared to December 31, 2015, where 15 of the 72 securities in this portfolio were in unrealized loss positions. During the nine months ended September 30, 2016 and 2015, the Company purchased $4.4 million and $20.3 million of municipal obligations, respectively.

Foreign Government Obligations

At September 30, 2016 and December 31, 2015, the Company owned one foreign government obligation security with a fair value and amortized cost of $0.5 million. As of September 30, 2016, the foreign government obligation security was in an unrealized loss position as compared to December 31, 2015, where the foreign government obligation security's fair value approximated amortized cost. During the nine months ended September 30, 2016, the Company repurchased one foreign government obligation security that had matured during the first quarter of 2016. The Company did not make any purchases during the same period in 2015.

Portfolio Maturities

The final stated maturities of the debt securities are as follows at the dates indicated:



	At September 30, 2016						At December 31, 2015
	Amortized Cost		Estimated Fair Value		Weighted Average Rate		Amortized Cost		Estimated Fair Value		Weighted Average Rate
	(Dollars in Thousands)
Investment securities available-for-sale:
Within 1 year	$	9	$	10	0.13	%	$	2,999	$	3,003	2.09	%
After 1 year through 5 years	60,818		62,136		2.25	%	59,729		60,249		2.32	%
After 5 years through 10 years	116,308		119,089		2.02	%	100,658		100,833		2.05	%
Over 10 years	339,110		342,060		1.95	%	353,259		348,139		1.97	%
	$	516,245	$	523,295	2.00	%	$	516,645	$	512,224	2.03	%
Investment securities held-to-maturity:
Within 1 year	$	159	$	159	1.73	%	$	651	$	651	1.00	%
After 1 year through 5 years	20,836		21,034		1.28	%	23,888		23,866		1.52	%
After 5 years through 10 years	37,548		38,293		1.79	%	50,078		50,344		2.00	%
Over 10 years	18,551		18,593		1.74	%	19,140		18,834		1.82	%
	$	77,094	$	78,079	1.64	%	$	93,757	$	93,695	1.83	%

Actual maturities of debt securities may differ from those presented above since certain obligations, particularly MBS and CMOs, amortize and provide the issuer the right to call or prepay the obligation prior to the scheduled final stated maturity without penalty.

At September 30, 2016, issuers of debt securities, excluding MBS and CMOs, with an estimated fair value of $28.9 million had the right to call or prepay the obligations. Of the $28.9 million, $3.1 million matures in 1 - 5 years, $24.5 million matures in 6 - 10 years, and $1.3 million mature after 10 years. At December 31, 2015, issuers of debt securities with an estimated fair value of $48.5 million had the right to call or prepay the obligations. Of the $48.5 million, $15.5 million matures in 1 - 5 years, $31.8 million matures in 6 - 10 years, and $1.2 million matures after ten years.

Investment Security Sales

Investment security transactions are recorded on the trade date. When investment securities are sold, the adjusted cost of the specific investment security sold is used to compute the gain or loss on the sale. There were no investment securities sold during both the three-month and nine-month periods ended September 30, 2016 and 2015.