Securities

The following tables provide the amortized costs and fair values for the categories of available-for-sale securities and held-to-maturity securities at December 31, 2017 and 2016. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at estimated fair value with net unrealized gains or losses reported on an after tax basis as a component of accumulated other comprehensive income in shareholders’ equity. The estimated fair value of available-for-sale securities is impacted by interest rates, credit spreads, market volatility, and liquidity.



	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
	(In Thousands)
Available-for-sale:
U.S. Treasury notes	$	50	$	—	$	—		$	50
U.S. Government agencies	5,086		—		(21		)	5,065
Mortgage backed securities	263,004		66		(2,615		)	260,455
Corporate bonds	4,486		5		(9		)	4,482
Asset Backed Securities	34,092		19		(511		)	33,600
Certificates of deposit	1,976		5		—			1,981
Municipals	100,081		1,586		(1,233		)	100,434
CRA Mutual fund	1,500		—		(121		)	1,379
	$	410,275	$	1,681	$	(4,510	)	$	407,446

Held-to-maturity:
U.S. Government agencies	$	5,000	$	9	$	—		$	5,009
Municipals	10,721		675		(26		)	11,370
	$	15,721	$	684	$	(26	)	$	16,379



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
	(In Thousands)
Available-for-sale:
U.S. Government agencies	$	5,106	$	—	$	(112	)	$	4,994
Mortgage backed securities	120,794		177		(1,164		)	119,807
Corporate bonds	8,631		35		—			8,666
Asset Backed Securities	13,105		17		(258		)	12,864
Certificates of deposit	1,976		33		—			2,009
Municipals	45,392		172		(1,205		)	44,359
CRA Mutual fund	1,500		—		(109		)	1,391
	$	196,504	$	434	$	(2,848	)	$	194,090

Held-to-maturity:
U.S. Government agencies	$	5,000	$	46	$	—		$	5,046
Municipals	4,200		66		(19		)	4,247
	$	9,200	$	112	$	(19	)	$	9,293

The amortized cost and estimated fair value of securities as of December 31, 2017 by contractual maturities are shown below. Actual maturities may differ from contractual maturities because the securities may be called or prepaid without any penalties.



	December 31, 2017
	Amortized Cost		Estimated Fair Value
	(In Thousands)
Available-for-sale:
US Treasury and Agencies:
Due in one year or less	$	50	$	50
Due after one through five years	5,086		5,066
Municipals - nontaxable:
Due in one year or less	723		729
Due after one through five years	7,587		7,482
Due after five through ten years	8,784		8,758
Due after ten through fifteen years	29,641		30,146
Due after fifteen years	53,346		53,318
Asset Backed Securities:
Due after five through ten years	3,064		3,079
Due after ten through fifteen years	11,557		11,410
Due after fifteen years	19,471		19,111
Certificates of deposit:
Due after one through five years	1,976		1,981
Corporate bonds:
Due after one through five years	4,486		4,482
Mortgage backed securities:
Due after one through five years	60,082		59,911
Due after five through ten years	90,107		89,165
Due after ten through fifteen years	4,424		4,314
Due after fifteen years	108,391		107,065

CRA Mutual fund	1,500		1,379
	$	410,275	$	407,446

Held-to-maturity:
US Treasury and Agencies:
Due in one year or less	$	5,000	$	5,009
Municipals:
Due after one through five years	1,985		2,004
Due after five through ten years	1,606		1,639
Due after ten through fifteen years	552		529
Due after fifteen years	6,578		7,198
	$	15,721	$	16,379

The estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes amounted to $351.8 million and $178.7 million at December 31, 2017 and 2016, respectively.

Restricted Stock

The Corporation’s restricted stock consists of FHLB stock and FRB stock. The costs of the restricted stock as of December 31, 2017 and 2016 are as follows:



	December 31, 2017		December 31, 2016
	(In Thousands)
Restricted Stock:

FRB stock	$	8,407	$	999

FHLB stock	8,165		9,093
	$	16,572	$	10,092

Investment securities available-for-sale and held-to-maturity that had an unrealized loss position at December 31, 2017 and December 31, 2016 are detailed below.



	Securities in a loss Position for less than 12 Months				Securities in a loss Position for 12 Months or Longer				Total
December 31, 2017	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:

Mortgage backed securities	$	193,844	$	1,531	$	43,190	$	1,084	$	237,034	$	2,615
U.S. Government agencies	5,066		21		—		—		5,066		21
Municipals	15,096		693		15,031		540		30,127		1,233
Corporate bonds	2,630		9		—		—		2,630		9
Asset backed securities	13,299		200		8,945		311		22,244		511
CRA Mutual fund	—		—		1,379		121		1,379		121
Total	$	229,935	$	2,454	$	68,545	$	2,056	$	298,480	$	4,510

Investment securities held-to-maturity:

Municipals	$	1,043	$	3	$	529	$	23	$	1,572	$	26
Total	$	1,043	$	3	$	529	$	23	$	1,572	$	26



	Securities in a loss Position for less than 12 Months					Securities in a loss Position for 12 Months or Longer					Total
December 31, 2016	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:

Mortgage backed securities	$	62,145	$	(541	)	$	19,768	$	(623	)	$	81,913	$	(1,164	)
U.S. Government agencies	4,994		(112		)	—		—			4,994		(112		)
Municipals	28,147		(1,205		)	—		—			28,147		(1,205		)
Asset backed securities	1,286		(37		)	7,077		(221		)	8,363		(258		)
CRA Mutual fund	—		—			1,391		(109		)	1,391		(109		)
Total	$	96,572	$	(1,895	)	$	28,236	$	(953	)	$	124,808	$	(2,848	)

Investment securities held-to-maturity:

Municipals	$	536	$	(19	)	$	—	$	—		$	536	$	(19	)
Total	$	536	$	(19	)	$	—	$	—		$	536	$	(19	)

The Corporation evaluates securities for other than temporary impairment (“OTTI”) on a quarterly basis and more frequently when economic or market conditions warrant such evaluation. Consideration is given to various factors in determining whether the Corporation anticipates a recovery in fair value such as: the length of time and extent to which the fair value has been less than cost, and the financial condition and underlying credit quality of the issuer. When analyzing an issuer’s financial condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, the sector or industry trends affecting the issuer, and whether any recent downgrades by bond rating agencies have occurred.

Mortgage-backed

The Corporation’s unrealized losses on available-for-sale mortgage backed securities were caused by interest rate fluctuations. At December 31, 2017, fifty-nine securities had unrealized losses of $2.6 million. All fifty-nine securities are backed by the United States Government or a Government Sponsored Entity. The Corporation’s intent is to hold these securities until a market price recovery or maturity, and it has been determined that it is more likely than not that the Corporation will not be required to sell these securities before their anticipated recovery. As such, the Corporation does not consider these investments other than temporarily impaired.

US Government agencies

The Corporation’s unrealized loss on its U.S. Government Agency obligation was caused by interest rate fluctuations. On December 31, 2017, one available for sale security had an unrealized loss of $21 thousand. The severity and duration of this unrealized loss will fluctuate with interest rates in the economy. Based on the credit quality of the agency, the Corporation’s intent to hold this security until a market price recovery or maturity, and the determination that it is more likely than not that the Corporation will not be required to sell the security before its anticipated recovery, the Corporation does not consider this investment other than temporarily impaired.

Asset backed securities

The Corporation’s unrealized losses on its other investments were caused by interest rate fluctuations. At December 31, 2017, thirteen securities had unrealized losses of $511 thousand. Based on the credit quality of the issuers, the Corporation’s intent to hold these securities until a market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell the securities before their anticipated recoveries, the Corporation does not consider these investments other than temporarily impaired.

Municipals

The Corporation’s unrealized losses on its municipal investments were caused by interest rate fluctuations. At December 31, 2017, two held-to-maturity municipal had an unrealized loss of $26 thousand while twenty-seven available-for-sale municipals had unrealized losses of $1.2 million. Based on the credit quality of the issuers, the Corporation’s intent to hold these securities until a market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell the securities before their anticipated recovery, the Corporation does not consider these investments other than temporarily impaired.

Corporate bonds

The Corporation’s unrealized losses on its corporate bonds were caused by interest rate fluctuations. At December 31, 2017, one security had an unrealized loss of $9 thousand. Based on the credit quality of the issuer, the Corporation’s intent to hold this security until a market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell the security before its anticipated recovery, the Corporation does not consider this investment other than temporarily impaired.

Mutual fund

The Corporation’s unrealized loss on its CRA mutual fund investment was caused by interest rate fluctuations. At December 31, 2017, one security had an unrealized loss of $121 thousand. Based on the credit quality of the issuer, the Corporation’s intent to hold this security until a market price recovery, and the determination that it is more likely than not that the Corporation will not be required to sell the security before its anticipated recovery, the Corporation does not consider this investment other than temporarily impaired.

Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Corporation’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Corporation does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). The collateral is held by a third-party financial institution in the Corporation’s custodial account. The Corporation has the right to sell or repledge the investment securities. The risks and rewards associated with the investment securities pledged as collateral (e.g. a decline or rise in the fair value of the investments) remains with the Corporation. As of December 31, 2017 and 2016, the obligations outstanding under these repurchase agreements totaled $51.1 million and $17.0 million, respectively, and were comprised of overnight sweep accounts. The fair value of the securities pledged in connection with these repurchase agreements at December 31, 2017 was $63.3 million in total and consisted of $11.6 million in municipal securities, $47.4 million in mortgage-backed securities, $1.7 million in corporate bonds, $1.2 million in asset-backed securities, and $1.4 million in CRA mutual funds. The fair value of the securities pledged in connection with these repurchase agreements at December 31, 2016 was $21.4 million in total and consisted of $4.7 million in municipal securities, $6.9 million in mortgage backed securities, $5.9 million in corporate bonds, and $2.5 million in asset-backed securities.