

	September 30, 2018
(Dollar amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Government agencies	$	13,042	$	2	$	(571	)	$	12,473
Mortgage Backed Securities - residential	189,999		798		(6,146		)	184,651
Collateralized mortgage obligations	368,486		26		(13,965		)	354,547
State and municipal obligations	231,565		1,764		(2,730		)	230,599
Collateralized debt obligations	179		3,244		—			3,423
TOTAL	$	803,271	$	5,834	$	(23,412	)	$	785,693



	December 31, 2017
(Dollar amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Government agencies	$	13,989	$	24	$	(318	)	$	13,695
Mortgage Backed Securities-residential	215,079		2,071		(1,812		)	215,338
Mortgage Backed Securities-commercial	1		—		—			1
Collateralized mortgage obligations	346,005		370		(6,705		)	339,670
State and municipal obligations	227,651		4,671		(700		)	231,622
Collateralized debt obligations	8,644		5,961		—			14,605
TOTAL	$	811,369	$	13,097	$	(9,535	)	$	814,931

Contractual maturities of debt securities at September 30, 2018 were as follows. Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and equity securities are shown separately.



	Available-for-Sale
	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	3,965	$	3,961
Due after one but within five years	32,844		33,151
Due after five but within ten years	74,009		74,647
Due after ten years	133,968		134,736
	244,786		246,495
Mortgage-backed securities and collateralized mortgage obligations	558,485		539,198
TOTAL	$	803,271	$	785,693

There were $3 thousand and $5 thousand in gross gains and no losses from investment sales/calls realized by the Corporation for the three and nine months ended September 30, 2018. For the three and nine months ended September 30, 2017 there were $27 thousand and $44 thousand in gross gains and no losses on sales of investment securities.

The following tables show the securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at September 30, 2018 and December 31, 2017.



	September 30, 2018
	Less Than 12 Months					More Than 12 Months					Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agencies	$	—	$	—		$	11,782	$	(571	)	$	11,782	$	(571	)
Mortgage Backed Securities - Residential	$	104,404	$	(3,323	)	$	52,106	$	(2,823	)	$	156,510	$	(6,146	)
Collateralized mortgage obligations	191,204		(4,317		)	158,396		(9,648		)	349,600		(13,965		)
State and municipal obligations	96,736		(1,627		)	21,574		(1,103		)	118,310		(2,730		)
Total temporarily impaired securities	$	392,344	$	(9,267	)	$	243,858	$	(14,145	)	$	636,202	$	(23,412	)



	December 31, 2017
	Less Than 12 Months					More Than 12 Months					Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
US Government entity mortgage-backed securities	$	9,321	$	(86	)	$	3,538	$	(232	)	$	12,859	$	(318	)
Mortgage Backed Securities - Residential	$	79,918	$	(425	)	$	53,815	$	(1,387	)	$	133,733	$	(1,812	)
Collateralized mortgage obligations	150,182		(1,418		)	146,750		(5,287		)	296,932		(6,705		)
State and municipal obligations	27,347		(183		)	18,660		(517		)	46,007		(700		)
Total temporarily impaired securities	$	266,768	$	(2,112	)	$	222,763	$	(7,423	)	$	489,531	$	(9,535	)

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Gross unrealized losses on investment securities were $23.4 million as of September 30, 2018 and $9.5 million as of December 31, 2017. A majority of these losses represent negative adjustments to market value relative to the interest rate environment reflecting the increase in market rates and not losses related to the creditworthiness of the issuer. Based upon our review of the issuers, we do not believe these investments to be other than temporarily impaired. Management does not intend to sell these securities and it is not more likely than not that we will be required to sell them before their anticipated recovery.

There were three collateralized debt obligations securities with previously recorded OTTI but there was no additional OTTI recorded in 2018 or 2017. During the quarter ended June 30, 2018, one of the obligations was called, resulting in the elimination of the OTTI associated with that obligation. A recovery of previously recorded OTTI of $4.2 million was received and recognized in non-interest income for the period. In addition the Corporation received $2.4 million of interest income associated with the call. During the quarter ended March 31, 2017, one of the obligations was partially called, resulting in the elimination of the OTTI associated with that obligation. A cash recovery of $3.1 million was received and recognized in non-interest income for the period as the book value of the security was previously written down to zero.

Management has consistently used Standard & Poors pricing to value these investments. There are a number of other pricing sources available to determine fair value for these investments. These sources utilize a variety of methods to determine fair value. The result is a wide range of estimates of fair value for these securities. The Standard & Poors pricing was 85.57 while Moody Investor Service pricing was 21.23, with others falling somewhere in between. We recognize that the Standard & Poors pricing utilized is an estimate, but have been consistent in using this source and its estimate of fair value.

The table below presents a rollforward of the credit losses recognized in earnings for the three and nine month periods ended September 30, 2018 and 2017:



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollar amounts in thousands)	2018		2017		2018			2017
Beginning balance	$	2,974	$	7,132	$	7,132		$	13,974
Increases to the amount related to the credit
Loss for which other-than-temporary was previously recognized	—		—		—			—
Reductions for increases in cash flows collected	—		—					—
Reductions for securities called during the period	—		—		(4,158		)	(6,842		)
Ending balance	$	2,974	$	7,132	$	2,974		$	7,132