SECURITIES:

The fair value of securities available-for-sale and related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:



	December 31, 2019
	Amortized		Unrealized
(Dollar amounts in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government entity mortgage-backed securities	$	102,490	$	1,293	$	(150	)	$	103,633
Mortgage-backed securities, residential	240,753		2,979		(350		)	243,382
Mortgage-backed securities, commercial	22,036		73		(5		)	22,104
Collateralized mortgage obligations	280,797		1,735		(1,221		)	281,311
State and municipal obligations	253,277		11,265		(108		)	264,434
Municipal taxable	728		2		—			730
U.S. Treasury	7,494		10		—			7,504
Collateralized debt obligations	—		3,619		—			3,619
TOTAL	$	907,575	$	20,976	$	(1,834	)	$	926,717



	December 31, 2018
	Amortized		Unrealized
(Dollar amounts in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government entity mortgage-backed securities	$	25,617	$	218	$	(471	)	$	25,364
Mortgage-backed securities, residential	182,050		723		(4,030		)	178,743
Collateralized mortgage obligations	352,823		217		(9,424		)	343,616
State and municipal obligations	232,457		2,767		(1,289		)	233,935
Collateralized debt obligations	137		3,121		—			3,258
TOTAL	$	793,084	$	7,046	$	(15,214	)	$	784,916

As of December 31, 2019, the Corporation does not have any securities from any issuer, other than the U.S. Government, with an aggregate book or fair value that exceeds ten percent of shareholders' equity.

Securities with a carrying value of approximately $596.2 million and $393.3 million at December 31, 2019 and 2018, respectively, were pledged as collateral for short-term borrowings and for other purposes.

Below is a summary of the gross gains and losses realized by the Corporation on investment sales and calls during the years ended December 31, 2019, 2018 and 2017, respectively.



(Dollar amounts in thousands)	2019			2018			2017
Proceeds	$	11,210		$	2,418		$	15,348
Gross gains	55			5			185
Gross losses	(11		)	(3		)	(126		)

Gains of $55 thousand and losses of $11 thousand in 2019 and gains of $5 thousand and losses of $3 thousand in 2018 and gains of $185 thousand and losses of $126 thousand in 2017 resulted from redemption premiums on called and sold securities.

Contractual maturities of debt securities at year-end 2019 were as follows. Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and collateralized mortgage obligations, are shown separately.



	Available-for-Sale
	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	13,911	$	13,949
Due after one but within five years	60,624		61,502
Due after five but within ten years	61,255		63,193
Due after ten years	228,199		241,276
	363,989		379,920
Mortgage-backed securities and collateralized mortgage obligations	543,586		546,797
TOTAL	$	907,575	$	926,717

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 December 31, 2019 and 2018.



	December 31, 2019
	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 entity mortgage-backed securities	$	29,183	$	(150	)	—		—			$	29,183	$	(150	)
Mortgage-backed securities, residential	55,665		(243		)	18,724		(107		)	74,389		(350		)
Mortgage-backed securities, commercial	4,391		(5		)	—		—			4,391		(5		)
Collateralized mortgage obligations	33,398		(314		)	61,781		(907		)	95,179		(1,221		)
State and municipal obligations	8,996		(61		)	461		(47		)	9,457		(108		)
Total temporarily impaired securities	$	131,633	$	(773	)	$	80,966	$	(1,061	)	$	212,599	$	(1,834	)



	December 31, 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 entity mortgage-backed securities	$	3,052	$	(4	)	$	11,356	$	(467	)	$	14,408	$	(471	)
Mortgage-backed securities, residential	39,997		(553		)	111,423		(3,477		)	151,420		(4,030		)
Collateralized mortgage obligations	52,838		(455		)	241,373		(8,969		)	294,211		(9,424		)
State and municipal obligations	34,229		(276		)	41,742		(1,013		)	75,971		(1,289		)
Total temporarily impaired securities	$	130,116	$	(1,288	)	$	405,894	$	(13,926	)	$	536,010	$	(15,214	)

The Corporation held 97 investment securities with an amortized cost greater than fair value as of December 31, 2019. The unrealized losses on collateralized mortgage obligations, all mortgage-backed securities and state and municipal obligations represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the issuer. Gross unrealized losses on investment securities were $1.8 million as of December 31, 2019 and $15.2 million as of December 31, 2018. Management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery. Management believes the value will recover as the securities approach maturity or market rates change.

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.

In determining OTTI under the FASB ASC-320 model, management considers many factors, including: (1)the length of time and the extent to which the fair value has been less than cost, (2)the financial condition and near-term prospects of the issuer, (3) whether the fair value decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

The second segment of the portfolio uses the OTTI guidance provided by FASB ASC-325 that is specific to purchase beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC-325 model, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

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.

In prior years, a significant portion of the total unrealized losses relates to collateralized debt obligations that were separately evaluated under FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets. Based upon qualitative considerations, such as a downgrade in credit rating or further defaults of underlying issuers during the year, and an analysis of expected cash flows, we determined that three CDOs included in collateralized debt obligations were other-than-temporarily impaired. One of the CDO's was called in first quarter 2017. A second was called in second quarter 2018. The remaining CDO has a contractual balance of $3.7 million at December 31, 2019 which has been reduced to $3.6 million by $750 thousand of interest payments received, $3.0 million of cumulative OTTI charges recorded through earnings to date and increased by $3.6 million recorded in other comprehensive income. These securities are collateralized by trust preferred securities issued primarily by bank holding companies, but certain pools do include a limited number of insurance companies. The Corporation uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to determine if there are adverse changes in cash flows during the year. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. Cash flows are projected using a forward rate LIBOR curve, as these CDOs are variable-rate instruments. An average rate is then computed using this same forward rate curve to determine an appropriate discount rate (3 month LIBOR plus margin ranging from 160 to 180 basis points). The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information, including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and treat all interest payment deferrals as defaults. In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class. In the current year management determined there was no OTTI. There was no OTTI recorded in 2019 or 2018.

Collateralized debt obligations include one additional investment in a CDO consisting of pooled trust preferred securities in which the issuers are primarily banks. This CDO was paid in full in 2015. In the first quarter of 2017 a CDO with no remaining book value was called with the bank receiving $3.1 million, which is included in other non-interest income on the consolidated statements of income and comprehensive income. In the second quarter of 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.

The table below presents a rollforward of the credit losses recognized in earnings for the years presented:



(Dollar amounts in thousands)	2019		2018			2017
Beginning balance, January 1,	$	2,974	$	7,132		$	13,974
Reductions for securities called during the period	—		(4,158		)	(6,842		)
Ending balance, December 31,	$	2,974	$	2,974		$	7,132