Note 3-Securities

A summary of securities available-for-sale at September 30, 2016 and December 31, 2015 is provided below. The securities available-for-sale portfolio is generally comprised of high quality debt instruments, principally obligations of the United States government or agencies thereof and investments in the obligations of states and municipalities. The majority of municipal bonds in the portfolio are general obligation bonds, which can draw upon multiple sources of revenue, including taxes, for payment. Only a few bonds are revenue bonds, which are dependent upon a single revenue stream for payment, but they are for critical services such as water and sewer. In many cases, municipal debt issues are insured or, in the case of school districts of selected states, backed by specific loss reserves. At September 30, 2016, the fair value of the municipal bond portfolio was concentrated in the state of Pennsylvania at 71 percent.



		Amortized		Gross Unrealized				Fair
(dollars in thousands)		Cost		Gains		Losses		Value
September 30, 2016
Debt securities:
U.S. Treasury notes	$	9,960	$	25	$	(48)	$	9,937
U.S. agency		21,054		10		(32)	$	21,032
U.S. agency mortgage-backed, residential		97,368		2,785		0		100,153
State and municipal		68,181		1,077		(7)		69,251
Total debt securities	$	196,563	$	3,897	$	(87)	$	200,373
December 31, 2015
Debt securities:
U.S. agency	$	17,554	$	0	$	(140)	$	17,414
U.S. agency mortgage-backed, residential		119,266		1,472		(157)		120,581
State and municipal		74,573		937		(35)		75,475
Total debt securities	$	211,393	$	2,409	$	(332)	$	213,470

The amortized cost and estimated fair value of debt securities at September 30, 2016 by contractual maturity are shown below. Actual maturities may differ from contractual maturities if call options on select debt issues are exercised in the future. Mortgage-backed securities are included in the maturity categories based on average expected life.



		Available-for-sale
		Amortized		Fair
(dollars in thousands)		Cost		Value
Due in one year or less	$	19,341	$	19,412
Due after one year through five years		126,514		129,658
Due after five years through ten years		44,364		44,749
Due after ten years		6,344		6,554
Total debt securities	$	196,563	$	200,373

Gross realized gains and losses on sales of securities available-for-sale are shown below. Realized gains and losses are computed on the basis of specific identification of the adjusted cost of each security and are shown net as a separate line item in the income statement.



		Three months ended				Nine months ended
		September 30,				September 30,
(dollars in thousands)		2016		2015		2016		2015
Realized gains	$	0	$	121	$	194	$	492
Realized losses		0		0		0		0
Net gains	$	0	$	121	$	194	$	492

Securities, issued by agencies of the federal government, with a carrying value of $162,501,000 and $186,097,000 on September 30, 2016 and December 31, 2015, respectively, were pledged to secure public and trust deposits, repurchase agreements and other short-term borrowings.

The table below shows gross unrealized losses and fair value, aggregated by investment category and length of time, for securities that have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015.



	Less than 12 months					12 months or more					Total
	Number of	Fair		Unrealized		Number of	Fair		Unrealized		Number of	Fair		Unrealized
(dollars in thousands)	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
September 30, 2016
Debt securities:
U.S. Treasury notes	1	$	4,952	$	(48)	0	$	0	$	0	1	$	4,952	$	(48)
U.S. agency	2		9,968		(32)	0		0		0	2		9,968	$	(32)
State and municipal	13		5,903		(4)	1		503		(3)	14		6,406	$	(7)
Total temporarily impaired debt
securities, available-for-sale	16	$	20,823	$	(84)	1	$	503	$	(3)	17	$	21,326	$	(87)
December 31, 2015
Debt securities:
U.S. agency	6	$	17,414	$	(140)	0	$	0	$	0	6	$	17,414	$	(140)
U.S. agency mortgage-backed, residential	8		18,991		(157)	0		0		0	8		18,991		(157)
State and municipal	27		11,272		(26)	4		1,886		(9)	31		13,158		(35)
Total temporarily impaired debt
securities, available-for-sale	41	$	47,677	$	(323)	4	$	1,886	$	(9)	45	$	49,563	$	(332)

Securities available-for-sale are analyzed quarterly for possible other-than-temporary impairment. The analysis considers, among other factors: 1) whether the Corporation has the intent to sell its securities prior to market recovery or maturity; 2) whether it is more likely than not that the Corporation will be required to sell its securities prior to market recovery or maturity; 3) default rates/history by security type; 4) third-party securities ratings; 5) third-party guarantees; 6) subordination; 7) payment delinquencies; 8) nature of the issuer; and 9) current financial news.

The Corporation believes that unrealized losses at September 30, 2016 were primarily the result of changes in market interest rates and that the Corporation has the ability to hold these investments for a time necessary to recover the amortized cost. Through September 30, 2016 the Corporation has collected all interest and principal on its investment securities as scheduled. The Corporation believes that collection of the contractual principal and interest is probable and, therefore, all impairment is considered to be temporary.