CHFC 2017 Annual Report

Maturity as of December 31, 2016 (1) Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Total Carrying Value (2) Total Fair Value (Dollars in thousands) Amount Yield (3) Amount Yield (3) Amount Yield (3) Amount Yield (3) Amount Yield (3) Available-for-Sale: U.S. Treasury securities $ 5,793 0.95% $ — —% $ — —% $ — —% $ 5,793 0.95% $ 5,793 Government sponsored agencies 71,233 1.11 82,888 1.43 56,363 1.78 4,527 1.85 215,011 1.42 215,011 State and political subdivisions 9,438 2.53 70,435 2.11 116,239 2.39 103,976 2.94 300,088 2.52 300,088 Residential mortgage- backed securities 54,204 1.55 143,937 1.60 48,400 2.08 25,741 2.31 272,282 1.74 272,282 Collateralized mortgage obligations 87,400 2.04 135,646 2.26 79,496 2.42 17,483 2.58 320,025 2.26 320,025 Corporate bonds 7,778 1.47 52,315 1.85 29,381 3.66 — — 89,474 2.41 89,474 Preferred stock and trust preferred securities — — — — — — 32,291 2.95 32,291 2.95 32,291 Total investment securities available-for-sale 235,846 1.62 485,221 1.86 329,879 2.36 184,018 2.79 1,234,964 2.09 1,234,964 Held-to-Maturity: State and political subdivisions 66,090 2.18 262,136 2.74 145,225 3.90 149,476 3.13 622,927 3.04 608,221 Trust preferred securities — — — — — — 500 4.00 500 4.00 310 Total investment securities held-to-maturity 66,090 2.18 262,136 2.74 145,225 3.90 149,976 3.13 623,427 3.05 608,531 Total investment securities $ 301,936 1.74% $ 747,357 2.17% $ 475,104 2.83% $ 333,994 2.95% $1,858,391 2.41% $1,843,495 (1) Residential mortgage-backed securities, collateralized mortgage obligations and certain government sponsored agencies are based on scheduled principal maturity. All other investment securities are based on final contractual maturity. (2) The aggregate book value of securities issued by any single issuer, other than the U.S. government and government sponsored agencies, did not exceed 10% of our shareholders' equity. (3) Yields are weighted by amount and time to contractual maturity, are on a taxable equivalent basis using a 35% federal income tax rate and are based on carrying value. Yields disclosed are actual yields based on carrying value at December 31, 2016. Approximately 10% of our investment securities at December 31, 2016 were variable-rate financial instruments. We utilize third-party pricing services to obtain market value prices for our investment securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from the third-party pricing services through independent price verification on a sample of investment securities in the portfolio, data integrity validation based upon comparison of current market prices to prior period market prices and analysis of overall expectations of movement in market prices based upon the changes in the related yield curves and other market factors. On an annual basis, we review the pricing methodology of the third-party pricing vendors and the results of the vendors' internal control assessments to ensure the integrity of the process that the vendor uses to develop market pricing for our investment securities portfolio. The carrying value of our investment securities totaled $2.64 billion at December 31, 2017, an increase of $782.2 million or 42.1%, compared to $1.86 billion at December 31, 2016. The increase is primarily due to management's decision to increase the size of the portfolio, which was funded in part by an increase in deposits and borrowings. Late in the fourth quarter of 2017, we sold approximately $400 million of investment securities at a loss of $7.6 million following the signing of the Tax Cuts and Jobs Act as part of our treasury and tax management objectives. Following the fourth quarter of 2017 sales, but prior to December 31, 2017, we had reinvested approximately $250 million of the proceeds from the sales. In connection with management's decision to increase the size of our investment securities portfolio during the year ended December 31, 2017, management decided to lessen its overall exposure to obligations of state and political subdivisions while increasing our positioning to amortizing mortgage related securities primarily in the form of collateralized mortgage obligations. While the carrying value of state and political subdivisions grew by $99.5 million to a total of $1.02 billion at December 31, 2017, compared to $923.0 million at December 31, 2016, the percentage of our total investments portfolio was reduced to 38.7% at December 31, 2017, compared to 49.7% at December 31, 2016. In comparison, the carrying value of collateralized mortgage obligations totaled $1.03 billion at December 31, 2017, an increase of $713.8 million, compared to $320.0 million at December 31, 2016, with growth focused primarily in mortgage related securities. Our investment securities portfolio as of December 31, 2017 had a weighted average life of approximately 5.1 years and an effective duration of approximately 2.7 years. 47