Investment Securities

A summary of amortized cost and approximate fair value of investment securities available for sale follows:



	June 30, 2018
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. Government sponsored entities (“GSE”) and agencies	$	3,984	$	—	$	(64	)	$	3,920
Residential collateralized mortgage obligations - GSE	41,743		8		(942		)	40,809
Residential mortgage backed securities - GSE	15,877		38		(201		)	15,714
Obligations of state and political subdivisions	24,154		97		(384		)	23,867
Trust preferred debt securities - single issuer	1,489		—		(87		)	1,402
Corporate debt securities	28,374		22		(502		)	27,894
Other debt securities	16,539		28		(98		)	16,469
Total	$	132,160	$	193	$	(2,278	)	$	130,075



	December 31, 2017
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. Government sponsored entities (“GSE”) and agencies	$	1,997	$	—	$	(30	)	$	1,967
Residential collateralized mortgage obligations - GSE	27,688		18		(381		)	27,325
Residential mortgage backed securities - GSE	14,231		129		(72		)	14,288
Obligations of state and political subdivisions	19,575		227		(82		)	19,720
Trust preferred debt securities - single issuer	2,481		—		(132		)	2,349
Corporate debt securities	27,917		14		(248		)	27,683
Other debt securities	12,140		12		(26		)	12,126
Total	$	106,029	$	400	$	(971	)	$	105,458

A summary of amortized cost, carrying value and approximate fair value of investment securities held to maturity follows:



	June 30, 2018
(Dollars in thousands)	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. treasury securities and obligations of U.S. government-sponsored entities (“GSE”) and agencies	$	3,021	$	—		$	3,021	$	—	$	(93	)	$	2,928
Residential collateralized mortgage obligations - GSE	7,615		—			7,615		17		(194		)	7,438
Residential mortgage backed securities - GSE	33,247		—			33,247		87		(686		)	32,648
Obligations of state and political subdivisions	51,046		—			51,046		784		(133		)	51,697
Trust preferred debt securities - pooled	657		(501		)	156		566		—			722
Other debt securities	237		—			237		—		—			237
Total	$	95,823	$	(501	)	$	95,322	$	1,454	$	(1,106	)	$	95,670



	December 31, 2017
(Dollars in thousands)	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. treasury securities and obligations of U.S. government-sponsored entities (“GSE”) and agencies	$	3,234	$	—		$	3,234	$	—	$	(84	)	$	3,150
Residential collateralized mortgage obligations - GSE	8,701		—			8,701		94		(123		)	8,672
Residential mortgage backed securities - GSE	34,072		—			34,072		231		(127		)	34,176
Obligations of state and political subdivisions	63,797		—			63,797		1,224		(35		)	64,986
Trust preferred debt securities - pooled	657		(501		)	156		418		—			574
Other debt securities	307		—			307		—		—			307
Total	$	110,768	$	(501	)	$	110,267	$	1,967	$	(369	)	$	111,865

At June 30, 2018 and December 31, 2017, $118.4 million and $98.4 million of investment securities, respectively, were pledged to secure public funds and collateralized borrowings from the FHLB and for other purposes required or permitted by law.

Restricted stock was included in other assets at June 30, 2018 and December 31, 2017 and totaled $6.1 million and $1.6 million, respectively. Restricted stock consisted of $6.0 million of Federal Home Loan Bank of New York stock and $135,000 of Atlantic Community Bankers Bank stock at June 30, 2018 and $1.5 million of Federal Home Loan Bank of New York stock and $65,000 of Atlantic Community Bankers Bank stock at December 31, 2017.

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company’s investment portfolio as of June 30, 2018. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	June 30, 2018
(Dollars in thousands)	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	3,667	$	3,665	2.04	%
Due after one year through five years	32,156		31,753		2.70	%
Due after five years through ten years	28,267		27,873		2.93	%
Due after ten years	68,070		66,784		2.78	%
Total	$	132,160	$	130,075	2.77	%

	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	19,267	$	19,312	2.35	%
Due after one year through five years	16,540		16,974		3.99	%
Due after five years through ten years	21,110		21,035		3.04	%
Due after ten years	38,405		38,349		3.06	%
Total	$	95,322	$	95,670	3.07	%

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2018 and December 31, 2017 were as follows:



	June 30, 2018
		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government sponsored entities (GSE) and agencies	5	$	3,920	$	(64	)	$	2,928	$	(93	)	$	6,848	$	(157	)
Residential collateralized mortgage obligations - GSE	29	37,358		(686		)	7,891		(450		)	$	45,249	$	(1,136	)
Residential mortgage backed securities - GSE	50	37,000		(715		)	4,046		(172		)	$	41,046	$	(887	)
Obligations of state and political subdivisions	69	22,187		(472		)	2,532		(45		)	$	24,719	$	(517	)
Trust preferred debt securities - single issuer	2	—		—			1,402		(87		)	$	1,402	$	(87	)
Corporate debt securities	7	14,273		(268		)	7,546		(234		)	$	21,819	$	(502	)
Other debt securities	9	11,016		(97		)	15		(1		)	$	11,031	$	(98	)
Total temporarily impaired securities	171	$	125,754	$	(2,302	)	$	26,360	$	(1,082	)	$	152,114	$	(3,384	)



	December 31, 2017
		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government sponsored corporations (GSE) and agencies	2	$	1,967	$	(30	)	$	3,150	$	(84	)	$	5,117	$	(114	)
Residential collateralized mortgage obligations - GSE	11	19,237		(205		)	8,788		(299		)	$	28,025	$	(504	)
Residential mortgage backed securities - GSE	35	21,770		(141		)	3,074		(58		)	$	24,844	$	(199	)
Obligations of state and political subdivisions	42	11,594		(82		)	2,717		(35		)	$	14,311	$	(117	)
Trust preferred debt securities - single issuer	4	—		—			2,349		(132		)	$	2,349	$	(132	)
Corporate debt securities	7	11,967		(98		)	7,662		(150		)	$	19,629	$	(248	)
Other debt securities	4	8,840		(25		)	21		(1		)	$	8,861	$	(26	)
Total temporarily impaired securities	105	$	75,375	$	(581	)	$	27,761	$	(759	)	$	103,136	$	(1,340	)

U.S. Treasury securities and obligations of U.S. Government sponsored entities and agencies: The unrealized losses on investments in these securities were caused by increases in market interest rates. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuers, which are primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Obligations of state and political subdivisions: The unrealized losses on investments in these securities were caused by increases in market interest rates. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities: The unrealized losses on investments in corporate debt securities were caused by increases in market interest rates. None of the corporate issuers have defaulted on interest payments. The decline in fair value is attributable to changes in interest rates and not a decline in credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – single issuer: The investments in these securities with unrealized losses are comprised of two corporate trust preferred securities issued by one large financial institution that mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities. The issuer maintains an investment grade credit rating and has not defaulted on interest payments. The decline in fair value is attributable to the widening of interest rate and credit spreads and the lack of an active trading market for these securities. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled: This trust preferred debt security was issued by a two-issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)) consisting primarily of debt securities issued by financial institution holding companies. During 2009, the Company recognized an other-than-temporary impairment of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss recognized in the income statement for this security was the discounted present value of projected cash flow where that present value of cash flow was less than the amortized cost basis of the security. The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates the security to determine if any additional other-than-temporary impairment is required. As of June 30, 2018, the security was in an unrealized gain position.