Note 5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of the Company's investment securities classified as available-for-sale and held-to-maturity at September 30, 2012 and December 31, 2011 are summarized as follows (in thousands):

Available-for-sale	September 30, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
U.S. Government agency securities	$	8,537	$	291	$	-		$	8,828
Federally insured student loan securities		111,197		483		(135	)		111,545
Tax-exempt obligations of states and political subdivisions		111,456		5,585		(1	)		117,040
Taxable obligations of states and political subdivisions		43,120		3,245		(30	)		46,335
Residential mortgage-backed securities		194,322		3,228		(392	)		197,158
Commercial mortgage-backed securities		98,417		4,116		(56	)		102,477
Other debt securities		47,687		1,050		(301	)		48,436
Other equity securities		3,000		75		-			3,075
	$	617,736	$	18,073	$	(915	)	$	634,894

Held-to-maturity	September 30, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
Other debt securities - single issuers	$	21,335	$	344	$	(4,181	)	$	17,498
Other debt securities - pooled		1,372		-		(236	)		1,136
	$	22,707	$	344	$	(4,417	)	$	18,634

Available-for-sale	December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
U.S. Government agency securities	$	9,087	$	198	$	-		$	9,285
Tax-exempt obligations of states and political subdivisions		94,227		3,580		(8	)		97,799
Taxable obligations of states and political subdivisions		50,778		2,149		(60	)		52,867
Residential mortgage-backed securities		190,214		3,582		(111	)		193,685
Commercial mortgage-backed securities		51,242		875		(56	)		52,061
Other debt securities		38,873		1,058		(399	)		39,532
Other equity securities		3,000		-		(25	)		2,975
	$	437,421	$	11,442	$	(659	)	$	448,204

Held-to-maturity	December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
Other debt securities - single issuers	$	16,337	$	138	$	(4,051	)	$	12,424
Other debt securities - pooled		1,707		-		(305	)		1,402
	$	18,044	$	138	$	(4,356	)	$	13,826

Investments in Federal Home Loan and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $4.2 million at September 30, 2012 and $5.1 million at December 31, 2011.

The amortized cost and fair value of the Company's investment securities at September 30, 2012, by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
Due before one year	$	73,508	$	73,622	$	-	$	-
Due after one year through five years		158,815		164,380		-		-
Due after five years through ten years		36,614		37,780		8,240		8,056
Due after ten years		345,799		356,037		14,467		10,578
Other equity securities		3,000		3,075		-		-
	$	617,736	$	634,894	$	22,707	$	18,634

At September 30, 2012 and December 31, 2011, investment securities with a book value of approximately $37.0 million and $44.6 million, respectively, were pledged to secure securities sold under repurchase agreements as required or permitted by law.

Available-for-sale securities fair values are based on the fair market value supplied by the third-party market data provider while held-to-maturity securities are based on the present value of cash flows, which discounts expected cash flows from principal and interest using yield to maturity at the measurement date. The Company periodically reviews its investment portfolio to determine whether unrealized losses are temporary, based on an evaluations of the creditworthiness of the issuers/guarantors as well as the underlying collateral if applicable, in addition to the continuing performance of the securities. The Company recognized other-than-temporary impairment charges of $126,000 on one trust preferred pooled security in the first nine months of 2012 as compared to $75,000 on one trust preferred pooled security in the first nine months of 2011. The amount of the credit impairment was calculated by estimating the discounted cash flows for those securities.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at September 30, 2012 (dollars in thousands):

Available-for-sale			Less than 12 months					12 months or longer					Total
	Number of securities		Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Description of Securities
Federally insured student loan securities		7	$	38,952	$	(135	)	$	-	$	-		$	38,952	$	(135	)
Tax-exempt obligations of states and political subdivisions		4		3,479		(1	)		1,241		-			4,720		(1	)
Taxable obligations of states and political subdivisions		7		7,715		(20	)		4,035		(10	)		11,750		(30	)
Residential mortgage-backed securities		9		43,529		(386	)		358		(6	)		43,887		(392	)
Commercial mortgage-backed securities		2		15,279		(56	)		-		-			15,279		(56	)
Other debt securities		3		-		-			9,770		(301	)		9,770		(301	)
Total temporarily impaired investment securities		32	$	108,954	$	(598	)	$	15,404	$	(317	)	$	124,358	$	(915	)

Held-to-maturity			Less than 12 months					12 months or longer					Total
	Number of securities		Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Description of Securities
Other debt securities - single issuers		2	$	-	$	-		$	7,906	$	(4,181	)	$	7,906	$	(4,181	)
Other debt securities - pooled		2		-		-			1,136		(236	)		1,136		(236	)
Total temporarily impaired investment securities		4	$	-	$	-		$	9,042	$	(4,417	)	$	9,042	$	(4,417	)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2011 (dollars in thousands):

Available-for-sale			Less than 12 months					12 months or longer					Total
	Number of securities		Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Description of Securities
Tax-exempt obligations of states and political subdivisions		7	$	11,104	$	(8	)	$	-	$	-		$	11,104	$	(8	)
Taxable obligations of states and political subdivisions		10		16,905		(60	)		-		-			16,905		(60	)
Residential mortgage-backed securities		5		10,054		(111	)		-		-			10,054		(111	)
Commercial mortgage-backed securities		4		24,421		(56	)		-		-			24,421		(56	)
Other debt securities		3		10,929		(93	)		2,549		(306	)		13,478		(399	)
Other equity securities		1		2,975		(25	)		-		-			2,975		(25	)
Total temporarily impaired investment securities		30	$	76,388	$	(353	)	$	2,549	$	(306	)	$	78,937	$	(659	)



Held-to-maturity			Less than 12 months					12 months or longer					Total
	Number of securities		Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses
Description of Securities
Other debt securities - single issuers		2	$	-	$	-		$	8,021	$	(4,051	)	$	8,021	$	(4,051	)
Other debt securities - pooled		2		-		-			1,402		(305	)		1,402		(305	)
Total temporarily impaired investment securities		4	$	-	$	-		$	9,423	$	(4,356	)	$	9,423	$	(4,356	)

The other debt securities included in the held-to-maturity classification on the Company's balance sheet at September 30, 2012 included four single issuer trust preferred securities issued by either banks or insurance companies and two pooled issuer trust preferred securities, whose collateral is made up of trust preferred securities issued by banks. The amortized cost of the single issuer trust preferred securities was $16.3 million, of which two securities totaling $4.2 million were issued by two different banks and two securities totaling $12.1 million were issued by two different insurance companies. The two pooled trust preferred securities had an aggregate amortized cost of $1.4 million.

The Company has evaluated the securities in the above tables and has concluded that none of these securities has impairment that is other-than-temporary. The Company evaluates whether a credit impairment exists by considering primarily the following factors: (a) the length of time and extent to which the fair value has been less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security's underlying collateral and (e) the payment structure of the security. The Company's best estimate of expected future cash flows which is used to determine the credit loss amount is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that most of the securities that are in an unrealized loss position are in a loss position because of changes in interest rates after the securities were purchased. The securities that have been in an unrealized loss position for 12 months or longer include other securities whose market values are sensitive to interest rates and changes in credit quality. The Company's unrealized loss for the debt securities, which includes four single issuer trust preferred securities and two pooled trust preferred securities, is primarily related to general market conditions and the resultant lack of liquidity in the market. The severity of the impairments in relation to the carrying amounts of the individual investments is consistent with market developments. The Company's analysis for each investment is performed at the security level. As a result of its review, the Company concluded that other-than-temporary impairment did not exist due to the Company's ability and intention to hold these securities to recover their amortized cost basis.