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, 2018 and December 31, 2017 are summarized as follows (in thousands):



Available-for-sale	September 30, 2018
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 55,807	$ -	$ (1,844)	$ 53,963
Asset-backed securities *	205,823	577	(172)	206,228
Tax-exempt obligations of states and political subdivisions	8,145	19	(78)	8,086
Taxable obligations of states and political subdivisions	60,688	674	(1,542)	59,820
Residential mortgage-backed securities	392,722	587	(12,820)	380,489
Collateralized mortgage obligation securities	274,481	109	(8,141)	266,449
Commercial mortgage-backed securities	305,384	461	(6,463)	299,382
	$ 1,303,050	$ 2,427	$ (31,060)	$ 1,274,417


	September 30, 2018
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
* Asset-backed securities as shown above	cost	gains	losses	value
Federally insured student loan securities	$ 74,989	$ 325	$ (171)	$ 75,143
Collateralized loan obligation securities	125,044	231	(1)	125,274
Other	5,790	21	-	5,811
	$ 205,823	$ 577	$ (172)	$ 206,228



Held-to-maturity	September 30, 2018
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
Other debt securities - single issuers	$ 9,155	$ -	$ (1,767)	$ 7,388
Other debt securities - pooled	75,278	1,085	-	76,363
	$ 84,433	$ 1,085	$ (1,767)	$ 83,751



Available-for-sale	December 31, 2017
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 50,107	$ 21	$ (226)	$ 49,902
Asset-backed securities *	269,164	1,196	(275)	270,085
Tax-exempt obligations of states and political subdivisions	9,893	131	(36)	9,988
Taxable obligations of states and political subdivisions	64,739	1,377	(255)	65,861
Residential mortgage-backed securities	452,723	727	(4,598)	448,852
Collateralized mortgage obligation securities	248,663	148	(2,318)	246,493
Commercial mortgage-backed securities	204,469	585	(1,751)	203,303
	$ 1,299,758	$ 4,185	$ (9,459)	$ 1,294,484


	December 31, 2017
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
* Asset-backed securities as shown above	cost	gains	losses	value
Federally insured student loan securities	$ 90,140	$ 271	$ (270)	$ 90,141
Collateralized loan obligation securities	170,825	880	(5)	171,700
Other	8,199	45	-	8,244
	$ 269,164	$ 1,196	$ (275)	$ 270,085



Held-to-maturity	December 31, 2017
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
Other debt securities - single issuers	$ 11,031	$ 105	$ (2,516)	$ 8,620
Other debt securities - pooled	75,349	1,376	-	76,725
	$ 86,380	$ 1,481	$ (2,516)	$ 85,345

Investments in Federal Home Loan Bank (FHLB) and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $1.1 million and $991,000, respectively, at September 30, 2018 and December 31, 2017.

The amortized cost and fair value of the Company’s investment securities at September 30, 2018, 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	$ 2,367	$ 2,360	$ -	$ -
Due after one year through five years	54,439	54,034	-	-
Due after five years through ten years	277,018	267,347	-	-
Due after ten years	969,226	950,676	84,433	83,751
	$ 1,303,050	$ 1,274,417	$ 84,433	$ 83,751

At September 30, 2018 and December 31, 2017, investment securities with a fair value of approximately $722,000 and $310.9 million, respectively, were pledged to secure a line of credit with the Federal Home Loan Bank. At September 30, 2018 and December 31, 2017, investment securities with a fair value of approximately $170.3 million and $225.6 million, respectively, were pledged to secure a line of credit with the Federal Reserve Bank. The Bank also pledged the majority of its loans to the Federal Reserve Bank for that line of credit which it has never used. The amount of loans pledged varies and since the Bank does not utilize this line the collateral may be unpledged at any time. The line is maintained consistent with the Bank’s liquidity policy which maximizes potential liquidity.

Fair values of available-for-sale securities are based on the fair market value supplied by a third-party market data provider, while the fair values of 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, or prices provided by securities dealers with expertise in the securities being evaluated, or actual trade data from an independent pricing service.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at September 30, 2018 (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
U.S. Government agency securities	12	$ 40,756	$ (1,271)	$ 13,112	$ (573)	$ 53,868	$ (1,844)
Asset-backed securities	8	16,476	(8)	24,305	(164)	40,781	(172)
Tax-exempt obligations of states and
political subdivisions	5	1,391	(6)	3,597	(72)	4,988	(78)
Taxable obligations of states and
political subdivisions	28	31,462	(930)	12,671	(612)	44,133	(1,542)
Residential mortgage-backed securities	121	115,119	(2,189)	218,233	(10,631)	333,352	(12,820)
Collateralized mortgage obligation securities	47	144,686	(4,199)	89,045	(3,942)	233,731	(8,141)
Commercial mortgage-backed securities	26	190,644	(5,460)	31,634	(1,003)	222,278	(6,463)
Total temporarily impaired
investment securities	247	$ 540,534	$ (14,063)	$ 392,597	$ (16,997)	$ 933,131	$ (31,060)



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
Corporate and other debt securities:
Single issuers	1	$ -	$ -	$ 7,388	$ (1,767)	$ 7,388	$ (1,767)
Total temporarily impaired
investment securities	1	$ -	$ -	$ 7,388	$ (1,767)	$ 7,388	$ (1,767)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2017 (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
U.S. Government agency securities	9	$ 44,808	$ (226)	$ -	$ -	$ 44,808	$ (226)
Asset-backed securities	8	11,264	(6)	37,894	(269)	49,158	(275)
Tax-exempt obligations of states and
political subdivisions	5	3,982	(19)	1,143	(17)	5,125	(36)
Taxable obligations of states and
political subdivisions	15	22,231	(181)	2,853	(74)	25,084	(255)
Residential mortgage-backed securities	116	249,572	(1,771)	125,096	(2,827)	374,668	(4,598)
Collateralized mortgage obligation securities	41	148,655	(921)	63,274	(1,397)	211,929	(2,318)
Commercial mortgage-backed securities	16	150,530	(1,681)	3,299	(70)	153,829	(1,751)
Total temporarily impaired
investment securities	210	$ 631,042	$ (4,805)	$ 233,559	$ (4,654)	$ 864,601	$ (9,459)



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
Corporate and other debt securities:
Single issuers	1	$ -	$ -	$ 6,600	$ (2,516)	$ 6,600	$ (2,516)
Total temporarily impaired
investment securities	1	$ -	$ -	$ 6,600	$ (2,516)	$ 6,600	$ (2,516)

Other securities included in the held-to-maturity classification at September 30, 2018 consisted of one single-issuer trust preferred security and three securities secured by diversified portfolios of corporate securities.

A total of $9.2 million of other debt securities - single issuers is comprised of the amortized cost of one single-issuer trust preferred security issued by an insurance company.

A total of $75.3 million of other debt securities – pooled is comprised of three securities consisting of diversified portfolios of corporate securities.

The following table provides additional information related to the Company’s single issuer trust preferred securities as of September 30, 2018 (in thousands):



Single issuer	Book value	Fair value	Unrealized gain/(loss)	Credit rating
Security A	9,155	7,388	(1,767)	Not rated

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 determination of the 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 market interest rates after the securities were purchased. Securities that have been in an unrealized loss position for 12 months or longer include other securities whose market values are sensitive to market interest rates. The Company’s unrealized loss for other debt securities, which include one single issuer trust preferred securities, is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the temporary impairments in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of 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.