Note 3. Investment Securities

A summary of the amortized cost and market value of securities available for sale at December 31, 2017 and 2016 is as follows:


	At December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collaterized mortgage obligations	$	24,063	$	20	$	(569)	$	23,514
Agency mortgage-backed securities		25,725		4		(500)		25,229
Municipal securities		35,453		339		(159)		35,633
U.S. Government agency securities		3,526		—		(46)		3,480
U.S. Treasury securities		1,501		—		(8)		1,493

Total securities available for sale	$	90,268	$	363	$	(1,282)	$	89,349


	At December 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value

Collaterized mortgage obligations	$	31,997	$	11	$	(423)	$	31,585
Agency mortgage-backed securities		27,110		2		(429)		26,683
Municipal securities		34,333		92		(580)		33,845
U.S. Government agency securities		1,003		—		(16)		987
U.S. Treasury securities		1,501		5		—		1,506

Total securities available for sale	$	95,944	$	110	$	(1,448)	$	94,606

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2017 and 2016:


	December 31, 2017
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

Collaterized mortgage obligations	$	6,531	$	(63)	$	15,678	$	(507)	$	22,209	$	(570)
Agency mortgage-backed securities		6,802		(80)		18,218		(420)		25,020		(500)
Municipal securities		2,396		(11)		6,230		(148)		8,626		(159)
U.S. Government agency securities		2,965		(37)		515		(9)		3,480		(46)
U.S. Treasury securities		1,494		(7)		—		—		1,494		(7)

	$	20,188	$	(198)	$	40,641	$	(1,084)	$	60,829	$	(1,282)


	At December 31, 2016
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Value		Loss		Value		Loss		Value		Loss

Collaterized mortgage obligations	$	18,244	$	(174)	$	8,775	$	(248)	$	27,019	$	(422)
Agency mortgage-backed securities		24,850		(401)		828		(28)		25,678		(429)
Municipal securities		19,200		(580)		—		—		19,200		(580)
U.S. Government agency securities		—		—		986		(17)		986		(17)

	$	62,294	$	(1,155)	$	10,589	$	(293)	$	72,883	$	(1,448)

At December 31, 2017 and 2016, the Company did not have any securities that had impairment charges.

The Company's investment securities portfolio consists primarily of debt securities issued by the U.S. Treasury, U.S. Government agencies, U.S. Government-sponsored agencies, state governments and local municipalities. There were no private label mortgage-backed securities ("MBS") or collateralized mortgage obligations ("CMO") held in the investment securities portfolio as of December 31, 2017 and December 31, 2016.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders' equity as a component of accumulated other comprehensive income or loss, net of tax. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An other-than-temporary impairment ("OTTI") loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified as available for sale.

The Company held five U.S. Government agency securities, fifty-one collateralized mortgage obligations, thirty-nine agency mortgage-backed securities and three U.S. Treasury securities that were in an unrealized loss position at December 31, 2017. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of December 31, 2017.

All municipal securities held in the investment portfolio are reviewed on at least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody's or Standard & Poor's. In addition the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania, Texas and Maryland and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At December 31, 2017, the investment portfolio included sixteen municipal securities that were in an unrealized loss position. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of any credit deterioration.

At December 31, 2017 and 2016, investment securities in the amount of approximately $0.8 million and $0, respectively, were pledged as collateral for interest rate swap contracts.

Unrealized losses on securities in the investment portfolio amounted to $1.3 million with a total fair value of $60.8 million as of December 31, 2017 compared to unrealized losses of $1.4 million with a total fair value of $72.9 million as of December 31, 2016. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in a particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

The Company had no credit-related impairment losses on securities held at December 31, 2017 and 2016.

The following table presents investment securities by stated maturity at December 31, 2017. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.


	At December 31, 2017
	Amortized		Fair
(dollars in thousands)	Cost		Value


Due within one year	$	899	$	906
Due over one to five years		1,319		1,311
Due over five to ten years		4,742		4,765
Due over ten years		33,520		33,624
Collaterized mortgage obligations		24,063		23,514
Agency mortgage-backed securities		25,725		25,229

Total securities available for sale	$	90,268	$	89,349

Proceeds from sales of available for sale securities prior to maturity totaled $956,255 and $5,265,658 for the years ended December 31, 2017 and 2016, respectively. The Bank realized gains of $1,406 and no losses on those sales for 2017. The Bank realized gains of $21,653 and losses of $19,237 on sales for 2016. Realized gains and losses were calculated based on the amortized cost of the securities at the date of trade. Income tax expense relating to net gains on sales of investment securities was calculated at a rate of 39.44% and totaled $555, and $953 for the years ended December 31, 2017 and 2016, respectively.