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, 2013 and December 31, 2012 are summarized as follows (in thousands):



Available-for-sale	September 30, 2013
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 14,299	$ 68	$ -	$ 14,367
Federally insured student loan securities	148,940	718	(622)	149,036
Tax-exempt obligations of states and political subdivisions	348,069	3,190	(1,208)	350,051
Taxable obligations of states and political subdivisions	81,424	1,701	(490)	82,635
Residential mortgage-backed securities	228,645	1,928	(1,071)	229,502
Commercial mortgage-backed securities	93,880	3,118	(288)	96,710
Corporate and other debt securities	161,484	609	(1,240)	160,853
	$ 1,076,741	$ 11,332	$ (4,919)	$ 1,083,154



Held-to-maturity	September 30, 2013
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
Other debt securities - single issuers	$ 21,022	$ 292	$ (4,179)	$ 17,135
Other debt securities - pooled	76,437	1,320	(86)	77,671
	$ 97,459	$ 1,612	$ (4,265)	$ 94,806



Available-for-sale	December 31, 2012
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
U.S. Government agency securities	$ 7,255	$ 245	$ -	$ 7,500
Federally insured student loan securities	142,851	1,002	(83)	143,770
Tax-exempt obligations of states and political subdivisions	112,393	5,314	(2)	117,705
Taxable obligations of states and political subdivisions	38,291	3,118	(21)	41,388
Residential mortgage-backed securities	275,197	3,389	(779)	277,807
Commercial mortgage-backed securities	92,765	4,298	(32)	97,031
Corporate and other debt securities	32,399	769	(304)	32,864
	$ 701,151	$ 18,135	$ (1,221)	$ 718,065



Held-to-maturity	December 31, 2012
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	cost	gains	losses	value
Other debt securities - single issuers	$ 18,980	$ 218	$ (4,241)	$ 14,957
Other debt securities - pooled	26,199	36	(184)	26,051
	$ 45,179	$ 254	$ (4,425)	$ 41,008

Investments in Federal Home Loan and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $3.2 million at September 30, 2013 and $3.6 million at December 31, 2012.

The amortized cost and fair value of the Company’s investment securities at September 30, 2013, 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	$ 111,263	$ 111,303	$ -	$ -
Due after one year through five years	365,446	367,797	-	-
Due after five years through ten years	146,470	146,833	10,230	10,082
Due after ten years	453,562	457,221	87,229	84,724
	$ 1,076,741	$ 1,083,154	$ 97,459	$ 94,806

At September 30, 2013 and December 31, 2012, investment securities with a book value of approximately $24.8 million and $34.3 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 a 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 other than 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 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, 2013 (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	4	$ 7,479	$ -	$ -	$ -	$ 7,479	$ -
Federally insured student loan securities	8	53,262	(602)	2,020	(20)	55,282	(622)
Tax-exempt obligations of states and
political subdivisions	201	137,141	(1,208)	-	-	137,141	(1,208)
Taxable obligations of states and
political subdivisions	52	47,138	(479)	1,819	(11)	48,957	(490)
Residential mortgage-backed securities	30	124,240	(1,031)	12,781	(40)	137,021	(1,071)
Commercial mortgage-backed securities	19	27,314	(262)	3,361	(26)	30,675	(288)
Corporate and other debt securities	109	103,996	(1,044)	5,261	(196)	109,257	(1,240)
Total temporarily impaired
investment securities	423	$ 500,570	$ (4,626)	$ 25,242	$ (293)	$ 525,812	$ (4,919)



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
Single issuers	2	$ -	$ -	$ 7,925	$ (4,179)	$ 7,925	$ (4,179)
Pooled	1	-	-	363	(86)	363	(86)
Total temporarily impaired
investment securities	3	$ -	$ -	$ 8,288	$ (4,265)	$ 8,288	$ (4,265)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 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	5	$ 33,615	$ (83)	$ -	$ -	$ 33,615	$ (83)
Tax-exempt obligations of states and
political subdivisions	4	4,511	(2)	-	-	4,511	(2)
Taxable obligations of states and
political subdivisions	6	2,357	(11)	4,529	(10)	6,886	(21)
Residential mortgage-backed securities	17	107,926	(779)	-	-	107,926	(779)
Commercial mortgage-backed securities	2	5,447	(32)	-	-	5,447	(32)
Corporate and other debt securities	4	1,485	(15)	8,623	(289)	10,108	(304)
Total temporarily impaired
investment securities	38	$ 155,341	$ (922)	$ 13,152	$ (299)	$ 168,493	$ (1,221)



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
Single issuers	2	$ -	$ -	$ 7,850	$ (4,241)	$ 7,850	$ (4,241)
Pooled	1	-	-	593	(184)	593	(184)
Total temporarily impaired
investment securities	3	$ -	$ -	$ 8,443	$ (4,425)	$ 8,443	$ (4,425)

Other securities, included in the held-to-maturity classification at September 30, 2013, consisted of three securities secured by diversified portfolios of corporate securities, one bank senior note, three single issuer trust preferred securities and two pooled trust preferred securities.

The $21.0 million of other debt securities - single issuers are comprised of the following. The amortized cost of the three single issuer trust preferred securities was $14.0 million, of which one security for $1.9 million was issued by a bank and two securities totaling $12.1 million were issued by two different insurance companies. The book value of the bank senior note was $7.0 million.

The $76.4 million of other debt securities – pooled are comprised of the following. The two pooled trust preferred securities totaled $603,000 and were collateralized by bank trust preferred securities. The book value for the securities consisting of diversified portfolios of corporate securities is $75.8 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 recognized other-than-temporary impairment charges of $20,000 on one trust preferred pooled security in the first nine months of 2013. The Company recognized other-than-temporary impairment charges of $126,000 on one trust preferred pooled security in the first nine months of 2012. 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.