Securities

The amortized cost and fair value of securities are summarized in the following tables:



	June 30, 2013
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities	$	33,994	$	—	$	(2,991	)	$	31,003
Residential mortgage-backed securities	68,949		—		(1,844		)	67,105
Agency collateralized mortgage obligations	527,064		3,114		(9,349		)	520,829
Municipal securities	26,895		—		(1,164		)	25,731
Total	$	656,902	$	3,114	$	(15,348	)	$	644,668
Held to Maturity:
U.S. Government agency securities	$	149,089	$	—	$	(9,518	)	$	139,571
Residential mortgage-backed securities	18,024		1,089		—			19,113
Agency collateralized mortgage obligations	43,703		476		—			44,179
Corporate debt securities	5,000		55		—			5,055
Municipal securities	2,978		3		(144		)	2,837
Total	$	218,794	$	1,623	$	(9,662	)	$	210,755



	December 31, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities	$	33,994	$	19	$	(252	)	$	33,761
Residential mortgage-backed securities	55,614		1,596		—			57,210
Agency collateralized mortgage obligations	547,641		9,971		(745		)	556,867
Municipal securities	26,890		381		—			27,271
Total	$	664,139	$	11,967	$	(997	)	$	675,109
Held to Maturity:
U.S. Government agency securities	$	178,926	$	700	$	(363	)	$	179,263
Residential mortgage-backed securities	23,827		1,889		—			25,716
Agency collateralized mortgage obligations	49,051		1,587		—			50,638
Corporate debt securities	15,000		13		—			15,013
Municipal securities	2,979		62		—			3,041
Total	$	269,783	$	4,251	$	(363	)	$	273,671

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2013 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.



	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	—		—		5,000		5,055
Due after five years through ten years	47,480		44,074		70,000		65,105
Due after ten years	13,409		12,660		82,067		77,303
	60,889		56,734		157,067		147,463
Residential mortgage-backed securities	68,949		67,105		18,024		19,113
Agency collateralized mortgage obligations	527,064		520,829		43,703		44,179
Total	$	656,902	$	644,668	$	218,794	$	210,755

During the second quarter of 2013, the Company sold 10 securities with a total fair market value of $29.0 million. The Company had no agency debentures that were called by their respective issuers. In total, the Company realized net securities losses of $9,000. Of the investments sold, none were from the held to maturity (HTM) portfolio.

During the second quarter of 2012, the Company sold four mortgage-backed securities (MBSs), six agency collateralized mortgage obligations (CMOs) and three private-label CMOs all with a total fair market value of $44.5 million and realized a net pretax gain of $12,000. Four of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its originally purchased par value and, therefore, were sold without tainting the remaining HTM portfolio. The Company also had $20.0 million of agency debentures that were called by their issuing agency during the second quarter of 2012.

During the first six months of 2013, the Company sold 21 securities with a total fair market value of $89.9 million. The Company also had $50.0 million of agency debentures that were called by their respective issuers. In total, the Company realized net security gains of $21,000. Of the investments sold, five were from the HTM portfolio, four of which were amortizing securities that had already returned at least 85% of their respective principal, and one of which was a corporate bond within three months of its maturity date. In all cases, these could be sold without tainting the remaining HTM portfolio.

During the first six months of 2012, the Company sold four MBSs, 27 agency CMOs and five private-label CMOs with a total fair market value of $254.1 million and realized a net pretax gain of $996,000. Five of the bonds sold had been classified as held to maturity, however, each remaining par value was less than 15% of its original purchased par value and, therefore, were sold without tainting the remaining HTM portfolio. Additionally, the Company had $130.3 million in a total of nine agency debentures that were called by their issuing agency.

The Company does not maintain a trading portfolio and there were no transfers of securities between the available for sale (AFS) and HTM portfolios. The Company uses the specific identification method to record security sales.

At June 30, 2013, securities with a carrying value of $692.3 million were pledged to secure public deposits and for other purposes as required or permitted by law.

The following table summarizes the Company's gains and losses on the sales or calls of debt securities and credit losses recognized for the OTTI of investments:



(in thousands)	Gross Realized Gains		Gross Realized Losses			OTTI Credit Losses			Net Gains
Three Months Ended:
June 30, 2013	$	363	$	(372	)	$	—		$	(9	)
June 30, 2012	626		(614		)	—			12
Six Months Ended:
June 30, 2013	$	1,183	$	(1,162	)	$	—		$	21
June 30, 2012	2,495		(1,499		)	(649		)	347

In determining fair market values for its portfolio holdings, the Company receives information from a third party provider which management evaluates and corroborates using amounts from one of its securities brokers. Under the current guidance, these values are considered Level 2 inputs, based upon mathematically derived matrix pricing and observed data from similar assets. They are not Level 1 direct quotes, nor do they reflect Level 3 inputs that would be derived from internal analysis or judgment. As the Company does not manage a trading portfolio and typically only sells from its AFS portfolio in order to manage interest rate risk or credit exposure, direct quotes, or street bids, are warranted on an as-needed basis only.

The following table shows the fair value and gross unrealized losses associated with the Company's investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:



	June 30, 2013
	Less than 12 months					12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale:
U.S. Government agency securities	$	31,003	$	(2,991	)	$	—	$	—	$	31,003	$	(2,991	)
Residential mortgage-backed securities	67,105		(1,844		)	—		—		67,105		(1,844		)
Agency CMOs	298,454		(9,349		)	—		—		298,454		(9,349		)
Municipal securities	25,731		(1,164		)	—		—		25,731		(1,164		)
Total	$	422,293	$	(15,348	)	$	—	$	—	$	422,293	$	(15,348	)
Held to Maturity:
U.S. Government agency securities	$	139,571	$	(9,518	)	$	—	$	—	$	139,571	$	(9,518	)
Municipal securities	1,731		(144		)	—		—		1,731		(144		)
Total	$	141,302	$	(9,662	)	$	—	$	—	$	141,302	$	(9,662	)



	December 31, 2012
	Less than 12 months					12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale:
U.S. Government agency securities	$	24,748	$	(252	)	$	—	$	—	$	24,748	$	(252	)
Agency CMOs	53,274		(745		)	—		—		53,274		(745		)
Total	$	78,022	$	(997	)	$	—	$	—	$	78,022	$	(997	)
Held to Maturity:
U.S. Government agency securities	$	57,572	$	(363	)	$	—	$	—	$	57,572	$	(363	)
Total	$	57,572	$	(363	)	$	—	$	—	$	57,572	$	(363	)

The Company's investment securities portfolio consists of U.S. Government agency debentures, U.S. Government sponsored agency MBSs, agency CMOs, corporate bonds and municipal bonds. The Company considers securities of the U.S. Government sponsored agencies and the U.S. Government MBS/CMOs to have little credit risk because their principal and interest payments are backed by an agency of the U.S. Government.

The unrealized losses in the Company's investment portfolio at June 30, 2013 were associated with two distinct types of securities. The first type, those backed by the U.S. Government or one of its agencies, included 11 debentures, 27 CMOs and ten MBSs. Management believes that the unrealized losses on these investments were primarily caused by the movement of interest rates from the date of purchase and notes the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. The Company also owns 26 municipal bonds that were in an unrealized loss position as of June 30, 2013. In all cases, the bonds are general obligations of either a Pennsylvania municipality or school district and are backed by the ad valorem taxing power of the entity. In all cases, the bonds carry an investment grade rating of no lower than single-A by either Moody's or Standard and Poors. The Company, however, conducts its own periodic, independent review and believes the unrealized losses in its municipal bond portfolio are the result of movements in long-term interest rates and are not reflective of any credit deterioration. The Company does not intend to sell these debt securities prior to recovery and it is more likely than not that the Company will not have to sell these debt securities prior to recovery.

The table that follows rolls forward the cumulative life-to-date credit losses which have been recognized in earnings for the private-label CMOs for the three months and six months ended June 30, 2013 and June 30, 2012. The Company did not incur any credit losses for the private-label CMOs in 2013 and does not currently hold private-label CMOs as of June 30, 2013.



	Private-label CMOs
	Available for Sale
(in thousands)	2013		2012
Cumulative OTTI credit losses at April 1,	$	—	$	2,293
Additional increases for OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis	—		—
Reduction due to credit impaired securities sold	—		(2,041		)
Cumulative OTTI credit losses recognized for securities still held at June 30,	$	—	$	252



	Private-label CMOs
	Available for Sale
(in thousands)	2013		2012
Cumulative OTTI credit losses at January 1,	$	—	$	2,949
Additional increases for OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis	—		649
Reduction due to credit impaired securities sold	—		(3,346		)
Cumulative OTTI credit losses recognized for securities still held at June 30,	$	—	$	252