Note 5

: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at September 30, 2016 and December 31, 2015 is as follows:

	At September 3 0 , 201 6
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	199,622	$	1,414	$	(640	)	$	200,396
Agency mortgage-backed securities		11,632		73		(19	)		11,686
Municipal securities		23,383		1,067		(8	)		24,442
Corporate bonds		46,737		32		(1,341	)		45,428
Asset-backed securities		16,183		-		(466	)		15,717
Trust preferred securities		3,063		-		(1,372	)		1,691
Other securities		25		-		-			25
Total securities available for sale	$	300,645	$	2,586	$	(3,846	)	$	299,385

U.S. Government agencies	$	28,468	$	310	$	(58	)	$	28,720
Collateralized mortgage obligations		155,098		2,396		(219	)		157,275
Agency mortgage-backed securities		35,884		348		-			36,232
Other securities		1,020		-		-			1,020
Total securities held to maturity	$	220,470	$	3,054	$	(277	)	$	223,247

	At December 31, 201 5
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	180,795	$	523	$	(3,173	)	$	178,145
Agency mortgage-backed securities		10,073		176		(78	)		10,171
Municipal securities		22,814		562		(32	)		23,344
Corporate bonds		54,294		135		(300	)		54,129
Asset-backed securities		17,631		-		(626	)		17,005
Trust preferred securities		3,070		-		(1,187	)		1,883
Other securities		115		3		-			118
Total securities available for sale	$	288,792	$	1,399	$	(5,396	)	$	284,795

U.S. Government agencies	$	17,067	$	39	$	(72	)	$	17,034
Collateralized mortgage obligations		146,458		402		(780	)		146,080
Agency mortgage-backed securities		7,732		-		(21	)		7,711
Other securities		1,020		-		-			1,020
Total securities held to maturity	$	172,277	$	441	$	(873	)	$	171,845

The following table presents investment securities by stated maturity at September 30, 2016. 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 and, therefore, these securities are classified separately with no specific maturity date.

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	675	$	677	$	-	$	-
After 1 year to 5 years		12,096		12,260		4,651		4,640
After 5 years to 10 years		53,126		51,671		24,837		25,100
After 10 years		23,494		22,695		-		-
Collateralized mortgage obligations		199,622		200,396		155,098		157,275
Agency mortgage-backed securities		11,632		11,686		35,884		36,232
Total	$	300,645	$	299,385	$	220,470	$	223,247

Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

The Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. There were no private label mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) held in the investment securities portfolio as of September 30, 2016 and December 31, 2015. There were also no MBS or CMO securities that were rated “Alt-A” or “sub-prime” as of those dates.

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. Securities classified as held to maturity are carried at amortized cost. 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 available for sale.

Impairment charges (credit losses) on trust preferred securities for the three month period ended September 30, 2016 amounted to $2,000. No impairment charges were incurred on trust preferred securities during the three month period September 30, 2015. Impairment charges on trust preferred securities for the nine month period ended September 30, 2016 and 2015 amounted to $7,000 and $3,000, respectively.

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held for the three and nine months ended September 30, 2016 and 2015 for which a portion of OTTI was recognized in other comprehensive income:

	Three Months Ended September 30,
(dollars in thousands)	201 6		201 5

Beginning Balance, July 1 st	$	935	$	1,400
Additional credit-related impairment loss on securities for which an other-than-temporary impairment was previously recognized		2		-
Reductions for securities paid off during the period		-		-
Reductions for securities sold during the period		-		(470	)
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Ending Balance, September 30 th	$	937	$	930

	Nine Months Ended September 30,
(dollars in thousands)	2016		2015

Beginning Balance, January 1 st	$	930	$	3,966
Additional credit-related impairment loss on securities for which an other-than-temporary impairment was previously recognized		7		3
Reductions for securities paid off during the period		-		-
Reductions for securities sold during the period		-		(3,039	)
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Ending Balance, September 30 th	$	937	$	930

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 in the available for sale and held to maturity section:

		At September 30, 2016
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	76,185	$	573	$	8,199	$	67	$	84,384	$	640
Agency mortgage-backed securities		2,584		14		3,432		5		6,016		19
Municipal securities		486		8		-		-		486		8
Corporate bonds		28,859		1,142		10,796		199		39,655		1,341
Asset backed securities		-		-		15,717		466		15,717		466
Trust preferred securities		-		-		1,691		1,372		1,691		1,372
Total Available for Sale	$	108,114	$	1,737	$	39,835	$	2,109	$	147,949	$	3,846

	At September 30, 2016
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	7,067	$	47	$	3,621	$	11	$	10,688	$	58
Collateralized mortgage obligations		26,469		219		-		-		26,469		219
Total Held to Maturity	$	33,536	$	266	$	3,621	$	11	$	37,157	$	277

	At December 31 , 201 5
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Collateralized mortgage obligations	$	116,161	$	3,173	$	-	$	-	$	116,161	$	3,173
Agency mortgage-backed securities		2,389		14		5,502		64		7,891		78
Municipal securities		886		15		1,814		17		2,700		32
Corporate bonds		9,583		258		2,952		42		12,535		300
Asset backed securities		17,005		626		-		-		17,005		626
Trust preferred securities		-		-		1,883		1,187		1,883		1,187
Total Available for Sale	$	146,024	$	4,086	$	12,151	$	1,310	$	158,175	$	5,396

	At December 31 , 201 5
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	11,954	$	72	$	-	$	-	$	11,954	$	72
Collateralized mortgage obligations		68,888		732		15,956		48		84,844		780
Agency mortgage-backed securities		7,711		21		-		-		7,711		21
Total Held to Maturity	$	88,553	$	825	$	15,956	$	48	$	104,509	$	873

Unrealized losses on securities in the investment portfolio amounted to $4.1 million with a total fair value of $185.1 million as of September 30, 2016 compared to unrealized losses of $6.3 million with a total fair value of $262.7 million as of December 31, 2015. 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 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 held three U.S. Government agency securities, nineteen collateralized mortgage obligations and three agency mortgage-backed securities that were in an unrealized loss position at September 30, 2016. 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 September 30, 2016.

All municipal securities held in the investment portfolio are reviewed on 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 and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At September 30, 2016, one municipal security was in an unrealized loss position.

At September 30, 2016, the investment portfolio included two asset-backed securities that were in an unrealized loss position. The asset-backed securities held in the investment securities portfolio consist solely of Sallie Mae bonds, collateralized by student loans which are guaranteed by the U.S. Department of Education. Management believes the unrealized losses on these securities were driven by changes in market interest rates and not a result of credit deterioration. At September 30, 2016, the investment portfolio included six corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration.

The unrealized losses on the trust preferred securities are primarily the result of the secondary market for such securities becoming inactive and are also considered temporary at this time. The following table provides additional detail about the trust preferred securities held in the portfolio as of September 30, 2016.

(dollars in thousands)	Class / Tranche	Amortized Cost		Fair Value		Unrealized Losses			Lowest Credit Rating Assigned	Number of Banks Currently Performing		Deferrals / Defaults as % of Current Balance			Conditional Default Rates for 2016 and beyond			Cumulative OTTI Life to Date
TPREF Funding II	Class B Notes	$	725	$	377	$	(348	)	C		19		37	%		0.42	%	$	274
TPREF Funding III	Class B2 Notes		1,518		804		(714	)	C		15		32			0.43			483
ALESCO Preferred Funding V	Class C1 Notes		820		510		(310	)	C		42		14			0.41			180
Total		$	3,063	$	1,691	$	(1,372	)			76		27	%				$	937

There were no proceeds from the sale of investment securities during the three months ended September 30, 2016. Proceeds from the sale of investment securities during the nine months ended September 30, 2016 was $78.6 million. Gross gains of $680,000 and gross losses of $24,000 were realized on these sales. The tax provision applicable to the net gains for the nine months ended September 30, 2016 was $235,000.

Proceeds from the sale of investment securities during the three months ended September 30, 2015 were $2.6 million. Gross gains of $206,000 and gross losses of $142,000 were realized on these sales. The tax provision applicable to the net gains for the three months ended September 30, 2015 amounted to $23,000. Proceeds from the sale of investment securities during the nine months ended September 30, 2015 were $6.7 million. Gross gains of $361,000 and gross losses of $288,000 were realized on these sales. The tax provision applicable to the net gains for the nine months ended September 30, 2015 amounted to $26,000.