3.	Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at

December 31,

2017

and

2016

is as follows:

	At December 31, 201 7
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	327,972	$	-	$	(7,731	)	$	320,241
Agency m ortgage-backed securities		55,664		2		(800	)		54,866
Municipal securities		15,142		20		(62	)		15,100
Corporate bonds		62,670		103		(2,491	)		60,282
Asset-backed securities		13,414		38		-			13,452
Trust preferred securities		725		-		(236	)		489
Total securities available for sale	$	475,587	$	163	$	(11,320	)	$	464,430

U.S. Government agencies	$	112,605	$	50	$	(2,235	)	$	110,420
Collateralized mortgage obligations		215,567		314		(3,970	)		211,911
Agency m ortgage-backed securities		143,041		47		(2,620	)		140,468
Other securities		1,000		-		-			1,000
Total securities held to maturity	$	472,213	$	411	$	(8,825	)	$	463,799

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

Collateralized mortgage obligations	$	230,252	$	145	$	(5,632	)	$	224,765
Agency m ortgage-backed securities		37,973		32		(1,295	)		36,710
Municipal securities		26,825		151		(429	)		26,547
Corporate bonds		66,718		8		(1,978	)		64,748
Asset-backed securities		15,565		-		(416	)		15,149
Trust preferred securities		3,063		-		(1,243	)		1,820
Total securities available for sale	$	380,396	$	336	$	(10,993	)	$	369,739

U.S. Government agencies	$	98,538	$	8	$	(2,238	)	$	96,308
Collateralized mortgage obligations		202,990		793		(2,553	)		201,230
Agency mortgage-backed securities		129,951		1		(3,327	)		126,625
Other securities		1,020		-		-			1,020
Total securities held to maturity	$	432,499	$	802	$	(8,118	)	$	425,183

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 and, therefore, these securities are classified separately with

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	$	1,153	$	1,156	$	-	$	-
After 1 year to 5 years		6,613		6,624		11,149		11,116
After 5 years to 10 years		79,701		76,993		102,456		100,304
After 10 years		4,484		4,550		-		-
Collateralized mortgage obligations		327,972		320,241		215,567		211,911
Agency mortgage-backed securities		55,664		54,866		143,041		140,468
Total	$	475,587	$	464,430	$	472,213	$	463,799

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

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.

There were also

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 leng

th 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 years ended

December 31, 2016

and

2015

amounted to

$7,000

and

$3,000,

respectively. There were

impairment charges recorded during the year ended

December 31, 2017.

December 31,

201

and

2016,

investment securities in the amount of approximately

$555.2

million and

$380.1

million, respectively, were pledged as collateral for public deposits and certain other deposits as required by law.

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at

December 31,

201

2016,

and

2015

for which a portion of OTTI was recognized in other comprehensive income:

(dollars in thousands)	201 7			201 6		201 5

Beginning Balance, January 1 st	$	937		$	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 sold during the period		(663	)		-		(3,039	)
Ending Balance, December 31 st	$	274		$	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 as of

December 31,

201

and

2016:

	At December 31, 201 7
	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	$	150,075	$	1,565	$	170,166	$	6,166	$	320,241	$	7,731
Agency m ortgage-backed securities		29,967		226		21,045		574		51,012		800
Municipal securities		5,742		27		2,656		35		8,398		62
Corporate bonds		-		-		52,509		2,491		52,509		2,491
Asset backed securities		-		-		-		-		-		-
Trust preferred securities		-		-		489		236		489		236
Total Available for Sale	$	185,784	$	1,818	$	246,865	$	9,502	$	432,649	$	11,320

	At December 31, 2017
	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	$	42,045	$	213	$	59,594	$	2,022	$	101,639	$	2,235
Collateralized mortgage obligations		56,955		767		107,986		3,203		164,941		3,970
Agency mortgage-backed securities		55,170		221		82,479		2,399		137,649		2,620
Total Held to Maturity	$	154,170	$	1,201	$	250,059	$	7,624	$	404,229	$	8,825

	At December 31, 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	$	192,308	$	5,380	$	7,579	$	252	$	199,887	$	5,632
Agency mortgage-backed securities		29,916		1,260		3,199		35		33,115		1,295
Municipal securities		15,414		429		-		-		15,414		429
Corporate bonds		32,257		1,708		10,726		270		42,983		1,978
Asset backed securities		-		-		15,149		416		15,149		416
Trust preferred securities		-		-		1,820		1,243		1,820		1,243
Total Available for Sale	$	269,895	$	8,777	$	38,473	$	2,216	$	308,368	$	10,993

	At December 31, 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	$	67,725	$	2,198	$	3,586	$	40	$	71,311	$	2,238
Collateralized mortgage obligations		108,974		2,469		8,572		84		117,546		2,553
Agency mortgage-backed securities		97,725		3,327		-		-		97,725		3,327
Total Held to Maturity	$	274,424	$	7,994	$	12,158	$	124	$	286,582	$	8,118

Unrealized losses on securities in the investment portfolio amounted to $

20.1

million with a total fair value of

$836.9

million as of

December 31, 2017

compared to unrealized losses of

$19.1

million with a total fair value of

$595.0

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 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

eleven

U.S. Government agency securities,

seventy-four

collateralized mortgage obligations and

twenty-six

agency mortgage-backed 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

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 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

December 31, 2017,

the investment portfolio included

twelve

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.

December 31, 2017,

asset-backed securities 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. At

December 31, 2017,

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 any credit deterioration.

The unrealized loss on the trust preferred security is primarily the result of the secondary market for such a security becoming inactive and is also considered temporary at this time. The following table provides additional detail on the trust preferred security held in the portfolio as of

December 31, 2017.

(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 2018 and beyond				Cumulative OTTI Life to Date
TPREF Funding II	Class B Notes		$	725			$	489			$	(236	)	C			18				29	%			0.42	%		$	274

Proceeds of sales of securities avai

lable for sale in

2017

were

$31.2

million. Gross gains of

$652,000

and gross losses of

$798,000

were realized on these sales. The tax benefit applicable to the net losses for the year ended

December 31, 2017

amounted to

$52,000.

Included in the

2017

sales activity were the sales of

two

CDO securities.

Proceeds from the sale of the CDO securities totaled

$1.5

million. Gross losses of

$798,000

were realized on these sales. The tax benefit applicable to the net losses for the

twelve

months ended

December 31, 2017

amounted to

$287,000.

Management had previously stated that it did

not

intend to sell the CDO securities prior to their maturity or the recovery of their cost bases, nor would it be forced to sell these securities prior to maturity or recovery of the cost bases. This statement was made over a period of several years where there was limited trading activity in the pooled trust preferred CDO market resulting in fair market value estimates well below the book values. During

2017,

management received several inquiries regarding the availability of the CDO securities and noted an increased level of trading in this type of security. As a result of the increased activity and the level of bids received, management elected to sell

two

CDOs resulting in a net loss of

$798,000

during

2017

which was offset by gains on sales of agency mortgage-backed securities, collateralized mortgage obligations and corporate bonds. The Bank continues to demonstrate the ability and intent to hold the remaining CDO until maturity or recovery of the cost basis, but will evaluate future opportunities to sell the remaining CDO if they arise.

The Company

had proceeds from the sale of securities available for sale in

2016

$78.6

million. Gross gains of

$680,000

and gross losses of

$24,000

were realized on these sales. The tax provision applicable to these gross gains in

2016

amounted to approximately

$236,000.

Proceeds of sales of securities available for sale in

2015

were

$11.7

million. Gross gains of

$396,000

and gross losses of

$288,000

were realized on these sales. The tax provision applicable to

the net gains for the year ended

December 31, 2015

amounted to

$39,000.