Note

: Investment Securities

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

June 30, 2018

and

December 31, 2017

is as follows:

	At June 3 0 , 2018
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	361,142	$	-	$	(14,200	)	$	346,942
Agency mortgage-backed securities		71,668		1		(2,287	)		69,382
Municipal securities		19,042		6		(470	)		18,578
Corporate bonds		62,626		94		(3,106	)		59,614
Asset-backed securities		6,982		-		(24	)		6,958
Trust preferred securities		725		-		(178	)		547
Total securities available for sale	$	522,185	$	101	$	(20,265	)	$	502,021

U.S. Government agencies	$	114,259	$	-	$	(5,513	)	$	108,746
Collateralized mortgage obligations		254,746		31		(7,775	)		247,002
Agency mortgage-backed securities		134,737		-		(6,491	)		128,246
Total securities held to maturity	$	503,742	$	31	$	(19,779	)	$	483,994

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

Collateralized mortgage obligations	$	327,972	$	-	$	(7,731	)	$	320,241
Agency mortgage-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 mortgage-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

The following table presents investment securities by stated maturity at

June 30, 2018.

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 with or without prepayment penalties 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	$	2,920	$	2,920	$	-	$	-
After 1 year to 5 years		6,902		6,880		15,774		15,400
After 5 years to 10 years		74,320		70,685		98,485		93,346
After 10 years		5,233		5,212		-		-
Collateralized mortgage obligations		361,142		346,942		254,746		247,002
Agency mortgage-backed securities		71,668		69,382		134,737		128,246
Total	$	522,185	$	502,021	$	503,742	$	483,994

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

June 30, 2018

and

December 31, 2017.

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 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 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.

There were

impairment charges (credit losses) on any security held in the investment portfolio for the

three

and

six

month periods ended

June 30, 2018

and

2017.

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

June 30, 2018

and

2017

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

(dollars in thousands)	201 8		201 7

Beginning Balance, January 1 st	$	274	$	937
Additional credit-related impairment loss on securities for which an other-than-temporary impairment was previously recognized		-		-
Reductions for securities sold during the period		-		(483	)
Ending Balance, June 30 th	$	274	$	454

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 June 3 0 , 201 8
	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	$	185,402	$	5,287	$	161,540	$	8,913	$	346,942	$	14,200
Agency mortgage-backed securities		44,035		1,134		21,087		1,153		65,122		2,287
Municipal securities		13,384		319		2,540		151		15,924		470
Corporate bonds		1,627		2		51,896		3,104		53,523		3,106
Asset backed securities		6,958		24		-		-		6,958		24
Trust preferred securities		-		-		547		178		547		178
Total Available for Sale	$	251,406	$	6,766	$	237,610	$	13,499	$	489,016	$	20,265

	At June 3 0 , 201 8
	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	$	53,366	$	1,772	$	55,380	$	3,741	$	108,746	$	5,513
Collateralized mortgage obligations		127,961		2,607		114,305		5,168		242,266		7,775
Agency mortgage-backed securities		52,667		1,975		75.579		4,516		128.246		6,491
Total Held to Maturity	$	233,994	$	6,354	$	245,264	$	13,425	$	479,258	$	19,779

	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

Collateralized mortgage obligations	$	150,075	$	1,565	$	170,166	$	6,166	$	320,241	$	7,731
Agency mortgage-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

Unrealized losses on securities in the investment portfolio amounted to

$40.0

million with a total fair value of

$968.3

million as of

June 30, 2018

compared to unrealized losses of

$20.1

million with a total fair value of

$836.9

million as of

December 31, 2017.

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

fourteen

U.S. Government agency securities,

eight

nine

collateralized mortgage obligations and

twenty-nine

agency mortgage-backed securities that were in an unrealized loss position at

June 30, 2018.

Principal and interest payments of the underlying collateral for each of these securities 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

June 30, 2018.

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

June 30, 2018,

the investment portfolio included

twenty-two

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 credit deterioration.

June 30, 2018,

the investment portfolio included

one

asset-backed security that was in an unrealized loss position. The asset-backed security held in the investment securities portfolio is a Sallie Mae bond, collateralized by student loans which are guaranteed by the U.S. Department of Education. Management believes the unrealized loss on this security was driven by changes in market interest rates and

not

a result of credit deterioration. At

June 30, 2018,

the investment portfolio also included

seven

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

June 30, 2018.

(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			$	547			$	(178	)	C			19				26	%			0.33	%		$	274

During the

three

months and

six

months ended

June 30, 2018,

the proceeds from the sale of investment securities were

$5.7

million. A gross loss of

$1,000

was realized on the sale of investment securities for the

three

and

six

months ended

June 30, 2018.

During the

three

and

six

months ended

June 30, 2017,

the proceeds from the sale of investment securities were

$21.2

million. Gross gains of

$487,000

were realized on these sales which were offset by gross losses of

$548,000.

The tax benefit applicable to the net losses for the

three

and

six

months ended

June 30, 2017

was

$22,000.

Included in the

2017

sales activity was the sale of

one

CDO security. Proceeds from the sale of the CDO security totaled

$970,000.

A gross loss of

$548,000

was recognized on this sale. Management had previously stated that it did

not

intend to sell the CDO security prior to its maturity or the recovery of its cost basis, nor would it be forced to sell this security prior to maturity or recovery of the cost basis. 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 its remaining 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

one

CDO resulting in a net loss of

$548,000

during the

three

and

six

months ended

June 30, 2017

which was partially offset by gains on sales of

twenty-eight

municipal securities,

one

agency mortgage-backed security and

one

collateralized mortgage obligation. 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.