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, 2019

and

2018

is as follows:

	At December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government agencies	$	38,743	$	1	$	(439	)	$	38,305
Collateralized mortgage obligations		329,492		2,368		(422	)		331,438
Agency mortgage-backed securities		98,953		82		(98	)		98,937
Municipal securities		4,064		18		-			4,082
Corporate bonds		69,499		79		(3,298	)		66,280
Total securities available for sale	$	540,751	$	2,548	$	(4,257	)	$	539,042

U.S. Government agencies	$	94,913	$	482	$	(294	)	$	95,101
Collateralized mortgage obligations		416,177		7,603		(793	)		422,987
Agency mortgage-backed securities		133,752		1,782		(513	)		135,021
Total securities held to maturity	$	644,842	$	9,867	$	(1,600	)	$	653,109

	At December 31, 201 8
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	197,812	$	567	$	(2,120	)	$	196,259
Agency mortgage-backed securities		39,105		5		(611	)		38,499
Municipal securities		20,807		64		(232	)		20,639
Corporate bonds		62,583		87		(3,396	)		59,274
Asset-backed securities		6,433		-		(90	)		6,343
Total securities available for sale	$	326,740	$	723	$	(6,449	)	$	321,014

U.S. Government agencies	$	107,390	$	-	$	(3,772	)	$	103,618
Collateralized mortgage obligations		500,690		570		(5,793	)		495,467
Agency mortgage-backed securities		153,483		-		(5,245	)		148,238
Total securities held to maturity	$	761,563	$	570	$	(14,810	)	$	747,323

The following table presents investment securities by stated maturity at

December 31, 2019.

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	$	3,790	$	3,795	$	-	$	-
After 1 year to 5 years		39,653		39,435		20,048		20,073
After 5 years to 10 years		65,863		62,617		74,865		75,028
After 10 years		3,000		2,820		-		-
Collateralized mortgage obligations		329,492		331,438		416,177		422,987
Agency mortgage-backed securities		98,953		98,937		133,752		135,021
Total	$	540,751	$	539,042	$	644,842	$	653,109

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, 2019

and

December 31, 2018.

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) recorded during the years ended

December 31, 2019,

2018,

and

2017.

December 31, 2019

and

2018,

investment securities in the amount of approximately

$847.1

million and

$710.7

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, 2019,

2018,

and

2017

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

(dollars in thousands)	201 9		201 8			201 7

Beginning Balance, January 1 st	$	-	$	274		$	937
Reductions for securities sold during the period		-		(274	)		(663	)
Ending Balance, December 31 st	$	-	$	-		$	274

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, 2019

and

2018:

	At December 31, 201 9
	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	$	28,136	$	439	$	-	$	-	$	28,136	$	439
Collateralized mortgage obligations		63,384		328		6,164		94		69,548		422
Agency mortgage-backed securities		2,924		13		6,411		85		9,335		98
Municipal securities		-		-		-		-		-		-
Corporate bonds		2,820		180		51,882		3,118		54,702		3,298
Total Available for Sale	$	97,264	$	960	$	64,457	$	3,297	$	161,721	$	4,257

	At December 31, 201 9
	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	$	33,092	$	220	$	3,703	$	74	$	36,795	$	294
Collateralized mortgage obligations		24,211		18		64,324		775		88,535		793
Agency mortgage-backed securities		14,044		33		52,132		480		66,176		513
Total Held to Maturity	$	71,347	$	271	$	120,159	$	1,329	$	191,506	$	1,600

	At December 31, 2018
	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	$	58,883	$	270	$	83,377	$	1,850	$	142,260	$	2,120
Agency mortgage-backed securities		1,134		10		16,768		601		17,902		611
Municipal securities		1,549		7		12,154		225		13,703		232
Corporate bonds		-		-		53,189		3,396		53,189		3,396
Asset backed securities		6,343		90		-		-		6,343		90
Total Available for Sale	$	67,909	$	377	$	165,488	$	6,072	$	233,397	$	6,449

	At December 31, 2018
	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	$	5,351	$	26	$	98,267	$	3,746	$	103,618	$	3,772
Collateralized mortgage obligations		44,574		475		173,467		5,318		218,041		5,793
Agency mortgage-backed securities		-		-		119,243		5,245		119,243		5,245
Total Held to Maturity	$	49,925	$	501	$	390,977	$	14,309	$	440,902	$	14,810

Unrealized losses on securities in the investment portfolio amounted to

$5.9

million with a total fair value of

$353.2

million as of

December 31, 2019

compared to unrealized losses of

$21.3

million with a total fair value of

$674.3

million as of

December 31, 2018.

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

nine

U.S. Government agency securities,

thirty-two

collateralized mortgage obligations and

seventeen

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

December 31, 2019.

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

December 31, 2019.

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, 2019,

the investment portfolio had

municipal securities that were in an unrealized loss position.

December 31, 2019,

the investment portfolio 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

seven

corporate bonds are with

four

of the largest U.S. financial institutions. Each financial institution is well capitalized.

December 31, 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 was a Sallie Mae bond, collateralized by student loans which are guaranteed by the U.S. Department of Education. This security was sold during the

first

quarter of

2019.

Proceeds associated with the sale of securities available for sale in

2019

were

$54.7

million. Gross gains of

$1.2

million and gross losses of

$67,000

were realized on these sales. The tax provision applicable to the net gains of

$1.1

million for the year ended

December 31, 2019

amounted to

$280,000.

Proceeds associated with the sale of securities available for sale in

2018

were

$6.4

million. Gross losses of

$67,000

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

December 31, 2018

amounted to

$18,000.

Included in the

2018

sales activity was the sale of

one

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

$660,000.

A gross loss of

$66,000

was realized on this sale. The tax benefit applicable to the net loss for the

twelve

months ended

December 31, 2018

amounted to

$17,000.

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

2018,

management received several inquiries regarding the availability of the remaining CDO security 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 the remaining CDO security resulting in a net loss of

$66,000

during

2018.

Proceeds of sales of securities available 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.

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.

December 2018,

twenty-three

CMOs and

two

MBSs with a fair value of

$230.1

million that were previously classified as available-for-sale were transferred to the held-to-maturity category. The securities were transferred at fair value. Unrealized losses of

$9.4

million associated with the transferred securities will remain in other comprehensive income and be amortized as an adjustment to yield over the remaining life of the securities. At

December 31, 2019,

the total approximated unrealized loss of

$8.1

million remaining to be amortized includes

ten

securities previously transferred in

July 2014.