SECURITIES

The amortized cost and fair value of securities are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale:
March 31, 2014
U.S. government-sponsored entities	$	268,330	$	50	$	(3,699	)	$	264,681
Residential mortgage-backed securities:
Agency mortgage-backed securities		352,209		4,637		(905	)		355,941
Agency collateralized mortgage obligations		622,060		1,335		(13,643	)		609,752
Non-agency collateralized mortgage obligations		1,661		18		—			1,679
Commercial mortgage-backed securities		9,153		—		(24	)		9,129
States of the U.S. and political subdivisions		14,216		438		(149	)		14,505
Other debt securities		16,532		569		(861	)		16,240

Total debt securities		1,284,161		7,047		(19,281	)		1,271,927
Equity securities		1,444		699		—			2,143

	$	1,285,605	$	7,746	$	(19,281	)	$	1,274,070

December 31, 2013
U.S. government-sponsored entities	$	336,763	$	126	$	(5,904	)	$	330,985
Residential mortgage-backed securities:
Agency mortgage-backed securities		247,880		4,304		(1,303	)		250,881
Agency collateralized mortgage obligations		511,098		895		(20,794	)		491,199
Non-agency collateralized mortgage obligations		1,747		15		—			1,762
States of the U.S. and political subdivisions		16,842		410		(250	)		17,002
Collateralized debt obligations		37,203		4,507		(10,115	)		31,595
Other debt securities		16,505		524		(929	)		16,100

Total debt securities		1,168,038		10,781		(39,295	)		1,139,524
Equity securities		1,444		682		—			2,126

	$	1,169,482	$	11,463	$	(39,295	)	$	1,141,650

Securities Held to Maturity:
March 31, 2014
U.S. Treasury	$	502	$	123	$	—		$	625
U.S. government-sponsored entities		101,787		181		(1,284	)		100,684
Residential mortgage-backed securities:
Agency mortgage-backed securities		725,154		12,529		(3,817	)		733,866
Agency collateralized mortgage obligations		452,909		1,225		(11,976	)		442,158
Non-agency collateralized mortgage obligations		6,352		24		—			6,376
Commercial mortgage-backed securities		2,236		121		(15	)		2,342
States of the U.S. and political subdivisions		131,506		2,392		(955	)		132,943

	$	1,420,446	$	16,595	$	(18,047	)	$	1,418,994

December 31, 2013
U.S. Treasury	$	503	$	99	$	—		$	602
U.S. government-sponsored entities		43,322		180		(1,151	)		42,351
Residential mortgage-backed securities:
Agency mortgage-backed securities		628,681		12,281		(6,032	)		634,930
Agency collateralized mortgage obligations		385,408		764		(15,844	)		370,328
Non-agency collateralized mortgage obligations		6,852		44		(4	)		6,892
Commercial mortgage-backed securities		2,241		124		(37	)		2,328
States of the U.S. and political subdivisions		132,162		1,992		(2,022	)		132,132

	$	1,199,169	$	15,484	$	(25,090	)	$	1,189,563

The Corporation classifies securities as trading securities when management intends to sell such securities in the near term. Such securities are carried at fair value, with unrealized gains (losses) reflected through the consolidated statements of comprehensive income. The Corporation classified certain securities acquired in conjunction with the BCSB, PVF and ANNB acquisitions as trading securities. The Corporation both acquired and sold these trading securities during the quarterly periods in which each of the acquisitions occurred. As of March 31, 2014 and December 31, 2013, the Corporation did not hold any trading securities.

Gross gains and gross losses were realized on securities as follows:


	Three Months Ended
	March 31,
	2014			2013
Gross gains	$	18,009		$	1,032
Gross losses		(8,548	)		(348	)

	$	9,461		$	684

During the first quarter of 2014, the Corporation strategically sold its entire portfolio of pooled trust preferred securities (TPS) with net proceeds of $51,540 and a gain of $13,766. Of the 23 pooled securities sold, one was determined to be a disallowed investment under the Volcker Rule (Section 619) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), and as such, was required to be disposed of by July 2015. By selling these securities, the Corporation strengthened the risk profile of its investment portfolio, improved its capital levels due to lowered risk-weighted assets and generated leverageable capital to support future growth.

As of March 31, 2014, the amortized cost and fair value of securities, by contractual maturities, were as follows:


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	2,716	$	2,766
Due from one to five years		209,466		207,689		77,526		76,567
Due from five to ten years		82,024		80,998		85,763		86,428
Due after ten years		7,588		6,739		67,790		68,491

		299,078		295,426		233,795		234,252
Residential mortgage-backed securities:
Agency mortgage-backed securities		352,209		355,941		725,154		733,866
Agency collateralized mortgage obligations		622,060		609,752		452,909		442,158
Non-agency collateralized mortgage obligations		1,661		1,679		6,352		6,376
Commercial mortgage-backed securities		9,153		9,129		2,236		2,342
Equity securities		1,444		2,143		—		—

	$	1,285,605	$	1,274,070	$	1,420,446	$	1,418,994

Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on mortgage-backed securities based on the payment patterns of the underlying collateral.

At March 31, 2014 and December 31, 2013, securities with a carrying value of $946,173 and $909,548, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $811,881 and $860,279 at March 31, 2014 and December 31, 2013, respectively, were pledged as collateral for short-term borrowings.

Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:


	Less than 12 Months							12 Months or More							Total
	#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses
Securities Available for Sale:
March 31, 2014
U.S. government-sponsored entities		18	$	249,631	$	(3,699	)		—	$	—	$	—			18	$	249,631	$	(3,699	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		11		177,722		(905	)		—		—		—			11		177,722		(905	)
Agency collateralized mortgage obligations		24		398,335		(9,937	)		4		68,266		(3,706	)		28		466,601		(13,643	)
Commercial mortgage-backed securities		1		9,129		(24	)		—		—		—			1		9,129		(24	)
States of the U.S. and political subdivisions		2		3,123		(149	)		—		—		—			2		3,123		(149	)
Other debt securities		—		—		—			4		6,020		(861	)		4		6,020		(861	)

		56	$	837,940	$	(14,714	)		8	$	74,286	$	(4,567	)		64	$	912,226	$	(19,281	)

December 31, 2013
U.S. government-sponsored entities		17	$	232,962	$	(5,904	)		—	$	—	$	—			17	$	232,962	$	(5,904	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		9		108,284		(1,303	)		—		—		—			9		108,284		(1,303	)
Agency collateralized mortgage obligations		26		389,989		(18,644	)		2		34,229		(2,150	)		28		424,218		(20,794	)
States of the U.S. and political subdivisions		2		3,022		(250	)		—		—		—			2		3,022		(250	)
Collateralized debt obligations		—		—		—			8		7,965		(10,115	)		8		7,965		(10,115	)
Other debt securities		—		—		—			4		5,950		(929	)		4		5,950		(929	)

		54	$	734,257	$	(26,101	)		14	$	48,144	$	(13,194	)		68	$	782,401	$	(39,295	)

Securities Held to Maturity:
March 31, 2014
U.S. government-sponsored entities		7	$	73,748	$	(788	)		1	$	14,504	$	(496	)		8	$	88,252	$	(1,284	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		23		347,721		(3,745	)		1		1,304		(72	)		24		349,025		(3,817	)
Agency collateralized mortgage obligations		20		249,082		(8,442	)		4		66,850		(3,534	)		24		315,932		(11,976	)
Commercial mortgage-backed securities		1		1,005		(15	)		—		—		—			1		1,005		(15	)
States of the U.S. and political subdivisions		21		27,262		(955	)		—		—		—			21		27,262		(955	)

		72	$	698,818	$	(13,945	)		6	$	82,658	$	(4,102	)		78	$	781,476	$	(18,047	)

December 31, 2013
U.S. government-sponsored entities		2	$	24,513	$	(530	)		1	$	14,378	$	(621	)		3	$	38,891	$	(1,151	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		24		308,864		(5,942	)		1		1,296		(90	)		25		310,160		(6,032	)
Agency collateralized mortgage obligations		21		301,312		(15,844	)		—		—		—			21		301,312		(15,844	)
Non-agency collateralized mortgage obligations		3		2,010		(4	)		—		—		—			3		2,010		(4	)
Commercial mortgage-backed securities		1		984		(37	)		—		—		—			1		984		(37	)
States of the U.S. and political subdivisions		27		31,537		(2,022	)		—		—		—			27		31,537		(2,022	)

		78	$	669,220	$	(24,379	)		2	$	15,674	$	(711	)		80	$	684,894	$	(25,090	)

The Corporation does not intend to sell the debt securities and it is not more likely than not the Corporation will be required to sell the securities before recovery of their amortized cost basis.

The Corporation’s unrealized losses on collateralized debt obligations (CDOs) as of December 31, 2013 related to investments in pooled TPS, all of which were sold during the first quarter of 2014 as previously noted. The Corporation’s remaining portfolio of TPS consists of four single-issuer securities, which are primarily from money-center and large regional banks and are included in other debt securities. These single-issuer TPS had an amortized cost and estimated fair value of $6,881 and $6,020 at March 31, 2014, respectively. The Corporation has concluded from its analysis performed at March 31, 2014 that it is probable that the Corporation will collect all contractual principal and interest payments related to these securities.

Other-Than-Temporary Impairment

The Corporation evaluates its investment securities portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis. The following table presents a summary of the cumulative credit-related OTTI charges recognized as components of earnings for securities for which a portion of an OTTI is recognized in other comprehensive income:


	Collateralized Debt Obligations			Residential Non-Agency CMOs			Equities		Total
For the Three Months Ended March 31, 2014
Beginning balance	$	17,155		$	—		$	27	$	17,182
Loss where impairment was not previously recognized		—			—			—		—
Additional loss where impairment was previously recognized		—			—			—		—
Reduction due to credit impaired securities sold		(17,155	)		—			—		(17,155	)

Ending balance	$	—		$	—		$	27	$	27

For the Three Months Ended March 31, 2013
Beginning balance	$	17,155		$	212			—	$	17,367
Loss where impairment was not previously recognized		—			—			—		—
Additional loss where impairment was previously recognized		—			—			—		—
Reduction due to credit impaired securities sold		—			(212	)		—		(212	)

Ending balance	$	17,155		$	—			—	$	17,155

The Corporation did not recognize any impairment losses on securities for the three months ended March 31, 2014 or 2013.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio of $146,011 as of March 31, 2014 is highly rated with an average entity-specific rating of AA and 98.5% of the portfolio rated A or better. General obligation bonds comprise 98.9% of the portfolio. Geographically, municipal bonds support the Corporation’s footprint as 80.9% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $1,000. In addition to the strong stand-alone ratings, 69.2% of the municipalities have purchased credit enhancement insurance to strengthen the creditworthiness of their issue. Management also reviews the credit profile of each issuer on a quarterly basis.