Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held to Maturity at September 30, 2013	(in thousands)
Mortgage-backed securities	$	206	$	18	$	—		$	224

Available for Sale at September 30, 2013
Equity securities	$	123,111	$	8,596	$	(130	)	$	131,577
U.S. Government securities	2,250		—		—			2,250
U.S. Government sponsored agency securities	828		8		(1		)	835
State and municipal securities	288,659		7,552		(2,698		)	293,513
Corporate debt securities	108,272		5,115		(6,836		)	106,551
Collateralized mortgage obligations	1,113,753		9,373		(40,149		)	1,082,977
Mortgage-backed securities	909,292		15,209		(10,271		)	914,230
Auction rate securities	172,052		36		(17,578		)	154,510
	$	2,718,217	$	45,889	$	(77,663	)	$	2,686,443



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held to Maturity at December 31, 2012	(in thousands)
Mortgage-backed securities	$	292	$	27	$	—		$	319

Available for Sale at December 31, 2012
Equity securities	$	118,465	$	5,016	$	(918	)	$	122,563
U.S. Government securities	325		—		—			325
U.S. Government sponsored agency securities	2,376		21		—			2,397
State and municipal securities	301,842		13,763		(86		)	315,519
Corporate debt securities	112,162		7,858		(7,178		)	112,842
Collateralized mortgage obligations	1,195,234		16,008		(123		)	1,211,119
Mortgage-backed securities	847,790		31,831		—			879,621
Auction rate securities	174,026		—		(24,687		)	149,339
	$	2,752,220	$	74,497	$	(32,992	)	$	2,793,725

Securities carried at $1.8 billion as of September 30, 2013 and December 31, 2012 were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

Available for sale equity securities include restricted investment securities issued by the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank ($87.9 million at September 30, 2013 and $71.7 million at December 31, 2012), common stocks of financial institutions ($36.8 million at September 30, 2013 and $44.2 million at December 31, 2012) and other equity investments ($6.9 million at September 30, 2013 and $6.7 million at December 31, 2012).

As of September 30, 2013, the financial institutions stock portfolio had a cost basis of $28.5 million and a fair value of $36.8 million, including an investment in a single financial institution with a cost basis of $20.0 million and a fair value of $26.2 million. The fair value of this investment accounted for 71.1% of the fair value of the Corporation's investments in the common stocks of publicly traded financial institutions. No other investment within the financial institutions stock portfolio exceeded 5% of the portfolio's fair value.

The amortized cost and estimated fair values of debt securities as of September 30, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(in thousands)
Due in one year or less	$	—	$	—	$	45,346	$	45,470
Due from one year to five years	—		—		63,113		66,924
Due from five years to ten years	—		—		197,964		201,552
Due after ten years	—		—		265,638		243,713
	—		—		572,061		557,659
Collateralized mortgage obligations	—		—		1,113,753		1,082,977
Mortgage-backed securities	206		224		909,292		914,230
	$	206	$	224	$	2,595,106	$	2,554,866

The following table presents information related to the gains and losses on the sales of equity and debt securities, and losses recognized for the other-than-temporary impairment of investments:



	Gross Realized Gains		Gross Realized Losses			Other-than- temporary Impairment Losses			Net Gains
Three months ended September 30, 2013			(in thousands)
Equity securities	$	2,135	$	—		$	—		$	2,135
Debt securities	617		(22		)	(97		)	498
Total	$	2,752	$	(22	)	$	(97	)	$	2,633
Three months ended September 30, 2012
Equity securities	$	—	$	—		$	(24	)	$	(24	)
Debt securities	85		—			(19		)	66
Total	$	85	$	—		$	(43	)	$	42

Nine months ended September 30, 2013
Equity securities	$	4,357	$	(28	)	$	(27	)	$	4,302
Debt securities	3,788		(22		)	(97		)	3,669
Total	$	8,145	$	(50	)	$	(124	)	$	7,971
Nine months ended September 30, 2012
Equity securities	$	2,603	$	—		$	(81	)	$	2,522
Debt securities	328		—			(19		)	309
Total	$	2,931	$	—		$	(100	)	$	2,831

The other-than-temporary impairment charges for equity securities during the three and nine months ended September 30, 2013 and 2012 were for investments in stocks of financial institutions and were due to the severity and duration of the declines in the fair values of certain bank stock stocks, in conjunction with management's assessment of the near-term prospects of each specific issuer.

The credit related other-than-temporary impairment charges for debt securities during the three and nine months ended September 30, 2013 and 2012 were for investments in pooled trust preferred securities issued by financial institutions. The credit related other-than-temporary impairment charges for the pooled trust preferred securities were determined based on an expected cash flows model.

The following table presents a summary of the cumulative credit related other-than-temporary impairment charges, recognized as components of earnings, for debt securities held by the Corporation at September 30, 2013 and 2012:



	Three Months ended September 30						Nine Months ended September 30
	2013			2012			2013			2012
	(in thousands)
Balance of cumulative credit losses on debt securities, beginning of period	$	(20,607	)	$	(22,692	)	$	(23,079	)	$	(22,781	)
Reductions for securities sold during the period	—			—			2,468			—
Additions for credit losses recorded which were not previously recognized as components of earnings	(97		)	(19		)	(97		)	(19		)
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			66			4			155
Balance of cumulative credit losses on debt securities, end of period	$	(20,704	)	$	(22,645	)	$	(20,704	)	$	(22,645	)

The following table presents the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2013:



	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(in thousands)
U.S. Government sponsored agency securities	$	—	$	—		$	59	$	(1	)	$	59	$	(1	)
State and municipal securities	54,679		(2,698		)	—		—			54,679		(2,698		)
Corporate debt securities	6,889		(108		)	42,989		(6,728		)	49,878		(6,836		)
Collateralized mortgage obligations	746,630		(40,149		)	—		—			746,630		(40,149		)
Mortgage-backed securities	499,406		(10,271		)	—		—			499,406		(10,271		)
Auction rate securities	87		(3		)	153,245		(17,575		)	153,332		(17,578		)
Total debt securities	1,307,691		(53,229		)	196,293		(24,304		)	1,503,984		(77,533		)
Equity securities	17		(1		)	850		(129		)	867		(130		)
	$	1,307,708	$	(53,230	)	$	197,143	$	(24,433	)	$	1,504,851	$	(77,663	)

The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the decline in market value of these securities is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, the Corporation does not consider these investments to be other-than-temporarily impaired as of September 30, 2013.

The unrealized holding losses on auction rate securities, or auction rate certificates (ARCs), are attributable to liquidity issues resulting from the failure of periodic auctions. Fulton Financial Advisors (FFA) is the investment management and trust division of the Corporation’s Fulton Bank, N.A. subsidiary. FFA had previously purchased ARCs for customers as short-term investments with fair values that could be derived based on periodic auctions under normal market conditions. During 2008 and 2009, the Corporation purchased ARCs from customers due to the failure of these periodic auctions, which made these previously short-term investments illiquid.

As of September 30, 2013, approximately $147 million, or 95%, of the ARCs were rated above investment grade, with approximately $8 million, or 5%, AAA rated and $100 million, or 65%, AA rated. Approximately $8 million, or 5%, of ARCs were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $6 million, or 72%, of the student loans underlying these ARCs have principal payments which are guaranteed by the federal government. In total, approximately $151 million, or 98%, of the student loans underlying the ARCs have principal payments which are guaranteed by the federal government. As of September 30, 2013, all ARCs were current and making scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $154.5 million were not subject to any other-than-temporary impairment charges as of September 30, 2013. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

For its investments in equity securities, particularly its investments in stocks of financial institutions, management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Corporation’s ability and intent to hold those investments for a reasonable period of time sufficient for a recovery of fair value, the Corporation does not consider those investments with unrealized holding losses as of September 30, 2013 to be other-than-temporarily impaired.

The majority of the Corporation's available for sale corporate debt securities are issued by financial institutions. The following table presents the amortized cost and estimated fair value of corporate debt securities:



	September 30, 2013				December 31, 2012
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	54,722	$	48,368	$	56,834	$	51,656
Subordinated debt	47,375		50,493		47,286		51,747
Pooled trust preferred securities	3,676		5,191		5,530		6,927
Corporate debt securities issued by financial institutions	105,773		104,052		109,650		110,330
Other corporate debt securities	2,499		2,499		2,512		2,512
Available for sale corporate debt securities	$	108,272	$	106,551	$	112,162	$	112,842

The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $6.4 million at September 30, 2013. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities during the three and nine months ended September 30, 2013 or 2012. The Corporation held six single-issuer trust preferred securities that were rated below investment grade by at least one ratings agency, with an amortized cost of $13.5 million and an estimated fair value of $11.6 million at September 30, 2013. The majority of the single-issuer trust preferred securities rated below investment grade were rated BB or Ba. Single-issuer trust preferred securities with an amortized cost of $4.7 million and an estimated fair value of $3.8 million at September 30, 2013 were not rated by any ratings agency.

As of September 30, 2013, the Corporation held eight pooled trust preferred securities with an amortized cost of $3.7 million and an estimated fair value of $5.2 million that were rated below investment grade by at least one ratings agency, with ratings ranging from C to Ca. The class of securities held by the Corporation was below the most senior tranche, with the Corporation’s interests being subordinate to other investors in the pool. The Corporation determines the fair value of pooled trust preferred securities based on quotes provided by third-party brokers.

The amortized cost of pooled trust preferred securities is the purchase price of the securities, net of cumulative credit related other-than-temporary impairment charges, determined using an expected cash flows model. The most significant input to the expected cash flows model is the expected payment deferral rate for each pooled trust preferred security. The Corporation evaluates the financial metrics, such as capital ratios and non-performing assets ratios, of the individual financial institution issuers that comprise each pooled trust preferred security to estimate its expected deferral rate.

Based on management’s evaluations, corporate debt securities with a fair value of $106.6 million were not subject to any additional other-than-temporary impairment charges as of September 30, 2013. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.