Investment Securities

Held to Maturity

The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at March 31, 2015 and December 31, 2014 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	139,087	$	14,589	$	—		$	153,676
U.S. government agency securities	13,630		410		—			14,040
Obligations of states and political subdivisions:
Obligations of states and state agencies	196,849		10,245		(152		)	206,942
Municipal bonds	293,908		12,152		(86		)	305,974
Total obligations of states and political subdivisions	490,757		22,397		(238		)	512,916
Residential mortgage-backed securities	1,059,278		19,205		(3,804		)	1,074,679
Trust preferred securities	98,458		104		(12,482		)	86,080
Corporate and other debt securities	24,609		2,625		—			27,234
Total investment securities held to maturity	$	1,825,819	$	59,330	$	(16,524	)	$	1,868,625
December 31, 2014
U.S. Treasury securities	$	139,121	$	12,179	$	—		$	151,300
U.S. government agency securities	14,081		304		—			14,385
Obligations of states and political subdivisions:
Obligations of states and state agencies	197,440		9,410		(412		)	206,438
Municipal bonds	302,578		10,955		(278		)	313,255
Total obligations of states and political subdivisions	500,018		20,365		(690		)	519,693
Residential mortgage-backed securities	986,992		18,233		(6,244		)	998,981
Trust preferred securities	98,456		167		(12,380		)	86,243
Corporate and other debt securities	39,648		5,726		—			45,374
Total investment securities held to maturity	$	1,778,316	$	56,974	$	(19,314	)	$	1,815,976

The age of unrealized losses and fair value of related securities held to maturity at March 31, 2015 and December 31, 2014 were as follows:



	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
March 31, 2015
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	22,194	$	(145	)	$	1,961	$	(7	)	$	24,155	$	(152	)
Municipal bonds	11,876		(79		)	10,253		(7		)	22,129		(86		)
Total obligations of states and political subdivisions	34,070		(224		)	12,214		(14		)	46,284		(238		)
Residential mortgage-backed securities	211,113		(1,178		)	177,774		(2,626		)	388,887		(3,804		)
Trust preferred securities	4,825		(16		)	66,111		(12,466		)	70,936		(12,482		)
Total	$	250,008	$	(1,418	)	$	256,099	$	(15,106	)	$	506,107	$	(16,524	)
December 31, 2014
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	4,927	$	(50	)	$	19,050	$	(362	)	$	23,977	$	(412	)
Municipal bonds	—		—			28,815		(278		)	28,815		(278		)
Total obligations of states and political subdivisions	4,927		(50		)	47,865		(640		)	52,792		(690		)
Residential mortgage-backed securities	107,357		(563		)	276,580		(5,681		)	383,937		(6,244		)
Trust preferred securities	—		—			66,194		(12,380		)	66,194		(12,380		)
Total	$	112,284	$	(613	)	$	390,639	$	(18,701	)	$	502,923	$	(19,314	)

The unrealized losses on investment securities held to maturity are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities held to maturity portfolio in an unrealized loss position at March 31, 2015 was 72 as compared to 57 at December 31, 2014.

The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at March 31, 2015 largely related to several investment grade securities mainly issued by Ginnie Mae.

The unrealized losses existing for more than twelve months for trust preferred securities at March 31, 2015 primarily related to four non-rated single-issuer trust preferred securities issued by bank holding companies. All single-issuer trust preferred securities classified as held to maturity are paying in accordance with their terms, have no deferrals of interest or defaults and, if applicable, the issuers meet the regulatory capital requirements to be considered “well-capitalized institutions” at March 31, 2015.

Management does not believe that any individual unrealized loss as of March 31, 2015 included in the table above represents other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates and market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are no credit losses on these securities. Valley does not have the intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or maturity.

During the quarter ended March 31, 2015, Valley sold one corporate debt security classified as held to maturity with amortized costs of $9.8 million. See "Realized Gains and Losses" section below for further details regarding this transaction.

As of March 31, 2015, the fair value of investments held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $902.0 million.

The contractual maturities of investments in debt securities held to maturity at March 31, 2015 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.



	March 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	55,838	$	55,861
Due after one year through five years	63,369		67,976
Due after five years through ten years	330,116		352,827
Due after ten years	317,218		317,282
Residential mortgage-backed securities	1,059,278		1,074,679
Total investment securities held to maturity	$	1,825,819	$	1,868,625

Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 6.7 years at March 31, 2015.

Available for Sale

The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at March 31, 2015 and December 31, 2014 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	51,058	$	17	$	(602	)	$	50,473
U.S. government agency securities	26,721		712		(94		)	27,339
Obligations of states and political subdivisions:
Obligations of states and state agencies	11,101		118		—			11,219
Municipal bonds	33,331		97		(440		)	32,988
Total obligations of states and political subdivisions	44,432		215		(440		)	44,207
Residential mortgage-backed securities	615,880		6,081		(4,246		)	617,715
Trust preferred securities*	10,641		—		(2,103		)	8,538
Corporate and other debt securities	73,241		1,712		(451		)	74,502
Equity securities	21,071		784		(1,111		)	20,744
Total investment securities available for sale	$	843,044	$	9,521	$	(9,047	)	$	843,518
December 31, 2014
U.S. Treasury securities	$	51,063	$	2	$	(1,622	)	$	49,443
U.S. government agency securities	33,163		748		(86		)	33,825
Obligations of states and political subdivisions:
Obligations of states and state agencies	11,160		—		(24		)	11,136
Municipal bonds	33,340		127		(552		)	32,915
Total obligations of states and political subdivisions	44,500		127		(576		)	44,051
Residential mortgage-backed securities	643,382		5,854		(4,960		)	644,276
Trust preferred securities*	23,194		296		(2,953		)	20,537
Corporate and other debt securities	73,585		1,645		(1,218		)	74,012
Equity securities	21,071		671		(916		)	20,826
Total investment securities available for sale	$	889,958	$	9,343	$	(12,331	)	$	886,970



*	Includes two and three pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at March 31, 2015 and December 31, 2014, respectively.

The age of unrealized losses and fair value of related securities available for sale at March 31, 2015 and December 31, 2014 were as follows:



	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	49,520	$	(602	)	$	—	$	—		$	49,520	$	(602	)
U.S. government agency securities	—		—			5,293		(94		)	5,293		(94		)
Obligations of states and political subdivisions:
Municipal bonds	19,072		(204		)	11,044		(236		)	30,116		(440		)
Total obligations of states and political subdivisions	19,072		(204		)	11,044		(236		)	30,116		(440		)
Residential mortgage-backed securities	32,256		(518		)	216,266		(3,728		)	248,522		(4,246		)
Trust preferred securities	—		—			8,538		(2,103		)	8,538		(2,103		)
Corporate and other debt securities	18,987		(43		)	27,622		(408		)	46,609		(451		)
Equity securities	46		(3		)	14,533		(1,108		)	14,579		(1,111		)
Total	$	119,881	$	(1,370	)	$	283,296	$	(7,677	)	$	403,177	$	(9,047	)
December 31, 2014
U.S. Treasury securities	$	—	$	—		$	48,504	$	(1,622	)	$	48,504	$	(1,622	)
U.S. government agency securities	—		—			5,442		(86		)	5,442		(86		)
Obligations of states and political subdivisions:
Obligations of states and state agencies	—		—			11,136		(24		)	11,136		(24		)
Municipal bonds	13,337		(426		)	14,637		(126		)	27,974		(552		)
Total obligations of states and political subdivisions	13,337		(426		)	25,773		(150		)	39,110		(576		)
Residential mortgage-backed securities	57,543		(121		)	244,910		(4,839		)	302,453		(4,960		)
Trust preferred securities	2,210		(117		)	12,085		(2,836		)	14,295		(2,953		)
Corporate and other debt securities	27,500		(294		)	28,269		(924		)	55,769		(1,218		)
Equity securities	158		(41		)	14,769		(875		)	14,927		(916		)
Total	$	100,748	$	(999	)	$	379,752	$	(11,332	)	$	480,500	$	(12,331	)

The unrealized losses on investment securities available for sale are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities available for sale portfolio in an unrealized loss position at March 31, 2015 was 83 as compared to 96 at December 31, 2014.

The unrealized losses for trust preferred securities at March 31, 2015 for more than twelve months in the table above largely relate to 2 pooled trust preferred securities with an amortized cost of $10.6 million and a fair value of $8.5 million. One of the one pooled trust preferred securities had a unrealized loss of $1.4 million and an investment grade rating at March 31, 2015. The second pooled trust preferred security had a non-investment grade rating and was initially other-than-temporarily impaired in 2008 with additional estimated credit losses recognized in 2009 and 2011, and is not accruing interest. All of the single-issuer trust preferred securities are paying in accordance with their terms and have no deferrals of interest or defaults and, if applicable, meet the regulatory capital requirements to be considered “well-capitalized institutions” at March 31, 2015.

Management does not believe that any individual unrealized loss as of March 31, 2015 represents an other-than-temporary impairment, as management mainly attributes the declines in value to changes in interest rates and market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are no credit losses on these securities. Valley has no intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or, if necessary, maturity.

As of March 31, 2015, the fair value of securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $396.7 million.

The contractual maturities of investment securities available for sale at March 31, 2015 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.



	March 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due after one year through five years	$	65,316	$	66,915
Due after five years through ten years	79,110		78,201
Due after ten years	61,667		59,943
Residential mortgage-backed securities	615,880		617,715
Equity securities	21,071		20,744
Total investment securities available for sale	$	843,044	$	843,518

The weighted average remaining expected life for residential mortgage-backed securities available for sale at March 31, 2015 was 5.2 years.

Other-Than-Temporary Impairment Analysis

Valley records impairment charges on its investment securities when the decline in fair value is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities; decline in the creditworthiness of the issuer; absence of reliable pricing information for investment securities; adverse changes in business climate; adverse actions by regulators; prolonged decline in value of equity investments; or unanticipated changes in the competitive environment could have a negative effect on Valley’s investment portfolio and may result in other-than-temporary impairment on certain investment securities in future periods. Valley’s investment portfolios include private label mortgage-backed securities, trust preferred securities principally issued by bank holding companies (including two pooled trust preferred securities), corporate bonds primarily issued by banks, and perpetual preferred and common equity securities issued by banks. These investments may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers and, if applicable, the underlying mortgage loan collateral of the security.

There were no other-than-temporary impairment losses on securities recognized in earnings for the three months ended March 31, 2015 and 2014. At March 31, 2015, four previously impaired private label mortgage-backed securities (prior to December 31, 2012) had a combined amortized cost and fair value of $13.3 million and $13.4 million, respectively, while one previously impaired pooled trust preferred security had a combined amortized cost and fair value of $2.8 million and $2.0 million, respectively. The previously impaired pooled trust preferred security was not accruing interest during the three months ended March 31, 2015 and 2014. Additionally, one previously impaired pooled trust preferred security was sold during the first quarter of 2015 for an immaterial gain. See the table and discussion below for additional information.

The following table presents the changes in the credit loss component of cumulative other-than-temporary impairment losses on debt securities classified as either held to maturity or available for sale that Valley has previously recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Balance, beginning of period	$	8,947		$	9,990
Accretion of credit loss impairment due to an increase in expected cash flows	(144		)	(198		)
Sales	(2,382		)	—
Balance, end of period	$	6,421		$	9,792

The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to each period presented. Other-than-temporary impairments recognized in earnings for credit impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit impaired (initial credit impairment) or is not the first time the debt security was credit impaired (subsequent credit impairment). The credit loss component is reduced if Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.

Realized Gains and Losses

Gross gains (losses) realized on sales, maturities and other securities transactions related to investment securities included in earnings for the three months ended March 31, 2015 and 2014 were as follows:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Sales transactions:
Gross gains	$	3,274		$	—
Gross losses	(947		)	—
	$	2,327		$	—
Maturities and other securities transactions:
Gross gains	$	89		$	1
Gross losses	—			(9		)
	$	89		$	(8	)
Total gains on securities transactions, net	$	2,416		$	(8	)

Valley recognized gross gains from sales transactions of investment securities totaling $3.3 million for the three months ended March 31, 2015 due to the sale of corporate debt securities and trust preferred securities with amortized cost totaling $25.9 million. These transactions included a corporate debt security classified as held to maturity and a previously impaired pooled trust preferred security with amortized costs of $9.8 million and $2.6 million, respectively. Additionally, Valley recognized $947 thousand of gross losses during the first quarter of 2015 due to the sale of mostly trust preferred securities with a total amortized cost of $8.3 million. The vast majority of the sales of investment securities were due to a one-time investment portfolio re-balancing during the first quarter due to changes in our regulatory capital calculation under the new Basel III regulatory capital reform (effective for Valley on January 1, 2015). Under ASC Topic 320, “Investments - Debt and Equity Securities,” the one-time sale of held to maturity securities based upon the change in capital requirements is permitted without tainting the remaining held to maturity investment portfolio.

Trading Securities

The fair value of trading securities (consisting of 2 single-issuer bank trust preferred securities) was $14.2 million at December 31, 2014. During the first quarter of 2015, one of the two securities was redeemed by the issuer and the other security was sold prior to its issuer's call date in April 2015. Both of the securities transactions resulted in an immaterial aggregate net trading loss for the first quarter of 2015 which was included in the other non-interest income category of our consolidated statements of income. Net trading losses were also immaterial for the three months ended March 31, 2014. Interest income on trading securities totaled $213 thousand and $290 thousand for the three months ended March 31, 2015 and 2014, respectively.