Investment Securities

The following tables present the amortized cost and estimated fair values of investment securities:



Held to Maturity at March 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Government sponsored agency securities	$	6,001	$	—	$	(21	)	$	5,980
State and municipal securities	179		—		—			179
Mortgage-backed securities	428		39		—			467
	$	6,608	$	39	$	(21	)	$	6,626
Available for Sale at March 31, 2012
Equity securities	$	110,336	$	3,811	$	(1,028	)	$	113,119
U.S. Government securities	330		—		—			330
U.S. Government sponsored agency securities	3,980		71		(1		)	4,050
State and municipal securities	296,231		14,437		(36		)	310,632
Corporate debt securities	132,686		6,235		(11,341		)	127,580
Collateralized mortgage obligations	1,077,326		19,678		(419		)	1,096,585
Mortgage-backed securities	1,174,146		33,126		(646		)	1,206,626
Auction rate securities	241,682		151		(17,956		)	223,877
	$	3,036,717	$	77,509	$	(31,427	)	$	3,082,799



Held to Maturity at December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
U.S. Government sponsored agency securities	$	5,987	$	—	$	(14	)	$	5,973
State and municipal securities	179		—		—			179
Mortgage-backed securities	503		44		—			547
	$	6,669	$	44	$	(14	)	$	6,699
Available for Sale at December 31, 2011
Equity securities	$	117,486	$	2,383	$	(2,819	)	$	117,050
U.S. Government securities	334		—		—			334
U.S. Government sponsored agency securities	3,987		87		(1		)	4,073
State and municipal securities	306,186		15,832		—			322,018
Corporate debt securities	132,855		4,979		(14,528		)	123,306
Collateralized mortgage obligations	982,851		19,186		(828		)	1,001,209
Mortgage-backed securities	848,675		31,837		(415		)	880,097
Auction rate securities	240,852		120		(15,761		)	225,211
	$	2,633,226	$	74,424	$	(34,352	)	$	2,673,298

Securities carried at $1.8 billion as of March 31, 2012 and December 31, 2011 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 totaling $79.7 million and $82.5 million as of March 31, 2012 and December 31, 2011, respectively.

The amortized cost and estimated fair values of debt securities as of March 31, 2012, 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	$	179	$	179	$	55,804	$	56,063
Due from one year to five years	6,001		5,980		42,008		43,985
Due from five years to ten years	—		—		151,445		162,134
Due after ten years	—		—		425,652		404,287
	6,180		6,159		674,909		666,469
Collateralized mortgage obligations	—		—		1,077,326		1,096,585
Mortgage-backed securities	428		467		1,174,146		1,206,626
	$	6,608	$	6,626	$	2,926,381	$	2,969,680

The following table presents information related to the Corporation’s 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 (Losses)
	(in thousands)
Three months ended March 31, 2012
Equity securities	$	1,086	$	—		$	—		$	1,086
Debt securities	165		—			—			165
Total	$	1,251	$	—		$	—		$	1,251
Three months ended March 31, 2011:
Equity securities	$	5	$	—		$	(297	)	$	(292	)
Debt securities	3,589		(18		)	(994		)	2,577
Total	$	3,594	$	(18	)	$	(1,291	)	$	2,285

The following table presents a summary of the cumulative credit related other-than-temporary impairment charges, recognized as components of earnings, for debt securities still held by the Corporation at March 31, 2012 and 2011:



	2012			2011
	(in thousands)
Balance of cumulative credit losses on debt securities, beginning of period	$	(22,781	)	$	(27,560	)
Additions for credit losses recorded which were not previously recognized as components of earnings	—			(994		)
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	89			37
Balance of cumulative credit losses on debt securities, end of period	$	(22,692	)	$	(28,517	)

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 March 31, 2012:



	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	$	197	$	(1	)	$	5,379	$	(21	)	$	5,576	$	(22	)
State and municipal securities	1,676		(36		)	—		—			1,676		(36		)
Corporate debt securities	9,503		(1,660		)	37,877		(9,681		)	47,380		(11,341		)
Collateralized mortgage obligations	161,795		(419		)	—		—			161,795		(419		)
Mortgage-backed securities	201,971		(646		)	—		—			201,971		(646		)
Auction rate securities	14,574		(623		)	193,699		(17,333		)	208,273		(17,956		)
Total debt securities	389,716		(3,385		)	236,955		(27,035		)	626,671		(30,420		)
Equity securities	8,424		(761		)	1,914		(267		)	10,338		(1,028		)
	$	398,140	$	(4,146	)	$	238,869	$	(27,302	)	$	637,009	$	(31,448	)

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 March 31, 2012 to be other-than-temporarily impaired. As of March 31, 2012, the financial institutions stock portfolio had a cost basis of $24.0 million and a fair value of $26.8 million.

The unrealized holding losses on student loan auction rate securities, also known as auction rate certificates (ARCs), are attributable to liquidity issues resulting from the failure of periodic auctions. Fulton Financial Advisors (FFA), the investment management and trust division of the Corporation’s Fulton Bank, N.A. subsidiary, held ARCs for some of its customers’ accounts. 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 March 31, 2012, approximately $173 million, or 77%, of the ARCs were rated above investment grade, with approximately $27 million, or 12%, AAA rated and $106 million, or 47%, AA rated. Approximately $51 million, or 23%, of ARCs were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $32 million, or 63%, of the student loans underlying these ARCs have principal payments which are guaranteed by the federal government. In total, approximately $203 million, or 91%, of the student loans underlying the ARCs have principal payments which are guaranteed by the federal government. As of March 31, 2012, all ARCs were current and making scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $223.9 million were not subject to any other-than-temporary impairment charges as of March 31, 2012. 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.

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 March 31, 2012.

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 values of corporate debt securities:



	March 31, 2012				December 31, 2011
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	83,935	$	77,625	$	83,899	$	74,365
Subordinated debt	40,211		42,357		40,184		41,296
Pooled trust preferred securities	6,004		5,062		6,236		5,109
Corporate debt securities issued by financial institutions	130,150		125,044		130,319		120,770
Other corporate debt securities	2,536		2,536		2,536		2,536
Available for sale corporate debt securities	$	132,686	$	127,580	$	132,855	$	123,306

The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $6.3 million at March 31, 2012. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities during the three months ended March 31, 2012 or 2011, respectively. The Corporation held 13 single-issuer trust preferred securities that were rated below investment grade by at least one ratings agency, with an amortized cost of $41.2 million and an estimated fair value of $40.6 million at March 31, 2012. 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 $7.8 million and an estimated fair value of $6.3 million at March 31, 2012 were not rated by any ratings agency.

The Corporation held ten pooled trust preferred securities as of March 31, 2012. Nine of these securities, with an amortized cost of $5.6 million and an estimated fair value of $4.7 million, were rated below investment grade by at least one ratings agency, with ratings ranging from C to Ca. For each of the nine pooled trust preferred securities rated below investment grade, 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 asset ratios, of the individual financial institution issuers that comprise each pooled trust preferred security to estimate its expected deferral rate. The actual weighted average cumulative defaults and deferrals as a percentage of original collateral were approximately 39% as of March 31, 2012. The discounted cash flows modeling for pooled trust preferred securities held by the Corporation as of March 31, 2012 assumed, on average, an additional 15% expected deferral rate.

Based on management’s evaluations, corporate debt securities with a fair value of $127.6 million were not subject to any other-than-temporary impairment charges as of March 31, 2012. 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 maturity.