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 March 31, 2013	(in thousands)
Mortgage-backed securities	$	257	$	22	$	—		$	279

Available for Sale at March 31, 2013
Equity securities	$	117,624	$	6,507	$	(241	)	$	123,890
U.S. Government securities	325		—		—			325
U.S. Government sponsored agency securities	885		10		(1		)	894
State and municipal securities	283,142		12,221		(170		)	295,193
Corporate debt securities	112,221		8,906		(6,083		)	115,044
Collateralized mortgage obligations	1,293,745		15,279		(3,225		)	1,305,799
Mortgage-backed securities	789,048		27,022		(7		)	816,063
Auction rate securities	173,966		—		(19,327		)	154,639
	$	2,770,956	$	69,945	$	(29,054	)	$	2,811,847



	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 March 31, 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 ($74.5 million at March 31, 2013 and $71.7 million at December 31, 2012), common stocks of financial institutions ($42.5 million at March 31, 2013 and $44.2 million at December 31, 2012) and other equity investments ($6.9 million at March 31, 2013 and $6.7 million at December 31, 2012).

As of March 31, 2013, the financial institutions stock portfolio had a cost basis of $36.4 million and a fair value of $42.5 million, including an investment in a single financial institution with a cost basis of $20.0 million and a fair value of $22.6 million. The fair value of this investment accounted for approximately 50% 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 March 31, 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	$	—	$	—	$	36,715	$	36,777
Due from one year to five years	—		—		64,996		69,357
Due from five years to ten years	—		—		179,933		190,269
Due after ten years	—		—		288,895		269,692
	—		—		570,539		566,095
Collateralized mortgage obligations	—		—		1,293,745		1,305,799
Mortgage-backed securities	257		279		789,048		816,063
	$	257	$	279	$	2,653,332	$	2,687,957

There were no gross realized losses on the sales of investment securities or other-than-temporary impairment losses recognized for investment securities during the three months ended March 31, 2013 and 2012. The following table presents information related to the gross realized gains on the sales of equity and debt securities (in thousands):



Three months ended March 31, 2013
Equity securities	$	1,139
Debt securities	1,334
Total	$	2,473
Three months ended March 31, 2012
Equity securities	$	1,086
Debt securities	165
Total	$	1,251

There were no changes in the total cumulative credit related other-than-temporary impairment charges during the three months ended March 31, 2013 and 2012. The cumulative credit related other-than-temporary impairment charges for debt securities still held by the Corporation at March 31, 2013 and 2012 were $23.1 million and $22.7 million, respectively.

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, 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	$	—	$	—		$	80	$	(1	)	$	80	$	(1	)
State and municipal securities	15,203		(170		)	—		—			15,203		(170		)
Corporate debt securities	2,992		(4		)	44,513		(6,079		)	47,505		(6,083		)
Collateralized mortgage obligations	457,415		(3,225		)	—		—			457,415		(3,225		)
Mortgage-backed securities	25,033		(7		)	—		—			25,033		(7		)
Auction rate securities	10,954		(502		)	143,596		(18,825		)	154,550		(19,327		)
Total debt securities	511,597		(3,908		)	188,189		(24,905		)	699,786		(28,813		)
Equity securities	1,077		(60		)	1,618		(181		)	2,695		(241		)
	$	512,674	$	(3,968	)	$	189,807	$	(25,086	)	$	702,481	$	(29,054	)

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, 2013 to be other-than-temporarily impaired.

The unrealized holding losses on 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 March 31, 2013, approximately $143 million, or 92%, of the ARCs were rated above investment grade, with approximately $8 million, or 5%, AAA rated and $100 million, or 65%, AA rated. Approximately $12 million, or 8%, of ARCs were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $8 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 97%, of the student loans underlying the ARCs have principal payments which are guaranteed by the federal government. As of March 31, 2013, all ARCs were current and making scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $154.6 million were not subject to any other-than-temporary impairment charges as of March 31, 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.

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, 2013.

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:



	March 31, 2013				December 31, 2012
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	56,863	$	52,523	$	56,834	$	51,656
Subordinated debt	47,315		51,652		47,286		51,747
Pooled trust preferred securities	5,530		8,356		5,530		6,927
Corporate debt securities issued by financial institutions	109,708		112,531		109,650		110,330
Other corporate debt securities	2,513		2,513		2,512		2,512
Available for sale corporate debt securities	$	112,221	$	115,044	$	112,162	$	112,842

The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $4.3 million at March 31, 2013. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities during the three months ended March 31, 2013 or 2012. The Corporation held eight single-issuer trust preferred securities that were rated below investment grade by at least one ratings agency, with an amortized cost of $22.9 million and an estimated fair value of $22.7 million at March 31, 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 $3.4 million at March 31, 2013 were not rated by any ratings agency.

The Corporation held ten pooled trust preferred securities as of March 31, 2013. Nine of these securities, with an amortized cost of $5.4 million and an estimated fair value of $8.2 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 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 $115.0 million were not subject to any additional other-than-temporary impairment charges as of March 31, 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.