INVESTMENT SECURITIES (Note 4)

As of December 31, 2013, Valley had approximately $1.7 billion, $829.7 million, and $14.3 million in held to maturity, available for sale, and trading investment securities, respectively. 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 three 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. See the “Other-Than-Temporary Impairment Analysis” section below for further discussion.

Held to Maturity

The amortized cost, gross unrealized gains and losses and fair value of investment securities held to maturity at December 31, 2013 and 2012 were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2013
U.S. Treasury securities	$	139,255	$	5,567	$	(515	)	$	144,307
U.S. government agency securities		4,427		—		(62	)		4,365
Obligations of states and political subdivisions:
Obligations of states and state agencies		192,653		1,944		(5,473	)		189,124
Municipal bonds		353,233		6,053		(5,259	)		354,027

Total obligations of states and political subdivisions		545,886		7,997		(10,732	)		543,151

Residential mortgage-backed securities		886,043		12,609		(27,631	)		871,021
Trust preferred securities		103,458		363		(12,332	)		91,489
Corporate and other debt securities		52,668		4,426		—			57,094

Total investment securities held to maturity	$	1,731,737	$	30,962	$	(51,272	)	$	1,711,427

December 31, 2012
U.S. Treasury securities	$	99,869	$	15,460	$	—		$	115,329
Obligations of states and political subdivisions:
Obligations of states and state agencies		180,304		11,817		(105	)		192,016
Municipal bonds		326,169		13,873		(92	)		339,950

Total obligations of states and political subdivisions		506,473		25,690		(197	)		531,966

Residential mortgage-backed securities		813,647		24,824		(355	)		838,116
Trust preferred securities		127,505		930		(14,778	)		113,657
Corporate and other debt securities		52,213		6,669		—			58,882

Total investment securities held to maturity	$	1,599,707	$	73,573	$	(15,330	)	$	1,657,950

The age of unrealized losses and fair value of related securities held to maturity at December 31, 2013 and 2012 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)
December 31, 2013
U.S. Treasury securities	$	64,537	$	(515	)	$	—	$	—		$	64,537	$	(515	)
U.S. government agency securities		4,365		(62	)		—		—			4,365		(62	)
Obligations of states and political subdivisions:
Obligations of states and state agencies		80,612		(5,473	)		—		—			80,612		(5,473	)
Municipal bonds		85,988		(5,154	)		1,326		(105	)		87,314		(5,259	)

Total obligations of states and political subdivisions		166,600		(10,627	)		1,326		(105	)		167,926		(10,732	)

Residential mortgage-backed securities		465,400		(27,631	)		—		—			465,400		(27,631	)
Trust preferred securities		9,750		(250	)		56,480		(12,082	)		66,230		(12,332	)

Total	$	710,652	$	(39,085	)	$	57,806	$	(12,187	)	$	768,458	$	(51,272	)

December 31, 2012
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	7,463	$	(105	)	$	—	$	—		$	7,463	$	(105	)
Municipal bonds		8,055		(92	)		—		—			8,055		(92	)

Total obligations of states and political subdivisions		15,518		(197	)		—		—			15,518		(197	)

Residential mortgage-backed securities		80,152		(355	)		—		—			80,152		(355	)
Trust preferred securities		28,690		(208	)		48,802		(14,570	)		77,492		(14,778	)

Total	$	124,360	$	(760	)	$	48,802	$	(14,570	)	$	173,162	$	(15,330	)

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 December 31, 2013 was 133 as compared to 34 at December 31, 2012. The increase in the level of long-term market interest rates since June 2013 materially decreased the fair value of lower yielding obligations of states and political subdivisions and residential mortgage-backed securities classified as held to maturity. The investments in obligations of states and political subdivisions are all investment grade with no bankruptcies or defaults.

The unrealized losses for the residential mortgage-backed securities category of the held to maturity portfolio at December 31, 2013 are all within the less than twelve months category and relate to investment grade mortgage-backed securities issued or guaranteed by Ginnie Mae and government sponsored enterprises.

The unrealized losses for trust preferred securities at December 31, 2013 primarily related to four non-rated single-issuer 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 December 31, 2013.

Management does not believe that any individual unrealized loss as of December 31, 2013 included in the table above represents other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates, widening credit spreads, and lack of liquidity in the market place, 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.

As of December 31, 2013, 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 $833.6 million.

The contractual maturities of investments in debt securities held to maturity at December 31, 2013 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.


	December 31, 2013
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	129,999	$	130,174
Due after one year through five years		44,695		49,102
Due after five years through ten years		313,054		320,966
Due after ten years		357,946		340,164
Residential mortgage-backed securities		886,043		871,021

Total investment securities held to maturity	$	1,731,737	$	1,711,427

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 7.5 years at December 31, 2013.

Available for Sale

The amortized cost, gross unrealized gains and losses and fair value of investment securities available for sale at December 31, 2013 and 2012 were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2013
U.S. Treasury securities	$	99,835	$	—	$	(15,170	)	$	84,665
U.S. government agency securities		48,407		923		(703	)		48,627
Obligations of states and political subdivisions:
Obligations of states and state agencies		11,441		—		(798	)		10,643
Municipal bonds		27,671		751		(1,365	)		27,057

Total obligations of states and political subdivisions		39,112		751		(2,163	)		37,700

Residential mortgage-backed securities		524,781		3,967		(20,719	)		508,029
Trust preferred securities*		23,333		113		(4,231	)		19,215
Corporate and other debt securities		83,819		1,682		(2,103	)		83,398
Equity securities		47,617		1,614		(1,173	)		48,058

Total investment securities available for sale	$	866,904	$	9,050	$	(46,262	)	$	829,692

December 31, 2012
U.S. Treasury securities	$	99,843	$	—	$	(2,218	)	$	97,625
U.S. government agency securities		44,215		1,547		—			45,762
Obligations of states and political subdivisions:
Obligations of states and state agencies		207		6		—			213
Municipal bonds		16,003		411		—			16,414

Total obligations of states and political subdivisions		16,210		417		—			16,627

Residential mortgage-backed securities		506,695		6,818		(3,359	)		510,154
Trust preferred securities*		68,931		240		(11,739	)		57,432
Corporate and other debt securities		28,274		2,728		(294	)		30,708
Equity securities		49,306		2,071		(1,869	)		49,508

Total investment securities available for sale	$	813,474	$	13,821	$	(19,479	)	$	807,816

*	Includes three pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies.

The age of unrealized losses and fair value of related securities available for sale at December 31, 2013 and 2012 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)
December 31, 2013
U.S. Treasury securities	$	84,665	$	(15,170	)	$	—	$	—		$	84,665	$	(15,170	)
U.S. government agency securities		26,402		(703	)		—		—			26,402		(703	)
Obligations of states and political subdivisions:
Obligations of states and state agencies		10,598		(798	)		—		—			10,598		(798	)
Municipal bonds		13,461		(1,365	)		—		—			13,461		(1,365	)

Total obligations of states and political subdivisions		24,059		(2,163	)		—		—			24,059		(2,163	)

Residential mortgage-backed securities		368,306		(18,434	)		24,734		(2,285	)		393,040		(20,719	)
Trust preferred securities		2,024		(25	)		15,022		(4,206	)		17,046		(4,231	)
Corporate and other debt securities		53,654		(2,073	)		2,471		(30	)		56,125		(2,103	)
Equity securities		223		(6	)		14,248		(1,167	)		14,471		(1,173	)

Total	$	559,333	$	(38,574	)	$	56,475	$	(7,688	)	$	615,808	$	(46,262	)

December 31, 2012
U.S. Treasury securities	$	97,625	$	(2,218	)	$	—	$	—		$	97,625	$	(2,218	)
Residential mortgage-backed securities		269,895		(1,256	)		21,089		(2,103	)		290,984		(3,359	)
Trust preferred securities		760		(511	)		27,865		(11,228	)		28,625		(11,739	)
Corporate and other debt securities		5,394		(58	)		2,264		(236	)		7,658		(294	)
Equity securities		969		(75	)		12,664		(1,794	)		13,633		(1,869	)

Total	$	374,643	$	(4,118	)	$	63,882	$	(15,361	)	$	438,525	$	(19,479	)

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 December 31, 2013 was 99 as compared to 74 at December 31, 2012. The increase in the level of long-term market interest rates since June 30, 2013 materially decreased the fair value of lower yielding U.S. Treasury securities, obligations of states and political subdivisions, and residential mortgage-backed securities classified as available for sale. The investments in obligations of states and political subdivisions are all investment grade with no bankruptcies or defaults.

The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at December 31, 2013 included $7.7 million related to 5 investment grade securities and $1.2 million related to a 1 non-investment grade private label mortgage-backed security. The remaining $11.8 million primarily related to several investment grade residential mortgage-backed securities mainly issued by Ginnie Mae.

The unrealized losses for trust preferred securities at December 31, 2013 in the table above relate to 3 pooled trust preferred and 10 single-issuer bank issued trust preferred securities. The unrealized losses include $3.3 million attributable to 3 pooled trust preferred securities with an amortized cost of $13.6 million and a fair value of $10.3 million. The three pooled trust preferred securities included one security with an unrealized loss of $1.7 million and an investment grade rating at December 31, 2013. The other two pooled trust preferred securities had non-investment grade ratings and were initially other-than-temporarily impaired in 2008 with additional estimated credit losses recognized during the period 2009 through 2011. All of the single-issuer trust preferred securities are all 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 December 31, 2013.

The unrealized losses within the corporate and other debt securities category (primarily existing for less than twelve months) totaling $2.1 million at December 31, 2013 mainly resulted from an increase in the level of long-term market interest rates since June 30, 2013, which decreased their fair values.

The unrealized losses existing for more than twelve months for equity securities are mostly related to two perpetual preferred security positions with a combined $10.0 million amortized cost and a $800 thousand unrealized loss. At December 31, 2013, these perpetual preferred securities had investment grade ratings and are currently performing and paying quarterly dividends.

Management does not believe that any individual unrealized loss as of December 31, 2013 represents an other-than-temporary impairment, except for the previously impaired securities discussed above, as management mainly attributes the declines in value to changes in interest rates and recent 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 December 31, 2013, 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 $498.8 million.

The contractual maturities of investments securities available for sale at December 31, 2013 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.


	December 31, 2013
	Amortized		Fair
	Cost		Value
	(in thousands)
Due in one year	$	160	$	161
Due after one year through five years		55,700		54,804
Due after five years through ten years		106,009		101,992
Due after ten years		132,637		116,648
Residential mortgage-backed securities		524,781		508,029
Equity securities		47,617		48,058

Total investment securities available for sale	$	866,904	$	829,692

The weighted-average remaining expected life for residential mortgage-backed securities available for sale at December 31, 2013 was 5.3 years.

Other-Than-Temporary Impairment Analysis

To determine whether a security’s impairment is other-than-temporary, Valley considers several factors that include, but are not limited to the following:

•

The severity and duration of the decline, including the causes of the decline in fair value, such as an issuer’s credit problems, interest rate fluctuations, or market volatility;

•

Adverse conditions specifically related to the issuer of the security, an industry, or geographic area;

•

Failure of the issuer of the security to make scheduled interest or principal payments;

•

Any changes to the rating of the security by a rating agency or, if applicable, any regulatory actions impacting the security issuer;

•

Recoveries or additional declines in fair value after the balance sheet date;

•

Our ability and intent to hold equity security investments until they recover in value, as well as the likelihood of such a recovery in the near term; and

•

Our intent to sell debt security investments, or if it is more likely than not that we will be required to sell such securities before recovery of their individual amortized cost basis.

For debt securities, the primary consideration in determining whether impairment is other-than-temporary is whether or not Valley expects to collect all contractual cash flows. Valley also evaluated its investment securities held as of December 31, 2013 to identify those that meet the definition of a Covered Fund as set forth in the final rules issued on December 10, 2013 to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as the “Volcker Rule”). In that regard, Valley considered the impact of the related interim final rule issued by its primary banking regulators on January 14, 2014 to address the treatment of certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs), including the non-exclusive list of TruPS CDOs that are exempt from the Covered Fund provisions under the interim final rule. Valley identified no investments held as of December 31, 2013 that meet the definition of a Covered Fund and that are required to be divested by July 21, 2015 (or before recovery of their individual amortized cost basis) under the foregoing rules.

In assessing the level of other-than-temporary impairment attributable to credit loss for debt securities, Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the security. The portion of the total other-than-temporary impairment related to credit loss is recognized in earnings, while the amount related to other factors is recognized in other comprehensive income or loss. The total other-than-temporary impairment loss is presented in the consolidated statements of income, less the portion recognized in other comprehensive income or loss. Subsequent assessments may result in additional estimated credit losses on previously impaired securities. These additional estimated credit losses are recorded as reclassifications from the portion of other-than-temporary impairment previously recognized in other comprehensive income or loss to earnings in the period of such assessments. The amortized cost basis of an impaired debt security is reduced by the portion of the total impairment related to credit loss.

At December 31, 2013, approximately 57 percent of the $583.6 million carrying value of obligations of states and political subdivisions were issued by the states of (or municipalities within) New Jersey, New York and Pennsylvania. The obligations of states and political subdivisions mainly consist of general obligation bonds and, to much lesser extent, special revenue bonds which had an aggregated amortized cost and fair value of $18.4 million and $17.8 million, respectively, at December 31, 2013. The special revenue bonds were mainly issued by the Port Authorities of New York and New Jersey, as well as various school districts. The gross unrealized losses associated with the obligations of states and political subdivisions totaling $12.9 million as of December 31, 2013 were primarily driven by changes in interest rates and not due to the credit quality of the issuer. Substantially all of these investments are investment grade. The securities were generally underwritten in accordance with Valley’s investment standards prior to the decision to purchase. As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states and political subdivisions, our Credit Risk Management (CRM) Department conducts an independent financial analysis and risk rating assessment of each security issuer based on the issuer’s most recently issued financial statements and other publicly available information. The internal risk rating was developed by CRM using a risk acceptance criteria (RAC) score which considers a multitude of credit factors, including the issuer’s operating results, debt levels, liquidity and debt service capacity. The analysis of debt levels includes unfunded liabilities and assesses these obligations relative to the economy and aggregate debt burden on a per capita basis, if applicable. The RAC score is used as a guideline by CRM for determining the final internal risk rating assigned to the issuer. CRM also obtains the external credit rating agencies’ debt ratings for the issuer and incorporates the lowest external debt rating in the RAC score. Specifically, the external debt rating is one of eight credit factors assessed in the development of the RAC score and represents, along with the rating agency outlook for the issuer, 25 percent of the final composite RAC score. As a result, Valley does not solely rely on external credit ratings in determining our final internal risk rating. For many securities, Valley believes the external credit ratings may not accurately reflect the actual credit quality of the security and therefore should not be viewed in isolation as a measure of the quality of our investments. Additionally, CRM does not consider potential credit support offered by insurance guarantees on certain bond securities in determining the internal risk rating, either at the date of the pre-purchase investment analysis or in subsequent assessments of impairment. Obligations of states and political subdivisions will continue to be monitored as part of our ongoing impairment analysis, and as of December 31, 2013 are expected to perform in accordance with their contractual terms. As a result, Valley expects to recover the entire amortized cost basis of these securities.

For residential mortgage-backed securities, Valley estimates loss projections for each security by stressing the cash flows from the individual loans collateralizing the security using expected default rates, loss severities, and prepayment speeds, in conjunction with the underlying credit enhancement (if applicable) for each security. Based on collateral and origination vintage specific assumptions, a range of possible cash flows is identified to determine whether other-than-temporary impairment exists. See the “Other-Than-Temporarily Impaired Securities” section below for further details regarding the impairment of these securities.

For the single-issuer trust preferred securities and corporate and other debt securities, Valley reviews each portfolio to determine if all the securities are paying in accordance with their terms and have no deferrals of interest or defaults. Over the past several years, an increasing number of banking institutions have been required to defer trust preferred payments and various banking institutions have been put in receivership by the FDIC. A deferral event by a bank holding company for which Valley holds trust preferred securities may require the recognition of an other-than-temporary impairment charge if Valley determines that it is more likely than not that all contractual interest and principal cash flows may not be collected. Among other factors, the probability of the collection of all interest and principal determined by Valley in its impairment analysis declines if there is an increase in the estimated deferral period of the issuer. Additionally, a FDIC receivership for any single-issuer would result in an impairment and significant loss. Including the other factors outlined above, Valley analyzes the performance of the issuers on a quarterly basis, including a review of performance data from the issuers’ most recent bank regulatory report, if applicable, to assess their credit risk and the probability of impairment of the contractual cash flows of the applicable security. All of the issuers had capital ratios at December 31, 2013 that were at or above the minimum amounts to be considered a “well-capitalized” financial institution, if applicable, and/or have maintained performance levels adequate to support the contractual cash flows of the trust preferred securities.

In October 2013, Valley sold its entire position in the previously impaired trust preferred securities issued by one deferring bank holding company with a combined amortized cost of $41.8 million, after all credit impairments. The sale of these impaired trust preferred securities classified as available for sale resulted in net proceeds of $52.5 million and a realized gain of $10.7 million in the fourth quarter of 2013. The issuer of the trust preferred securities had deferred interest payments on these securities since late 2009 as required by an operating agreement with its bank regulators. During the fourth quarter of 2011, Valley estimated a decline in the expected cash flows from the securities as it lengthened the estimate of the timeframe over which it could reasonably anticipate receiving such cash flows, and during the third quarter of 2012, Valley estimated an additional decline in cash flows under one of three weighted alternative scenarios utilized to assess impairment of the securities. The declines in estimated cash flows, after careful assessment of all other available factors, resulted in credit impairment charges of $18.3 million and $4.5 million during the fourth quarter of 2011 and third quarter of 2012, respectively. Valley no longer accrued interest on the securities after the initial impairment in 2011. No additional impairment was recognized as a result of our impairment analysis of these securities during 2013.

For the three pooled trust preferred securities, Valley evaluates the projected cash flows from each of its tranches in the three securities to determine if they are adequate to support their future contractual principal and interest payments. Valley assesses the credit risk and probability of impairment of the contractual cash flows by projecting the default rates over the life of the security. Higher projected default rates will decrease the expected future cash flows from each security. If the projected decrease in cash flows affects the cash flows projected for the tranche held by Valley, the security would be considered to be other-than-temporarily impaired. Two of the pooled trust preferred securities were initially impaired in 2008 with additional estimated credit losses recognized during 2009 and 2011, and are not accruing interest.

The perpetual preferred securities, reported in equity securities, are hybrid investments that are assessed for impairment by Valley as if they were debt securities. Therefore, Valley assessed the creditworthiness of each security issuer, as well as any potential change in the anticipated cash flows of the securities as of December 31, 2013. Based on this analysis, management believes the declines in fair value of these securities are attributable to a lack of liquidity in the marketplace and are not reflective of any deterioration in the creditworthiness of the issuers.

Other-Than-Temporarily Impaired Securities

The following table provides information regarding our other-than-temporary impairment losses on securities recognized in earnings for the years ended December 31, 2013, 2012 and 2011.


	2013		2012		2011
	(in thousands)
Held to maturity:
Trust preferred securities	$	—	$	—	$	18,314
Available for sale:
Residential mortgage-backed securities		—		722		829
Trust preferred securities		—		4,525		825

Net impairment losses on securities recognized in earnings	$	—	$	5,247	$	19,968

Impaired Trust Preferred Securities. In 2011, Valley recognized credit impairment charges totaling $18.3 million related to the trust preferred securities of two issuances by one bank holding company, which were classified as held to maturity and subsequently transferred to the available for sale portfolio. In 2012, Valley recognized additional estimated credit losses of $4.5 million on these securities due to further credit deterioration in the financial condition of the issuer. See the “Other-Than-Temporarily Impaired Analysis” section above for further details.

The other-than-temporary impairment charges on trust preferred securities classified as available for sale reported in the table above for the year ended December 31, 2011 all relate to two pooled trust preferred securities. These securities were initially found to be other-than-temporarily impaired in 2008, as each of Valley’s tranches in the securities had projected cash flows below their future contractual principal and interest payments. Additional estimated credit losses were recognized on one or both of these securities during 2009 through 2011, as higher default rates decreased the expected cash flows from the securities. At December 31, 2013, the two previously impaired pooled trust preferred securities had a combined amortized cost of $5.4 million and fair value of $3.8 million, respectively.

The previously impaired trust preferred securities discussed above were not accruing interest as of December 31, 2013 and 2012. As disclosed in Note 1, Valley discontinues the recognition of interest on debt securities if the securities meet both of the following criteria: (i) regularly scheduled interest payments have not been paid or have been deferred by the issuer, and (ii) full collection of all contractual principal and interest payments is not deemed to be the most likely outcome, resulting in the recognition of other-than-temporary impairment of the security.

Impaired Residential Mortgage-Backed Securities. During 2012, Valley recognized net impairment losses of $722 thousand on residential mortgage-backed securities in earnings due to additional estimated credit losses on one of six previously impaired private label mortgage-backed securities. Of the six impaired securities, one of the securities was responsible for the total other-than-temporary impairment losses on residential mortgage-backed securities available for sale during 2011 as shown in the table above. At December 31, 2013, the previously impaired private label mortgage-backed securities had a combined amortized cost of $24.6 million and fair value of $24.8 million, respectively.

Realized Gains and Losses

Gross gains (losses) realized on sales, maturities and other securities transactions included in earnings for the years ended December 31, 2013, 2012 and 2011 were as follows:


	2013			2012			2011
	(in thousands)
Sales transactions:
Gross gains	$	14,098		$	6,621		$	31,456
Gross losses		(44	)		(1,050	)		—

	$	14,054		$	5,571		$	31,456

Maturities and other securities transactions:
Gross gains	$	662		$	2,327		$	623
Gross losses		(38	)		(5,311	)		(11	)

	$	624		$	(2,984	)	$	612

Gains on securities transactions, net	$	14,678		$	2,587		$	32,068

The gross gains totaling $14.1 million for the year ended December 31, 2013, included a $10.7 million gain on sale of the previously impaired trust preferred securities issued by one deferring bank holding company.

During the year ended December 31, 2012, Valley recognized gross losses totaling $5.3 million due to the early redemption of trust preferred securities issued by one bank holding company.

During the year ended December 31, 2011, Valley recognized $31.5 million of gross gains on sales transactions mainly due to the sales of certain residential mortgage-backed securities classified as available for sale issued by Ginnie Mae and government sponsored enterprises totaling $651.7 million.

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 recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income or loss for the years ended December 31, 2013, 2012 and 2011:


	2013			2012			2011
	(in thousands)
Balance, beginning of period	$	33,290		$	29,070		$	10,500
Additions:
Initial credit impairments		—			—			19,143
Subsequent credit impairments		—			5,247			825
Reductions:
Sales		(22,839	)		—			—
Accretion of credit loss impairment due to an increase in expected cash flows		(461	)		(1,027	)		(1,398	)

Balance, end of period	$	9,990		$	33,290		$	29,070

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.

Trading Securities

The fair value of trading securities (consisting of 2 single-issuer bank trust preferred securities) was $14.3 million at December 31, 2013 and $22.2 million (consisting of 3 single-issuer bank trust preferred securities) at December 31, 2012. Interest income on trading securities totaled $1.4 million, $1.8 million, and $2.1 million for the years ended December 31, 2013, 2012, and 2011, respectively.