3. INVESTMENT SECURITIES

The following tables detail the amortized cost and the estimated fair value of the Company’s investment securities held-to-maturity and securities available-for-sale (which include reverse mortgages):


	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale securities:
September 30, 2012:
Reverse mortgages	$	(552	)	$	—	$	—		$	(552	)
U.S. Government and government sponsored enterprises (“GSE”)		50,747			308		(3	)		51,052
State and political subdivisions		3,120			29		(1	)		3,148
Collateralized Mortgage Obligation (“CMO”) (1)		247,991			7,462		(131	)		255,322
Federal National Mortgage Association (“FNMA”) Mortgage-Backed Securities (“MBS”)		446,296			15,193		(54	)		461,435
Federal Home Loan Mortgage Corporation (“FHLMC”) MBS		70,110			2,246		—			72,356
Government National Mortgage Association (“GNMA”) MBS		63,757			3,537		—			67,294

	$	881,469		$	28,775	$	(189	)	$	910,055


December 31, 2011:
Reverse mortgages	$	(646	)	$	—	$	—		$	(646	)
GSE		38,776			262		(13	)		39,025
State and political subdivisions		4,159			39		(8	)		4,190
CMO (1)		323,980			6,933		(2,527	)		328,386
FNMA		320,019			9,379		(44	)		329,354
FHLMC		93,305			1,781		—			95,086
GNMA		60,991			3,033		(57	)		63,967

	$	840,584		$	21,427	$	(2,649	)	$	859,362


Trading securities
September 30, 2012:
CMO	$	12,590		$	—	$	—		$	12,590


December 31, 2011:
CMO	$	12,432		$	—	$	—		$	12,432

(1)	Includes agency CMO and SASCO 2002 RM-1 Class O securities classified as available-for-sale

The scheduled maturities of investment securities available-for-sale at September 30, 2012 and December 31, 2011 were as follows:


	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
September 30, 2012
Within one year (1)	$	8,889	$	8,941
After one year but within five years		42,447		42,729
After five years but within ten years		273,536		282,968
After ten years		556,597		575,417

	$	881,469	$	910,055

December 31, 2011
Within one year (1)	$	7,916	$	7,966
After one year but within five years		32,225		32,465
After five years but within ten years		129,597		135,649
After ten years		670,846		683,282

	$	840,584	$	859,362

(1)	Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.

The portfolio of available-for-sale mortgage-backed securities (“MBS”) includes 164 securities with an amortized cost of $828.2 million comprised of all GSE securities. All securities were AAA-rated at the time of purchase. All securities were re-evaluated for OTTI at September 30, 2012. The result of this evaluation showed no OTTI for the third quarter of 2012.

At September 30, 2012, investment securities with market values aggregating $431.2 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations. From time to time, investment securities are also pledged as collateral for FHLB borrowings. There were no FHLB pledged investment securities at September 30, 2012.

During the first nine months of 2012, we sold $616.3 million of investment securities categorized as available-for-sale for net gains of $17.7 million. In the first nine months of 2011, proceeds from the sale of investment securities available-for-sale were $216.1 million and resulted in net gains of $3.0 million. A portion of these sales during 2012 were the result of the completion of the Asset Strategies undertaken during the second quarter and were mainly due to maintaining the capital and earnings neutrality of these efforts. These and additional sales were completed as part of our ongoing portfolio management aimed at minimizing credit risk and decreasing prepayment/premium risk due to faster prepayments caused by declining mortgage interest rates in this historically-low rate environment. Lastly, the sales during the third quarter of 2012 were also aimed at limiting extension risk, which decreased the weighted average duration of the MBS portfolio to 4.2 years at September 30, 2012, from 4.5 years at June 30, 2012. The cost basis of all investment securities sales are based on the specific identification method.

As of September 30, 2012, our investment securities portfolio had remaining unamortized premiums of $22.6 million. In addition, at September 30, 2012 we had $216,000 of unaccreted discounts related to our investment securities portfolio.

MBS have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty.

At September 30, 2012, we owned investment securities totaling $17.1 million in which the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $189,000 at September 30, 2012. The temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Our investment portfolio is reviewed each quarter for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. We evaluate our intent and ability to hold securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, we do not have the intent to sell, nor is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.

For these investment securities with unrealized losses, the table below shows our gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012.


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(In Thousands)
Available-for-sale securities:
U.S Government and agencies	$	2,008	$	3	$	—	$	—	$	2,008	$	3
State and political subdivisions		—		—		125		1		125		1
CMO		10,694		131		—		—		10,694		131
FNMA		4,288		54		—		—		4,288		54
FHLMC		—		—		—		—		—		—
GNMA		—		—		—		—		—		—

Total temporarily impaired investments	$	16,990	$	188	$	125	$	1	$	17,115	$	189

For these investment securities with unrealized losses, the table below shows our gross unrealized losses and fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at December 31, 2011.


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(In Thousands)
Available-for-sale securities:
U.S Government and agencies	$	5,047	$	13	$	—	$	—	$	5,047	$	13
State and political subdivisions		—		—		440		8		440		8
CMO		78,955		2,194		9,933		333		88,888		2,527
FNMA		6,959		44		—		—		6,959		44
FHLMC		—		—		—		—		—		—
GNMA		5,420		57		—		—		5,420		57

Total temporarily impaired investments	$	96,381	$	2,308	$	10,373	$	341	$	106,754	$	2,649

We own $12.5 million par value of SASCO RM-1 2002 class B securities which are classified as trading, of which, $1.5 million is interest paid in kind. We expect to recover all principal and interest due to seasoning and excess collateral. Based on FASB ASC 320, Investments – Debt and Equity Securities (“ASC 320”) when these securities were acquired they were classified as trading because it was our intent to sell them in the near term. We use the guidance under ASC 320 to provide a reasonable estimate of fair value. We estimated the value of these securities based on the pricing of BBB+ securities that have an active market through a technique which estimates the fair value of this asset using the income approach as of September 30, 2012.

During 2011, we purchased 100% of SASCO 2002-RM1 Class O certificates for $2.5 million. As of September 30, 2012, the market value of the SASCO 2002-RM1 O securities was determined in accordance with FASB ASC 820-10, Fair Value Measurement (“ASC 820”), to be $6.1 million. These securities have been included in our CMO portfolio since their purchase.