3. INVESTMENT SECURITIES

The following tables detail the amortized cost and the estimated fair value of our 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:
March 31, 2013:
Reverse mortgages	$	(425	)	$	—	$	—		$	(425	)
U.S. Government and government sponsored enterprises (“GSE”)		46,707			218		(2	)		46,923
State and political subdivisions		23,883			144		(450	)		23,577
Federal National Mortgage Association (“FNMA”)		361,501			6,588		(755	)		367,334
Collateralized Mortgage Obligation (“CMO”) (1)		172,137			4,530		(583	)		176,084
Government National Mortgage Association (“GNMA”)		123,454			2,741		(534	)		125,661
Federal Home Loan Mortgage Corporation (“FHLMC”)		89,986			498		(297	)		90,187

	$	817,243		$	14,719	$	(2,621	)	$	829,341

December 31, 2012:
Reverse mortgages	$	(457	)	$	—	$	—		$	(457	)
GSE		46,726			266		(2	)		46,990
State and political subdivisions		3,120			89		—			3,209
FNMA		396,910			9,588		(243	)		406,255
CMO (1)		251,848			7,849		(301	)		259,396
GNMA		129,288			3,221		(54	)		132,455
FHLMC		58,596			1,171		(117	)		59,650

	$	886,031		$	22,184	$	(717	)	$	907,498

Trading securities
March 31, 2013:
CMO	$	12,590		$	—	$	—		$	12,590

December 31, 2012:
CMO	$	12,590		$	—	$	—		$	12,590

(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 March 31, 2013 and December 31, 2012 were as follows:


	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
March 31, 2013
Within one year (1)	$	18,567	$	18,647
After one year but within five years		29,547		29,771
After five years but within ten years		276,659		281,321
After ten years		492,470		499,602

	$	817,243	$	829,341

December 31, 2012
Within one year (1)	$	18,544	$	18,658
After one year but within five years		28,855		29,034
After five years but within ten years		321,103		329,580
After ten years		517,529		530,226

	$	886,031	$	907,498

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

The portfolio of available-for-sale MBS includes 143 securities with an amortized cost of $747.1 million. All securities were AAA-rated at the time of purchase. All securities were re-evaluated for other-than-temporary-impairment (“OTTI”) at March 31, 2013. The result of this evaluation showed no OTTI for 2013. The weighted average duration of the MBS portfolio was 5.4 years at March 31, 2013.

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 March 31, 2013, investment securities with market values aggregating $443.6 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 March 31, 2013.

During the first three months of 2013, we sold $139.2 million of investment securities categorized as available-for-sale for net gains of $1.6 million. In the first quarter of 2012, proceeds from the sale of investment securities available-for-sale were $84.8 million and resulted in net gains of $2.0 million. During the first quarter of 2013, the objectives were to complete the deleveraging that began in the fourth quarter of 2012, reduce the duration of the portfolio, and monetize premiums at risk due to faster prepayments. The cost basis of all investment securities sales is based on the specific identification method.

As of March 31, 2013, our investment securities portfolio had remaining unamortized premiums of $22.6 million. In addition, at March 31, 2013, we had $138,000 of unaccreted discounts related to our investment securities portfolio.

At March 31, 2013, we owned investment securities totaling $238.8 million in which the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $2.6 million at March 31, 2013. 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.

During the first three months of 2013, we purchased $17.6 million of municipal bonds. The purpose was to improve return and reduce the effective tax rate.

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 March 31, 2013.

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

U.S Government and agencies

—

2,006

State and political subdivisions

18,603

450

—

18,603

450

FNMA

79,795

755

—

79,795

755

CMO

58,170

568

835

59,005

583

GNMA

61,140

534

—

61,140

534

FHLMC

18,263

297

—

18,263

297

Total temporarily impaired investments

235,971

2,604

2,841

238,812

2,621


	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
U.S Government and agencies	$	2,008	$	2	$	—	$	—	$	2,008	$	2
State and political subdivisions		—		—		—		—		—		—
FNMA		43,696		243		—		—		43,696		243
CMO		40,358		268		1,364		33		41,722		301
GNMA		10,029		54		—		—		10,029		54
FHLMC		13,884		117		—		—		13,884		117

Total temporarily impaired investments	$	109,975	$	684	$	1,364	$	33	$	111,339	$	717

We own $12.6 million par value of SASCO RM-1 2002 class B securities which are classified as trading. 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 March 31, 2013.

During 2011, we purchased 100% of SASCO 2002-RM1 Class O certificates for $2.5 million. As of March 31, 2013, the market value of the SASCO 2002-RM1 O securities was determined in accordance with FASB ASC 820-10, Fair Value Measurement to be $6.1 million. These securities have been included in our available-for-sale CMO since their purchase.