5. INVESTMENT SECURITIES

An analysis of the investment securities available-for-sale portfolio is presented as follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
As of December 31, 2012
Investment securities available-for-sale:
U.S. Treasury securities	$	459,613	$	1,135	$	(71)	$	460,677
U.S. Government agency and U.S. Government sponsored enterprise debt securities	197,264		673		(82)		197,855
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	174,036		6,665		(36)		180,665
Residential mortgage-backed securities	1,123,880		20,883		(678)		1,144,085
Municipal securities	163,333		4,491		(731)		167,093
Other commercial mortgage-backed securities:
Investment grade	16,999		85		—		17,084
Non-investment grade	—		—		—		—
Corporate debt securities:
Investment grade	429,318		237		(17,572)		411,983
Non-investment grade (1)	24,620		355		(7,558)		17,417
Other securities	9,955		215		—		10,170
Total investment securities available-for-sale	$	2,599,018	$	34,739	$	(26,728)	$	2,607,029

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
As of December 31, 2011
Investment securities available-for-sale:
U.S. Treasury securities	$	19,892	$	833	$	—	$	20,725
U.S. Government agency and U.S. Government sponsored enterprise debt securities	575,148		1,709		(279)		576,578
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	46,008		3,307		—		49,315
Residential mortgage-backed securities	963,688		30,854		(772)		993,770
Municipal securities	76,255		3,696		(5)		79,946
Other commercial mortgage-backed securities:
Investment grade	—		—		—		—
Non-investment grade	—		—		—		—
Corporate debt securities:
Investment grade	1,411,409		6,762		(95,610)		1,322,561
Non-investment grade (1)	30,693		—		(11,078)		19,615
Other securities	9,875		195		(2)		10,068
Total investment securities available-for-sale	$	3,132,968	$	47,356	$	(107,746)	$	3,072,578

(1) For 2012, the Company recorded $99 thousand, on a pre-tax basis, of OTTI through earnings and $5.1 million of the non-credit portion of OTTI for pooled trust securities in other comprehensive income. For 2011, the Company recorded $633 thousand, on a pre-tax basis, of OTTI through earnings and $5.1 million of the non-credit portion of OTTI for pooled trust securities and other mortgage-backed securities in other comprehensive income.

The Company did not have any investment securities held-to-maturity as of December 31, 2012 and 2011.

The fair values of investment securities are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or prices obtained from independent external pricing service providers who have experience in valuing these securities. The Company performs a monthly analysis on the pricing service quotes and the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of fair value. The procedures include, but are not limited to, initial and ongoing review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. The Company assesses whether the prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed that are based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon available market data, the price received from third parties is adjusted accordingly.

Prices from third party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations that utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding.

As a result of the ongoing financial crisis in the U.S. and global markets, the market for the pooled trust preferred securities has been distressed since mid-2007. It is the Company’s view that current broker prices (which are typically non-binding) on these securities are based on forced liquidation or distressed sale values in very inactive markets that are not representative of the fair value of these securities. As such, the Company considered what weight, if any, to place on transactions that are not orderly when estimating fair value. For the pooled trust preferred securities the Company determined their fair values using the methodologies set forth in Note 2 to the Company’s consolidated financial statements presented elsewhere in this report.

The following table shows the Company’s rollforward of the amount related to OTTI credit losses for the years ended December 31, 2012 and 2011:

	2012		2011
	(In thousands)
Beginning balance	$	115,412	$	124,340

Addition of other-than-temporary impairment that was not previously recognized	—		—
Additional increases to the amount related to the credit loss for which an other-than-temporary impairment was previously recognized	99		633
Reduction for securities sold	—		(9,561		)
Ending balance	$	115,511	$	115,412

For the year ended December 31, 2012, the Company recorded $28.2 million of gross gains and $27.4 million of gross losses resulting in a net income statement impact of $757 thousand of gain on sale of investment securities. As compared to December 31, 2011, the Company recorded $18.1 million of gross gains and $8.4 million of gross losses resulting in a net income statement impact of $9.7 million of gain on sale of investment securities. For the year ended December 31, 2010, the Company recorded $33.5 million of gross gains and $2.3 million of gross losses resulting in a net income statement impact of $31.2 million of gain on sale of investment securities. The tax expense on the sale of investment securities available-for-sale amounted to $318 thousand, $4.1 million and $13.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. Total net proceeds for these sales were $1.23 billion, $702.6 million and $1.34 billion for 2012, 2011 and 2010, respectively.

The following tables show the Company’s investment portfolio’s gross unrealized losses and related fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, for the years ended December 31, 2012 and 2011:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
As of December 31, 2012
Investment securities available-for-sale:
U.S. Treasury securities	$	95,232	$	(71)	$	—	$	—	$	95,232	$	(71)
U.S. Government agency and U.S. Government sponsored enterprise debt securities	24,912		(82)		—		—		24,912		(82)
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	10,013		(36)		—		—		10,013		(36)
Residential mortgage-backed securities	215,826		(678)		—		—		215,826		(678)
Municipal securities	48,363		(731)		—		—		48,363		(731)
Corporate debt securities:
Investment grade	225,819		(5,391)		182,697		(12,181)		408,516		(17,572)
Non-investment grade	—		—		12,574		(7,558)		12,574		(7,558)
Other securities	—		—		—		—		—		—
Total investment securities available-for-sale	$	620,165	$	(6,989)	$	195,271	$	(19,739)	$	815,436	$	(26,728)

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
As of December 31, 2011
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Government agency and U.S. Government sponsored enterprise debt securities	143,265		(279)		—		—		143,265		(279)
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	—		—		—		—		—		—
Residential mortgage-backed securities	195,393		(772)		—		—		195,393		(772)
Municipal securities	1,158		(5)		—		—		1,158		(5)
Corporate debt securities:
Investment grade	754,055		(61,935)		350,181		(33,675)		1,104,236		(95,610)
Non-investment grade	9,973		(565)		9,595		(10,513)		19,568		(11,078)
Other securities	4,503		(2)		—		—		4,503		(2)
Total investment securities available-for-sale	$	1,108,347	$	(63,558)	$	359,776	$	(44,188)	$	1,468,123	$	(107,746)

Unrealized Losses

The majority of the unrealized losses related to securities that have been in a continuous loss position for less than twelve months is related to investment grade debt securities. As of December 31, 2012, the Company had $412.0 million in investment grade corporate debt securities available-for-sale, representing approximately 16% of the total investment securities available-for-sale portfolio.

As of December 31, 2012, there were 13 individual securities that have been in a continuous unrealized loss position for twelve months or more. These securities are comprised of 5 positions in trust preferred securities with a total fair value of $12.6 million and 8 investment grade debt securities with a fair value of $182.7 million. As of December 31, 2012 there were also 77 securities, not including the 13 securities above, which have been in a continuous unrealized loss position for less than twelve months. The securities in an unrealized loss position include 26 residential mortgage-backed securities, 29 municipal securities, 11 investment grade corporate debt securities, 9 U.S. Treasury securities, 1 government agency security, and 1 commercial mortgage-backed security. The unrealized losses on these securities are primarily attributed to the market impact to the sovereign debt crisis in Europe. The company does not have direct holdings of European sovereign debt. However, the bank is indirectly affected through the overall impact to the market and especially to corporate debt securities pricing. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their current amortized cost basis. As such, the Company does not deem these securities, other than those previously stated, to be other-than-temporarily impaired as of December 31, 2012.

As of December 31, 2011, there were 24 individual securities that have been in a continuous unrealized loss position for twelve months or more. These securities are comprised of 5 positions in pooled trust preferred securities with a total fair value of $9.6 million and 19 investment grade debt securities with fair value of $350.2 million. As of December 31, 2011 there were also 116 securities, excluding the 24 securities above, which have been in a continuous unrealized loss position for less than twelve months. The securities in an unrealized loss position include 89 investment grade corporate debt securities, 16 residential mortgage-backed securities, 5 government agency securities, 4 non-investment grade corporate debt securities, 1 municipal security, and 1 other security. The unrealized losses on these securities are primarily attributed to the market impact to the sovereign debt crisis in Europe. The company does not have direct holdings of European sovereign debt. However, the bank is indirectly affected through the overall impact to the market and especially to corporate debt securities pricing. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their current amortized cost basis. As such, the Company does not deem these securities, other than those previously stated, to be other-than-temporarily impaired as of December 31, 2011.

Corporate Debt Securities

Corporate debt securities were reduced by $912.8 million during 2012, primarily due to sales. During the second quarter 2012, the Company reassessed the portfolio and elected to sell these securities to reduce the exposure to specific industries within the corporate debt portfolio. For the remainder of the corporate debt portfolio held as of December 31, 2012 the Company has the intent and ability to hold these securities and it is not more likely than not that the Company will be required to sell the securities before it recovers the cost basis of its investment.

The majority of the unrealized losses related to securities that have been in a continuous loss position of twelve months or longer are due to 5 positions in trust preferred debt securities and 8 investment grade debt. As of December 31, 2012, these trust preferred securities had an estimated fair value of $12.6 million, representing less than 1% of the total investment securities available-for-sale portfolio. As of December 31, 2012, these non-investment grade debt instruments had gross unrealized losses amounting to $7.6 million, or 38% of the total amortized cost basis of these securities, comprised of $2.5 million in unrealized losses and $5.1 million in noncredit-related impairment losses on securities that are other-than-temporarily impaired as of December 31, 2012 pursuant to the provisions of ASC 320-10-65. We recorded an impairment loss of $99 thousand on our portfolio of pooled trust preferred securities during 2012 for additional increases to the amount related to the credit loss for which an other-than-temporary impairment was previously recognized.

During 2011 and 2010, the Company recorded $633 thousand and $6.7 million, respectively, in noncredit-related impairment losses on five and fourteen trust preferred securities, respectively, due to rating downgrades caused by increases in market spreads, concerns regarding the housing market and lack of liquidity in the market.

Mortgage-Backed Securities

In February 2011, the Company sold its one private-label available-for-sale mortgage-backed security. This security had a fair value of $6.3 million and gross unrealized losses of $8.7 million as of December 31, 2010. The Company had other-than-temporary impairment of $6.3 million recognized in earnings on this security for the year ended December 31, 2010.

Investment Securities Maturities

The scheduled maturities of investment securities at December 31, 2012 are presented as follows:

	Amortized		Estimated
	Cost		Fair Value
	(In thousands)

Due within one year	$	208,557	$	204,931
Due after one year through five years	535,748		536,156
Due after five years through ten years	623,366		615,309
Due after ten years	1,231,347		1,250,633
Total investment securities available-for-sale	$	2,599,018	$	2,607,029

Actual maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to prepay obligations. In addition, such factors as prepayments and interest rates may affect the yields on the carrying values of mortgage-backed securities.

At December 31, 2012 and 2011, investment securities available-for-sale with a par value of $1.78 billion and $2.17 billion, respectively, were pledged to secure public deposits, FHLB advances, repurchase agreements, Federal Reserve Bank’s discount window, or for other purposes required or permitted by law.

At December 31, 2012 and 2011, we had no held-to-maturity investment securities.