NOTE 5 — INVESTMENT SECURITIES

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


			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(In thousands)
As of September 30, 2013
Investment securities available-for-sale:
U.S. Treasury securities	$	527,847	$	420	$	(2,560	)	$	525,707
U.S. Government agency and U.S. Government sponsored enterprise debt securities	411,135		577		(8,651		)	403,061
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	181,555		1,219		(3,516		)	179,258
Residential mortgage-backed securities	981,949		9,451		(13,450		)	977,950
Municipal securities	265,214		1,202		(16,410		)	250,006
Other residential mortgage-backed securities:
Investment grade	15,489		—		(797		)	14,692
Other commercial mortgage-backed securities:
Investment grade	51,000		293		—			51,293
Corporate debt securities:
Investment grade	471,407		913		(6,392		)	465,928
Non-investment grade (1)	20,679		36		(5,773		)	14,942
Other securities	10,015		—		(91		)	9,924
Total investment securities available-for-sale	$	2,936,290	$	14,111	$	(57,640	)	$	2,892,761

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
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

(1) For the nine months ended September 30, 2013, the Company did not record any OTTI. The Company recorded $99 thousand, on a pre-tax basis, of the credit portion of OTTI through earnings and $5.1 million of the non-credit portion of OTTI for pooled trust preferred securities in other comprehensive income for the year ended December 31, 2012.

The Company did not have any investment securities held-to-maturity as of September 30, 2013 and December 31, 2012.

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 3 to the Company’s condensed 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 periods shown:

	Three Months Ended
	September 30,
	2013		2012
	(In thousands)
Beginning balance, July 1,	$	115,511	$	115,511
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	—		—
Reduction for securities sold	—		—
Ending balance	$	115,511	$	115,511

	Nine Months Ended
	September 30,
	2013		2012
	(In thousands)
Beginning balance, January 1,	$	115,511	$	115,412
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
Reduction for securities sold	—		—
Ending balance	$	115,511	$	115,511

During the three months ended September 30, 2013, the Company recorded $1.1 million of gross gains and no gross losses resulting in a net income statement impact of $1.1 million of gain on sale of investment securities. During the three months ended September 30, 2012, the Company recorded $102 thousand of gross gains and $9 thousand of gross losses resulting in a net income statement impact of $93 thousand of gain on sale of investment securities. The tax expense on the sale of investment securities available-for-sale amounted to $455 thousand and $39 thousand for the three months ended September 30, 2013 and 2012, respectively. Total net proceeds for these sales were $60.4 million and $32.8 million for the three months ended September 30, 2013 and 2012, respectively.

During the nine months ended September 30, 2013, the Company recorded $12.0 million of gross gains and no gross losses resulting in a net income statement impact of $12.0 million of gain on sale of investment securities. During the nine months ended September 30, 2012, the Company recorded $28.1 million of gross gains and $27.4 million of gross losses resulting in a net income statement impact of $647 thousand of gain on sale of investment securities. The tax expense on the sale of investment securities available-for-sale amounted to $5.0 million and $272 thousand for the nine months ended September 30, 2013 and 2012, respectively. Total net proceeds for these sales were $386.1 million and $1.13 billion for the nine months ended September 30, 2013 and 2012, 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, as of September 30, 2013 and December 31, 2012:

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
As of September 30, 2013
Investment securities available-for-sale:
U.S. Treasury securities	$	310,061	$	(2,560	)	$	—	$	—		$	310,061	$	(2,560	)
U.S. Government agency and U.S. Government sponsored enterprise debt securities	275,999		(8,651		)	—		—			275,999		(8,651		)
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	136,408		(3,516		)	—		—			136,408		(3,516		)
Residential mortgage-backed securities	572,399		(12,767		)	25,511		(683		)	597,910		(13,450		)
Municipal securities	180,857		(16,410		)	—		—			180,857		(16,410		)
Other residential mortgage-backed securities:
Investment grade	14,692		(797		)	—		—			14,692		(797		)
Other commercial mortgage-backed securities:
Investment grade	—		—			—		—			—		—
Corporate debt securities:
Investment grade	287,598		(2,594		)	86,201		(3,798		)	373,799		(6,392		)
Non-investment grade	—		—			14,285		(5,773		)	14,285		(5,773		)
Other securities	9,917		(91		)	—		—			9,917		(91		)
Total investment securities available-for-sale	$	1,787,931	$	(47,386	)	$	125,997	$	(10,254	)	$	1,913,928	$	(57,640	)

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized 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		)
Other commercial mortgage-backed securities:
Investment grade	—		—			—		—			—		—
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	)

Unrealized Losses

The majority of the unrealized losses related to securities that have been in a continuous loss position for less than twelve months are related to municipal, residential agency mortgage-backed and government sponsored debt securities. As of September 30, 2013, the Company had $250.0 million of municipal securities, $978.0 million of residential mortgage-backed securities available-for-sale and $403.1 million agency securities available-for-sale, representing 9%, 34% and 14% of the total investment securities available-for-sale portfolio, respectively. As of December 31, 2012, the Company had $167.1 million of municipal securities and $1.14 billion of residential mortgage-backed securities available-for-sale, representing 6% and 44% of the total investment securities available-for-sale portfolio, respectively.

As of September 30, 2013, 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 non-investment grade trust preferred securities with a total fair value of $14.3 million, 4 investment grade corporate debt securities with a fair value of $86.2 million and 4 residential agency mortgage-backed securities with a fair value of $25.5 million. The unrealized losses on these securities are primarily attributed to the rise in interest rates, together with the widened liquidity spread and credit spread. 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 these securities before recovery of their current amortized cost basis.

As of September 30, 2013, there were also 258 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 for less than twelve months include 105 municipal securities, 71 residential agency mortgage-backed securities, 11 government sponsored debt securities, 21 commercial agency mortgage-backed securities, 15 investment grade corporate debt securities, 30 U.S. Treasury securities, 2 other residential mortgage-backed securities and 3 other securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated and as long term rates increased. As a result there was a greater unrealized loss impact to the portfolio. 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 these securities before recovery of their current amortized cost basis. As such, the Company does not deem any of the securities as of September 30, 2013 to be other-than-temporarily impaired.

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 for less than twelve months include 26 residential agency 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 Company 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.

Corporate Debt Securities

As of September 30, 2013, the unrealized losses related to securities that have been in a continuous loss position of twelve months or longer are related to 5 positions in non-investment grade trust preferred debt securities, 4 residential agency mortgage-backed securities and 4 investment grade corporate debt securities. As of September 30, 2013, these 5 positions in trust preferred securities had an estimated fair value of $14.3 million, representing approximately 1% of the total investment securities available-for-sale portfolio. As of September 30, 2013, these non-investment grade trust preferred debt securities had gross unrealized losses amounting to $5.8 million, or 29% of the total amortized cost basis of these securities. We did not record an impairment loss on our portfolio of pooled trust preferred securities during the first nine months of 2013. In comparison, as of September 30, 2012, we had $3.9 million in unrealized losses on securities that are not other-than-temporarily impaired and $5.1 million in noncredit-related impairment losses on securities that are other-than-temporarily impaired as of September 30, 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 the first nine months of 2012 for additional increases to the amount related to the credit loss for which an other-than-temporary impairment was previously recognized.

The scheduled maturities of investment securities at September 30, 2013 are presented as follows:

	Amortized		Estimated
	Cost		Fair Value
	(In thousands)
Due within one year	$	432,193	$	421,173
Due after one year through five years	583,568		579,679
Due after five years through ten years	675,385		656,069
Due after ten years	1,245,144		1,235,840
Total investment securities available-for-sale	$	2,936,290	$	2,892,761