NOTE 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, 2013
Investment securities available-for-sale:
U.S. Treasury securities	$	495,053	$	201	$	(3,622)	$	491,632
U.S. Government agency and U.S. Government sponsored enterprise debt securities	406,807		242		(12,726)		394,323
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	182,257		1,062		(4,449)		178,870
Residential mortgage-backed securities	892,435		7,729		(14,927)		885,237
Municipal securities	297,390		1,122		(17,533)		280,979
Other residential mortgage-backed securities:
Investment grade	48,129		—		(1,802)		46,327
Other commercial mortgage-backed securities:
Investment grade	51,000		617		—		51,617
Corporate debt securities:
Investment grade	312,726		613		(3,344)		309,995
Non-investment grade (1)	20,668		62		(5,629)		15,101
Other securities	80,025		555		(864)		79,716
Total investment securities available-for-sale	$	2,786,490	$	12,203	$	(64,896)	$	2,733,797

			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
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 2013, the Company did not record any OTTI. For 2012, 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.

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

The fair values of the investment securities are generally determined by independent external pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent external brokers. 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 observable market inputs including comparable trades, the yield curve, 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, 2013 and 2012:

	2013		2012
	(In thousands)
Beginning balance	$	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

For the year ended December 31, 2013, the Company recorded $13.9 million of gross gains and $1.8 million of gross losses resulting in a net income statement impact of $12.1 million of gain on sale of investment securities. As compared to 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. For the year ended 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. The tax expense on the sale of investment securities available-for-sale amounted to $5.1 million, $318 thousand and $4.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. Total net proceeds for these sales were $663.6 million, $1.23 billion and $702.6 million for 2013, 2012 and 2011, 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, 2013 and 2012:

	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, 2013
Investment securities available-for-sale:
U.S. Treasury securities	$		337,248	$	(3,622)	$	—		$	—	$		337,248	$		(3,622)
U.S. Government agency and U.S. Government sponsored enterprise debt securities	387,097			(12,726)		—			—		387,097			(12,726)
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities	114,754			(3,280)		16,065			(1,169)		130,819			(4,449)
Residential mortgage-backed securities	502,285			(10,570)		92,540			(4,357)		594,825			(14,927)
Municipal securities	173,782			(10,765)		47,892			(6,768)		221,674			(17,533)
Other residential mortgage-backed securities:
Investment grade	46,328			(1,802)		—			—		46,328			(1,802)
Corporate debt securities:
Investment grade	193,482			(1,538)		79,442			(1,806)		272,924			(3,344)
Non-investment grade	—			—		14,422			(5,629)		14,422			(5,629)
Other securities	48,098			(864)		—			—		48,098			(864)
Total investment securities available-for-sale	$	1,803,074		$	(45,167)	$		250,361	$	(19,729)	$	2,053,435		$	(64,896)

	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)

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 agency, municipal and residential agency mortgage-backed securities. As of December 31, 2013, the Company had $394.3 million in agency securities, $281.0 million in municipal securities and $885.2 million in residential agency mortgage-backed securities, representing approximately 14%, 10% and 32% of the total investment securities available-for-sale portfolio, respectively.

As of December 31, 2013, there were 65 individual securities that have been in a continuous unrealized loss position for twelve months or more. The majority of the $19.7 million unrealized losses were composed of 32 municipal securities with unrealized losses of $6.8 million, 5 positions in trust preferred securities with unrealized losses of $5.6 million, and 21 residential agency mortgage-backed securities with unrealized losses of $4.4 million. The remaining 7 securities or $2.9 million in unrealized losses were comprised of investment grade corporate debt and commercial agency mortgage-backed securities.

As of December 31, 2013 there were also 239 securities, not including the 65 securities above, which have been in a continuous unrealized loss position for less than twelve months. The majority of the $45.2 million unrealized losses were composed of 16 agency securities with $12.7 million in unrealized losses, 94 municipal securities with $10.8 million in unrealized losses, and 55 residential agency mortgage-backed securities with $10.6 million unrealized losses. The remaining 74 securities or $11.1 million in unrealized losses were comprised of U.S. Treasury securities, commercial agency mortgage-backed securities, other residential mortgage-backed securities, investment grade corporate debt and other securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated and as long-term rates increased. 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, to be other-than-temporarily impaired as of December 31, 2013.

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 December 31, 2013, 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, 32 municipal securities and 21 residential agency mortgage-backed securities. As of December 31, 2013, these trust preferred securities had an estimated fair value of $14.4 million, representing approximately 1% of the total investment securities available-for-sale portfolio. As of December 31, 2013, these non-investment grade debt instruments had gross unrealized losses amounting to $5.6 million, or 28% 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 2013.

During 2012 and 2011, the Company recorded $99 thousand and $633 thousand, respectively, in noncredit-related impairment losses on the five positions in trust preferred securities due to rating downgrades caused by increases in market spreads, concerns regarding the housing market and lack of liquidity in the market.

Investment Securities Maturities

The scheduled maturities of investment securities at December 31, 2013 are presented as follows:

	Amortized		Estimated
	Cost		Fair Value
	(In thousands)
Due within one year	$	417,774	$	401,970
Due after one year through five years	547,189		542,293
Due after five years through ten years	750,811		732,404
Due after ten years	1,070,716		1,057,130
Total investment securities available-for-sale	$	2,786,490	$	2,733,797

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, 2013 and 2012, investment securities available-for-sale with a par value of $1.97 billion and $1.78 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.