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Investment Portfolio

6 Months Ended

Jun. 30, 2012

Note 4 — Investment Portfolio

Components of the Company’s investment portfolio are as follows:


*(Amounts in thousands)*	June 30, 2012		December 31, 2011
Cash	$	2,126,441	$	2,016,451
Money markets		421,794		555,659
Deposits		22		64

Cash and cash equivalents (substantially restricted)		2,548,257		2,572,174
Short-term investments (substantially restricted)		524,055		522,024
Available-for-sale investments (substantially restricted)		85,281		102,771

Total investment portfolio	$	3,157,593	$	3,196,969

Cash and Cash Equivalents (substantially restricted) — Cash and cash equivalents consist of cash, money-market securities and deposits. Cash primarily consists of interest-bearing deposit accounts and non-interest bearing transaction accounts. The Company’s money-market securities are invested in six funds, all of which are AAA rated and consist of United States Treasury bills, notes or other obligations issued or guaranteed by the United States government and its agencies, as well as repurchase agreements secured by such instruments. Deposits consist of a time deposits with original maturities of three months or less, and are issued from financial institutions that are rated BBB or better as of the date of this filing.

Short-term Investments (substantially restricted) — Short-term investments consist of time deposits and certificates of deposit with original maturities of greater than three months but no more than twelve months, and are issued from financial institutions rated AA- or better as of the date of this filing.

Available-for-sale Investments (substantially restricted) — Available-for-sale investments consist of mortgage-backed securities, asset-backed securities and agency debenture securities. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments are as follows at June 30, 2012:


	June 30, 2012
*(Amounts in thousands, except net average price)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Net Average Price
Residential mortgage-backed securities-agencies	$	45,828	$	3,786	$	—	$	49,614	$	109.04
Other asset-backed securities		8,615		18,082		—		26,697		6.16
United States government agencies		7,959		1,011		—		8,970		99.67

Total	$	62,402	$	22,879	$	—	$	85,281	$	17.48

After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments were as follows at December 31, 2011:


	December 31, 2011
*(Amounts in thousands, except net average price)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Net Average Price
Residential mortgage-backed securities - agencies	$	65,211	$	4,501	$	—	$	69,712	$	107.63
Other asset-backed securities		8,951		15,281		—		24,232		5.49
United States government agencies		7,723		1,104		—		8,827		98.08

Total	$	81,885	$	20,886	$	—	$	102,771	$	21.83

At June 30, 2012 and December 31, 2011, approximately 69 percent and 76 percent, respectively, of the available-for-sale portfolio are invested in debentures of United States government agencies or securities collateralized by United States government agency debentures. These securities have the implicit backing of the United States government, and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments. The “Other asset-backed securities” continue to have market exposure, as factored into the fair value estimates, with the average price of an asset-backed security at $0.06 per dollar of par at June 30, 2012.

Gains and Losses and Other-Than-Temporary Impairments — At June 30, 2012 and December 31, 2011, net unrealized gains of $22.9 million and $21.5 million, respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During the three and six months ended June 30, 2012, no losses were reclassified from “Accumulated other comprehensive (loss) income” to “Net securities gains” in connection with other-than-temporary impairments and realized gains and losses recognized during the period. During the second quarter of 2011, the Company recognized settlements of $32.8 million, equal to all of the outstanding principal from two securities classified in “Other asset-backed securities.” These securities had previously been written down to a nominal fair value, resulting in a realized gain of $32.8 million recorded in “Net securities gains” in the Consolidated Statements of (Loss) Income. “Net securities gains” were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
*(Amounts in thousands)*	2012		2011			2012		2011
Realized gains from available-for-sale investments	$	—	$	(32,820	)	$	—	$	(32,820	)

Other-than-temporary impairments from available-for-sale investments		—		4			—		4

Net securities gains	$	—	$	(32,816	)	$	—	$	(32,816	)

Investment Ratings — In rating the securities in its investment portfolio, the Company uses ratings from Moody’s Investor Service (“Moody’s”), Standard & Poors (“S&P”) and Fitch Ratings (“Fitch”). If the rating agencies have split ratings, the Company uses the highest rating across the rating agencies for disclosure purposes. Securities issued or backed by United States government agencies are included in the AAA rating category. Investment grade is defined as a security having a Moody’s equivalent rating of Aaa, Aa, A or Baa or an S&P or Fitch equivalent rating of AAA, AA, A or BBB. The Company’s investments at June 30, 2012 and December 31, 2011 consisted of the following ratings:


	June 30, 2012							December 31, 2011
*(Dollars in thousands)*	Number of Securities		Fair Value		Percent of Investments			Number of Securities		Fair Value		Percent of Investments
AAA, including United States agencies		20	$	58,275		68	%		24	$	78,267		76	%
Below investment grade		58		27,006		32	%		60		24,504		24	%

Total		78	$	85,281		100	%		84	$	102,771		100	%

Had the Company used the lowest rating from the rating agencies in the information presented above, there would be no change to investments rated A or better at June 30, 2012, and less than a $0.1 million change at December 31, 2011.

Contractual Maturities — The amortized cost and fair value of available-for-sale securities at June 30, 2012 and December 31, 2011, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties. Maturities of mortgage-backed and other asset-backed securities depend on the repayment characteristics and experience of the underlying obligations.


	June 30, 2012				December 31, 2011
*(Amounts in thousands)*	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	1,000	$	1,023	$	—	$	—
After one year through five years		6,959		7,948		7,723		8,827
Mortgage-backed and other asset-backed securities		54,443		76,310		74,162		93,944

Total	$	62,402	$	85,281	$	81,885	$	102,771

Fair Value Determination — The Company uses various sources of pricing for its fair value estimates of its available-for-sale portfolio. The percentage of the portfolio for which the various pricing sources were used is as follows at June 30, 2012 and December 31, 2011: 60 percent and 69 percent, respectively, used a third party pricing service; 18 percent and 13 percent, respectively, used broker pricing; and 22 percent and 18 percent, respectively, used internal pricing.

Assessment of Unrealized Losses — The Company had no unrealized losses in its available-for-sale portfolio at June 30, 2012 and at December 31, 2011.