Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities

Investment Securities

Note 4. Investment Securities

The following is a summary of amortized cost and estimated fair value for the major categories of securities available-for-sale at June 30, 2011, December 31, 2010 and June 30, 2010:

			Gross		Gross
	Amortized		Unrealized		Unrealized
(in thousands)	Cost		Gains		Losses			Fair Value
June 30, 2011
U.S. Treasury	$	13,036	$	40	$	—		$	13,076
Federal agency - Debt	1,841,579		6,534		(881		)	1,847,232
Federal agency - MBS	518,421		17,961		(1,656		)	534,726
CMOs - Federal agency	3,383,652		73,040		(2,791		)	3,453,901
CMOs - Non-agency	98,596		591		(8,104		)	91,083
State and municipal	344,561		13,496		(253		)	357,804
Other debt securities	48,826		2,746		(7,451		)	44,121
Total debt securities	6,248,671		114,408		(21,136		)	6,341,943
Equity securities and mutual funds	2,088		4,024		—			6,112
Total securities	$	6,250,759	$	118,432	$	(21,136	)	$	6,348,055
December 31, 2010
U.S. Treasury	$	14,070	$	47	$	(4	)	$	14,113
Federal agency - Debt	1,142,520		5,029		(5,221		)	1,142,328
Federal agency - MBS	540,768		13,379		(2,801		)	551,346
CMOs - Federal agency	3,442,238		65,494		(10,585		)	3,497,147
CMOs - Non-agency	126,819		1,147		(9,671		)	118,295
State and municipal	334,596		9,399		(615		)	343,380
Other debt securities	50,564		2,018		(8,952		)	43,630
Total debt securities	5,651,575		96,513		(37,849		)	5,710,239
Equity securities and mutual funds	6,545		3,891		—			10,436
Total securities	$	5,658,120	$	100,404	$	(37,849	)	$	5,720,675
June 30, 2010
U.S. Treasury	$	19,096	$	50	$	(1	)	$	19,145
Federal agency - Debt	1,084,703		6,432		(289		)	1,090,846
Federal agency - MBS	447,363		19,350		—			466,713
CMOs - Federal agency	2,455,952		74,401		(2,116		)	2,528,237
CMOs - Non-agency	234,330		1,753		(19,005		)	217,078
State and municipal	347,469		13,120		(167		)	360,422
Other debt securities	71,048		2,723		(6,624		)	67,147
Total debt securities	4,659,961		117,829		(28,202		)	4,749,588
Equity securities and mutual funds	8,128		3,427		—			11,555
Total securities	$	4,668,089	$	121,256	$	(28,202	)	$	4,761,143

Proceeds from sales of available-for-sale securities were $47.2 million and $53.3 million for the three and six months ended June 30, 2011, respectively, compared with $24.4 million and $432.0 million for the three and six months ended June 30, 2010, respectively.  The following table provides the gross realized gains and losses on the sales of securities:

	For the three months ended						For the six months ended
	June 30,						June 30,
(in thousands)	2011			2010			2011			2010
Gross realized gains	$	2,621		$	491		$	2,781		$	4,993
Gross realized losses	(932		)	(136		)	(962		)	(2,504		)
Net realized gains	$	1,689		$	355		$	1,819		$	2,489

Interest income on securities available-for-sale for the three months ended June 30, 2011 and 2010 is comprised of: (i) taxable interest income of $36.3 million and $29.6 million, respectively, (ii) nontaxable interest income of $2.9 million and $3.1 million, respectively, and (iii) dividend income of $0.2 million and $0.2 million, respectively.  Interest income on securities available-for-sale for the six months ended June 30, 2011 and 2010 is comprised of: (i) taxable interest income of $70.6 million and $58.4 million, respectively, (ii) nontaxable interest income of $5.8 million and $6.2 million, respectively, and (iii) dividend income of $0.3 million and $0.5 million, respectively.

The following table provides the expected remaining maturities of debt securities included in the securities portfolio at June 30, 2011, except for mortgage-backed securities which are allocated according to the average life of expected cash flows. Average expected maturities will differ from contractual maturities because mortgage debt issuers may have the right to repay obligations prior to contractual maturity.

Debt Securities Available-for-Sale

(in thousands)	One year or less		Over 1 year through 5 years		Over 5 years through 10 years		Over 10 years		Total
U.S. Treasury	$	10,072	$	3,004	$	—	$	—	$	13,076
Federal agency - Debt	1,258,008		525,285		63,939		—		1,847,232
Federal agency - MBS	45		198,026		288,692		47,963		534,726
CMOs - Federal agency	319,152		2,416,854		665,121		52,774		3,453,901
CMOs - Non-agency	11,569		41,943		37,571		—		91,083
State and municipal	42,026		168,958		92,198		54,622		357,804
Other	5,049		15,714		23,358		—		44,121
Total debt securities	$	1,645,921	$	3,369,784	$	1,170,879	$	155,359	$	6,341,943
Amortized cost	$	1,640,997	$	3,291,398	$	1,161,517	$	154,759	$	6,248,671

Impairment Assessment

The Company performs a quarterly assessment of the debt and equity securities in its investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their cost is other-than-temporary.  Impairment is considered other-than-temporary when it becomes probable that an investor will be unable to recover the cost of an investment. The Company’s impairment assessment takes into consideration factors such as the length of time and the extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer, including events specific to the issuer or industry; defaults or deferrals of scheduled interest, principal or dividend payments; external credit ratings and recent downgrades; and whether the Company intends to sell the security and whether it is more likely than not it will be required to sell the security prior to recovery of its amortized cost basis.  If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis.  The new cost basis is not adjusted for subsequent recoveries in fair value.

When there are credit losses associated with an impaired debt security and the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, the Company will separate the amount of the impairment into the amount that is credit-related and the amount related to non-credit factors. The credit-related impairment is recognized in Net impairment loss recognized in earnings in the consolidated statements of income. The non-credit-related impairment is recognized in AOCI.

Securities Deemed to be Other-Than-Temporarily Impaired

Through the impairment assessment process, the Company determined that certain investments were other-than-temporarily impaired at June 30, 2011.  See Non-Agency CMOs below. The Company recorded impairment losses in earnings on securities available-for-sale of $0.3 million and $0.5 million for the three and six months ended June 30, 2011, respectively. The Company recorded impairment losses in earnings on securities available-for-sale of $0.5 million and $1.5 million for the three and six months ended June 30, 2010, respectively.

The following table provides total impairment losses recognized in earnings on other-than-temporarily impaired securities:

(in thousands)	For the three months ended				For the six months ended
Impairment Losses on	June 30,				June 30,
Other-Than-Temporarily Impaired Securities	2011		2010		2011		2010
Non-agency CMOs	$	294	$	212	$	458	$	1,215
Perpetual preferred stock	—		294		—		294
Total	$	294	$	506	$	458	$	1,509

The following table provides a rollforward of cumulative credit-related other-than-temporary impairment recognized in earnings for debt securities for the three and six months ended June 30, 2011 and 2010. Credit-related other-than-temporary impairment that was recognized in earnings is reflected as an “Initial credit-related impairment” if the period reported is the first time the security had a credit impairment. A credit related other-than-temporary impairment is reflected as a “Subsequent credit-related impairment” if the period reported is not the first time the security had a credit impairment.  There were no initial credit-related impairments for the three and six months ended June 30, 2011 and 2010.

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2011		2010		2011		2010
Balance, beginning of period	$	19,609	$	18,710	$	19,445	$	17,707
Subsequent credit-related impairment	294		186		458		1,189
Initial credit-related impairment	—		26		—		26
Balance, end of period	$	19,903	$	18,922	$	19,903	$	18,922

Non-Agency CMOs

The Company identified certain non-agency CMOs that were considered to be other-than-temporarily impaired because the present value of expected cash flows was less than cost. These CMOs have a fixed interest rate for an initial period after which they become variable-rate instruments with annual rate resets. For purposes of projecting future cash flows, the current fixed coupon was used through the reset date for each security. The prevailing LIBOR/Treasury forward curve as of the measurement date was used to project all future floating-rate cash flows based on the characteristics of each security.  Other factors considered in the projection of future cash flows include the current level of subordination from other CMO classes, anticipated prepayment rates, cumulative defaults and loss given default. The Company recognized credit-related impairment losses in earnings on its investments in certain non-agency CMOs totaling $0.3 million in the second quarter of 2011 and $0.5 million for the six months ended June 30, 2011. The remaining other-than-temporary impairment for these securities at June 30, 2011 was recognized in AOCI. This non-credit portion of other-than-temporary impairment is attributed to external market conditions, primarily the lack of liquidity in these securities and increases in interest rates.

The following tables provide a summary of the gross unrealized losses and fair value of investment securities aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position as of June 30, 2011, December 31, 2010 and June 30, 2010.  The table includes investments for which an other-than-temporary impairment has not been recognized in earnings, along with investments that had a non-credit-related impairment recognized in AOCI:

	Less than 12 months				12 months or greater				Total
(in thousands)	Fair Value		Estimated Unrealized Loss		Fair Value		Estimated Unrealized Loss		Fair Value		Estimated Unrealized Loss
June 30, 2011
Federal agency - Debt	$	334,928	$	881	$	—	$	—	$	334,928	$	881
Federal agency - MBS	94,035		1,656		—		—		94,035		1,656
CMOs - Federal agency	384,986		2,791		—		—		384,986		2,791
CMOs - Non-agency	10,142		224		43,089		7,880		53,231		8,104
State and municipal	11,688		204		725		49		12,413		253
Other debt securities	—		—		15,756		7,451		15,756		7,451
Total securities	$	835,779	$	5,756	$	59,570	$	15,380	$	895,349	$	21,136
December 31, 2010
U.S. Treasury	$	5,028	$	4	$	—	$	—	$	5,028	$	4
Federal agency - Debt	561,205		5,221		—		—		561,205		5,221
Federal agency - MBS	109,381		2,801		—		—		109,381		2,801
CMOs - Federal agency	755,751		10,585		—		—		755,751		10,585
CMOs - Non-agency	7,718		18		61,571		9,653		69,289		9,671
State and municipal	25,845		558		700		57		26,545		615
Other debt securities	—		—		14,407		8,952		14,407		8,952
Total securities	$	1,464,928	$	19,187	$	76,678	$	18,662	$	1,541,606	$	37,849
June 30, 2010
U.S. Treasury	$	4,029	$	1	$	—	$	—	$	4,029	$	1
Federal agency - Debt	50,516		289		—		—		50,516		289
CMOs - Federal agency	293,008		2,116		—		—		293,008		2,116
CMOs - Non-agency	24,327		455		124,892		18,550		149,219		19,005
State and municipal	2,810		57		4,645		110		7,455		167
Other debt securities	4,585		31		16,933		6,593		21,518		6,624
Total securities	$	379,275	$	2,949	$	146,470	$	25,253	$	525,745	$	28,202

At June 30, 2011, total securities available-for-sale had a fair value of $6.35 billion, which included $895.3 million of securities available-for-sale in an unrealized loss position as of June 30, 2011. This balance consists of $884.5 million of temporarily impaired securities and $10.8 million of securities that had non-credit related impairment recognized in AOCI.  At June 30, 2011, the Company had 62 debt securities in an unrealized loss position.  The debt securities in an unrealized loss position include 13 Federal agency debt securities, 7 Federal agency MBS, 19 Federal agency CMOs, 10 non-agency CMOs, 12 state and municipal securities and 1 other debt security. The Company does not consider the debt securities in the above table to be other than temporarily impaired at June 30, 2011.

The unrealized loss on Non-agency CMOs reflects the lack of liquidity in this sector of the market.  The Company only holds the most senior tranches of each non-agency issue which provides protection against defaults.  Other than the $0.5 million credit loss recognized in 2011 on Non-agency CMOs, the Company expects to receive principal and interest payments equivalent to or greater than the current cost basis of its portfolio of debt securities. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment. The mortgages in these asset pools are relatively large and have been made to borrowers with strong credit history and significant equity invested in their homes. They are well diversified geographically. Over the past year, the real estate market has stabilized somewhat, though performance varies substantially by geography and borrower. Though reduced, a significant weakening of economic fundamentals coupled with a return to elevated unemployment rates and substantial deterioration in the value of high-end residential properties could increase the probability of default and related credit losses. These conditions could cause the value of these securities to decline and trigger the recognition of further other-than-temporary impairment charges.

Other debt securities include the Company’s investments in highly rated corporate debt and collateralized bond obligations backed by trust preferred securities (“CDOs”) issued by a geographically diverse pool of small- and medium-sized financial institutions. The CDOs held in securities available-for-sale at June 30, 2011 are the most senior tranches of each issue. The market for CDOs has been inactive since 2008, accordingly, the fair values of these securities were determined using an internal pricing model that incorporates assumptions about discount rates in an illiquid market, projected cash flows and collateral performance. The CDOs had a $7.3 million net unrealized loss at June 30, 2011 which the Company attributes to the illiquid credit markets. The CDOs have collateral that well exceeds the outstanding debt. Security valuations reflect the current and prospective performance of the issuers whose debt is contained in these asset pools. The Company expects to receive all contractual principal and interest payments due on its CDOs. Additionally, the Company does not intend to sell the securities, and it is not more likely than not that it will be required to sell the securities before it recovers the cost basis of its investment.

At December 31, 2010, total securities available-for-sale had a fair value of $5.72 billion, which included $1.54 billion of securities available-for-sale in an unrealized loss position as of December 31, 2010.  This balance consisted of $1.51 billion of temporarily impaired securities and $27.4 million of securities that had non-credit related impairment recognized in AOCI.  At December 31, 2010, the Company had 109 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U.S. Treasury note, 22 Federal agency debt securities, 7 Federal agency MBS, 30 Federal agency CMOs, 12 non-agency CMOs, 36 state and municipal securities and 1 other debt securities.

At June 30, 2010, total securities available-for-sale had a fair value of $4.76 billion, which included $525.7 million of securities available-for-sale in an unrealized loss position as of June 30, 2010.  This balance consisted of $473.4 million of temporarily impaired securities and $52.3 million of securities that had non-credit related impairment recognized in AOCI.  At June 30, 2010, the Company had 50 debt securities in an unrealized loss position. The debt securities in an unrealized loss position included 1 U.S. Treasury note, 1 Federal agency debt security, 16 Federal agency CMOs, 21 non-agency CMOs, 9 state and municipal securities and 2 other debt securities.