Securities

9 Months Ended

Sep. 30, 2012

Securities

Securities

Note 4. Securities

At September 30, 2012, the Company had total securities of $9.11 billion, comprised of securities available-for-sale at fair value of $7.87 billion, securities held-to-maturity at amortized cost of $1.17 billion and trading securities at fair value of $64.7 million. At December 31, 2011, the Company had total securities of $8.10 billion, comprised of securities available-for-sale at fair value of $7.57 billion, securities held-to-maturity at amortized cost of $467.7 million and trading securities at fair value of $62.0 million.

The following is a summary of amortized cost and estimated fair value for the major categories of securities available-for-sale and securities held-to-maturity at September 30, 2012 and December 31, 2011:

			Gross		Gross
	Amortized		Unrealized		Unrealized
(in thousands)	Cost		Gains		Losses			Fair Value
September 30, 2012
Securities available-for-sale:
U.S. Treasury	$	20,352	$	6	$	(3	)	$	20,355
Federal agency - Debt	1,542,162		5,169		(31		)	1,547,300
Federal agency - MBS	612,713		45,222		—			657,935
CMOs - Federal agency	4,755,996		95,410		(3,935		)	4,847,471
CMOs - Non-agency	66,431		1,070		(3,012		)	64,489
State and municipal	406,127		19,177		(135		)	425,169
Other debt securities	306,645		8,329		(6,450		)	308,524
Total debt securities	7,710,426		174,383		(13,566		)	7,871,243
Equity securities and mutual funds	336		485		—			821
Total securities available-for-sale	$	7,710,762	$	174,868	$	(13,566	)	$	7,872,064
Securities held-to-maturity (1):
Federal agency - Debt	$	96,389	$	2,960	$	—		$	99,349
Federal agency - MBS	218,085		11,558		—			229,643
CMOs - Federal agency	660,196		28,830		—			689,026
State and municipal	199,491		5,364		(152		)	204,703
Total securities held-to-maturity	$	1,174,161	$	48,712	$	(152	)	$	1,222,721
December 31, 2011
Securities available-for-sale:
U.S. Treasury	$	19,163	$	24	$	(5	)	$	19,182
Federal agency - Debt	1,967,928		6,230		(296		)	1,973,862
Federal agency - MBS	650,091		31,040		(87		)	681,044
CMOs - Federal agency	4,239,205		89,926		(2,224		)	4,326,907
CMOs - Non-agency	79,999		322		(11,320		)	69,001
State and municipal	383,210		18,767		(373		)	401,604
Other debt securities	106,051		1,896		(8,873		)	99,074
Total debt securities	7,445,647		148,205		(23,178		)	7,570,674
Equity securities and mutual funds	352		875		—			1,227
Total securities available-for-sale	$	7,445,999	$	149,080	$	(23,178	)	$	7,571,901
Securities held-to-maturity (1):
Federal agency - Debt	$	40,423	$	780	$	—		$	41,203
Federal agency - MBS	75,231		1,632		—			76,863
CMOs - Federal agency	292,547		2,580		(195		)	294,932
State and municipal	59,479		1,463		(37		)	60,905
Total securities held-to-maturity	$	467,680	$	6,455	$	(232	)	$	473,903

(1) Securities held-to-maturity are presented in the consolidated balance sheets at amortized cost.

Proceeds from sales of securities available-for-sale were $1.0 million and $6.2 million for the three and nine months ended September 30, 2012, respectively, compared with $48.2 million and $101.5 million for the three and nine months ended September 30, 2011, respectively. There were no sales of securities held-to-maturity during the three and nine months ended September 30, 2012 and September 30, 2011. The following table provides the gross realized gains and losses on the sales and calls of securities (including trading securities):

	For the three months ended						For the nine months ended
	September 30,						September 30,
(in thousands)	2012			2011			2012			2011
Gross realized gains	$	1,315		$	3,897		$	1,851		$	6,678
Gross realized losses	(459		)	(377		)	(825		)	(1,339		)
Net realized gains	$	856		$	3,520		$	1,026		$	5,339

Interest income on securities (including trading securities) for the three months ended September 30, 2012 and 2011 is comprised of: (i) taxable interest income of $40.0 million and $37.7 million, respectively (ii) nontaxable interest income of $4.1 million and $3.0 million, respectively, and (iii) dividend income of $0.1 million and $0.2 million, respectively. Interest income on securities (including trading securities) for the nine months ended September 30, 2012 and 2011 is comprised of: (i) taxable interest income of $120.8 million and $108.4 million, respectively (ii) nontaxable interest income of $12.0 million and $8.9 million, respectively, and (iii) dividend income of $0.3 million and $0.7 million, respectively.

The following table provides the expected remaining maturities of debt securities included in the securities portfolio at September 30, 2012. The maturities of mortgage-backed securities are allocated according to the average life of expected cash flows. Average expected maturities will differ from contractual maturities because of the amortizing nature of the loan collateral and prepayment behavior of borrowers.

(in thousands)	One year or less		Over 1 year through 5 years		Over 5 years through 10 years		Over 10 years		Total
Securities available-for-sale:
U.S. Treasury	$	2,001	$	18,354	$	—	$	—	$	20,355
Federal agency - Debt	1,149,612		397,688		—		—		1,547,300
Federal agency - MBS	7		476,083		181,845		—		657,935
CMOs - Federal agency	337,650		4,384,761		125,060		—		4,847,471
CMOs - Non-agency	10,224		7,510		46,755		—		64,489
State and municipal	93,209		221,996		85,351		24,613		425,169
Other	2,122		303,986		2,416		—		308,524
Total debt securities available-for-sale	$	1,594,825	$	5,810,378	$	441,427	$	24,613	$	7,871,243
Amortized cost	$	1,588,623	$	5,692,865	$	404,456	$	24,482	$	7,710,426
Securities held-to-maturity:
Federal agency - Debt	$	—	$	5,068	$	—	$	91,321	$	96,389
Federal agency - MBS	—		2,649		215,436		—		218,085
CMOs - Federal agency	—		105,755		554,441		—		660,196
State and municipal	500		15,223		154,277		29,491		199,491
Total debt securities held-to-maturity at amortized cost	$	500	$	128,695	$	924,154	$	120,812	$	1,174,161

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 non-agency CMOs were other-than-temporarily impaired at September 30, 2012. See Non-Agency CMOs below. The Company recorded impairment losses in earnings on securities available-for-sale of $39 thousand and $0.2 million for the three and nine months ended September 30, 2012, respectively. Impairment losses recognized in earnings on securities available-for-sale during the three and nine months ended September 30, 2011 were $0.2 million and $0.7 million, respectively. The Company recognized $1.5 million and $4.4 million of non-credit-related other-than-temporary impairment in AOCI on securities available-for-sale at September 30, 2012 and 2011, respectively. There were no impairment losses recognized in earnings or AOCI for securities held-to-maturity during the three and nine months ended September 30, 2012.

The following table summarizes the changes in cumulative credit-related other-than-temporary impairment recognized in earnings for debt securities for the three and nine months ended September 30, 2012 and 2011. 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.  Cumulative impairment is reduced for securities with previously recognized credit-related impairment that were sold or redeemed during the period. Cumulative impairment is further adjusted for other changes in expected cash flows.

	For the three months ended					For the nine months ended
	September 30,					September 30,
(in thousands)	2012			2011		2012			2011
Balance, beginning of period	$	17,366		$	17,293	$	17,531		$	17,923
Subsequent credit-related impairment	39			193		217			651
Reduction for securities sold or redeemed	(537		)	—		(537		)	(455		)
(Increase) decrease in expected cash flows on securities for which OTTI was previously recognized	(267		)	508		(610		)	(125		)
Balance, end of period	$	16,601		$	17,994	$	16,601		$	17,994

Non-Agency CMOs

The Company held $45.9 million of variable rate non-agency CMOs at September 30, 2012, of which $16.3 million of these securities were 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 variable rate non-agency CMOs totaling $39 thousand and $0.2 million for the three and nine months ended September 30, 2012, respectively. The Company recognized credit-related impairment losses of $0.2 million and $0.7 million in earnings for the three and nine months ended September 30, 2011, respectively. The non-credit portion of other-than-temporary impairment for these securities at September 30, 2012 and 2011 was recognized in AOCI and is attributed to external market conditions, primarily the lack of liquidity in these securities, resulting in an increase in interest rate spreads for these securities. The Company also holds $18.6 million in fixed rate non-agency CMOs at September 30, 2012, none of which have experienced any other-than-temporary impairment.

The following table provides a summary of the gross unrealized losses and fair value of investment securities that are not deemed to be other-than-temporarily impaired aggregated by investment category and length of time that the securities have been in a continuous unrealized loss position as of September 30, 2012 and December 31, 2011. The table also includes investment securities that had both a credit-related impairment recognized in earnings and 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
September 30, 2012
Securities available-for-sale:
U.S. Treasury	$	5,108	$	3	$	—	$	—	$	5,108	$	3
Federal agency - Debt	90,220		31		—		—		90,220		31
CMOs - Federal agency	928,673		3,763		49,923		172		978,596		3,935
CMOs - Non-agency	—		—		27,985		3,012		27,985		3,012
State and municipal	47,097		128		808		7		47,905		135
Other debt securities	—		—		16,220		6,450		16,220		6,450
Total securities available-for-sale	$	1,071,098	$	3,925	$	94,936	$	9,641	$	1,166,034	$	13,566
Securities held-to-maturity:
State and municipal	$	20,274	$	152	$	—	$	—	$	20,274	$	152
Total securities held-to-maturity	$	20,274	$	152	$	—	$	—	$	20,274	$	152

	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
December 31, 2011
Securities available-for-sale:
U.S. Treasury	$	4,145	$	5	$	—	$	—	$	4,145	$	5
Federal agency - Debt	409,129		296		—		—		409,129		296
Federal agency - MBS	24,519		87		—		—		24,519		87
CMOs - Federal agency	744,737		2,224		—		—		744,737		2,224
CMOs - Non-agency	20,094		833		31,400		10,487		51,494		11,320
State and municipal	42,164		268		2,023		105		44,187		373
Other debt securities	34,153		508		14,718		8,365		48,871		8,873
Total securities available-for-sale	$	1,278,941	$	4,221	$	48,141	$	18,957	$	1,327,082	$	23,178
Securities held-to-maturity:
CMOs - Federal agency	$	32,256	$	195	$	—	$	—	$	32,256	$	195
State and municipal	5,784		37		—		—		5,784		37
Total securities held-to-maturity	$	38,040	$	232	$	—	$	—	$	38,040	$	232

At September 30, 2012, the Company had $1.17 billion of securities available-for-sale in an unrealized loss position, consisting of $1.15 billion of temporarily impaired securities and $16.3 million of securities that had non-credit-related impairment recognized in AOCI. The Company had $20.3 million of securities held-to-maturity in an unrealized loss position. At September 30, 2012, the Company had 110 debt securities available-for-sale and held-to-maturity in an unrealized loss position. The debt securities in an unrealized loss position include 2 U.S. Treasury securities, 4 federal agency debt securities, 39 federal agency CMOs, 5 non-agency CMOs, 59 state and municipal securities and 1 other debt security.

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. 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 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 September 30, 2012 are the most senior tranches of each issue. Trading activity for the type of CDO held by the Company has been limited 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 $6.4 million net unrealized loss at September 30, 2012, 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, 2011, the Company had $1.33 billion of securities available-for-sale in an unrealized loss position consisting of $1.32 billion of temporarily impaired securities and $9.2 million of securities that had non-credit-related impairment recognized in AOCI. The Company had $38.0 million of securities held-to-maturity in an unrealized loss position. At December 31, 2011, the Company had 90 debt securities available-for-sale and held-to-maturity in an unrealized loss position. The debt securities in an unrealized loss position included 2 U.S. Treasury securities, 12 federal agency debt securities, 3 federal agency MBS, 36 federal agency CMOs, 12 non-agency CMOs, 19 state and municipal securities and 6 other debt securities.