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Securities
6 Months Ended
Jun. 30, 2013
Securities  
Securities

Note 4. Securities

 

At June 30, 2013, the Company had total securities of $8.60 billion, comprised of securities available-for-sale at fair value of $7.04 billion, securities held-to-maturity at amortized cost of $1.50 billion and trading securities at fair value of $48.7 million. At December 31, 2012, the Company had total securities of $10.72 billion, comprised of securities available-for-sale at fair value of $9.21 billion, securities held-to-maturity at amortized cost of $1.40 billion and trading securities at fair value of $115.1 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 June 30, 2013 and December 31, 2012:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

(in thousands)

 

Cost

 

Gains

 

Losses

 

Fair Value

 

June 30, 2013

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

30,293

 

$

8

 

$

(16

)

$

30,285

 

Federal agency - Debt

 

987,467

 

1,491

 

(8,933

)

980,025

 

Federal agency - MBS

 

422,699

 

19,695

 

(4,212

)

438,182

 

CMOs - Federal agency

 

4,736,335

 

47,991

 

(55,713

)

4,728,613

 

CMOs - Non-agency

 

47,079

 

142

 

(1,894

)

45,327

 

State and municipal

 

457,869

 

10,939

 

(2,048

)

466,760

 

Other debt securities

 

351,171

 

4,664

 

(5,591

)

350,244

 

Total debt securities

 

7,032,913

 

84,930

 

(78,407

)

7,039,436

 

Equity securities and mutual funds

 

337

 

4,798

 

 

5,135

 

Total securities available-for-sale

 

$

7,033,250

 

$

89,728

 

$

(78,407

)

$

7,044,571

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity (1):

 

 

 

 

 

 

 

 

 

Federal agency - Debt

 

$

109,562

 

$

27

 

$

(1,556

)

$

108,033

 

Federal agency - MBS

 

315,529

 

1,037

 

(8,555

)

308,011

 

CMOs - Federal agency

 

797,715

 

3,036

 

(16,997

)

783,754

 

State and municipal

 

281,167

 

427

 

(14,835

)

266,759

 

Total securities held-to-maturity

 

$

1,503,973

 

$

4,527

 

$

(41,943

)

$

1,466,557

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

20,393

 

$

7

 

$

(3

)

$

20,397

 

Federal agency - Debt

 

2,344,374

 

5,031

 

(203

)

2,349,202

 

Federal agency - MBS

 

653,428

 

39,673

 

(69

)

693,032

 

CMOs - Federal agency

 

5,233,126

 

91,165

 

(6,038

)

5,318,253

 

CMOs - Non-agency

 

62,975

 

662

 

(2,124

)

61,513

 

State and municipal

 

437,266

 

17,447

 

(239

)

454,474

 

Other debt securities

 

305,340

 

7,945

 

(5,868

)

307,417

 

Total debt securities

 

9,056,902

 

161,930

 

(14,544

)

9,204,288

 

Equity securities and mutual funds

 

336

 

1,365

 

 

1,701

 

Total securities available-for-sale

 

$

9,057,238

 

$

163,295

 

$

(14,544

)

$

9,205,989

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity (1):

 

 

 

 

 

 

 

 

 

Federal agency - Debt

 

$

97,183

 

$

4,032

 

$

 

$

101,215

 

Federal agency - MBS

 

303,642

 

11,490

 

(182

)

314,950

 

CMOs - Federal agency

 

745,980

 

28,973

 

(382

)

774,571

 

State and municipal

 

251,598

 

5,122

 

(857

)

255,863

 

Total securities held-to-maturity

 

$

1,398,403

 

$

49,617

 

$

(1,421

)

$

1,446,599

 

 

 

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

 

Proceeds from sales of securities available-for-sale were $0.2 million and $1.25 billion for the three and six months ended June 30, 2013, respectively, compared with $5.2 million for the three and six months ended June 30, 2012. There were no sales of securities held-to-maturity during the three and six months ended June 30, 2013 and June 30, 2012. 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 six months ended

 

 

 

June 30,

 

June 30,

 

(in thousands)

 

2013

 

2012

 

2013

 

2012

 

Gross realized gains

 

$

5,790

 

$

40

 

$

6,836

 

$

536

 

Gross realized losses

 

 

(319

)

 

(366

)

Net realized gains (losses)

 

$

5,790

 

$

(279

)

$

6,836

 

$

170

 

 

Interest income on securities for the three months ended June 30, 2013 and 2012 is comprised of: (i) taxable interest income of $36.7 million and $39.3 million, respectively (ii) nontaxable interest income of $4.4 million and $4.0 million, respectively, and (iii) dividend income of $0.1 million and $0.2 million, respectively. Interest income on securities for the six months ended June 30, 2013 and 2012 is comprised of: (i) taxable interest income of $76.6 million and $80.9 million, respectively (ii) nontaxable interest income of $8.8 million and $7.8 million, respectively, and (iii) dividend income of $0.1 million and $0.2 million, respectively.

 

The following table provides the expected remaining maturities of debt securities included in the securities portfolio at June 30, 2013, except for maturities of mortgage-backed securities which 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

 

$

12,106

 

$

18,179

 

$

 

$

 

$

30,285

 

Federal agency - Debt

 

278,906

 

595,726

 

105,393

 

 

980,025

 

Federal agency - MBS

 

398

 

168,346

 

269,438

 

 

438,182

 

CMOs - Federal agency

 

112,918

 

3,606,494

 

1,009,201

 

 

4,728,613

 

CMOs - Non-agency

 

4,203

 

14,636

 

26,488

 

 

45,327

 

State and municipal

 

40,790

 

338,418

 

62,250

 

25,302

 

466,760

 

Other

 

12,862

 

292,484

 

44,898

 

 

350,244

 

Total debt securities available-for-sale

 

$

462,183

 

$

5,034,283

 

$

1,517,668

 

$

25,302

 

$

7,039,436

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

$

459,740

 

$

5,015,064

 

$

1,532,327

 

$

25,782

 

$

7,032,913

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

Federal agency - Debt

 

$

 

$

 

$

31,794

 

$

77,768

 

$

109,562

 

Federal agency - MBS

 

 

 

315,529

 

 

315,529

 

CMOs - Federal agency

 

 

145,489

 

652,226

 

 

797,715

 

State and municipal

 

 

7,460

 

119,559

 

154,148

 

281,167

 

Total debt securities held-to-maturity at amortized cost

 

$

 

$

152,949

 

$

1,119,108

 

$

231,916

 

$

1,503,973

 

 

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

 

The Company recorded impairment losses in earnings on securities available-for-sale of $0.2 million for the three and six months ended June 30, 2013 and 2012, respectively. The Company recognized $0.2 million and $4.0 million of non-credit-related other-than-temporary impairment in AOCI on securities available-for-sale at June 30, 2013 and 2012, respectively. No impairment losses were recognized in earnings or AOCI for securities held-to-maturity during the three and six months ended June 30, 2013.

 

The following table summarizes the changes in cumulative credit-related other-than-temporary impairment recognized in earnings for debt securities for the three and six months ended June 30, 2013 and 2012. 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
June 30,

 

For the six months ended
June 30,

 

(in thousands)

 

2013

 

2012

 

2013

 

2012

 

Balance, beginning of period

 

$

3,676

 

$

17,369

 

$

16,486

 

$

17,531

 

Subsequent credit-related impairment

 

182

 

178

 

182

 

178

 

Reduction for securities sold or redeemed

 

 

 

(12,761

)

 

Reduction for increase in expected cash flows on securities for which OTTI was previously recognized

 

(204

)

(181

)

(253

)

(343

)

Balance, end of period

 

$

3,654

 

$

17,366

 

$

3,654

 

$

17,366

 

 

Non-Agency CMOs

 

The Company held $34.6 million of variable rate non-agency CMOs at June 30, 2013. The Company determined that $6.2 million of these non-agency CMOs were other-than-temporarily impaired. 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 $0.2 million of credit-related impairment losses in earnings on its investments in certain variable rate non-agency CMOs for the three and six months ended June 30, 2013 and 2012, respectively. The remaining other-than-temporary impairment for these securities at June 30, 2013 and 2012 was recognized in AOCI. This non-credit portion of other-than-temporarily impairment 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 $10.7 million in fixed rate non-agency CMOs at June 30, 2013, 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 June 30, 2013 and December 31, 2012. 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

15,076

 

$

16

 

$

 

$

 

$

15,076

 

$

16

 

Federal agency - Debt

 

776,490

 

8,933

 

 

 

776,490

 

8,933

 

Federal agency - MBS (1)

 

100,077

 

4,212

 

45

 

 

100,122

 

4,212

 

CMOs - Federal agency

 

2,671,312

 

55,713

 

 

 

2,671,312

 

55,713

 

CMOs - Non-agency

 

20,744

 

870

 

8,445

 

1,024

 

29,189

 

1,894

 

State and municipal

 

180,366

 

1,991

 

3,543

 

57

 

183,909

 

2,048

 

Other debt securities

 

142,613

 

900

 

15,669

 

4,691

 

158,282

 

5,591

 

Total securities available-for-sale

 

$

3,906,678

 

$

72,635

 

$

27,702

 

$

5,772

 

$

3,934,380

 

$

78,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency - Debt

 

$

80,966

 

$

1,556

 

$

 

$

 

$

80,966

 

$

1,556

 

Federal agency - MBS

 

233,183

 

8,555

 

 

 

233,183

 

8,555

 

CMOs - Federal agency

 

549,647

 

16,997

 

 

 

549,647

 

16,997

 

State and municipal

 

227,012

 

14,835

 

 

 

227,012

 

14,835

 

Total securities held-to-maturity

 

$

1,090,808

 

$

41,943

 

$

 

$

 

$

1,090,808

 

$

41,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

5,096

 

$

3

 

$

 

$

 

$

5,096

 

$

3

 

Federal agency - Debt

 

346,136

 

203

 

 

 

346,136

 

203

 

Federal agency - MBS

 

50,932

 

69

 

46

 

 

50,978

 

69

 

CMOs - Federal agency

 

1,413,367

 

5,994

 

13,565

 

44

 

1,426,932

 

6,038

 

CMOs - Non-agency

 

 

 

25,484

 

2,124

 

25,484

 

2,124

 

State and municipal

 

85,550

 

225

 

810

 

14

 

86,360

 

239

 

Other debt securities

 

39,877

 

49

 

16,038

 

5,819

 

55,915

 

5,868

 

Total securities available-for-sale

 

$

1,940,958

 

$

6,543

 

$

55,943

 

$

8,001

 

$

1,996,901

 

$

14,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency - MBS

 

$

31,514

 

$

182

 

$

 

$

 

$

31,514

 

$

182

 

CMOs - Federal agency

 

60,998

 

382

 

 

 

60,998

 

382

 

State and municipal

 

64,344

 

857

 

 

 

64,344

 

857

 

Total securities held-to-maturity

 

$

156,856

 

$

1,421

 

$

 

$

 

$

156,856

 

$

1,421

 

 

 

(1)         The estimated gross unrealized loss for federal agency MBS securities in a continuous unrealized loss position of 12 months or greater was an insignificant amount as of June 30, 2013.

 

At June 30, 2013, the Company had $3.93 billion of securities available-for-sale in an unrealized loss position, consisting of $3.93 billion of temporarily impaired securities and $6.2 million of securities that had non-credit-related impairment recognized in AOCI. The Company had $1.09 million of securities held-to-maturity in an unrealized loss position. At June 30, 2013, the Company had 687 debt securities available-for-sale and held-to-maturity in an unrealized loss position. The debt securities in an unrealized loss position include 3 U.S. Treasury notes, 33 federal agency debt securities, 29 federal agency MBS securities, 140 federal agency CMOs, 6 non-agency CMOs, 462 state and municipal securities and 14 other debt securities. The increase in unrealized losses on debt securities from the first quarter of 2013 and year-end 2012 is attributed to higher market interest rates in the current period.

 

Other debt securities include the Company’s investment in one highly-rated corporate debt and collateralized bond obligation backed by trust preferred securities (“CDOs”) issued by a geographically diverse pool of small- and medium-sized financial institutions. The CDO held in securities available-for-sale at June 30, 2013 is the most senior tranche of the issue. Trading activity for the type of CDO held by the Company has been limited since 2008. Accordingly, the fair value of this security was determined using an internal pricing model that incorporates assumptions about discount rates in an illiquid market, projected cash flows and collateral performance. The CDO had a $4.7 million net unrealized loss at June 30, 2013, which the Company attributes to the illiquid credit markets. The CDO has collateral that well exceeds the outstanding debt. The security valuation reflects the current and prospective performance of the issuers whose debt is contained in the asset pools. The Company expects to receive all remaining contractual principal and interest payments due on its CDO. Additionally, the Company does not intend to sell this security, and it is not more likely than not that it will be required to sell the security before it recovers the cost basis of its investment.

 

At December 31, 2012, the Company had $2.00 billion of securities available-for-sale in an unrealized loss position, consisting of $1.98 billion of temporarily impaired securities and $16.2 million of securities that had non-credit related impairment recognized in AOCI. At December 31, 2012, the Company had $156.9 million of securities held-to-maturity in an unrealized loss position. At December 31, 2012, the Company had 231 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 note, 8 federal agency debt securities, 7 federal agency MBS, 53 federal agency CMOs, 4 non-agency CMOs, 152 state and municipal securities and 5 other debt securities.