Investment Securities

9 Months Ended

Sep. 30, 2011

Note 2. Investment Securities

The amortized cost, estimated fair value and gross unrealized gains and losses on investment securities as of September 30, 2011 and December 31, 2010 follow:


	September 30, 2011								December 31, 2010
			Estimated								Estimated
	Amortized		Fair		Gross Unrealized				Amortized		Fair		Gross Unrealized
(in thousands)	Cost		Value		Gains		Losses		Cost		Value		Gains		Losses

Securities available for sale:
Federal agencies	$	—	$	—	$	—	$	—	$	5,510	$	5,557	$	47	$	—
Collateralized mortgage obligations		364,940		367,097		7,366		5,209		596,308		599,264		8,181		5,225
Mortgage-backed		766,042		806,049		40,009		2		1,232,571		1,259,131		30,661		4,101
State and municipal		128,759		134,528		5,944		175		181,719		183,584		3,188		1,323
Other		308		303		40		45		1,985		1,992		45		38

Total available for sale	$	1,260,049	$	1,307,977	$	53,359	$	5,431	$	2,018,093	$	2,049,528	$	42,122	$	10,687


Securities held to maturity:
Collateralized mortgage obligations⁽¹⁾	$	362,710	$	366,710	$	4,333	$	333	$	—	$	—	$	—	$	—
Mortgage-backed⁽¹⁾		985,599		1,011,317		25,802		84		363,427		356,652		—		6,775
State and municipal		106,564		113,021		6,531		74		111,405		112,769		2,269		905

Total held to maturity	$	1,454,873	$	1,491,048	$	36,666	$	491	$	474,832	$	469,421	$	2,269	$	7,680


FHLB and Federal Reserve stock	$	123,696	$	123,696	$	—	$	—	$	143,873	$	143,873	$	—	$	—


⁽¹⁾		Amortized cost includes adjustments for the unamortized portion of unrealized gains on securities transferred from available for sale.

Securities with amortized cost of $704.3 million at September 30, 2011 and $825.1 million at December 31, 2010 were pledged to secure public deposits, repurchase agreements and other liabilities. Except for obligations of the U.S. Government and its agencies, no holdings of securities of any single issuer exceeded 10% of consolidated shareholders equity at September 30, 2011 and December 31, 2010.

In June 2011 and December 2010, Citizens transferred certain mortgage-backed securities from the available for sale to the held to maturity category in accordance with Topic 320 “Investments-Debt and Equity Securities.” Management determined that it had the positive intent and ability to hold these investments to maturity. The securities transferred in June 2011 had a total amortized cost of $924.6 million and a fair value of $943.1 million. The securities transferred in December 2010 had a total amortized cost of $179.2 million and a fair value of $181.8 million. The unrealized gain of $18.5 million in June 2011 and $2.6 million in December 2010 will be amortized over the remaining life of the securities as an adjustment of the yield, offset against the amortization of the unrealized gain maintained in accumulated other comprehensive income.

The amortized cost and estimated fair value of debt securities by maturity at September 30, 2011 are shown below.


	September 30, 2011
	Amortized		Estimated Fair
(in thousands)	Cost		Value

Securities available for sale:
State and municipal
Contractual maturity within one year	$	9,998	$	10,076
After one year through five years		20,255		21,010
After five years through ten years		65,519		68,636
After ten years		32,987		34,806

Subtotal		128,759		134,528
Collateralized mortgage obligations and mortgage-backed		1,130,982		1,173,146
Other		308		303

Total available for sale	$	1,260,049	$	1,307,977


Securities held to maturity:
State and municipal
Contractual maturity within one year	$	1,827	$	1,838
After one year through five years		2,810		2,989
After five years through ten years		62,574		66,300
After ten years		39,353		41,894

Subtotal		106,564		113,021
Collateralized mortgage obligations and mortgage-backed		1,348,309		1,378,027

Total held to maturity	$	1,454,873	$	1,491,048

As of September 30, 2011, 59 securities had unrealized losses compared with 229 securities as of December 31, 2010. Securities with unrealized losses, categorized by length of time the security has been in an unrealized loss position, as of September 30, 2011 and December 31, 2010 are displayed in the following tables.


	Less than 12 Months				More than 12 Months				Total
September 30, 2011	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities available for sale:
Collateralized mortgage obligations	$	53,884	$	2,711	$	13,596	$	2,498	$	67,480	$	5,209
Mortgage-backed		33		—		125		2		158		2
State and municipal		910		51		1,227		124		2,137		175
Other		45		1		102		44		147		45

Total available for sale	$	54,872	$	2,763	$	15,050	$	2,668	$	69,922	$	5,431


Securities held to maturity:
Collateralized mortgage obligations	$	115,863	$	333	$	—	$	—	$	115,863	$	333
Mortgage-backed		10,488		84		—		—		10,488		84
State and municipal		421		2		923		72		1,344		74

Total held to maturity	$	126,772	$	419	$	923	$	72	$	127,695	$	491


	Less than 12 Months				More than 12 Months				Total
December 31, 2010	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities available for sale:
Collateralized mortgage obligations	$	151,618	$	2,417	$	25,726	$	2,808	$	177,344	$	5,225
Mortgage-backed		293,745		4,098		135		3		293,880		4,101
State and municipal		41,580		1,138		3,289		185		44,869		1,323
Other		—		—		102		38		102		38

Total available for sale	$	486,943	$	7,653	$	29,252	$	3,034	$	516,195	$	10,687


Securities held to maturity:
Mortgage-backed	$	356,652	$	6,775	$	—	$	—	$	356,652	$	6,775
State and municipal		32,082		905		—		—		32,082		905

Total held to maturity	$	388,734	$	7,680	$	—	$	—	$	388,734	$	7,680

Citizens performs a review of securities with unrealized losses at each reporting period. Citizens assesses each holding to determine whether and when a security will recover in value, whether it intends to sell the security and whether it is more likely than not that Citizens will be required to sell the security before the value is recovered. In assessing the recovery of value, the key factors reviewed include the length of time and the extent the fair value has been less than the carrying cost, adverse conditions, if any, specifically related to the security, industry or geographic area, historical and implied volatility of the fair value of the security, credit quality factors affecting the issuer or the underlying collateral, payment structure of the security, payment history of the security, changes to the credit rating of the security, recoveries or declines in value subsequent to the balance sheet date or any other relevant factors. Evaluations are performed on a more frequent basis as the degree to which fair value is below carrying cost or the length of time that the fair value has been continuously below carrying cost increases. As of September 30, 2011, Citizens has concluded that all issuers have the ability to pay contractual cash flows. The unrealized losses displayed in the above tables are believed to be temporary and thus no impairment loss has been realized in the Consolidated Statements of Operations. Citizens has not decided to sell securities with any significant unrealized losses nor does Citizens believe it will be required to sell securities before the value is recovered, but may change its intent in response to significant, unanticipated changes in policies, regulations, statutory legislation or other previously mentioned criteria.

The collateralized mortgage obligations (“CMO”) sector includes securities where the underlying collateral consists of agency issued or whole loan mortgages. At September 30, 2011, the whole loan CMOs had a market value of $183.3 million with gross unrealized losses of $5.5 million. Citizens performs a thorough credit review on a quarterly basis for the underlying mortgage collateral as well as the supporting credit enhancement and structure. The results of the September 30, 2011 credit review demonstrated continued strength and no material degradation in the holdings.

Citizens has determined there is no other-than-temporary impairment at September 30, 2011.

In accordance with Citizens policy regarding security downgrades, Citizens sold $3.9 million of available for sale securities and recorded a net loss of less than $0.1 million during the third quarter of 2011. No security sales were completed during the third quarter of 2010. Citizens completed sales of available for sale securities with an amortized cost of $13.1 million and $397.5 million, during the nine months ended September 30, 2011 and 2010 recording a net loss of $1.4 million and a net gain of $14.1 million, respectively.