Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Amortized Cost and Fair Values of Investment Securities

The amortized cost and fair values of investment securities at September 30, 2012 and December 31, 2011 were as follows:


At September 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale:
U.S. Government agencies	$	139,406	$	1,209	$	0	$	140,615
Obligations of states and political subdivisions		405,043		31,543		518		436,068
Agency residential mortgage-backed securities		1,988,523		44,554		178		2,032,899
Non-agency residential mortgage-backed securities		34,690		79		2,535		32,234
Commercial mortgage-backed securities		42,119		2,068		0		44,187
Other structured financial products		24,969		0		16,577		8,392
Other debt securities		43,055		2,222		664		44,613

		2,677,805		81,675		20,472		2,739,008
Other equity securities		23,880		1,291		702		24,469

Total available-for-sale securities	$	2,701,685	$	82,966	$	21,174	$	2,763,477


At December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale:
U.S. Government agencies	$	146,580	$	1,906	$	1	$	148,485
Obligations of states and political subdivisions		376,819		25,235		75		401,979
Agency residential mortgage-backed securities		1,503,836		28,177		608		1,531,405
Non-agency residential mortgage-backed securities		79,225		0		10,154		69,071
Commercial mortgage-backed securities		54,973		1,846		0		56,819
Other structured financial products		24,831		0		11,538		13,293
Other debt securities		54,176		670		3,711		51,135

		2,240,440		57,834		26,087		2,272,187
Other equity securities		22,283		791		227		22,847

Total available-for-sale securities	$	2,262,723	$	58,625	$	26,314	$	2,295,034

Amortized Cost and Fair Value of Total Debt Securities

The amortized cost and fair value of U.S. Government agencies, obligations of states and political subdivisions, synthetic collateralized debt obligations, other structured financial products, other debt securities, and residential and commercial mortgage-backed securities, at September 30, 2012 and December 31, 2011, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Within one year	$	11,506	$	11,653	$	9,595	$	9,821
After one year but within five years		166,000		168,507		169,739		172,613
After five years but within ten years		967,180		987,312		602,385		609,935
After ten years		1,533,119		1,571,536		1,458,720		1,479,818

Total	$	2,677,805	$	2,739,008	$	2,240,440	$	2,272,187

Gross Realized Gains and Gross Realized Losses on Available-for-Sale Securities

Gross realized gains and gross realized losses on investment securities transactions are summarized below. These gains and losses were recognized using the specific identification method and were included in noninterest income.


	Available-for-sale Securities
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Gross gains	$	278		$	2,070		$	5,018		$	8,562
Gross losses		(247	)		(417	)		(3,241	)		(3,978	)
Other-than-temporary impairment		0			(215	)		(144	)		(3,060	)

Net gains	$	31		$	1,438		$	1,633		$	1,524

Gross Unrealized Losses and Fair Values by Investment and Length of Time of Securities

The following table presents Susquehanna’s investments’ gross unrealized losses and the corresponding fair values by investment category and length of time that the securities have been in a continuous unrealized loss position, at September 30, 2012 and December 31, 2011.


September 30, 2012	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	0	$	0	$	0	$	0	$	0	$	0
Obligations of states and political subdivisions		51,330		518		0		0		51,330		518
Agency residential mortgage-backed securities		52,391		178		0		0		52,391		178
Non-agency residential mortgage-backed securities		0		0		15,110		2,535		15,110		2,535
Other structured financial products		0		0		8,393		16,577		8,393		16,577
Other debt securities		0		0		6,306		664		6,306		664
Other equity securities		1,803		519		785		183		2,588		702

	$	105,524	$	1,215	$	30,594	$	19,959	$	136,118	$	21,174


December 31, 2011	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	0	$	0	$	6,500	$	1	$	6,500	$	1
Obligations of states and political subdivisions		0		0		925		75		925		75
Agency residential mortgage-backed securities		126,645		608		0		0		126,645		608
Non-agency residential mortgage-backed securities		6,187		563		62,884		9,591		69,071		10,154
Other structured financial products		0		0		13,293		11,538		13,293		11,538
Other debt securities		21,237		2,988		10,102		723		31,339		3,711
Other equity securities		16		1		921		226		937		227

	$	154,085	$	4,160	$	94,625	$	22,154	$	248,710	$	26,314

Credit Losses on Non-Agency Residential Mortgage-Backed Securities

Susquehanna recorded other-than-temporary impairment losses as presented in the following table.

Credit Losses on Non-agency Residential Mortgage-backed and Other Equity Securities for which a Portion of an

Other-than-temporary Impairment was Recognized in Other Comprehensive Income


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Balance – beginning of period	$	1,566	$	4,582	$	4,602	$	1,737
Additions:
Amount related to credit losses for which an other-than-temporary impairment was not previously recognized		0		215		0		2,791
Additional amount related to credit losses for which an other-than-temporary impairment was previously recognized		0		0		144		269
Deletions:
Sale of securities for which other-than-temporary impairment was previously recognized		0		0		3,180		0

Balance – end of period	$	1,566	$	4,797	$	1,566	$	4,797

Significant Assumptions of Other-Than-Temporarily Impaired Securities

Significant assumptions used in the valuation of these other-than-temporarily impaired securities were as follows:


	Weighted-average (%) September 30,
	2012			2011
Conditional repayment rate ⁽¹⁾		7.4	%		8.4	%
Loss severity ⁽²⁾		45.0	%		45.0	%
Conditional default rate ⁽³⁾		4.7	%		7.5	%

⁽¹⁾	Conditional repayment rate represents a rate equal to the proportion of principal balance paid off voluntarily over a certain period of time on an annualized basis.

⁽²⁾	Loss severity rates are projected by considering collateral characteristics such as current loan-to-value, original creditworthiness of borrowers (FICO score) and geographic concentration.

⁽³⁾

Conditional default rate is an annualized rate of default on a group of mortgages, and represents the percentage of outstanding principal balances in the pool that are in default, which typically equates to the borrower being past due 60 days, 90 days, or possibly already in the foreclosure process.

Present Value of Expected Cash Flows for Company's Specific Class and Subordinate Classes

The present value of the expected cash flows for Susquehanna’s specific class and subordinate classes, as well as additional information about the pooled trust preferred securities, are included in the following tables.


As of September 30, 2012	Pooled Trust #1			Pooled Trust #2			Pooled Trust #3			Pooled Trust #4
Class		B			B			B			A2L
Class face value	$	35,000		$	58,745		$	88,449		$	45,500

Book value	$	3,000		$	7,142		$	8,078		$	6,750
Fair value		775			2,609			2,927			2,082

Unrealized loss	$	(2,225	)	$	(4,533	)	$	(5,151	)	$	(4,668	)

Present value of expected cash flows for class noted above and all subordinated classes ⁽¹⁾	$	142,581		$	166,849		$	262,974		$	139,918

Lowest credit rating assigned		Ca			Ca			Ca			Ca

Original collateral	$	623,984		$	501,470		$	700,535		$	487,680
Performing collateral		352,028			293,200			462,731			304,600
Actual defaults		10,000			51,580			44,000			75,446
Actual deferrals		107,400			127,690			138,150			83,081
Projected future defaults		80,793			60,801			68,916			47,451

Actual defaults as a % of original collateral		1.6	%		10.3	%		6.3	%		15.5	%
Actual deferrals as a % of original collateral ⁽²⁾		17.2			25.5			19.7			17.0

Actual defaults and deferrals as a % of original collateral		18.8	%		35.8	%		26.0	%		32.5	%

Projected future defaults as a % of original collateral ⁽³⁾		12.9	%		12.1	%		9.8	%		9.7	%
Actual institutions deferring and defaulted as a % of total institutions		19.7			39.3			34.4			38.2
Projected future defaults as a % of performing collateral plus deferrals		17.6			14.4			11.5			12.2


As of September 30, 2011	Pooled Trust #1			Pooled Trust #2			Pooled Trust #3			Pooled Trust #4
Class		B			B			B			A2L
Class face value	$	35,000		$	57,995		$	87,498		$	45,500

Book value	$	3,000		$	7,051		$	7,991		$	6,750
Fair value		1,742			3,637			4,076			3,285

Unrealized loss	$	(1,258	)	$	(3,414	)	$	(3,915	)	$	(3,465	)

Present value of expected cash flows for class noted above and all subordinated classes ⁽¹⁾	$	161,233		$	165,727		$	279,813		$	140,625

Lowest credit rating assigned		CCC-			Caa3			Ca			CCC-

Original collateral	$	623,984		$	501,470		$	700,535		$	487,680
Performing collateral		371,728			300,200			507,281			314,700
Actual defaults		3,000			42,580			93,500			71,500
Actual deferrals		97,400			129,690			98,900			83,480
Projected future defaults		68,392			79,609			56,912			52,151

Actual defaults as a % of original collateral		0.5	%		8.5	%		13.3	%		14.7	%
Actual deferrals as a % of original collateral ⁽²⁾		15.6			25.9			14.1			17.1

Actual defaults and deferrals as a % of original collateral		16.1	%		34.4	%		27.4	%		31.8	%

Projected future defaults as a % of original collateral ⁽³⁾		11.0	%		15.9	%		8.1	%		10.7	%
Actual institutions deferring and defaulted as a % of total institutions		16.4			37.5			31.1			38.6
Projected future defaults as a % of performing collateral plus deferrals		14.6			18.5			9.4			13.1

⁽¹⁾

Susquehanna determines whether it expects to recover the entire amortized cost basis by comparing the present value of the expected cash flows to be collected with the amortized cost basis. As of September 30, 2012 and 2011, the present value of the current estimated cash flows is equal to or greater than the book value of the trust preferred securities held. Consequently, there is no credit-related other-than-temporary impairment required to be recognized.

⁽²⁾

Includes current interest deferrals for the quarter for those institutions deferring as of the date of the assessment of the other-than-temporary impairment. Current deferrals are assumed to continue for twenty quarters, the full contractually permitted deferral period, if the institutions are not projected to default prior to that time.

⁽³⁾

Includes those institutions that are performing but are not projected to continue to perform and includes those institutions that are currently deferring interest that are projected to default, based upon third-party proprietary valuation methodology used to determine future defaults. Creditworthiness of each underlying issue in the collateralized debt obligation is determined using publicly available data.

- Definition

Tabular disclosure of the amount of other than temporary impairment (OTTI) related to credit losses recognized in earnings including: (a) the beginning balance of the amount related to credit losses on debt securities held by the investor at the beginning of the period for which a portion of an OTTI was recognized in other comprehensive income; (b) additions for the amount related to the credit loss for which an OTTI was not previously recognized; (c) reductions for securities sold during the period (realized); (d) reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the investor intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis; (e) additional increases to the amount related to the credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the investor will be required to sell the security before recovery of its amortized cost basis; (f) reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security; and (g) the ending balance of the amount related to credit losses on debt securities held by the entity at the end of the period for which a portion of an OTTI was recognized in other comprehensive income.

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