4. Securities

The amortized cost and estimated fair value of investment and mortgage-backed securities as of September 30, 2012 and December 31, 2011, are reflected in the tables below (in thousands):



	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
AVAILABLE FOR SALE:	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	520,975	$	34,110	$	—	$	71	$	555,014
Other Stocks and Bonds	5,579		84		2,041		2		3,620
Mortgage-backed Securities:
U.S. Government Agencies	99,394		3,630		—		102		102,922
Government-Sponsored Enterprises	745,316		18,288		—		574		763,030
Total	$	1,371,264	$	56,112	$	2,041	$	749	$	1,424,586



	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
HELD TO MATURITY:	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	1,009	$	146	$	—	$	—	$	1,155
Mortgage-backed Securities:
U.S. Government Agencies	20,968		1,298		—		—		22,266
Government-Sponsored Enterprises	272,332		9,391		—		2		281,721
Total	$	294,309	$	10,835	$	—	$	2	$	305,142



	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
AVAILABLE FOR SALE:	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	251,281	$	31,221	$	—	$	45	$	282,457
Other Stocks and Bonds	2,925		—		2,426		—		499
Mortgage-backed Securities:
U.S. Government Agencies	99,974		7,158		—		80		107,052
Government-Sponsored Enterprises	589,687		20,127		—		740		609,074
Total	$	943,867	$	58,506	$	2,426	$	865	$	999,082



	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Estimated Fair Value
HELD TO MATURITY:	Amortized Cost		Gross Unrealized Gains		OTTI		Other		Estimated Fair Value
Investment Securities:
State and Political Subdivisions	$	1,010	$	196	$	—	$	—	$	1,206
Other Stocks and Bonds	486		15		—		—		501
Mortgage-backed Securities:
U.S. Government Agencies	22,999		1,159		—		43		24,115
Government-Sponsored Enterprises	342,632		14,848		—		11		357,469
Total	$	367,127	$	16,218	$	—	$	54	$	383,291

Securities carried at fair value through income were as follows (in thousands):



	At September 30,		At December 31,
	2012		2011
Mortgage-backed Securities:
U.S. Government Agencies	$	—	$	30,413
Government-Sponsored Enterprises	—		617,346
Total	$	—	$	647,759

Net gains and losses on securities carried at fair value through income were as follows (in thousands):



	Nine Months Ended September 30,
	2012			2011
Net (loss) gain on sales transactions	$	(498	)	$	592
Net mark-to-market gains	—			7,357
Net (loss) gain on securities carried at fair value through income	$	(498	)	$	7,949



	Three Months Ended September 30,
	2012		2011
Net gain on sales transactions	$	—	$	254
Net mark-to-market gains	—		3,274
Net gain on securities carried at fair value through income	$	—	$	3,528

The following table represents the unrealized loss on securities for the nine months ended September 30, 2012 and year ended December 31, 2011 (in thousands):



	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
As of September 30, 2012:
Available for Sale
State and Political Subdivisions	$	6,795	$	71	$	—	$	—	$	6,795	$	71
Other Stocks and Bonds	164		2		703		2,041		867		2,043
Mortgage-Backed Securities	149,765		632		8,205		44		157,970		676
Total	$	156,724	$	705	$	8,908	$	2,085	$	165,632	$	2,790
Held to Maturity
Mortgage-Backed Securities	$	332	$	2	$	—	$	—	$	332	$	2
Total	$	332	$	2	$	—	$	—	$	332	$	2
As of December 31, 2011:
Available for Sale
State and Political Subdivisions	$	1,668	$	42	$	307	$	3	$	1,975	$	45
Other Stocks and Bonds	—		—		499		2,426		499		2,426
Mortgage-Backed Securities	148,171		754		5,322		66		153,493		820
Total	$	149,839	$	796	$	6,128	$	2,495	$	155,967	$	3,291
Held to Maturity
Mortgage-Backed Securities	$	8,918	$	54	$	—	$	—	$	8,918	$	54
Total	$	8,918	$	54	$	—	$	—	$	8,918	$	54

When it is determined that a decline in fair value of Held to Maturity (“HTM”) and Available for Sale (“AFS”) securities is other-than-temporary, the carrying value of the security is reduced to its estimated fair value, with a corresponding charge to earnings for the credit portion and the noncredit portion to other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. Additionally, we do not currently intend to sell the securities and it is not more likely than not that we will be required to sell the securities before the anticipated recovery of their amortized cost basis.

The turmoil in the capital markets had a significant impact on our estimate of fair value for certain of our securities. We believe the fair values are reflective of illiquidity and credit impairment. At September 30, 2012, we have in AFS Other Stocks and Bonds, $2.7 million amortized cost basis in pooled trust preferred securities (“TRUPs”). Those securities are structured products with cash flows dependent upon securities issued by U.S. financial institutions, including banks and insurance companies. Our estimate of fair value at September 30, 2012 for the TRUPs is approximately $703,000 and reflects the market illiquidity. With the exception of the TRUPs, to the best of management’s knowledge and based on our consideration of the qualitative factors associated with each security, there were no securities in our investment and mortgage-backed securities portfolio at September 30, 2012 with an other-than-temporary impairment.

Given the facts and circumstances associated with the TRUPs we performed detailed cash flow modeling for each TRUP using an industry-accepted cash flow model. Prior to loading the required assumptions into the model we reviewed the financial condition of each of the underlying issuing banks within the TRUP collateral pool that had not deferred or defaulted as of September 30, 2012. Management’s best estimate of a deferral assumption was assigned to each issuing bank based on the category in which it fell. Our analysis of the underlying cash flows contemplated various default, deferral and recovery scenarios to arrive at our best estimate of cash flows. Based on that detailed analysis, we have concluded that the other-than-temporary impairment, which captures the credit component, was estimated at $3.3 million at September 30, 2012 and $3.1 million at December 31, 2011. The noncredit charge to other comprehensive income was estimated at $2.0 million and $2.4 million at September 30, 2012 and December 31, 2011, respectively. The carrying amount of the TRUPs was written down with $75,000 and $3.0 million recognized in earnings for the years ended December 31, 2010 and 2009, respectively. There was an additional write-down of the TRUPs recognized in earnings in the amount of approximately $181,000 for the nine months ended September 30, 2012 but there was no additional write-down for the three months ended September 30, 2012. The cash flow model assumptions represent management’s best estimate and consider a variety of qualitative factors, which include, among others, the credit rating downgrades, the severity and duration of the mark-to-market loss, and the structural nuances of each TRUP. Management believes that the detailed review of the collateral and cash flow modeling support the conclusion that the TRUPs had an other-than-temporary impairment at September 30, 2012. We will continue to update our assumptions and the resulting analysis each reporting period to reflect changing market conditions. Additionally, we do not currently intend to sell the TRUPs and it is not more likely than not that we will be required to sell the TRUPs before the anticipated recovery of their amortized cost basis.

The table below provides more detail on the TRUPs at September 30, 2012 (in thousands):



TRUP	Par		Credit Loss		Amortized Cost		Fair Value		Tranche	Credit Rating
1	$	2,000	$	1,256	$	744	$	117	C1	Ca
2	2,000		550		1,450		234		B1	C
3	2,000		1,450		550		352		B2	C
	$	6,000	$	3,256	$	2,744	$	703

The following tables present a roll forward of the credit losses recognized in earnings, on AFS debt securities

(in thousands):



	Nine Months Ended September 30,
	2012		2011
Balance, beginning of period	$	3,075	$	3,075
Additions for credit losses recognized on debt securities that had no previous impairment losses	—		—
Additions for credit losses recognized on debt securities that had previously incurred impairment losses	181		—
Balance, end of period	$	3,256	$	3,075



	Three Months Ended September 30,
	2012		2011
Balance, beginning of period	$	3,256	$	3,075
Additions for credit losses recognized on debt securities that had no previous impairment losses	—		—
Additions for credit losses recognized on debt securities that had previously incurred impairment losses	—		—
Balance, end of period	$	3,256	$	3,075

Interest income recognized on securities for the periods presented (in thousands):



	Nine Months Ended September 30,
	2012		2011
U.S. Treasury	$	—	$	6
State and Political Subdivisions	9,489		9,525
Other Stocks and Bonds	51		25
Mortgage-backed Securities	27,730		37,899
Total interest income on securities	$	37,270	$	47,455



	Three Months Ended September 30,
	2012		2011
U.S. Treasury	$	—	$	—
State and Political Subdivisions	3,847		3,073
Other Stocks and Bonds	14		7
Mortgage-backed Securities	6,695		13,292
Total interest income on securities	$	10,556	$	16,372

There were no securities transferred from AFS to HTM during the nine months ended September 30, 2012 or 2011. There were no sales from the HTM portfolio during the nine months ended September 30, 2012 or 2011. There were $294.3 million and $367.1 million of securities classified as HTM at September 30, 2012 and December 31, 2011, respectively.

Of the $13.6 million in net securities gains from the AFS portfolio for the nine months ended September 30, 2012, there were $13.8 million in realized gains and approximately $174,000 in realized losses. Of the $9.1 million in net securities gains from the AFS portfolio for the nine months ended September 30, 2011, there were $9.2 million in realized gains and $121,000 in realized losses.

The amortized cost and fair value of securities at September 30, 2012, are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are presented in total by category due to the fact that mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with varying maturities. The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the security holder. The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages and can vary significantly due to prepayments.



	September 30, 2012
	Amortized Cost		Fair Value
Available for sale securities:	(in thousands)
Investment Securities
Due in one year or less	$	4,031	$	4,053
Due after one year through five years	13,410		13,813
Due after five years through ten years	84,416		88,143
Due after ten years	424,697		452,625
	526,554		558,634
Mortgage-backed securities	844,710		865,952
Total	$	1,371,264	$	1,424,586



	September 30, 2012
	Amortized Cost		Fair Value
Held to maturity securities:	(in thousands)
Investment Securities
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	—		—
Due after ten years	1,009		1,155
	1,009		1,155
Mortgage-backed securities	293,300		303,987
Total	$	294,309	$	305,142

Investment and mortgage-backed securities with book values of $950.9 million and $1.04 billion were pledged as of September 30, 2012 and December 31, 2011, respectively, to collateralize Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, and public funds or for other purposes as required by law.

Securities with limited marketability, such as FHLB stock and other investments, are carried at cost, which approximates its fair value and assessed for other-than-temporary impairment. These securities have no maturity date.