NOTE 8 – Available-for-Sale and Held-to-Maturity Securities

The following tables provide a summary of the amortized cost and fair values of the available-for-sale securities and held-to-maturity securities at December 31, 2011 and 2010 (in thousands):


	December 31, 2011
	Amortized cost		Gross unrealized gains (1)		Gross unrealized losses (1)			Estimated fair value
Available-for-sale
U.S. government securities	$	1,105	$	—	$	(2	)	$	1,103
State and municipal securities		82,256		4,979		(303	)		86,932
Mortgage-backed securities:
Agency		396,952		8,469		(759	)		404,662
Commercial		270,677		1,811		(978	)		271,510
Non-agency		17,701		135		(376	)		17,460
Corporate fixed income securities		409,503		2,108		(5,626	)		405,985
Asset-backed securities		26,011		548		(70	)		26,489
	$	1,204,205	$	18,050	$	(8,114	)	$	1,214,141
Held-to-maturity (2)
Asset-backed securities	$	122,148	$	2,953	$	(3,138	)	$	121,963
Corporate fixed income securities		55,544		56		(2,016	)		53,584
Municipal auction rate securities		12,792		733		(1	)		13,524
	$	190,484	$	3,742	$	(5,155	)	$	189,071

	December 31, 2010
	Amortized cost		Gross unrealized gains (1)		Gross unrealized losses (1)			Estimated fair value
Available-for-sale
U.S. government securities	$	24,972	$	58	$	—		$	25,030
State and municipal securities		26,678		727		(1,062	)		26,343
Mortgage-backed securities:
Agency		692,922		6,938		(2,697	)		697,163
Commercial		66,912		1,212		(128	)		67,996
Non-agency		29,319		744		(790	)		29,273
Corporate fixed income securities		153,523		1,705		(327	)		154,901
Asset-backed securities		11,331		677		—			12,008
	$	1,005,657	$	12,061	$	(5,004	)	$	1,012,714
Held-to-maturity (2)
Municipal auction rate securities	$	43,719	$	3,803	$	(171	)	$	47,351
Asset-backed securities		8,921		198		(3,486	)		5,633
	$	52,640	$	4,001	$	(3,657	)	$	52,984

(1) Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive income/(loss).

(2) Held-to-maturity securities are carried in the consolidated statements of financial condition at amortized cost, and the changes in the value of these securities, other than impairment charges, are not reported on the consolidated financial statements.

For the year ended December 31, 2011, we received proceeds of $362.1 million from the sale of available-for-sale securities, which resulted in realized gains of $7.9 million. For the years ended December 31, 2010 and 2009, proceeds from the sales of available-for-sale securities and the resulting realized gains and losses were immaterial. During the years ended December 31, 2011 and 2010, unrealized gains, net of deferred taxes, of $2.1 million and $3.3 million, respectively, were recorded in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition.

During the second quarter of 2011, we determined that we no longer had the intent to hold $32.9 million of held-to-maturity securities to maturity. As a result, we reclassified $27.9 million carrying value of municipal auction rate securities from held-to-maturity to available-for-sale and recorded an unrealized loss of $5.0 million at the date of transfer.

During the second quarter of 2011, we reclassified $64.6 million of securities available-for-sale to securities held-to-maturity. Management determined that it has both the positive intent and ability to hold these securities to maturity. The reclassification of these securities was accounted for at fair value. On the date of transfer, the difference between the par value and the fair value of these securities resulted in a premium or discount that, under amortized cost accounting, will be amortized as a yield adjustment to interest income using the interest method. There were no gains or losses recognized as a result of this transfer.

The table below summarizes the amortized cost and fair values of debt securities, by contractual maturity (in thousands). Expected maturities may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	December 31, 2011
	Available-for-sale				Held-to-maturity
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Debt securities
Within one year	$	39,591	$	39,712	$	—	$	—
After one year through three years		232,006		231,770		—		—
After three years through five years		141,647		138,677		15,112		14,538
After five years through ten years		10,545		10,662		85,314		83,523
After ten years		95,086		99,688		90,058		91,010

Mortgage-backed securities
After one year through three years		9,584		9,950		—		—
After five years through ten years		16,401		16,681		—		—
After ten years		659,345		667,001		—		—
	$	1,204,205	$	1,214,141	$	190,484	$	189,071

The carrying value of securities pledged as collateral to secure public deposits and other purposes was $644.9 million and $111.6 million at December 31, 2011 and 2010, respectively.

The following table is a summary of the amount of gross unrealized losses and the estimated fair value by length of time that the available-for-sale securities have been in an unrealized loss position at December 31, 2011 (in thousands):


	Less than 12 months					12 months or more					Total
	Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value
Available-for-sale
U.S. government securities	$	(2	)	$	303	$	—		$	—	$	(2	)	$	303
State and municipal securities		(303	)		16,565		—			—		(303	)		16,565
Mortgage-backed securities:
Agency		(759	)		148,817		—			—		(759	)		148,817
Commercial		(978	)		114,731		—			—		(978	)		114,731
Non-agency		—			—		(376	)		7,225		(376	)		7,225
Corporate fixed income securities		(4,587	)		216,510		(1,039	)		8,961		(5,626	)		225,471
Asset-backed securities		(70	)		4,079		—			—		(70	)		4,079
	$	(6,699	)	$	501,005	$	(1,415	)	$	16,186	$	(8,114	)	$	517,191

The gross unrealized losses on our available-for-sale securities of $8.1 million as of December 31, 2011 relate to 65 individual securities.

Certain investments in the available-for-sale portfolio at December 31, 2011, are reported in the consolidated statements of financial condition at an amount less than their amortized cost. The total fair value of these investments at December 31, 2011, was $517.2 million, which was 42.6% of our available-for-sale investment portfolio. The amortized cost basis of these investments was $525.3 million at December 31, 2011. As discussed in more detail below, we conduct periodic reviews of all securities with unrealized losses to assess whether the impairment is other-than-temporary.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position quarterly to assess whether the impairment is other-than-temporary. Our OTTI assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we consider a number of qualitative and quantitative criteria in our assessment, including the extent and duration of the impairment; recent events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings and the failure of the issuer to make scheduled interest or principal payments; the value of underlying collateral; and current market conditions.

If we determine that impairment on our debt securities is other-than-temporary and we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings. If we have not made a decision to sell the security and we do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of OTTI in earnings. The remaining unrealized loss due to factors other than credit, or the non-credit component, is recorded in accumulated other comprehensive income/(loss). We determine the credit component based on the difference between the security's amortized cost basis and the present value of its expected future cash flows, discounted based on the purchase yield. The non-credit component represents the difference between the security's fair value and the present value of expected future cash flows.

Based on the evaluation, we recognized a credit-related OTTI of $1.9 million in earnings for the year ended December 31, 2011. If certain loss thresholds are exceeded, this bond would experience an event of default that would allow the senior class to liquidate the collateral securing this investment, which could adversely impact our valuation.

We estimate the portion of loss attributable to credit using a discounted cash flow model. Key assumptions used in estimating the expected cash flows include default rates, loss severity and prepayment rates. Assumptions used can vary widely based on the collateral underlying the securities and are influenced by factors such as collateral type, loan interest rate, geographical location of the borrower, and borrower characteristics.

We believe the gross unrealized losses related to all other securities of $8.1 million as of December 31, 2011 are attributable to issuer specific credit spreads and changes in market interest rates and asset spreads. We therefore do not expect to incur any credit losses related to these securities. In addition, we have no intent to sell these securities with unrealized losses and it is not more likely than not that we will be required to sell these securities prior to recovery of the amortized cost. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.