(2) Securities

Trading Securities

The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):



	March 31, 2013					December 31, 2012					March 31, 2012
	Fair Value		Net Unrealized Gain (Loss)			Fair Value		Net Unrealized Gain (Loss)			Fair Value		Net Unrealized Gain (Loss)
U.S. Government agency debentures	$	55,358	$	48		$	16,545	$	(57	)	$	27,430	$	2
U.S. agency residential mortgage-backed securities	33,106		160			86,361		447			35,111		57
Municipal and other tax-exempt securities	90,710		(10		)	90,326		(226		)	60,230		158
Other trading securities	27,424		41			20,870		(13		)	5,605		—
Total	$	206,598	$	239		$	214,102	$	151		$	128,376	$	217

Investment Securities

The amortized cost and fair values of investment securities are as follows (in thousands):



	March 31, 2013
	Amortized		Carrying		Fair		Gross Unrealized²
	Cost		Value¹		Value		Gain		Loss
Municipal and other tax-exempt	$	339,003	$	339,003	$	341,940	$	3,518	$	(581	)
U.S. agency residential mortgage-backed securities – Other	69,075		72,968		76,851		3,883		—
Other debt securities	177,300		177,300		196,403		19,153		(50		)
Total	$	585,378	$	589,271	$	615,194	$	26,554	$	(631	)


¹	Carrying value includes $3.9 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.


²	Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.



	December 31, 2012
	Amortized		Carrying		Fair		Gross Unrealized²
	Cost		Value¹		Value		Gain		Loss
Municipal and other tax-exempt	$	232,700	$	232,700	$	235,940	$	3,723	$	(483	)
U.S. agency residential mortgage-backed securities – Other	77,726		82,767		85,943		3,176		—
Other debt securities	184,067		184,067		206,575		22,528		(20		)
Total	$	494,493	$	499,534	$	528,458	$	29,427	$	(503	)


¹	Carrying value includes $5.0 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.


²	Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.



	March 31, 2012
	Amortized		Carrying		Fair		Gross Unrealized²
	Cost		Value¹		Value		Gain		Loss
Municipal and other tax-exempt	$	130,919	$	130,919	$	135,314	$	4,402	$	(7	)
U.S. agency residential mortgage-backed securities – Other	103,055		112,909		113,958		1,587		(538		)
Other debt securities	183,431		183,431		202,171		18,740		—
Total	$	417,405	$	427,259	$	451,443	$	24,729	$	(545	)


¹	Carrying value includes $9.9 million of net unrealized gain which remains in Accumulated other comprehensive income (“AOCI”) in the Consolidated Balance Sheets related to certain securities transferred from the Available for Sale securities portfolio to the Investment securities portfolio as discussed in greater detail following.


²	Gross unrealized gains and losses are not recognized in AOCI in the Consolidated Balance Sheets.

During the three months ended September 30, 2011, the Company transferred certain U.S. government agency residential mortgage-backed securities from the available for sale portfolio to the investment securities (held-to-maturity) portfolio as the Company has the positive intent and ability to hold these securities to maturity. No gains or losses were recognized in the Consolidated Statement of Earnings at the time of the transfer. Transfers of debt securities into the investment securities portfolio (held-to-maturity) are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the investment securities portfolio. Such amounts are amortized over the estimated remaining life of the security as an adjustment to yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities. At the time of transfer, the fair value totaled $131 million, amortized cost totaled $118 million and the pretax unrealized gain totaled $13 million.

The amortized cost and fair values of investment securities at March 31, 2013, by contractual maturity, are as shown in the following table (dollars in thousands):



	Less than One Year		One to Five Years		Six to Ten Years		Over Ten Years		Total		Weighted Average Maturity²
Municipal and other tax-exempt:
Carrying value	$	26,682	$	201,547	$	108,631	$	2,143	$	339,003	3.94
Fair value	26,814		203,487		109,333		2,306		341,940
Nominal yield¹	4.25		1.71		2.09		6.50		2.06
Other debt securities:
Carrying value	9,688		31,978		35,164		100,470		177,300		9.26
Fair value	9,768		33,041		37,922		115,672		196,403
Nominal yield	4.21		5.16		5.57		6.29		5.83
Total fixed maturity securities:
Carrying value	$	36,370	$	233,525	$	143,795	$	102,613	$	516,303	5.77
Fair value	36,582		236,528		147,255		117,978		538,343
Nominal yield	4.24		2.18		2.94		6.30		3.36
Residential mortgage-backed securities:
Carrying value									$	72,968	³
Fair value									76,851
Nominal yield⁴									2.71
Total investment securities:
Carrying value									$	589,271
Fair value									615,194
Nominal yield									3.28


¹	Calculated on a taxable equivalent basis using a 39% effective tax rate.


²	Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.


³	The average expected lives of residential mortgage-backed securities were 3.6 years based upon current prepayment assumptions.


⁴	The nominal yield on residential mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary - Unaudited for current yields on the investment securities portfolio.

Available for Sale Securities

The amortized cost and fair value of available for sale securities are as follows (in thousands):



	March 31, 2013
	Amortized		Fair		Gross Unrealized¹
	Cost		Value		Gain		Loss			OTTI²
U.S. Treasury	$	1,000	$	1,000	$	—	$	—		$	—
Municipal and other tax-exempt	84,831		85,447		2,377		(1,263		)	(498		)
Residential mortgage-backed securities:
U. S. government agencies:
FNMA	5,036,888		5,161,971		127,362		(2,279		)	—
FHLMC	2,747,896		2,809,286		61,390		—			—
GNMA	1,044,086		1,060,870		16,784		—			—
Other	128,519		133,085		4,566		—			—
Total U.S. government agencies	8,957,389		9,165,212		210,102		(2,279		)	—
Private issue:
Alt-A loans	119,373		124,164		5,198		—			(407		)
Jumbo-A loans	188,065		192,044		6,032		(139		)	(1,914		)
Total private issue	307,438		316,208		11,230		(139		)	(2,321		)
Total residential mortgage-backed securities	9,264,827		9,481,420		221,332		(2,418		)	(2,321		)
Commercial mortgage-backed securities guaranteed by U.S. government agencies	1,402,594		1,405,346		4,693		(1,941		)	—
Other debt securities	35,650		36,079		635		(206		)	—
Perpetual preferred stock	22,171		26,832		4,661		—			—
Equity securities and mutual funds	19,452		23,021		3,574		(5		)	—
Total	$	10,830,525	$	11,059,145	$	237,272	$	(5,833	)	$	(2,819	)

¹ Gross unrealized gain/ loss recognized in AOCI in the consolidated balance sheet.

² Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.



	December 31, 2012
	Amortized		Fair		Gross Unrealized¹
	Cost		Value		Gain		Loss			OTTI²
U.S. Treasury	$	1,000	$	1,002	$	2	$	—		$	—
Municipal and other tax-exempt	84,892		87,142		2,414		(164		)	—
Residential mortgage-backed securities:
U. S. government agencies:
FNMA	5,308,463		5,453,549		146,247		(1,161		)	—
FHLMC	2,978,608		3,045,564		66,956		—			—
GNMA	1,215,554		1,237,041		21,487		—			—
Other	148,025		153,667		5,642		—			—
Total U.S. government agencies	9,650,650		9,889,821		240,332		(1,161		)	—
Private issue:
Alt-A loans	124,314		123,174		1,440		—			(2,580		)
Jumbo-A loans	198,588		201,989		5,138		(134		)	(1,603		)
Total private issue	322,902		325,163		6,578		(134		)	(4,183		)
Total residential mortgage-backed securities	9,973,552		10,214,984		246,910		(1,295		)	(4,183		)
Commercial mortgage-backed securities guaranteed by U.S. government agencies	890,746		895,075		5,006		(677		)	—
Other debt securities	35,680		36,389		709		—			—
Perpetual preferred stock	22,171		25,072		2,901		—			—
Equity securities and mutual funds	24,593		27,557		3,242		(278		)	—
Total	$	11,032,634	$	11,287,221	$	261,184	$	(2,414	)	$	(4,183	)

¹ Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet

² Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.



	March 31, 2012
	Amortized		Fair		Gross Unrealized¹
	Cost		Value		Gain		Loss			OTTI²
U.S. Treasury	$	1,001	$	1,004	$	3	$	—		$	—
Municipal and other tax-exempt	70,286		72,234		2,426		(206		)	(272		)
Residential mortgage-backed securities:
U. S. government agencies:
FNMA	5,352,645		5,521,695		171,892		(2,842		)	—
FHLMC	3,038,083		3,128,573		91,304		(814		)	—
GNMA	780,001		812,484		32,893		(410		)	—
Other	207,849		214,850		7,001		—			—
Total U.S. government agencies	9,378,578		9,677,602		303,090		(4,066		)	—
Private issue:
Alt-A loans	140,142		120,187		—		—			(19,955		)
Jumbo-A loans	230,903		206,326		—		(1,132		)	(23,445		)
Total private issue	371,045		326,513		—		(1,132		)	(43,400		)
Total residential mortgage-backed securities	9,749,623		10,004,115		303,090		(5,198		)	(43,400		)
Other debt securities	36,269		36,777		508		—			—
Perpetual preferred stock	19,171		21,024		1,862		(9		)	—
Equity securities and mutual funds	32,970		51,443		18,801		(328		)	—
Total	$	9,909,320	$	10,186,597	$	326,690	$	(5,741	)	$	(43,672	)


¹	Gross unrealized gain/loss recognized in AOCI in the consolidated balance sheet


²	Amounts represent unrealized loss that remains in AOCI after an other-than-temporary credit loss has been recognized in income.

The amortized cost and fair values of available for sale securities at March 31, 2013, by contractual maturity, are as shown in the following table (dollars in thousands):



	Less than One Year		One to Five Years		Six to Ten Years		Over Ten Years			Total		Weighted Average Maturity⁵
U.S. Treasuries:
Amortized cost	$	1,000	$	—	$	—	$	—		$	1,000	0.08
Fair value	1,000		—		—		—			1,000
Nominal yield	0.55		—		—		—			0.55
Municipal and other tax-exempt:
Amortized cost	1,667		32,230		7,652		43,282			84,831		14.32
Fair value	1,701		33,915		8,118		41,713			85,447
Nominal yield¹	—		0.94		0.77		2.85		⁶	1.88
Commercial mortgage-backed securities:
Amortized cost	—		313,008		1,026,298		63,288			1,402,594		7.68
Fair value	—		313,845		1,027,348		64,153			1,405,346
Nominal yield	—		1.09		1.38		1.55			1.32
Other debt securities:
Amortized cost	—		30,250		—		5,400			35,650		6.22
Fair value	—		30,886		—		5,193			36,079
Nominal yield	—		1.80		—		1.29		⁶	1.74
Total fixed maturity securities:
Amortized cost	$	2,667	$	375,488	$	1,033,950	$	111,970		$	1,524,075	8.01
Fair value	2,701		378,646		1,035,466		111,059			1,527,872
Nominal yield	0.21		1.13		1.38		2.04			1.36
Residential mortgage-backed securities:
Amortized cost										9,264,827		²
Fair value										9,481,420
Nominal yield⁴										2.17
Equity securities and mutual funds:
Amortized cost										41,623		³
Fair value										49,853
Nominal yield										1.32
Total available-for-sale securities:
Amortized cost										$	10,830,525
Fair value										11,059,145
Nominal yield										2.05


¹	Calculated on a taxable equivalent basis using a 39% effective tax rate.


²	The average expected lives of mortgage-backed securities were 2.8 years based upon current prepayment assumptions.


³	Primarily common stock and preferred stock of corporate issuers with no stated maturity.


⁴	The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. See Quarterly Financial Summary –– Unaudited following for current yields on available for sale securities portfolio.


⁵	Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.


⁶	Nominal yield on municipal and other tax-exempt securities and other debt securities with contractual maturity dates over ten years are based on variable rates which generally are reset within 35 days.

Sales of available for sale securities resulted in gains and losses as follows (in thousands):



	Three Months Ended
	March 31,
	2013			2012
Proceeds	$	728,424		$	991,941
Gross realized gains	5,792			11,685
Gross realized losses	(936		)	(7,354		)
Related federal and state income tax expense	1,889			1,685

A summary of investment and available for sale securities that have been pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was as follows (in thousands):



	March 31, 2013		December 31, 2012		March 31, 2012
Investment:
Carrying value	$	112,990	$	117,346	$	188,519
Fair value	118,054		121,647		192,844

Available for sale:
Amortized cost	4,415,455		4,070,250		3,796,475
Fair value	4,524,553		4,186,390		3,952,018

The secured parties do not have the right to sell or re-pledge these securities. At December 31, 2012, municipal trading securities with a fair value of $13 million were pledged as collateral on a line of credit for the trading activities of BOSC, Inc. Under the terms of the credit agreement, the creditor has the right to sell or repledge the collateral.

Temporarily Impaired Securities as of March 31, 2013

(in thousands):



	Number of Securities	Less Than 12 Months				12 Months or Longer				Total
	Number of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Investment:
Municipal and other tax-exempt	63	$	141,778	$	581	$	—	$	—	$	141,778	$	581
U.S. Agency residential mortgage-backed securities – Other	—	—		—		—		—		—		—
Other debt securities	14	852		50		—		—		852		50
Total investment	77	$	142,630	$	631	$	—	$	—	$	142,630	$	631

Available for sale:
Municipal and other tax-exempt¹	53	$	10,390	$	397	$	29,724	$	1,364	$	40,114	$	1,761
Residential mortgage-backed securities:
U. S. agencies:
FNMA	26	875,087		2,279		—		—		875,087		2,279
FHLMC	—	—		—		—		—		—		—
GNMA	—	—		—		—		—		—		—
Total U.S. agencies	26	875,087		2,279		—		—		875,087		2,279
Private issue¹:
Alt-A loans	1	—		—		3,500		407		3,500		407
Jumbo-A loans	11	39,462		1,327		26,440		726		65,902		2,053
Total private issue	12	39,462		1,327		29,940		1,133		69,402		2,460
Total residential mortgage-backed securities	38	914,549		3,606		29,940		1,133		944,489		4,739
Commercial mortgage-backed securities guaranteed by U.S. government agencies	49	604,290		1,941		—		—		604,290		1,941
Other debt securities	4	4,712		187		481		19		5,193		206
Perpetual preferred stocks	—	—		—		—		—		—		—
Equity securities and mutual funds	3	598		5		—		—		598		5
Total available for sale	147	$	1,534,539	$	6,136	$	60,145	$	2,516	$	1,594,684	$	8,652

¹Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:



Municipal and other tax-exempt	21	$	7,424	$	310	$	4,462	$	188	$	11,886	$	498
Alt-A loans	1	—		—		3,500		407		3,500		407
Jumbo-A loans	10	39,462		1,327		13,248		587		52,710		1,914

Temporarily Impaired Securities as of December 31, 2012

(In thousands)



	Number of Securities	Less Than 12 Months				12 Months or Longer				Total
	Number of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Investment:
Municipal and other tax- exempt	53	$	92,768	$	483	$	—	$	—	$	92,768	$	483
U.S. Agency residential mortgage-backed securities – Other	—	—		—		—		—		—		—
Other debt securities	14	881		20		—		—		881		20
Total investment	67	$	93,649	$	503	$	—	$	—	$	93,649	$	503

Available for sale:
Municipal and other tax-exempt	38	$	6,150	$	11	$	26,108	$	153	$	32,258	$	164
Residential mortgage-backed securities:
U. S. agencies:
FNMA	12	161,828		1,161		—		—		161,828		1,161
FHLMC	—	—		—		—		—		—		—
GNMA	—	—		—		—		—		—		—
Total U.S. agencies	12	161,828		1,161		—		—		161,828		1,161
Private issue¹:
Alt-A loans	12	—		—		87,907		2,580		87,907		2,580
Jumbo-A loans	11	—		—		43,252		1,737		43,252		1,737
Total private issue	23	—		—		131,159		4,317		131,159		4,317
Total residential mortgage-backed securities	35	161,828		1,161		131,159		4,317		292,987		5,478
Commercial mortgage-backed securities guaranteed by U.S. government agencies	8	275,065		677		—		—		275,065		677
Other debt securities	3	4,899		—		—		—		4,899		—
Perpetual preferred stocks	—	—		—		—		—		—		—
Equity securities and mutual funds	22	202		1		2,161		277		2,363		278
Total available for sale	106	$	448,144	$	1,850	$	159,428	$	4,747	$	607,572	$	6,597


¹	Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:



Alt-A loans	12	$	—	$	—	$	87,907	$	2,580	$	87,907	$	2,580
Jumbo-A loans	10	—		—		29,128		1,602		29,128		1,602

Temporarily Impaired Securities as of March 31, 2012

(In thousands)



	Number of Securities	Less Than 12 Months				12 Months or Longer				Total
	Number of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Investment:
Municipal and other tax- exempt	2	$	619	$	7	$	—	$	—	$	619	$	7
U.S. Agency residential mortgage-backed securities – Other	2	45,668		538		—		—		45,668		538
Other debt securities	—	—		—		—		—		—		—
Total investment	4	$	46,287	$	545	$	—	$	—	$	46,287	$	545

Available for sale:
Municipal and other tax-exempt¹	60	$	25,284	$	395	$	19,970	$	83	$	45,254	$	478
Residential mortgage-backed securities:
U. S. agencies:
FNMA	10	453,557		2,842		—		—		453,557		2,842
FHLMC	17	518,483		814		—		—		518,483		814
GNMA	8	175,409		410		—		—		175,409		410
Total U.S. agencies	35	1,147,449		4,066		—		—		1,147,449		4,066
Private issue¹:
Alt-A loans	16	—		—		120,187		19,955		120,187		19,955
Jumbo-A loans	33	3,050		94		203,276		24,483		206,326		24,577
Total private issue	49	3,050		94		323,463		44,438		326,513		44,532
Total residential mortgage-backed securities	84	1,150,499		4,160		323,463		44,438		1,473,962		48,598
Perpetual preferred stocks	1	1,941		9		—		—		1,941		9
Equity securities and mutual funds	3	2,642		328		—		—		2,642		328
Total available for sale	148	$	1,180,366	$	4,892	$	343,433	$	44,521	$	1,523,799	$	49,413


¹	Includes the following securities for which an unrealized loss remains in AOCI after an other-than-temporary credit loss has been recognized in income:



Municipal and other tax-exempt	21	12,754	272	—	—	12,754	272
Alt-A loans	16	—	—	120,187	19,955	120,187	19,955
Jumbo-A loans	29	3,050	94	182,766	23,351	185,816	23,445

On a quarterly basis, the Company performs separate evaluations of impaired debt and equity investment and available for sale securities to determine if the unrealized losses are temporary.

For debt securities, management determines whether it intends to sell or if it is more-likely-than-not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. Based on this evaluation as of March 31, 2013, we do not intend to sell any impaired available for sale securities before fair value recovers to our current amortized cost and it is more-likely-than-not that we will not be required to sell impaired securities before fair value recovers, which may be maturity.

Impairment of debt securities rated investment grade by all nationally-recognized rating agencies are considered temporary unless specific contrary information is identified. None of the debt securities rated investment grade were considered to be other-than-temporarily impaired at March 31, 2013.

At March 31, 2013, the composition of the Company’s investment and available for sale securities portfolios by the lowest current credit rating assigned by any of the three nationally-recognized rating agencies is as follows (in thousands):



	U.S. Govt / GSE ¹				AAA - AA				A - BBB				Below Investment Grade				Not Rated				Total
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Investment:
Municipal and other tax-exempt	$	—	$	—	$	260,791	$	261,492	$	25,360	$	25,887	$	—	$	—	$	52,852	$	54,561	$	339,003	$	341,940
Mortgage-backed securities -- other	72,968		76,851		—		—		—		—		—		—		—		—		72,968		76,851
Other debt securities	—		—		167,463		186,460		600		600		—		—		9,237		9,343		177,300		196,403
Total investment securities	$	72,968	$	76,851	$	428,254	$	447,952	$	25,960	$	26,487	$	—	$	—	$	62,089	$	63,904	$	589,271	$	615,194

	U.S. Govt / GSE ¹				AAA - AA				A - BBB				Below Investment Grade				Not Rated				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for Sale:
U.S. Treasury	$	1,000	$	1,000	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,000	$	1,000
Municipal and other tax-exempt	—		—		50,341		52,023		20,743		20,091		12,384		11,887		1,363		1,446		84,831		85,447
Residential mortgage-backed securities:
U. S. government agencies:
FNMA	5,036,888		5,161,971		—		—		—		—		—		—		—		—		5,036,888		5,161,971
FHLMC	2,747,896		2,809,286		—		—		—		—		—		—		—		—		2,747,896		2,809,286
GNMA	1,044,086		1,060,870		—		—		—		—		—		—		—		—		1,044,086		1,060,870
Other	128,519		133,085		—		—		—		—		—		—		—		—		128,519		133,085
Total U.S. government agencies	8,957,389		9,165,212		—		—		—		—		—		—		—		—		8,957,389		9,165,212
Private issue:
Alt-A loans	—		—		—		—		—		—		119,373		124,164		—		—		119,373		124,164
Jumbo-A loans	—		—		—		—		—		—		188,065		192,044		—		—		188,065		192,044
Total private issue	—		—		—		—		—		—		307,438		316,208		—		—		307,438		316,208
Total residential mortgage-backed securities	8,957,389		9,165,212		—		—		—		—		307,438		316,208		—		—		9,264,827		9,481,420
Commercial mortgage-backed securities guaranteed by U.S. government agencies	1,402,594		1,405,346		—		—		—		—		—		—		—		—		1,402,594		1,405,346
Other debt securities	—		—		5,400		5,193		30,250		30,886		—		—		—		—		35,650		36,079
Perpetual preferred stock	—		—		—		—		22,171		26,832		—		—		—		—		22,171		26,832
Equity securities and mutual funds	—		—		—		—		—		—		—		—		19,452		23,021		19,452		23,021
Total available for sale securities	$	10,360,983	$	10,571,558	$	55,741	$	57,216	$	73,164	$	77,809	$	319,822	$	328,095	$	20,815	$	24,467	$	10,830,525	$	11,059,145


¹	U.S. government and government sponsored enterprises are not rated by the nationally-recognized rating agencies as these securities are guaranteed by agencies of the U.S. government or government-sponsored enterprises.

At March 31, 2013, the entire portfolio of privately issued residential mortgage-backed securities was rated below investment grade. The gross unrealized loss on these securities totaled $2.5 million. Ratings by the nationally-recognized rating agencies are subjective in nature and accordingly ratings can vary significantly amongst the agencies. Limitations generally expressed by the rating agencies include statements that ratings do not predict the specific percentage default likelihood over any given period of time and that ratings do not opine on expected loss severity of an obligation should the issuer default. As such, the impairment of securities rated below investment grade was evaluated to determine if we expect not to recover the entire amortized cost basis of the security. This evaluation was based on projections of estimated cash flows based on individual loans underlying each security using current and anticipated increases in unemployment and default rates, decreases in housing prices and estimated liquidation costs at foreclosure.

The primary assumptions used in this evaluation were:



	March 31, 2013	December 31, 2012	March 31, 2012

Unemployment rate	Increasing to 8% over the next 12 months and remain at 8% thereafter	Increasing to 8.5% over the next 12 months, dropping to 8% over the following 21 months and holding at 8% thereafter.	Increasing to 9.5% over the next 12 months, dropping to 8% over the following 21 months and holding at 8% thereafter.
Housing price appreciation/depreciation	Starting with current depreciated housing prices based on information from derived from the FHFA¹, increasing 2% over the next 12 months, then flat for the following 12 months and then growing at 2% per year thereafter.	Starting with current depreciated housing prices based on information from derived from the FHFA¹, decreasing 2% over the next 12 months, then flat for the following 12 months and then growing at 2% per year thereafter.	Starting with current depreciated housing prices based on information from derived from the FHFA¹, decreasing 6% over the next 12 months and then growing at 2% per year thereafter.
Estimated liquidation costs	Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.	Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.	Reflect actual historical liquidations costs observed on Jumbo and Alt-A residential mortgage loans in securities owned by the Company.
Discount rates	Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.	Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.	Estimated cash flows were discounted at rates that range from 2.00% to 6.25% based on our current expected yields.

We also consider the current loan-to-value ratio and remaining credit enhancement as part of the assessment of the cash flows available to recover the amortized cost of the debt securities. Each factor is considered in the evaluation.

The Company calculates the current loan-to-value ratio for each mortgage-backed security using loan-level data. Current loan-to-value ratio is the current outstanding loan amount divided by an estimate of the current home value. The current home value is derived from FHFA data. FHFA provides historical information on home price depreciation at both the Metropolitan Statistical Area and state level. This information is matched to each loan to estimate the home price depreciation. Data is accumulated from the loan level to determine the current loan-to-value ratio for the security as a whole.

Remaining credit enhancement is the amount of credit enhancement available to absorb current projected losses within the pool of loans that support the security. The Company acquires the benefit of credit enhancement by investing in super-senior tranches for many of our residential mortgage-backed securities. Subordinated tranches held by other investors are specifically designed to absorb losses before the super-senior tranches which effectively increased the typical credit support for these types of bonds. Current projected losses consider depreciation of home prices based on FHFA data, estimated costs and additional losses to liquidate collateral and delinquency status of the individual loans underlying the security.

Credit loss impairment is recorded as a charge to earnings. Additional impairment based on the difference between the total unrealized loss and the estimated credit loss on these securities is charged against other comprehensive income, net of deferred taxes.

Based upon projected declines in expected cash flows from certain private-label residential mortgage-backed securities, the Company recognized $247 thousand of additional credit loss impairments in earnings during the three months ended March 31, 2013.

A distribution of the amortized cost (after recognition of the other-than-temporary impairment), fair value and credit loss impairments recognized on our privately issued residential mortgage-backed securities is as follows (in thousands, except for number of securities):



						Credit Losses Recognized
						Three months ended
						March 31, 2013			Life-to-date
	Number of Securities	Amortized Cost		Fair Value		Number of Securities	Amount		Number of Securities	Amount
Alt-A	16	$	119,373	$	124,164	3	$	247	16	$	48,436
Jumbo-A	33	188,065		192,044		—	—		31	23,452
Total	49	$	307,438	$	316,208	3	$	247	47	$	71,888

Impaired equity securities, including perpetual preferred stocks, are evaluated based on management's ability and intent to hold the securities until fair value recovers over periods not to exceed three years. The assessment of the ability and intent to hold these securities focuses on the liquidity needs, asset/liability management objectives and securities portfolio objectives. Factors considered when assessing recovery include forecasts of general economic conditions and specific performance of the issuer, analyst ratings and credit spreads for preferred stocks which have debt-like characteristics. The Company has evaluated the near-term prospects of the investments in relation to the severity and duration of the impairment and based on that evaluation has the ability and intent to hold these investments until a recovery in fair value. Accordingly, all impairment of equity securities was considered temporary at March 31, 2013.

The following is a tabular roll forward of the amount of credit-related OTTI recognized on available for sale debt securities in earnings (in thousands):



	Three Months Ended
	March 31,
	2013		2012
Balance of credit-related OTTI recognized on available for sale debt, beginning of period	$	75,228	$	76,131
Additions for credit-related OTTI not previously recognized	—		113
Additions for increases in credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost	247		3,609
Sales	—		(7,796		)
Balance of credit-related OTTI recognized on available for sale debt securities, end of period	$	75,475	$	72,057

Fair Value Option Securities

Fair value option securities represent securities which the Company has elected to carry at fair value and separately identified on the Consolidated Balance Sheets with changes in the fair value recognized in earnings as they occur. Certain residential mortgage-backed securities issued by U.S. government agencies and derivative contracts are held as an economic hedge of the mortgage servicing rights. In addition, certain corporate debt securities are economically hedged by derivative contracts to manage interest rate risk. Derivative contracts that have not been designated as hedging instruments effectively modify these fixed rate securities into variable rate securities.

The fair value and net unrealized gain (loss) included in Fair value option securities is as follows (in thousands):



	March 31, 2013				December 31, 2012				March 31, 2012
	Fair Value		Net Unrealized Gain		Fair Value		Net Unrealized Gain		Fair Value		Net Unrealized Gain
U.S. agency residential mortgage-backed securities	$	208,900	$	726	$	257,040	$	3,314	$	322,180	$	1,593
Corporate debt securities	—		—		26,486		1,409		25,772		678
Other securities	1,292		46		770		47		—		—
Total	$	210,192	$	772	$	284,296	$	4,770	$	347,952	$	2,271