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INVESTMENT SECURITIES | 12 Months Ended
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Dec. 31, 2011
INVESTMENT SECURITIES |
INVESTMENT SECURITIES |
6. INVESTMENT SECURITIES An analysis of the investment securities available-for-sale portfolio is presented as follows:
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | (In thousands) |
As of December 31, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 19,892 |  | $ | 833 |  | $ | — |  | $ | 20,725 |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  |  | 575,148 |  |  | 1,709 |  |  | (279 | ) |  | 576,578 |
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  |  | 46,008 |  |  | 3,307 |  |  | — |  |  | 49,315 |
Residential mortgage-backed securities |  |  | 963,688 |  |  | 30,854 |  |  | (772 | ) |  | 993,770 |
Municipal securities |  |  | 76,255 |  |  | 3,696 |  |  | (5 | ) |  | 79,946 |
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | — |  |  | — |  |  | — |  |  | — |
Non-investment grade |  |  | — |  |  | — |  |  | — |  |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | 1,411,409 |  |  | 6,762 |  |  | (95,610 | ) |  | 1,322,561 |
Non-investment grade(1) |  |  | 30,693 |  |  | — |  |  | (11,078 | ) |  | 19,615 |
Other securities |  |  | 9,875 |  |  | 195 |  |  | (2 | ) |  | 10,068 |
Total investment securities available-for-sale |  | $ | 3,132,968 |  | $ | 47,356 |  | $ | (107,746 | ) | $ | 3,072,578 |
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | (In thousands) |
As of December 31, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 19,847 |  | $ | 607 |  | $ | — |  | $ | 20,454 |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  |  | 1,349,289 |  |  | 2,297 |  |  | (18,121 | ) |  | 1,333,465 |
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  |  | 18,620 |  |  | 512 |  |  | — |  |  | 19,132 |
Residential mortgage-backed securities |  |  | 295,140 |  |  | 11,574 |  |  | — |  |  | 306,714 |
Municipal securities |  |  | — |  |  | — |  |  | — |  |  | — |
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | — |  |  | — |  |  | — |  |  | — |
Non-investment grade |  |  | 14,996 |  |  | — |  |  | (8,742 | ) |  | 6,254 |
Corporate debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | 1,056,537 |  |  | 9,095 |  |  | (8,765 | ) |  | 1,056,867 |
Non-investment grade(1) |  |  | 50,015 |  |  | 31 |  |  | (11,316 | ) |  | 38,730 |
Other securities |  |  | 95,966 |  |  | 267 |  |  | (1,908 | ) |  | 94,325 |
Total investment securities available-for-sale |  | $ | 2,900,410 |  | $ | 24,383 |  | $ | (48,852 | ) | $ | 2,875,941 |
(1) For 2011, the Company recorded $633 thousand, on a pre-tax basis, of OTTI through earnings and $5.1 million of the non-credit portion of OTTI for pooled trust securities and other mortgage-backed securities in other comprehensive income. For 2010, the Company recorded $16.7 million, on a pre-tax basis, of OTTI through earnings and $15.4 million of the non-credit portion of OTTI for pooled trust securities and other mortgage-backed securities in other comprehensive income. The Company did not have any investment securities held-to-maturity as of December 31, 2011 and December 31, 2010. The fair values of investment securities are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or prices obtained from independent external pricing service providers who have experience in valuing these securities. The Company performs a monthly analysis on the pricing service quotes and the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of fair value. The procedures include, but are not limited to, initial and ongoing review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. The Company assesses that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed that are based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon available market data, the price received from third parties is adjusted accordingly. Prices from third party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize proprietary models that include observable market based inputs. Additionally, the majority of these independent broker quotations are non-binding. As a result of the ongoing financial crisis in the U.S. and global markets, the market for the private label mortgage-backed security and certain pooled trust preferred securities has been distressed since mid-2007. It is the Company's view that current broker prices (which are typically non-binding) on these securities are based on forced liquidation or distressed sale values in very inactive markets that are not representative of the fair value of these securities. As such, the Company considered what weight, if any, to place on transactions that are not orderly when estimating fair value. For the pooled trust preferred securities and the private-label mortgage-backed security, the Company determined their fair values using the methodologies set forth in Note 3 to the Company's consolidated financial statements presented elsewhere in this report. The following table shows the Company's rollforward of the amount related to OTTI credit losses for the years ended December 31, 2011 and 2010:
|  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
|  | (In thousands) |
Beginning balance |  | $ | 124,340 |  | $ | 107,671 |
Addition of other-than-temporary impairment that was not previously recognized |  |  | — |  |  | 6,340 |
Additional increases to the amount related to the credit loss for which an other-than-temporary impairment was previously recognized |  |  | 633 |  |  | 10,329 |
Reduction for securities sold |  |  | (9,561 | ) |  | — |
Ending balance |  | $ | 115,412 |  | $ | 124,340 |
The following tables show the Company's investment portfolio's gross unrealized losses and related fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, for the years ended December 31, 2011 and 2010:
|  | Less Than 12 Months |  | 12 Months or More |  | Total |
--- | --- | --- | --- | --- | --- | --- | ---
|  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |
|  | (In thousands) |
As of December 31, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  |  | 143,265 |  |  | (279 | ) |  | — |  |  | — |  |  | 143,265 |  |  | (279 | )
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential mortgage-backed securities |  |  | 195,393 |  |  | (772 | ) |  | — |  |  | — |  |  | 195,393 |  |  | (772 | )
Municipal securities |  |  | 1,158 |  |  | (5 | ) |  | — |  |  | — |  |  | 1,158 |  |  | (5 | )
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Non-investment grade |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | 754,055 |  |  | (61,935 | ) |  | 350,181 |  |  | (33,675 | ) |  | 1,104,236 |  |  | (95,610 | )
Non-investment grade |  |  | 9,973 |  |  | (565 | ) |  | 9,595 |  |  | (10,513 | ) |  | 19,568 |  |  | (11,078 | )
Other securities |  |  | 4,503 |  |  | (2 | ) |  |  |  |  |  |  |  | 4,503 |  |  | (2 | )
Total investment securities available-for-sale |  | $ | 1,108,347 |  | $ | (63,558 | ) | $ | 359,776 |  | $ | (44,188 | ) | $ | 1,468,123 |  | $ | (107,746 | )
|  | Less Than 12 Months |  | 12 Months or More |  | Total |
--- | --- | --- | --- | --- | --- | --- | ---
|  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |
|  | (In thousands) |
As of December 31, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  |  | 935,654 |  |  | (18,121 | ) |  | — |  |  | — |  |  | 935,654 |  |  | (18,121 | )
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential mortgage-backed securities |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Municipal securities |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Non-investment grade |  |  | — |  |  | — |  |  | 6,254 |  |  | (8,742 | ) |  | 6,254 |  |  | (8,742 | )
Corporate debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment grade |  |  | 656,434 |  |  | (8,765 | ) |  | — |  |  | — |  |  | 656,434 |  |  | (8,765 | )
Non-investment grade |  |  | 24,105 |  |  | (623 | ) |  | 9,926 |  |  | (10,693 | ) |  | 34,031 |  |  | (11,316 | )
Other securities |  |  | 76,692 |  |  | (1,908 | ) |  | — |  |  | — |  |  | 76,692 |  |  | (1,908 | )
Total investment securities available-for-sale |  | $ | 1,692,885 |  | $ | (29,417 | ) | $ | 16,180 |  | $ | (19,435 | ) | $ | 1,709,065 |  | $ | (48,852 | )
Unrealized Losses The majority of the unrealized losses related to securities that have been in a continuous loss position for less than twelve months is related to investment grade debt securities. As of December 31, 2011, the Company had $1.32 billion in investment grade corporate debt securities available-for-sale, representing approximately 43% of the total investment securities available-for-sale portfolio. As of December 31, 2011, there were 24 individual securities that have been in a continuous unrealized loss position for twelve months or more. These securities are comprised of 5 positions in trust preferred securities with a total fair value of $9.6 million and 19 investment grade debt securities with a fair value of $350.2 million. As of December 31, 2011 there were also 116 securities, not including the 24 securities above, which have been in a continuous unrealized loss position for less than twelve months. The securities in an unrealized loss position include 89 investment grade corporate debt securities, 16 residential mortgage-backed securities, 5 government agency securities, 4 non-investment grade corporate debt securities, 1 municipal security, and 1other security. The unrealized losses on these securities are primarily attributed to the market impact to the sovereign debt crisis in Europe. The bank does not have direct holdings of European sovereign debt. However, the bank is indirectly affected through the overall impact to the market and especially to corporate debt securities pricing. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their current amortized cost basis. As such, the Company does not deem these securities, other than those previously stated, to be other-than-temporarily impaired as of December 31, 2011. As of December 31, 2010, there were six individual securities that have been in a continuous unrealized loss position for twelve months or more. These securities are comprised of five positions in pooled trust preferred securities with a total fair value of $9.9 million and one mortgage-backed security with a fair value of $6.3 million. As of December 31, 2010 there were also 129 securities, excluding the 6 securities above, which have been in a continuous unrealized loss position for less than twelve months. The securities in an unrealized loss position include 46 investment grade corporate debt securities, 8 non-investment grade debt securities, 33 government agency securities and 42 other securities. The unrealized losses on these securities are primarily attributed to changes in interest rates as well as the liquidity crisis that has impacted all financial industries. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their current amortized cost basis. As such, the Company does not deem these securities, other than those previously stated, to be other-than-temporarily impaired as of December 31, 2010. Corporate Debt Securities The majority of the unrealized losses related to securities that have been in a continuous loss position of twelve months or longer are primarily due to the investment grade debt securities discussed previously as well as five positions in trust preferred debt securities. As of December 31, 2011, these trust preferred securities had an estimated fair value of $9.6 million, representing less than 1% of the total investment securities available-for-sale portfolio. As of December 31, 2011, these non-investment grade debt instruments had gross unrealized losses amounting to $10.5 million, or 52% of the total amortized cost basis of these securities, comprised of $5.4 million in unrealized losses and $5.1 million in noncredit-related impairment losses on securities that are other-than-temporarily impaired as of December 31, 2011 pursuant to the provisions of ASC 320-10-65. As a result of diminishing collateral values, deteriorating cash flows and increasing estimates of future deferrals and defaults, we recorded an impairment loss of $633 thousand on our portfolio of pooled trust preferred securities during 2011 for additional increases to the amount related to the credit loss for which an other-than-temporary impairment was previously recognized. During 2010 and 2009, the Company recorded $6.7 million and $14.1 million, respectively, in noncredit-related impairment losses on five and fourteen trust preferred securities, respectively, due to rating downgrades caused by increases in market spreads, concerns regarding the housing market and lack of liquidity in the market. None of these securities have experienced any credit-related losses for which OTTI was previously recorded prior to implementation of ASC 320-10-65. Upon the implementation of ASC 320-10-65, the Company reclassified the combined $14.0 million, or $8.1 million on a net of tax basis, in noncredit-related OTTI impairment losses recognized during 2009 and 2008 from the opening balance of retained earnings to other comprehensive income as of December 31, 2009. Mortgage-Backed Securities In February 2011, the Company sold its one private-label available-for-sale mortgage-backed security. This security had a fair value of $6.3 million and gross unrealized losses of $8.7 million as of December 31, 2010. The Company had other-than-temporary impairment of $6.3 million recognized in earnings on this security for the year ended December 31, 2010. The security was not deemed other-than-temporarily impaired as of December 31, 2009. The scheduled maturities of investment securities at December 31, 2011 are presented as follows:
|  | Amortized Cost |  | Estimated Fair Value |
--- | --- | --- | --- | --- | ---
|  | (In thousands) |
Due within one year |  | $ | 708,317 |  | $ | 704,059 |
Due after one year through five years |  |  | 372,837 |  |  | 357,446 |
Due after five years through ten years |  |  | 1,001,425 |  |  | 933,429 |
Due after ten years |  |  | 1,050,389 |  |  | 1,077,644 |
Total investment securities available-for-sale |  | $ | 3,132,968 |  | $ | 3,072,578 |
Actual maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to prepay obligations. In addition, such factors as prepayments and interest rates may affect the yields on the carrying values of mortgage-backed securities. Proceeds from sales of available-for-sale securities during 2011, 2010 and 2009 were $702.6 million, $1.34 billion and $1.65 billion, respectively. Realized gains were $9.7 million, $31.2 million and $11.9 million during 2011, 2010 and 2009, respectively. The tax expense on the sale of investment securities available-for-sale amounted to $4.1 million, $13.1 million and $5.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. At December 31, 2011 and 2010, investment securities available-for-sale with a par value of $2.17 billion and $1.88 billion, respectively, were pledged to secure public deposits, FHLB advances, repurchase agreements, Federal Reserve Bank's discount window, or for other purposes required or permitted by law. At December 31, 2011 and 2010, we had no held-to-maturity investment securities. During 2009 and subsequent to the UCB Acquisition, we transferred $681.4 million held-to-maturity investment securities to available-for-sale.

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- Definition Tabular disclosure of marketable securities. This may consist of investments in certain debt and equity securities, short-term investments and other assets. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03.4) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27232-111563 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 45 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6871852&loc=d3e26626-111562 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.2,12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6871852&loc=d3e26610-111562 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6872113&loc=d3e27161-111563 + Details
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