5. INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are publicly traded, and the estimated fair values were obtained from an independent pricing service based upon market quotes.


	December 31, 2012
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency	$	357,960	$	1,588	$	(248	)	$	359,300		14.67	%
Residential mortgage-backed securities		862,196		25,529		(127	)		887,598		36.24	%
CMO’s / REMIC’s—residential		565,968		7,402		(1,410	)		571,960		23.35	%
Municipal bonds		583,692		41,920		(183	)		625,429		25.53	%
Other securities		5,000		100		—			5,100		0.21	%

Total investment securities	$	2,374,816	$	76,539	$	(1,968	)	$	2,449,387		100.00	%


	December 31, 2011
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency	$	46,273	$	234	$	—		$	46,507		2.11	%
Residential mortgage-backed securities		869,847		18,487		(334	)		888,000		40.33	%
CMO’s / REMIC’s—residential		594,866		10,307		(665	)		604,508		27.46	%
Municipal bonds		608,575		43,665		(203	)		652,037		29.62	%
Other securities		10,468		10		(4	)		10,474		0.48	%

Total investment securities	$	2,130,029	$	72,703	$	(1,206	)	$	2,201,526		100.00	%

Approximately 75% of the available-for-sale portfolio at December 31, 2012 represents securities issued by the U.S government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining CMO/REMICs are backed by agency-pooled collateral or whole loan collateral. All non-agency available-for-sale CMO/REMIC issues held are rated investment grade or better by either Standard & Poor’s or Moody’s, as of December 31, 2012 and 2011. We have $1.2 million in CMO/REMIC’s backed by whole loans issued by private-label companies (non-government sponsored).

There were no realized gains or losses for the year ended December 31, 2012 and 2011. Gross realized gains were $38.9 million for the year ended December 31, 2010 and no realized losses.


	December 31, 2012
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Held-to-maturity:
CMO	$	—	$	—	$	—	$	—	$	—	$	—

Available-for-sale:
Government agency	$	51,134	$	248	$	—	$	—	$	51,134	$	248
Residential mortgage-backed securities		55,118		127		—		—		55,118		127
CMO/REMICs—residential		74,784		572		69,042		838		143,826		1,410
Municipal bonds		13,110		162		975		21		14,085		183
Other securities		—		—		—		—		—		—

Total	$	194,146	$	1,109	$	70,017	$	859	$	264,163	$	1,968


	December 31, 2011
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Held-to-maturity:
CMO	$	2,383	$	—	$	—	$	—	$	2,383	$	—

Available-for-sale:
Government agency	$	—	$	—	$	—	$	—	$	—	$	—
Residential mortgage-backed securities		75,754		334		—		—		75,754		334
CMO/REMICs—residential		133,471		665		—		—		133,471		665
Municipal bonds		22,184		203		—		—		22,184		203
Other securities		2,500		4		—		—		2,500		4

Total	$	233,909	$	1,206	$	—	$	—	$	233,909	$	1,206

The tables above show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and 2011. The Company has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary.

The following summarizes our analysis of these securities and the unrealized losses. This assessment was based on the following factors: i) the length of the time and the extent to which the fair value has been less than amortized cost; ii) adverse condition specifically related to the security, an industry, or a geographic area and whether or not the Company expects to recover the entire amortized cost, iii) historical and implied volatility of the fair value of the security; iv) the payment structure of the security and the likelihood of the issuer being able to make payments in the future; v) failure of the issuer of the security to make scheduled interest or principal payments, vi) any changes to the rating of the security by a rating agency, and vii) recoveries or additional declines in fair value subsequent to the balance sheet date.

CMO Held-to-Maturity — We have one investment security classified as held-to-maturity. This security was issued by Countrywide Financial and is collateralized by Alt-A mortgages. The mortgages are primarily fixed-rate, 30-year loans, originated in early 2006 with average FICO scores of 715 and an average LTV of 71% at origination. The security was a senior security in the securitization, was rated triple AAA at origination and was supported by subordinate securities. This security is classified as held-to-maturity as we have both the intent and ability to hold this debt security to maturity. We acquired this security in February 2008 at a price of 98.25%. The significant decline in the fair value of the security first appeared in August 2008 at the time the financial crisis in the markets occurred and the market for securities collateralized by Alt-A mortgages diminished.

As of December 31, 2012, the unrealized loss on this security was zero and the fair value of the security was 71% of the current par value. This Alt-A bond, with a book value of $2.1 million as of December 31, 2012, has had $1.9 million in net impairment losses to date. These losses have been recorded as a reduction to noninterest income. The security is rated non-investment grade. We evaluated the security for an other-than-temporary decline in fair value as of December 31, 2012. The key assumptions include default rates, loss severities and prepayment rates. There were no changes in credit related other-than temporary impairment recognized in earnings for the year ended December 31, 2012, compared to an other-than-temporary impairment loss of $656,000 recognized during the same period in 2011.

Government Agency & Government-Sponsored Enterprise— The government agency bonds are backed by the full faith and credit of Agencies of the U.S. Government. As of December 31, 2012, approximately $162.8 million in U.S. government agency bonds are callable. These securities are bullet securities, that is, they have a defined maturity date on which the principal is paid. The contractual term of these investments provides that the Company will receive the face value of the bond at maturity which will equal the amortized cost of the bond. Interest is received throughout the life of the security.

Mortgage-Backed Securities and CMO/REMICs— Almost all of the available-for-sale mortgage-backed and CMO/REMICs securities are issued by the government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. These securities are collateralized or backed by the underlying residential mortgages. All mortgage-backed securities are considered to be rated investment grade with a weighted average life of approximately 2.7 years. Of the total MBS/CMO, 99.92% have the implied guarantee of U.S. government-sponsored agencies. The remaining 0.08% are issued by banks. Accordingly, it is expected the securities would not be settled at a price less than the amortized cost of the bonds.

Municipal Bonds—The majority of our municipal bonds are insured by the largest bond insurance companies with maturities of approximately 9.5 years. The Company diversifies its holdings by owning selections of securities from different issuers and by holding securities from geographically diversified municipal issuers, thus reducing the Company’s exposure to any single adverse event. Because we believe the decline in fair value is attributable to the changes in interest rates and not credit quality and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized costs, which may be at maturity, management does not consider these investments to be other than temporarily impaired at December 31, 2012.

We are continually monitoring the quality of our municipal bond portfolio in light of the current financial problems exhibited by certain monoline insurance companies. Many of the securities that would not be rated without insurance are pre-refunded and/or are general obligation bonds. We continue to monitor municipalities, which includes a review of the respective municipalities’ audited financial statements to determine whether there are any audit or performance issues. We use outside brokers to assist us in these analyses. Based on our monitoring of the municipal marketplace, to our knowledge, none of the municipalities are exhibiting financial problems that would lead us to believe that there is an OTTI for any given security.

At December 31, 2012 and December 31, 2011, investment securities having a carrying value of $2.24 billion and $1.85 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at December 31, 2012, by contractual maturity, are shown below. Although mortgage-backed securities and CMO/REMICs have contractual maturities through 2041, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed securities and CMO/REMICs are included in maturity categories based upon estimated prepayment speeds.


	Available-for-sale
					Weighted-
	Amortized		Fair		Average
	Cost		Value		Yield
	(Dollars in thousands)
Due in one year or less	$	276,581	$	277,657		1.94	%
Due after one year through five years		1,660,947		1,716,879		2.48	%
Due after five years through ten years		409,264		425,119		2.72	%
Due after ten years		28,024		29,732		4.03	%

Total	$	2,374,816	$	2,449,387		2.47	%

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through December 31, 2012.