v2.4.0.6
Investment Securities
 6 Months Ended
Jun. 30, 2012
Investment Securities [Abstract]  
Investment Securities
Note 3 -- Investment Securities

The amortized cost, gross unrealized gains and losses and estimated fair values for available-for-sale and held-to-maturity securities by major security type at June 30, 2012 and December 31, 2011 were as follows (in thousands):

      
Gross
  
Gross
    
   
Amortized
  
Unrealized
  
Unrealized
  
Fair
 
June 30, 2012
 
Cost
  
Gains
  
(Losses)
  
Value
 
Available-for-sale:
            
U.S. Treasury securities and obligations
            
   of U.S. government corporations & agencies
 $150,936  $1,166  $(52) $152,050 
Obligations of states and political subdivisions
  46,176   2,841   (26)  48,991 
Mortgage-backed securities: GSE residential
  291,720   7,206   (91)  298,835 
Trust preferred securities
  5,372   7   (4,731)  648 
Other securities
  9,612   40   (149)  9,503 
 Total available-for-sale
 $503,816  $11,260  $(5,049) $510,027 
Held-to-maturity:
                
 Obligations of states and political subdivisions
 $51  $-  $-  $51 
December 31, 2011
                
Available-for-sale:
                
U.S. Treasury securities and obligations
                
   of U.S. government corporations & agencies
 $164,812  $1,294  $(40) $166,066 
Obligations of states and political subdivisions
  38,828   2,374   -   41,202 
Mortgage-backed securities: GSE residential
  254,930   6,940   (37)  261,833 
Trust preferred securities
  5,625   -   (4,906)  719 
Other securities
  9,561   -   (465)  9,096 
  Total available-for-sale
 $473,756  $10,608  $(5,448) $478,916 
Held-to-maturity:
                
Obligations of states and political subdivisions
 $51  $-  $-  $51 



The trust preferred securities are four trust preferred pooled securities issued by First Tennessee Financial ("FTN"). The unrealized losses of these securities, which have maturities ranging from eighteen years to twenty-six years, are primarily due to their long-term nature, a lack of demand or inactive market for these securities, and concerns regarding the underlying financial institutions that have issued the trust preferred securities. See the heading "Trust Preferred Securities" for further information regarding these securities.

Realized gains and losses resulting from sales of securities were as follows during the periods ended June 30, 2012 and 2011 (in thousands):


   
June 30,
  
June 30,
 
   
2012
  
2011
 
Gross gains
 $823  $377 
Gross losses
  -   - 

 
The following table indicates the expected maturities of investment securities classified as available-for-sale and held-to-maturity, presented at fair value, at June 30, 2012 and the weighted average yield for each range of maturities (dollars in thousands).

   
One year
  
After 1 through
  
After 5 through
  
After ten
    
   
or less
  
5 years
  
10 years
  
years
  
Total
 
Available-for-sale:
               
U.S. Treasury securities and obligations of
               
  U.S. government corporations and agencies
 $89,227  $60,568  $2,255  $-  $152,050 
Obligations of state and political subdivisions
  877   20,578   27,130   406   48,991 
Mortgage-backed securities: GSE residential
  14,056   204,019   80,760   -   298,835 
Trust preferred securities
  -   -   -   648   648 
Other securities
  -   7,554   1,901   48   9,503 
Total investments
 $104,160  $292,719  $112,046  $1,102  $510,027 
Weighted average yield
  2.18%  2.76%  2.67%  3.87%  2.63%
Full tax-equivalent yield
  2.19%  2.89%  3.07%  4.01%  2.80%
Held-to-maturity:
                    
Obligations of state and political subdivisions
 $-  $51  $-  $-  $51 
Weighted average yield
  -%  4.75%  -%  -%  4.75%
Full tax-equivalent yield
  -%  6.58%  -%  -%  6.58%


The weighted average yields are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent yields have been calculated using a 34% tax rate.  With the exception of obligations of the U.S. Treasury and other U.S. government agencies and corporations, there were no investment securities of any single issuer, the book value of which exceeded 10% of stockholders' equity at June 30, 2012.

Investment securities carried at approximately $276,748,000 and $286,568,000 at June 30, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and repurchase agreements and for other purposes as permitted or required by law.

The following table presents the aging of gross unrealized losses and fair value by investment category as of June 30, 2012 and December 31, 2011 (in thousands):

   
Less than 12 months
  
12 months or more
  
Total
 
   
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
 
June 30, 2012
                  
U.S. Treasury securities and obligations of U.S.
    government corporations and agencies
 $19,941  $(52) $-  $-  $19,941  $(52)
Obligations of states and political subdivisions
  2,890   (26)  -   -   2,890   (26)
Mortgage-backed securities: GSE residential
  32,833   (91)  -   -   32,833   (91)
Trust preferred securities
  -   -   518   (4,731)  518   (4,731)
Other securities
  3,566   (136)  1,987   (13)  5,553   (149)
Total
 $59,230  $(305) $2,505  $(4,744) $61,735  $(5,049)
December 31, 2011:
                        
U.S. Treasury securities and obligations of U.S.
    government corporations and agencies
 $19,960  $(40) $-  $-  $19,960  $(40)
Obligations of states and political subdivisions
  690   -   -   -   690   - 
Mortgage-backed securities: GSE residential
  15,231   (37)  -   -   15,231   (37)
Trust preferred securities
  -   -   719   (4,906)  719   (4,906)
Other securities
  7,190   (372)  1,907   (93)  9,096   (465)
Total
 $43,071  $(449) $2,625  $(4,999) $45,696  $(5,448)


 
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies. At June 30, 2012 and December 31, 2011, there were no U.S. Treasury securities and obligations of U.S. government corporations and agencies in a continuous unrealized loss position for twelve months or more.

Obligations of states and political subdivisions.  At June 30, 2012 and December 31, 2011, there were no Obligations of states and political subdivisions in a continuous unrealized loss position for twelve months or more.

Mortgage-backed Securities: GSE Residential. At June 30, 2012 and December 31, 2011, there were no mortgage-backed securities in a continuous unrealized loss position for twelve months or more.

Trust Preferred Securities. At June 30, 2012, there were three trust preferred securities with a fair value of $518,000 and unrealized losses of $4,731,000 in a continuous unrealized loss position for twelve months or more. At December 31, 2011, there were four trust preferred securities with a fair value of $719,000 and unrealized losses of $4,906,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the trust preferred securities, a lack of demand or inactive market for these securities, and concerns regarding the underlying financial institutions that have issued the trust preferred securities. The Company has recorded a total of $0 and $246,000 of OTTI for these securities during 2012 and 2011, respectively.  These losses established a new, lower amortized cost basis for these securities and reduced non-interest income as of December 31, 2011. Because 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 these securities before recovery of their new, lower amortized cost basis, which may be maturity, the Company does not consider the remainder of the investment in these securities to be other-than-temporarily impaired at June 30, 2012. However, future downgrades or additional deferrals and defaults in these securities, in particular PreTSL XXVIII, could result in additional OTTI and consequently, have a material impact on future earnings.

Following are the details for each trust preferred security (in thousands):

   
Book
Value
  
Market Value
  
Unrealized Gains (Losses)
  
Other-than-
temporary
Impairment
Recorded To-date
 
PreTSL I
 $647  $285  $(362) $691 
PreTSL II
  950   207   (743)  2,187 
PreTSL VI
  123   130   7   127 
PreTSL XXVIII
  3,652   26   (3,626)  1,111 
     Total
 $5,372  $648  $(4,724) $4,116 


Subsequently, on July 3, 2012, the company's holding in PreTSL VI was redeemed in full. The payment received was sufficient to pay-off the book value of the security of $123,000, reverse the recorded OTTI impairment of $127,000 and recover previously unrecorded interest of approximately $11,500.

Other securities. At June 30, 2012, there was one corporate bond with a fair value of $1,987,000 and unrealized losses of $13,000 in a continuous unrealized loss position for twelve months or more.  At December 31, 2011, this bond had a fair value of $1,907,000 and unrealized losses of $93,000 in a continuous unrealized loss position for twelve months or more.  Because the Company does not intend to sell this security and it is not more-likely-than-not the Company will be required to sell this security before recovery of its amortized cost basis, which may be maturity, the Company does not consider this investment to be other than temporarily impaired at June 30, 2012.

The Company does not believe any other individual unrealized loss as of June 30, 2012 represents OTTI. However, given the continued disruption in the financial markets, the Company may be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the other-than-temporary impairment is identified.

Other-than-temporary Impairment. Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment model.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether OTTI has occurred. Economic models are used to determine whether OTTI has occurred on these securities. While all securities are considered, the securities primarily impacted by OTTI testing are pooled trust preferred securities. For each pooled trust preferred security in the investment portfolio (including but not limited to those whose fair value is less than their amortized cost basis), an extensive, regular review is conducted to determine if OTTI has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other-than-temporary.  The most significant inputs are prepayments, defaults and loss severity.
 
These pooled trust preferred securities relate to trust preferred securities issued by financial institutions. The pools typically consist of financial institutions throughout the United States. Other inputs to the economic models may include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions including profitability, capital ratios, and asset quality.

To determine if the unrealized losses for pooled trust preferred securities is other-than-temporary, the Company considers the impact of each of these inputs. The Company considers the likelihood that issuers will prepay their securities.  During the third quarter of 2010, the Dodd-Frank Act eliminated Tier 1 capital treatment for trust preferred securities issued by holding companies with consolidated assets greater than $15 billon. As a result, issuers may prepay their securities which reduces the amount of expected cash flows. Additionally, the Company projects total estimated defaults of the underlying assets (financial institutions) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the security to determine the impact on cash flows. If the Company determines that a given pooled trust preferred security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

Credit Losses Recognized on Investments. As described above, some of the Company's investments in trust preferred securities have experienced fair value deterioration due to credit losses but are not otherwise other-than-temporarily impaired. The following table provides information about those trust preferred securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the six months ended June 30, 2012 and 2011 (in thousands).

   
Accumulated
  
Accumulated
 
   
Credit Losses
  
Credit Losses
 
   
June 30, 2012
  
June 30, 2011
 
Credit losses on trust preferred securities held
      
Beginning of period
 $4,116  $3,230 
     Additions related to OTTI losses not previously recognized
  -   - 
     Reductions due to sales
  -   - 
     Reductions due to change in intent or likelihood of sale
  -   - 
     Additions related to increases in previously recognized OTTI losses
  -   246 
     Reductions due to increases in expected cash flows
  -   - 
End of period
 $4,116  $3,476