NOTE 4. INVESTMENT SECURITIES

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at December 31, 2011 and 2010:


December 31, 2011
(in thousands)
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	117,232	$	1,234	$	(1	)	$	118,465
Obligations of states and political subdivisions		237,302		16,264		(13	)		253,553
Residential mortgage-backed securities and collateralized mortgage obligations		2,755,153		43,152		(3,950	)		2,794,355
Other debt securities		151		—		(17	)		134
Investments in mutual funds and other equity securities		1,959		112		—			2,071

	$	3,111,797	$	60,762	$	(3,981	)	$	3,168,578

HELD TO MATURITY:
Obligations of states and political subdivisions	$	1,335	$	2	$	—		$	1,337
Residential mortgage-backed securities and collateralized mortgage obligations		3,379		120		(77	)		3,422

	$	4,714	$	122	$	(77	)	$	4,759

December 31, 2010

(in thousands)


	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	117,551	$	1,239	$	(1	)	$	118,789
Obligations of states and political subdivisions		213,129		4,985		(1,388	)		216,726
Residential mortgage-backed securities and collateralized mortgage obligations		2,543,974		57,506		(19,976	)		2,581,504
Other debt securities		152		—		—			152
Investments in mutual funds and other equity securities		1,959		50		—			2,009

	$	2,876,765	$	63,780	$	(21,365	)	$	2,919,180

HELD TO MATURITY:
Obligations of states and political subdivisions	$	2,370	$	5	$	—		$	2,375
Residential mortgage-backed securities and collateralized mortgage obligations		2,392		216		(209	)		2,399

	$	4,762	$	221	$	(209	)	$	4,774

Investment securities that were in an unrealized loss position as of December 31, 2011 and 2010 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral:

December 31, 2011

(in thousands)


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	—	$	—	$	85	$	1	$	85	$	1
Obligations of states and political subdivisions		516		13		—		—		516		13
Residential mortgage-backed securities and collateralized mortgage obligations		489,475		3,160		52,222		790		541,697		3,950
Other debt securities		—		—		134		17		134		17

Total temporarily impaired securities	$	489,991	$	3,173	$	52,441	$	808	$	542,432	$	3,981

HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	—	$	—	$	602	$	77	$	602	$	77

Total temporarily impaired securities	$	—	$	—	$	602	$	77	$	602	$	77

December 31, 2010

(in thousands)


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	—	$	—	$	110	$	1	$	110	$	1
Obligations of states and political subdivisions		60,110		1,366		1,003		22		61,113		1,388
Residential mortgage-backed securities and collateralized mortgage obligations		1,238,483		19,968		1,539		8		1,240,022		19,976

Total temporarily impaired securities	$	1,298,593	$	21,334	$	2,652	$	31	$	1,301,245	$	21,365

HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	—	$	—	$	658	$	209	$	658	$	209

Total temporarily impaired securities	$	—	$	—	$	658	$	209	$	658	$	209

The unrealized losses on investments in U.S. Treasury and agencies securities were caused by interest rate increases subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of December 31, 2011. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at December 31, 2011 are issued or guaranteed by governmental agencies. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

We review investment securities on an ongoing basis for the presence of other-than-temporary impairment ("OTTI") or permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the decline in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors. For debt securities, if we intend to sell the security or it is likely that we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is not likely that we will be required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income ("OCI"). Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses, the security is re-evaluated accordingly to the procedures described above.

The following tables present the OTTI losses for the years ended December 31, 2011, 2010 and 2009.

(in thousands)


	2011				2010				2009
	Held To Maturity		Available For Sale		Held To Maturity		Available For Sale		Held To Maturity			Available For Sale
Total other-than-temporary impairment losses	$	190	$	—	$	93	$	—	$	12,317		$	239
Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income(1)		169		—		321		—		(1,983	)		—

Net impairment losses recognized in earnings(2)	$	359	$	—	$	414	$	—	$	10,334		$	239

(1)	Represents other-than-temporary impairment losses related to all other factors.

(2)	Represents other-than-temporary impairment losses related to credit losses.

New guidance related to the recognition and presentation of OTTI of debt securities became effective beginning in the second quarter of 2009. Rather than asserting whether a Company has the ability and intent to hold an investment until a market price recovery, a Company must consider whether they intend to sell a security or if it is likely that they would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. The $8.2 million in OTTI recognized on investment securities held to maturity subsequent to March 31, 2009 primarily relates to 29 non-agency residential collateralized mortgage obligations. Each of these securities holds various levels of credit subordination. The underlying mortgage loans of these securities were originated from 2003 through 2007. At origination, the weighted average loan-to-value of the underlying mortgages was 69%; the underlying borrowers had weighted average FICO scores of 731, and 59% were limited documentation loans. These securities are valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimate cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management's estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as loan interest rates, geographic location, borrower characteristics and vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows are then discounted at the interest rate used to recognize interest income on each security. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows. The following table presents a summary of the significant inputs utilized to measure management's estimate of the credit loss component on these non-agency residential collateralized mortgage obligations as of December 31, 2011 and 2010:


	2011									2010
	Range						Weighted			Range						Weighted Average
	Minimum			Maximum			Average			Minimum			Maximum			Weighted Average
Constant prepayment rate		10.0	%		20.0	%		14.0	%		5.0	%		20.0	%		14.9	%
Collateral default rate		5.0	%		60.0	%		22.6	%		5.0	%		15.0	%		10.6	%
Loss severity		27.5	%		50.0	%		32.5	%		25.0	%		55.0	%		37.9	%

In the second quarter of 2009 the Company recorded an OTTI charge of $239,000 related to an available for sale collateralized debt obligation that holds trust preferred securities. Management noted certain deferrals and defaults in the pool and believes the impairment represents credit loss in its entirety. Through December 31, 2011, no further OTTI charges have been recorded on available for sale securities.

The following table presents a roll forward of the credit loss component of held to maturity debt securities that have been written down for OTTI with the credit loss component recognized in earnings and the remaining impairment loss related to all other factors recognized in OCI for the years ended December 31, 2011 and 2010, respectively, since the adoption of the revised guidance related to the recognition and presentation of OTTI of debt securities:


	2011			2010
Balance, beginning of period	$	12,778		$	12,364
Additions:
Subsequent OTTI credit losses		359			414
Reductions:
Securities sold, matured or paid-off		(3,563	)		—

Balance, end of period	$	9,574		$	12,778

Prior to the Company's adoption of the new guidance related to the recognition and presentation of OTTI of debt securities which became effective in the second quarter of 2009, the Company would assess an OTTI or permanent impairment based on the nature of the decline and whether the Company had the ability and intent to hold the investments until a market price recovery. In the three months ended March 31, 2009, the Company recorded a $2.1 million OTTI charge. This charge related to three non-agency residential collateralized mortgage obligations carried as held to maturity for which the default rates and loss severities of the underlying collateral and credit coverage ratios of the security indicated that it was probable that credit losses were expected to occur. These securities were valued by third party pricing services using matrix or model pricing methodologies, and were corroborated by broker indicative bids. The remaining non-agency securities within residential mortgage-backed securities and collateralized mortgage obligations carried as held to maturity were specifically evaluated for OTTI, and the default rates and loss severities of the underlying collateral indicated that credit losses are not expected to occur. Upon adoption of the new OTTI guidance in the second quarter of 2009, the Company analyzed these securities as well as other securities where OTTI had been previously recognized, and determined that as of the adoption date such losses were credit related. As such, there was no cumulative effect adjustment to the opening balance of retained earnings or a corresponding adjustment to accumulated OCI.

The following table presents the maturities of investment securities at December 31, 2011:


(in thousands)
	Available For Sale				Held To Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
Three months or less	$	22,142	$	22,217	$	—	$	—
Over three months through twelve months		424,824		429,396		330		331
After one year through five years		2,272,876		2,310,113		1,096		1,155
After five years through ten years		310,639		323,164		1,023		1,010
After ten years		79,357		81,617		2,265		2,263
Other investment securities		1,959		2,071		—		—

	$	3,111,797	$	3,168,578	$	4,714	$	4,759

The amortized cost and fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay underlying loans without prepayment penalties.

The following table presents the gross realized gains and gross realized losses on the sale of securities available for sale for the years ended December 31, 2011, 2010 and 2009:


(in thousands)
	2011				2010				2009
	Gains		Losses		Gains		Losses		Gains		Losses
U.S. Treasury and agencies	$	—	$	—	$	—	$	1	$	—	$	—
Obligations of states and political subdivisions		8		—		3		7		—		1
Residential mortgage-backed securities and collateralized mortgage obligations		8,544		817		2,331		—		9,409		591

	$	8,552	$	817	$	2,334	$	8	$	9,409	$	592

The following table presents, as of December 31, 2011, investment securities which were pledged to secure borrowings and public deposits as permitted or required by law:


(in thousands)
	Amortized Cost		Fair Value
	Amortized Cost		Fair Value
To Federal Home Loan Bank to secure borrowings	$	183,909	$	190,176
To state and local governments to secure public deposits		738,780		759,019
Other securities pledged		191,740		194,200

Total pledged securities	$	1,114,429	$	1,143,395

The carrying value of investment securities pledged as of December 31, 2011 and December 31, 2010 was $1.1 billion and $1.5 billion.