Note 2 – Investment Securities

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at March 31, 2012 and December 31, 2011:

March 31, 2012

(in thousands)


	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	45,548	$	719	$	(1	)	$	46,266
Obligations of states and political subdivisions		236,166		15,830		(116	)		251,880
Residential mortgage-backed securities and collateralized mortgage obligations		2,752,535		46,071		(3,945	)		2,794,661
Other debt securities		149		-		(14	)		135
Investments in mutual funds and other equity securities		1,959		108		-			2,067

	$	3,036,357	$	62,728	$	(4,076	)	$	3,095,009

HELD TO MATURITY:
Obligations of states and political subdivisions	$	1,315	$	2	$	-		$	1,317
Residential mortgage-backed securities and collateralized mortgage obligations		3,310		153		(44	)		3,419

	$	4,625	$	155	$	(44	)	$	4,736

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

Investment securities that were in an unrealized loss position as of March 31, 2012 and December 31, 2011 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.

March 31, 2012

(in thousands)


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	-	$	-	$	78	$	1	$	78	$	1
Obligations of states and political subdivisions		5,409		116		-		-		5,409		116
Residential mortgage-backed securities and collateralized mortgage obligations		499,687		3,639		30,573		306		530,260		3,945
Other debt securities		-		-		135		14		135		14

Total temporarily impaired securities	$	505,096	$	3,755	$	30,786	$	321	$	535,882	$	4,076


HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	-	$	-	$	943	$	44	$	943	$	44

Total temporarily impaired securities	$	-	$	-	$	943	$	44	$	943	$	44

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
	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

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 basis, 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 March 31, 2012. 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 basis, 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 March 31, 2012 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 basis, 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 change 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 according to the procedures described above.

The following tables present the OTTI losses for the three months ended March 31, 2012 and 2011:

(in thousands)


	Three months ended
	2012		2011
Total other-than-temporary impairment losses	$	-	$	-
Portion of other-than-temporary impairment losses transferred from other comprehensive income ⁽¹⁾		-		25

Net impairment losses recognized in earnings ⁽²⁾	$	-	$	25

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

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

The OTTI recognized on investment securities held to maturity relate to 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 collateralized mortgage obligations as of March 31, 2012 and 2011:


	2012									2011
	Range						Weighted			Range						Weighted
	Minimum			Maximum			Average			Minimum			Maximum			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	%

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 three months ended March 31, 2012 and 2011:

(in thousands)


		Three months ended
	2012		2011
Balance, beginning of period	$	9,574	$	12,778
Subsequent OTTI credit losses		-		25

Balance, end of period	$	9,574	$	12,803

The following table presents the maturities of investment securities at March 31, 2012:

(in thousands)


	Available For Sale				Held To Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
Three months or less	$	28,517	$	28,689	$	85	$	85
Over three months through twelve months		335,264		340,008		245		246
After one year through five years		2,037,135		2,079,376		345		348
After five years through ten years		547,572		557,968		61		63
After ten years		85,910		86,901		3,889		3,994
Other investment securities		1,959		2,067		-		-

	$	3,036,357	$	3,095,009	$	4,625	$	4,736

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 three months ended March 31, 2012 and 2011:

(in thousands)



	Three months ended March 31, 2012				Three months ended March 31, 2011
	Gains		Losses		Gains		Losses
U.S. Treasury and agencies	$	371	$	-	$	-	$	-
Obligations of states and political subdivisions		2		-		2		1
Residential mortgage-backed securities and collateralized mortgage obligations		-		230		-		-
Other debt securities		5		-		-		-

	$	378	$	230	$	2	$	1

The following table presents, as of March 31, 2012, investment securities which were pledged to secure borrowings and public deposits as permitted or required by law:

(in thousands)


	Amortized Cost		Fair Value
To Federal Home Loan Bank to secure borrowings	$	158,984	$	164,620
To state and local governments to secure public deposits		716,942		738,353
Other securities pledged principally to secure deposits		175,226		178,204

Total pledged securities	$	1,051,152	$	1,081,177