INVESTMENT SECURITIES

Investment securities are summarized as follows:

	June 30, 2012
			Recognized in OCI ¹						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	543,367	$	—	$	—	$	543,367	$	14,780	$	435	$	557,712
Asset-backed securities:
Trust preferred securities – banks and insurance	262,511		—		53,472		209,039		282		63,637		145,684
Other	23,383		—		2,873		20,510		246		8,542		12,214
Other debt securities	100		—		—		100		—		—		100
	$	829,361	$	—	$	56,345	$	773,016	$	15,308	$	72,614	$	715,710
Available-for-sale
U.S. Treasury securities	$	4,379	$	259	$	—	$	4,638					$	4,638
U.S. Government agencies and corporations:
Agency securities	138,364		5,298		138		143,524						143,524
Agency guaranteed mortgage-backed securities	476,200		20,463		50		496,613						496,613
Small Business Administration loan-backed securities	1,179,718		18,481		1,960		1,196,239						1,196,239
Municipal securities	118,189		3,273		2,385		119,077						119,077
Asset-backed securities:
Trust preferred securities – banks and insurance	1,757,601		13,052		844,019		926,634						926,634
Trust preferred securities – real estate investment trusts	40,361		—		25,930		14,431						14,431
Auction rate securities	7,149		94		77		7,166						7,166
Other	54,795		932		9,435		46,292						46,292
	3,776,756		61,852		883,994		2,954,614						2,954,614
Mutual funds and other	212,792		202		18		212,976						212,976
	$	3,989,548	$	62,054	$	884,012	$	3,167,590					$	3,167,590



	December 31, 2011
			Recognized in OCI ¹						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	564,468	$	—	$	—	$	564,468	$	8,807	$	1,083	$	572,192
Asset-backed securities:
Trust preferred securities – banks and insurance	262,853		—		40,546		222,307		207		78,191		144,323
Other	24,310		—		3,381		20,929		303		7,868		13,364
Other debt securities	100		—		—		100		—		5		95
	$	851,731	$	—	$	43,927	$	807,804	$	9,317	$	87,147	$	729,974
Available-for-sale
U.S. Treasury securities	$	4,330	$	304	$	—	$	4,634					$	4,634
U.S. Government agencies and corporations:
Agency securities	153,179		5,423		122		158,480						158,480
Agency guaranteed mortgage-backed securities	535,228		18,211		102		553,337						553,337
Small Business Administration loan-backed securities	1,153,039		12,119		4,496		1,160,662						1,160,662
Municipal securities	120,677		3,191		1,700		122,168						122,168
Asset-backed securities:
Trust preferred securities – banks and insurance	1,794,427		15,792		880,509		929,710						929,710
Trust preferred securities – real estate investment trusts	40,259		—		21,614		18,645						18,645
Auction rate securities	71,338		164		1,482		70,020						70,020
Other	64,646		1,028		15,302		50,372						50,372
	3,937,123		56,232		925,327		3,068,028						3,068,028
Mutual funds and other	162,606		167		6		162,767						162,767
	$	4,099,729	$	56,399	$	925,333	$	3,230,795					$	3,230,795

¹The gross unrealized losses recognized in OCI resulted from a previous transfer of available-for-sale (“AFS”) securities to held-to-maturity (“HTM”).

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2012 by expected maturity distribution for structured asset-backed collateralized debt obligations (“ABS CDOs”) and by contractual maturity distribution for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:



	Held-to-maturity				Available-for-sale
(In thousands)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Due in one year or less	$	54,912	$	55,321	$	450,929	$	420,393
Due after one year through five years	207,047		201,654		1,108,393		1,006,558
Due after five years through ten years	172,813		154,922		690,377		602,812
Due after ten years	394,589		303,813		1,527,057		924,851
	$	829,361	$	715,710	$	3,776,756	$	2,954,614

The following is a summary of the amount of gross unrealized losses for debt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

	June 30, 2012
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	225	$	11,399	$	210	$	14,646	$	435	$	26,045
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		117,109		145,346		117,109		145,346
Other	—		—		11,415		11,232		11,415		11,232
	$	225	$	11,399	$	128,734	$	171,224	$	128,959	$	182,623
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	$	54	$	21,836	$	84	$	7,168	$	138	$	29,004
Agency guaranteed mortgage-backed securities	48		11,668		2		241		50		11,909
Small Business Administration loan-backed securities	235		56,975		1,725		165,355		1,960		222,330
Municipal securities	169		5,420		2,216		11,478		2,385		16,898
Asset-backed securities:
Trust preferred securities – banks and insurance	1,162		37,728		842,857		706,134		844,019		743,862
Trust preferred securities – real estate investment trusts	—		—		25,930		14,431		25,930		14,431
Auction rate securities	27		2,038		50		1,057		77		3,095
Other	—		—		9,435		15,701		9,435		15,701
	1,695		135,665		882,299		921,565		883,994		1,057,230
Mutual funds and other	18		20,053		—		—		18		20,053
	$	1,713	$	155,718	$	882,299	$	921,565	$	884,012	$	1,077,283



	December 31, 2011
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value


Held-to-maturity
Municipal securities	$	415	$	10,855	$	668	$	22,188	$	1,083	$	33,043
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		118,737		144,053		118,737		144,053
Other	—		—		11,249		13,364		11,249		13,364
Other debt securities	5		95		—		—		5		95
	$	420	$	10,950	$	130,654	$	179,605	$	131,074	$	190,555
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	$	60	$	13,308	$	62	$	3,880	$	122	$	17,188
Agency guaranteed mortgage-backed securities	102		52,267		—		—		102		52,267
Small Business Administration loan-backed securities	1,783		260,865		2,713		191,339		4,496		452,204
Municipal securities	1,305		15,011		395		4,023		1,700		19,034
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		880,509		695,365		880,509		695,365
Trust preferred securities – real estate investment trusts	—		—		21,614		18,645		21,614		18,645
Auction rate securities	158		27,998		1,324		34,115		1,482		62,113
Other	—		—		15,302		18,585		15,302		18,585
	3,408		369,449		921,919		965,952		925,327		1,335,401
Mutual funds and other	6		167		—		—		6		167
	$	3,414	$	369,616	$	921,919	$	965,952	$	925,333	$	1,335,568

At June 30, 2012 and December 31, 2011, respectively, 89 and 72 HTM and 365 and 525 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) we intend to sell the security; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.

Our 2011 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for those security types that have significant gross unrealized losses at June 30, 2012:

OTTI – Municipal Securities

The HTM securities are purchased directly from municipalities and are generally not rated by a credit rating agency. The AFS securities are rated as investment grade by various credit rating agencies. Both the HTM and AFS securities are at fixed and variable rates with maturities from one to 25 years. Fair value changes of these securities are largely driven by interest rates. We perform credit quality reviews on these securities at each reporting period. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded for the three months ended June 30, 2012.

OTTI – Asset-Backed Securities

Trust preferred securities – banks and insurance: These CDO securities are interests in variable rate pools of trust preferred securities related to banks and insurance companies (“collateral issuers”). They are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). They were purchased generally at par. The primary drivers that have given rise to the unrealized losses on CDOs with bank and insurance collateral are listed below:

Market yield requirements for bank CDO securities remain very high. The credit crisis resulted in significant utilization of both the unique five-year deferral option each collateral issuer maintains during the life of the CDO and the ability of junior CDO bonds to defer the payment of current interest. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains dramatically higher than the effective interest rates. All structured product fair values, including bank CDOs, deteriorated significantly during the credit crisis, generally reaching a low in mid-2009. Prices for some structured products, other than bank CDOs, have since rebounded as the crucial unknowns related to value became resolved and as trading increased in these securities. Unlike these other structured products, CDO tranches backed by bank trust preferred securities continue to have unresolved questions surrounding collateral behavior, specifically including, but not limited to, the future number, size and timing of bank failures, and of allowed deferrals and subsequent resumption of payment of contractual interest.

Structural features of the collateral make these CDO tranches difficult for market participants to model. The first feature unique to bank CDOs is the interest deferral feature previously discussed. During the credit crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals either transition to default or alternatively come current prior to the five-year deadline is extremely difficult for market participants to assess. Our CDO pools include banks which first exercised this deferral option in the second quarter of 2008. At June 30, 2012, 53 banks in our CDO pools had come current after a period of deferral, while 215 were deferring, but remained within the allowed deferral period.

A second structural feature that is difficult to model is the payment in kind (“PIK”) feature which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid be capitalized or deferred. The cash flow that would otherwise be paid to the junior CDO securities and the income notes is instead used to pay down the principal balance of the most senior CDO securities. If the current market yield required by market participants equaled the effective interest rate of a security, a market participant should be indifferent between receiving current interest and capitalizing and compounding interest for later payment. However, given the difference between current market rates and effective interest rates of the securities, market participants are not indifferent. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured. This feature is difficult to model and assess. It increases the risk premium the market applies to these securities.

Ratings are generally below-investment-grade for even some of the most senior tranches. Rating agency opinions can vary significantly on a CDO tranche. The presence of a below-investment-grade rating by even a single rating agency will severely limit the pool of buyers, which causes greater illiquidity and therefore most likely a higher implicit discount rate/lower price with regard to that CDO tranche.


4)	There is a lack of consistent disclosure by each CDO’s trustee of the identity of collateral issuers; in addition, complex structures make projecting tranche return profiles difficult for non-specialists in the product.


5)	At purchase, the expectation of cash flow variability was limited. As a result of the credit crisis, we have seen extreme variability of collateral performance both compared to expectations and between different pools.

Our ongoing review of these securities determined that OTTI should be recorded for the three months ended June 30, 2012.

Trust preferred securities – real estate investment trusts (“REITs”): These CDO securities are variable rate pools of trust preferred securities primarily related to REITs, and are rated by one or more NRSROs. They were purchased generally at par. Unrealized losses were caused mainly by severe deterioration in mortgage REITs and homebuilder credit in addition to the same factors previously discussed for banks and insurance CDOs. Based on our review, no OTTI for these securities was recorded for the three months ended June 30, 2012.

Other asset-backed securities: Most of these CDO securities were purchased in 2009 from Lockhart Funding LLC at their carrying values and then adjusted to fair value. Certain of these CDOs consist of ABS CDOs (also known as diversified structured finance CDOs). Unrealized losses since acquisition were caused mainly by deterioration in collateral quality and widening of credit spreads for asset backed securities. Based on our review, no OTTI for these securities was recorded for the three months ended June 30, 2012.

OTTI – U.S. Government Agencies and Corporations

Small Business Administration (“SBA”) Loan-Backed Securities: These securities were generally purchased at premiums with maturities from five to 25 years and have principal cash flows guaranteed by the SBA. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded for the three months ended June 30, 2012.

The following is a tabular rollforward of the total amount of credit-related OTTI, including amounts recognized in earnings:

(In thousands)	Three Months Ended June 30, 2012									Six Months Ended June 30, 2012
	HTM			AFS			Total			HTM			AFS			Total
Balance of credit-related OTTI at beginning of period	$	(6,126	)	$	(308,216	)	$	(314,342	)	$	(6,126	)	$	(314,860	)	$	(320,986	)
Additions recognized in earnings during the period:
Credit-related OTTI not previously recognized ¹	(341		)	—			(341		)	(341		)	—			(341		)
Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis²	—			(6,967		)	(6,967		)	—			(17,176		)	(17,176		)
Subtotal of amounts recognized in earnings	(341		)	(6,967		)	(7,308		)	(341		)	(17,176		)	(17,517		)
Reductions for securities sold during the period				—			—						16,853			16,853
Balance of credit-related OTTI at end of period	$	(6,467	)	$	(315,183	)	$	(321,650	)	$	(6,467	)	$	(315,183	)	$	(321,650	)



(In thousands)	Three Months Ended June 30, 2011									Six Months Ended June 30, 2011
	HTM			AFS			Total			HTM			AFS			Total
Balance of credit-related OTTI at beginning of period	$	(5,357	)	$	(312,353	)	$	(317,710	)	$	(5,357	)	$	(335,682	)	$	(341,039	)
Additions recognized in earnings during the period:
Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis²	—			(5,158		)	(5,158		)	—			(8,263		)	(8,263		)
Subtotal of amounts recognized in earnings	—			(5,158		)	(5,158		)	—			(8,263		)	(8,263		)
Reductions for securities sold during the period				27,302			27,302						53,736			53,736
Balance of credit-related OTTI at end of period	$	(5,357	)	$	(290,209	)	$	(295,566	)	$	(5,357	)	$	(290,209	)	$	(295,566	)

¹Relates to securities not previously impaired.

²Relates to additional impairment on securities previously impaired.

To determine the credit component of OTTI for all security types, we utilize projected cash flows as the best estimate of fair value. These cash flows are credit adjusted using, among other things, assumptions for default probability assigned to each portion of performing collateral. The credit adjusted cash flows are discounted at a security specific coupon rate to identify any OTTI, and then at a market rate for valuation purposes.

For those securities with credit-related OTTI recognized in the statement of income, the amounts of pretax noncredit-related OTTI recognized in OCI were as follows:



(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
HTM	$	16,718	$	—	$	16,718	$	—
AFS	—		1,181		8,064		1,181
	$	16,718	$	1,181	$	24,782	$	1,181

During the three and six months ended June 30, nontaxable interest income on securities was $4.7 million and $9.5 million in 2012, and $5.4 million and $11.2 million in 2011, respectively.

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:

		Three Months Ended										Six Months Ended
		June 30, 2012					June 30, 2011					June 30, 2012					June 30, 2011
	(In thousands)	Gross gains		Gross losses			Gross gains		Gross losses			Gross gains		Gross losses			Gross gains		Gross losses
	(In thousands)	Gross gains		Gross losses			Gross gains		Gross losses			Gross gains		Gross losses			Gross gains		Gross losses
	Investment securities:
	Held-to-maturity	$	49	$	341		$	71	$	—		$	98	$	341		$	117	$	—
	Available-for-sale	5,470		6,967			4,063		11,688			11,929		22,964			7,582		18,417
	Other noninterest-bearing investments:
	Nonmarketable equity securities	10,518		10,411			—		1,636			19,721		10,469			1,068		1,807
		16,037		17,719			4,134		13,324			31,748		33,774			8,767		20,224
	Net losses			$	(1,682	)			$	(9,190	)			$	(2,026	)			$	(11,457	)
	Statement of income information:
	Net impairment losses on investment securities			$	(7,308	)			$	(5,158	)			$	(17,517	)			$	(8,263	)
	Equity securities gains (losses), net			107					(1,636		)			9,252					(739		)
	Fixed income securities gains (losses), net			5,519					(2,396		)			6,239					(2,455		)
	Net losses			$	(1,682	)			$	(9,190	)			$	(2,026	)			$	(11,457	)

Gains and losses on the sale of securities are recognized using the specific identification method and recorded in noninterest income.

Securities with a carrying value of $1.3 billion at June 30, 2012 and $1.5 billion at December 31, 2011 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.