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Investment securities and impairment of investment securities
9 Months Ended
Sep. 30, 2013
Investment securities and impairment of investment securities  
Investment securities and impairment of investment securities

(3)                                 Investment securities and impairment of investment securities

 

The following table shows the portfolio of investment securities available-for-sale at September 30, 2013 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

34

 

 

 

34

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

2,000

 

1

 

 

2,001

 

Due in one year - five years

 

223,122

 

268

 

(3,270

)

220,120

 

Due in five years - ten years

 

101,190

 

 

(2,198

)

98,992

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

15,527

 

10,838

 

(37

)

26,328

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

435

 

12

 

 

447

 

Due in one year - five years

 

9,344

 

156

 

 

9,500

 

Due in five years - ten years

 

14,582

 

360

 

 

14,942

 

Due after ten years

 

82,994

 

1,581

 

(217

)

84,358

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due after ten years

 

21,853

 

718

 

(1,839

)

20,732

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

88,960

 

3,539

 

(995

)

91,504

 

Variable rate pass-through

 

84,278

 

3,685

 

(15

)

87,948

 

Fixed rate non-agency CMOs

 

4,123

 

153

 

 

4,276

 

Fixed rate agency CMOs

 

278,308

 

1,555

 

(6,509

)

273,354

 

Variable rate non-agency CMOs

 

696

 

 

(19

)

677

 

Variable rate agency CMOs

 

157,150

 

680

 

(244

)

157,586

 

Total residential mortgage-backed securities

 

613,515

 

9,612

 

(7,782

)

615,345

 

Total marketable securities available-for-sale

 

$

1,084,596

 

23,546

 

(15,343

)

1,092,799

 

 

The following table shows the portfolio of investment securities available-for-sale at December 31, 2012 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

40

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

1,999

 

5

 

 

2,004

 

Due in one year - five years

 

140,352

 

183

 

(22

)

140,513

 

Due in five years - ten years

 

95,602

 

460

 

(265

)

95,797

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

13,301

 

6,025

 

(22

)

19,304

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

9,629

 

233

 

 

9,862

 

Due in five years - ten years

 

17,355

 

668

 

 

18,023

 

Due after ten years

 

100,644

 

5,679

 

 

106,323

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due after ten years

 

24,911

 

483

 

(2,691

)

22,703

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

85,134

 

6,266

 

 

91,400

 

Variable rate pass-through

 

104,591

 

5,314

 

(6

)

109,899

 

Fixed rate non-agency CMOs

 

5,700

 

156

 

(236

)

5,620

 

Fixed rate agency CMOs

 

227,608

 

3,462

 

(744

)

230,326

 

Variable rate non-agency CMOs

 

873

 

 

(20

)

853

 

Variable rate agency CMOs

 

225,383

 

1,345

 

(321

)

226,407

 

Total residential mortgage-backed securities

 

649,289

 

16,543

 

(1,327

)

664,505

 

Total marketable securities available-for-sale

 

$

1,053,122

 

30,279

 

(4,327

)

1,079,074

 

 

The following table shows the portfolio of investment securities held-to-maturity at September 30, 2013 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in five years - ten years

 

$

5,713

 

177

 

 

5,890

 

Due after ten years

 

63,599

 

1,640

 

 

65,239

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

11,507

 

603

 

 

12,110

 

Variable rate pass-through

 

5,412

 

80

 

 

5,492

 

Fixed rate agency CMOs

 

37,803

 

1,128

 

 

38,931

 

Variable rate agency CMOs

 

1,903

 

15

 

 

1,918

 

Total residential mortgage-backed securities

 

56,625

 

1,826

 

 

58,451

 

Total marketable securities held-to-maturity

 

$

125,937

 

3,643

 

 

129,580

 

 

The following table shows the portfolio of investment securities held-to-maturity at December 31, 2012 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in five years - ten years

 

$

3,679

 

160

 

 

3,839

 

Due after ten years

 

65,596

 

3,743

 

 

69,339

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

16,369

 

912

 

 

17,281

 

Variable rate pass-through

 

6,548

 

 

(14

)

6,534

 

Fixed rate agency CMOs

 

56,713

 

2,006

 

 

58,719

 

Variable rate agency CMOs

 

6,176

 

81

 

 

6,257

 

Total residential mortgage-backed securities

 

85,806

 

2,999

 

(14

)

88,791

 

Total marketable securities held-to-maturity

 

$

155,081

 

6,902

 

(14

)

161,969

 

 

We review our investment portfolio on a quarterly basis for indications of impairment.  This review includes analyzing the length of time and the extent to which amortized cost has exceeded fair values, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the intent to hold the investments for a period of time sufficient to allow for a recovery in value.  Certain investments are evaluated using our best estimate of future cash flows. If the estimate of cash flows indicates that an adverse change has occurred, other-than-temporary impairment would be recognized for the amount of the unrealized loss that was deemed credit related.

 

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2013 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

285,376

 

(5,468

)

 

 

285,376

 

(5,468

)

Municipal securities

 

6,842

 

(217

)

 

 

6,842

 

(217

)

Corporate issues

 

 

 

4,470

 

(1,839

)

4,470

 

(1,839

)

Equity securities

 

585

 

(37

)

 

 

585

 

(37

)

Residential mortgage-backed securities - non-agency

 

676

 

(19

)

 

 

676

 

(19

)

Residential mortgage-backed securities - agency

 

269,557

 

(7,526

)

79,336

 

(237

)

348,893

 

(7,763

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

563,036

 

(13,267

)

83,806

 

(2,076

)

646,842

 

(15,343

)

 

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2012 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

70,128

 

(286

)

6,537

 

(1

)

76,665

 

(287

)

Corporate debt issues

 

850

 

(39

)

12,095

 

(2,652

)

12,945

 

(2,691

)

Equity securities

 

601

 

(21

)

17

 

(1

)

618

 

(22

)

Residential mortgage-backed securities - non-agency

 

 

 

4,357

 

(256

)

4,357

 

(256

)

Residential mortgage-backed securities - agency

 

167,294

 

(1,055

)

14,231

 

(30

)

181,525

 

(1,085

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

238,873

 

(1,401

)

37,237

 

(2,940

)

276,110

 

(4,341

)

 

Corporate issues

 

At September 30, 2013, we had five investments with a total amortized cost of $6.3 million and total fair value of $4.5 million, where the amortized cost exceeded the carrying value for more than 12 months.  These investments were three single issuer trust preferred investments and two pooled trust preferred investments.  The single issuer trust preferred investments were evaluated for other-than-temporary impairment by determining the strength of the underlying issuer.  In all cases, the underlying issuer was “well-capitalized” for regulatory purposes. None of the issuers have deferred interest payments or announced the intention to defer interest payments.  We believe the decline in fair value is related to the spread over three month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR is significantly lower than current market spreads on similar investments.  We concluded the impairment of these three investments was considered noncredit related.  In making that determination, we also considered the duration and the severity of the losses and whether we intend to hold these securities until the value is recovered, the securities are redeemed or maturity.  The pooled trust preferred investments were evaluated for other-than-temporary impairment by considering the duration and severity of the losses, actual cash flows, projected cash flows, performing collateral, the class of investment owned and the amount of additional defaults the structure could withstand prior to the investment experiencing a disruption in cash flows.  Neither of the investments experienced a cash flow disruption or are projecting a cash flow disruption.  We concluded, based on all facts evaluated, the impairment of these two investments was noncredit related.  Management asserts that we do not have the intent to sell these investments and that it is more likely than not, we will not have to sell the investments before recovery of their cost basis.

 

The following table provides class, amortized cost, fair value and ratings information for our portfolio of corporate securities that have an unrealized loss at September 30, 2013 (in thousands):

 

 

 

 

 

Total

 

 

 

 

 

 

 

Amortized

 

Fair

 

Unrealized

 

Moody’s/ Fitch

 

Description

 

Class

 

cost

 

value

 

losses

 

ratings

 

Bank Boston Capital Trust (1) 

 

N/A

 

$

989

 

804

 

(185

)

Ba2/ BB+

 

Huntington Capital Trust

 

N/A

 

1,429

 

1,179

 

(250

)

Baa3/ BB+

 

Commercebank Capital Trust

 

N/A

 

891

 

870

 

(21

)

Not rated

 

I-PreTSL I

 

Mezzanine

 

1,500

 

593

 

(907

)

Not rated/ CCC

 

I-PreTSL II

 

Mezzanine

 

1,500

 

1,024

 

(476

)

Not rated/ B

 

 

 

 

 

$

6,309

 

4,470

 

(1,839

)

 

 

 

(1)   Bank Boston was acquired by Bank of America.

 

The following table provides collateral information on the pooled trust preferred securities included in the previous table at September 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

immediate

 

 

 

 

 

 

 

 

 

defaults before

 

 

 

 

 

Current

 

 

 

causing an

 

 

 

Total

 

deferrals

 

Performing

 

interest

 

Description

 

collateral

 

and defaults

 

collateral

 

shortfall

 

I-PreTSL I

 

$

188,500

 

32,500

 

156,000

 

101,603

 

I-PreTSL II

 

305,500

 

24,500

 

281,000

 

173,825

 

 

Mortgage-backed securities

 

Mortgage-backed securities include agency (FNMA, FHLMC, GNMA and SBA) mortgage-backed securities and non-agency collateralized mortgage obligations (“CMOs”).  We review our portfolio of mortgage-backed securities quarterly for impairment.  As of September 30, 2013, we believe the impairment within our portfolio of agency mortgage-backed securities is noncredit related.  As of September 30, 2013, we had seven non-agency CMOs with a total amortized cost of $4.8 million and a total fair value of $5.0 million. None of these seven securities have had an amortized cost which has exceeded the fair value for more than 12 months and one security that has had an amortized cost which exceeded the fair value for less than 12 months.  During the quarter and nine months ended September 30, 2013, we did not recognize other-than-temporary credit related impairment on this security.  We determined the impairment was noncredit related by analyzing cash flow estimates, estimated prepayment speeds, loss severity and conditional default rates.  We considered the discounted cash flow analysis as our primary evidence when we determined that the impairment on this security was noncredit related.

 

The following table shows issuer specific information, amortized cost, fair value, unrealized gain or loss and other-than-temporary impairment recorded in earnings for the portfolio of non-agency CMOs at September 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Impairment

 

impairment

 

 

 

 

 

 

 

 

 

recorded in

 

recorded in

 

 

 

Amortized

 

Fair

 

Unrealized

 

current period

 

prior period

 

Description

 

cost

 

value

 

gain/ (loss)

 

earnings

 

earnings

 

AMAC 2003-6 2A2

 

$

129

 

131

 

2

 

 

 

AMAC 2003-6 2A8

 

267

 

270

 

3

 

 

 

BOAMS 2005-11 1A8

 

 

87

 

87

 

 

(146

)

CWALT 2005-J14 A3

 

3,236

 

3,293

 

57

 

 

(1,007

)

CFSB 2003-17 2A2

 

292

 

293

 

1

 

 

 

WAMU 2003-S2 A4

 

199

 

202

 

3

 

 

 

WFMBS 2003-B A2

 

696

 

677

 

(19

)

 

 

 

 

$

4,819

 

4,953

 

134

 

 

(1,153

)

 

Municipal Securities

 

We review our portfolio of municipal securities quarterly for impairment.  We initially evaluate municipal securities for other-than-temporary impairment by comparing the fair value, provided to us by a third party pricing source using quoted prices for similar assets that are actively traded, to the carrying value.  When an investment’s fair value is below 80% of the amortized cost we then assess the stated interest rate and compare the stated interest rate to current market interest rates to determine if the decline in fair value is considered to be attributable to interest rates.  If the stated interest rate approximates current interest rates for similar securities, we determine if the investment is rated and if so, if the rating has changed in the current period.  If the rating has not changed during the current period, we review publicly available information to determine if there has been any negative change in the underlying municipality.  As of September 30, 2013, none of the investments in our municipal securities portfolio had an amortized cost that exceeded the fair value for more than twelve months.

 

Credit related other-than-temporary impairment on all debt securities is recognized in earnings while noncredit related other-than-temporary impairment on available-for-sale debt securities, not expected to be sold, is recognized in other comprehensive income.

 

The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold for the quarter ended (in thousands):

 

 

 

2013

 

2012

 

Beginning balance at July 1, (1)

 

$

9,697

 

9,896

 

Credit losses on debt securities for which other-than-temporary impairment was not previously recognized

 

 

 

Reduction for losses realized during the quarter

 

(43

)

(81

)

Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized

 

 

93

 

Ending balance at September 30,

 

$

9,654

 

9,908

 

 

(1) — The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.

 

The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold for the nine months ended (in thousands):

 

 

 

2013

 

2012

 

Beginning balance at Janaury 1, (1)

 

$

9,811

 

11,633

 

Credit losses on debt securities for which other-than-temporary impairment was not previously recognized

 

 

 

Reduction for losses realized during the year

 

(157

)

(2,056

)

Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized

 

 

331

 

Ending balance at September 30,

 

$

9,654

 

9,908

 

 

(1) — The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.