Investment Securities

3 Months Ended

Mar. 31, 2012

Investment Securities

Investment Securities

Note 6 - Investment Securities

The Company classifies debt and equity securities into one of three categories:  held-to maturity, available-for-sale, or trading.  Such securities are reassessed for appropriate classification at each reporting date.  Securities classified as “held-to-maturity” are carried at amortized cost for financial statement reporting, while securities classified as “available-for-sale” and “trading” are carried at their fair value.  Unrealized holding gains and losses are included in net income for those securities classified as “trading”, while unrealized holding gains and losses related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other comprehensive income (loss) and accumulated other comprehensive income (loss) until realized, or in the case of losses, when deemed other than temporary.

The amortized cost and estimated fair value by type of investment security at March 31, 2012 are as follows:

	Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Carrying Value
	(Dollars in Thousands)
Other securities	$	3,325	$	—	$	—	$	3,325	$	3,325
Total investment securities	$	3,325	$	—	$	—	$	3,325	$	3,325

	Available for Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Carrying Value (1)
	(Dollars in Thousands)
U.S. government agency obligations	$	23,987	$	43	$	—		$	24,030	$	24,030
Residential mortgage-backed securities	4,736,322		124,913		(23,227		)	4,838,008		4,838,008
Obligations of states and political subdivisions	198,957		17,534		(1,119		)	215,372		215,372
Equity securities	18,825		1,292		(43		)	20,074		20,074
Total investment securities	$	4,978,091	$	143,782	$	(24,389	)	$	5,097,484	$	5,097,484

(1)Included in the carrying value of residential mortgage-backed securities are $2,810,151 of mortgage-backed securities issued by Ginnie Mae, $1,990,836,of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $37,021 issued by non-government entities

The amortized cost and estimated fair value by type of investment security at December 31, 2011 are as follows:

	Held to Maturity
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Carrying Value
	(Dollars in Thousands)
Other securities	$	2,450	$	—	$	—	$	2,450	$	2,450
Total investment securities	$	2,450	$	—	$	—	$	2,450	$	2,450

	Available for Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Carrying Value (1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	4,851,747	$	128,196	$	(10,680	)	$	4,969,263	$	4,969,263
Obligations of states and political subdivisions	211,523		14,449		(1,211		)	224,761		224,761
Equity securities	18,825		1,115		(49		)	19,891		19,891
Total investment securities	$	5,082,095	$	143,760	$	(11,940	)	$	5,213,915	$	5,213,915

(1)Included in the carrying value of residential mortgage-backed securities are $3,008,935 of mortgage-backed securities issued by Ginnie Mae, $1,920,723 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $39,605 issued by non-government entities

The amortized cost and estimated fair value of investment securities at March 31, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Due in one year or less	$	925	$	925	$	—	$	—
Due after one year through five years	2,400		2,400		—		—
Due after five years through ten years	—		—		25,560		25,706
Due after ten years	—		—		197,384		213,696
Residential mortgage-backed securities	—		—		4,736,322		4,838,008
Equity securities	—		—		18,825		20,074
Total investment securities	$	3,325	$	3,325	$	4,978,091	$	5,097,484

Residential mortgage-backed securities are securities issued by Freddie Mac, Fannie Mae, Ginnie Mae or non-government entities.  Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008.

The amortized cost and fair value of available for sale investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $2,711,642,000 and $2,802,863,000, respectively, at March 31, 2012.

Proceeds from the sale of securities available-for-sale were $17,331,000 for the three months ended March 31, 2012, which included $0 of mortgage-backed securities. Gross gains of $1,173,000 and gross losses of $(1,000) were realized on the sales for the three months ended March 31, 2012.  Proceeds from the sale of securities available-for-sale were $352,679,000 for the three months ended March 31, 2011, which included $350,095,000 of mortgage-backed securities. Gross gains of $1,435,000 and gross losses of $(19,000) were realized on the sales for the three months ended March 31, 2011.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012, were as follows:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	857,033	$	(11,083	)	$	37,021	$	(12,144	)	$	894,054	$	(23,227	)
Obligations of states and political subdivisions	8,550		(210		)	3,607		(909		)	12,157		(1,119		)
Other equity securities	4,976		(24		)	56		(19		)	5,032		(43		)
	$	870,559	$	(11,317	)	$	40,684	$	(13,072	)	$	911,243	$	(24,389	)

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011 were as follows:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available for sale:
Residential mortgage-backed securities	$	—	$	—		$	39,605	$	(10,680	)	$	39,605	$	(10,680	)
Obligations of states and political subdivisions	9,531		(315		)	3,398		(896		)	12,929		(1,211		)
Equity securities	3,485		(16		)	42		(33		)	3,527		(49		)
	$	13,016	$	(331	)	$	43,045	$	(11,609	)	$	56,061	$	(11,940	)

The unrealized losses on investments in residential mortgage-backed securities are primarily caused by changes in market interest rates.  Residential mortgage-backed securities are primarily securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.  Investments in mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government.  Investments in mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008.  The decrease in fair value on residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae is due to market interest rates.  The Company has no intent to sell such mortgage-backed securities, and will more than likely not be required to sell such securities before a market price recovery or maturity of the securities; therefore, it is the conclusion of the Company that the investments in residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae are not considered other-than-temporarily impaired.  In addition, the Company has a small investment in non-agency residential mortgage-backed securities that have strong credit backgrounds and include additional credit enhancements to protect the Company from losses arising from high foreclosure rates.  These securities have additional market volatility beyond economically induced interest rate events.  It is the conclusion of the Company that the investments in non-agency residential mortgage-backed securities are other-than-temporarily impaired due to both credit and other than credit issues.  Impairment charges of $186,000 ($121,000, after tax) and $249,000 ($162,000, after tax) were recorded for the quarters ended March 31, 2012 and 2011, respectively.  The impairment charge represents the credit related impairment on the securities.

The unrealized losses on investments in other securities are caused by fluctuations in market interest rates.  The underlying cash obligations of the securities are guaranteed by the entity underwriting the debt instrument.  It is the belief of the Company that the entity issuing the debt will honor its interest payment schedule, as well as the full debt at maturity.  The securities are purchased by the Company for their economic value.  The decrease in fair value is primarily due to market interest rates and not other factors, and because the Company has no intent to sell and will more than likely not be required to sell before a market price recovery or maturity of the securities, it is the conclusion of the Company that the investments are not considered other-than-temporarily impaired.

The following table presents a reconciliation of credit-related impairment charges on available-for-sale investments recognized in earnings for the three months ended March 31, 2012 and 2011, respectively (Dollars in Thousands):

Balance at December 31, 2011	$	9,393
Impairment charges recognized in earnings during period	186
Balance at March 31, 2012	$	9,579

Balance at December 31, 2010	$	8,416
Impairment charges recognized in earnings during period	249
Balance at March 31, 2011	$	8,665