Note 3 - Securities

12 Months Ended

Dec. 31, 2011

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3.          SECURITIES

A summary of the Company’s securities portfolio by category is presented in the following table.

Securities Portfolio

(Dollar amounts in thousands)

	December 31,
	2011									2010
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Securities Available-for-Sale
U.S. agency	$	5,060	$	-	$	(25	)	$	5,035	$	18,000	$	7	$	(121	)	$	17,886
CMOs		383,828		2,622		(2,346	)		384,104		377,692		4,261		(2,364	)		379,589
Other residential mortgage-backed securities		81,982		5,732		(23	)		87,691		100,780		5,732		(61	)		106,451
Municipal securities		464,282		26,155		(366	)		490,071		512,063		4,728		(12,800	)		503,991
CDOs		48,759		-		(35,365	)		13,394		49,695		-		(34,837	)		14,858
Corporate debt securities		27,511		2,514		(11	)		30,014		29,936		2,409		-			32,345
Equity securities:
Hedge fund investment		1,231		385		-			1,616		1,245		438		-			1,683
Other equity securities		958		123		-			1,081		889		110		-			999
Total equity securities		2,189		508		-			2,697		2,134		548		-			2,682
Total	$	1,013,611	$	37,531	$	(38,136	)	$	1,013,006	$	1,090,300	$	17,685	$	(50,183	)	$	1,057,802
Securities Held-to-Maturity
Municipal securities	$	60,458	$	1,019	$	-		$	61,477	$	81,320	$	1,205	$	-		$	82,525
Trading Securities								$	14,469								$	15,282

Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)

	December 31, 2011
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	7,327	$	7,232	$	4,301	$	4,374
One year to five years		336,726		332,345		20,582		20,929
Five years to ten years		111,698		110,245		13,081		13,302
After ten years		89,861		88,692		22,494		22,872
CMOs		383,828		384,104		-		-
Other residential mortgage-backed securities		81,982		87,691		-		-
Equity securities		2,189		2,697		-		-
Total	$	1,013,611	$	1,013,006	$	60,458	$	61,477

The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $592.7 million at December 31, 2011 and $808.3 million at December 31, 2010. No securities held-to-maturity were pledged as of December 31, 2011 or 2010.

Excluding securities issued or backed by the U.S. government and its agencies and U.S. government-sponsored enterprises, there were no investments in securities from one issuer that exceeded 10% of total stockholders’ equity on December 31, 2011 or 2010.

Securities Gains

(Dollar amounts in thousands)

	Years ended December 31,
	2011			2010			2009
Proceeds from sales	$	188,556		$	390,217		$	855,405
Gains (losses) on sales of securities:
Gross realized gains	$	4,103		$	18,444		$	26,735
Gross realized losses		(757	)		(1,311	)		(9	)
Net realized gains on securities sales		3,346			17,133			26,726
Non-cash impairment charges:
Other-than-temporary securities impairment		(1,464	)		(5,364	)		(48,928	)
Portion of other-than-temporary impairment recognized in other comprehensive income (loss)		528			447			24,312
Net non-cash impairment charges		(936	)		(4,917	)		(24,616	)
Net realized gains	$	2,410		$	12,216		$	2,110
Income tax expense on net realized gains	$	986		$	4,764		$	824
Trading (losses) gains, net (1)	$	(691	)	$	1,530		$	2,542
Net non-cash impairment charges:
CDOs	$	936		$	4,664		$	24,509
Whole loan mortgage-backed security included in CMOs		-			86			-
Equity securities		-			167			107
Total	$	936		$	4,917		$	24,616

(1) All trading (losses) gains relate to trading securities still held as of December 31, 2011.

The non-cash impairment charges in the table above primarily relate to the credit portion of OTTI charges on CDOs that is recognized in current operations. In deriving the credit component of the impairment on the CDOs, projected cash flows were discounted at the contractual rate ranging from the London Interbank Offered Rate (“LIBOR”) plus 125 basis points to LIBOR plus 160 basis points. Fair values are computed by discounting future projected cash flows at higher rates, ranging from LIBOR plus 1,300 basis points to LIBOR plus 1,500 basis points. The higher rates are used to account for other market factors, such as liquidity. If a decline in fair value below carrying value is not attributable to credit loss and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the decline in fair value in other comprehensive income (loss).

Changes in the amount of credit losses recognized in earnings on CDOs and other securities are summarized in the following table.

Changes in Credit Losses Recognized in Earnings

(Dollar amounts in thousands)

	Years Ended December 31,
	2011		2010		2009
Cumulative amount recognized at beginning of year	$	35,589	$	30,839	$	6,330
Credit losses included in earnings (1):
Losses recognized on securities that previously had credit losses		936		4,421		11,797
Losses recognized on securities that did not previously have credit losses		-		329		12,712
Cumulative amount recognized at end of year	$	36,525	$	35,589	$	30,839

(1) Included in securities gains, net in the Consolidated Statements of Income.

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of December 31, 2011 and 2010.

Securities in an Unrealized Loss Position

(Dollar amounts in thousands)

			Less Than 12 Months				12 Months or Longer				Total
	Number of Securities		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of December 31, 2011
U.S. agency security		2	$	-	$	-	$	5,035	$	25	$	5,035	$	25
CMOs		30		163,819		1,818		12,628		528		176,447		2,346
Other residential mortgage-backed securities		4		182		17		1,072		6		1,254		23
Municipal securities		19		934		2		7,857		364		8,791		366
CDOs		6		-		-		13,394		35,365		13,394		35,365
Corporate debt securities		1		2,157		11		-		-		2,157		11
Total		62	$	167,092	$	1,848	$	39,986	$	36,288	$	207,078	$	38,136
As of December 31, 2010
U.S. agency securities		4	$	9,096	$	120	$	-	$	1	$	9,096	$	121
CMOs		19		131,056		1,727		7,843		637		138,899		2,364
Other residential mortgage-backed securities		5		6,084		51		159		10		6,243		61
Municipal securities		479		99,537		3,142		166,403		9,658		265,940		12,800
CDOs		6		-		-		14,858		34,837		14,858		34,837
Total		513	$	245,773	$	5,040	$	189,263	$	45,143	$	435,036	$	50,183

Approximately 99% of the Company’s CMOs and other mortgage-backed securities are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority is supported by third-party insurance or some other form of credit enhancement. Management does not believe any individual unrealized loss as of December 31, 2011 represents OTTI. The unrealized losses associated with these securities are not believed to be attributed to credit quality, but rather to changes in interest rates and temporary market movements. In addition, the Company does not intend to sell the securities with unrealized losses, and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

The unrealized loss on the corporate debt security is not believed to be attributed to credit quality, but rather to changes in interest rates and temporary market movements. The Company does not intend to sell this security before recovery of its amortized cost basis, which may be at maturity.

The unrealized losses on CDOs as of December 31, 2011 reflect the market’s unfavorable view of structured investment vehicles given the current interest rate and liquidity environment. Management does not believe the unrealized losses on the CDOs represent OTTI related to credit deterioration. In addition, the Company does not intend to sell the CDOs with unrealized losses, and the Company does not believe it is more likely than not that it will be required to sell them before recovery of their amortized cost basis, which may be at maturity. As of December 31, 2011, the portion of OTTI recognized in accumulated other comprehensive loss (i.e., not related to credit) totaled $35.4 million.

Significant judgment is required to calculate the fair value of the CDOs, all of which are pooled. Generally, fair value determinations are based on several factors regarding current market and economic conditions relating to such securities and the underlying collateral. For these reasons, and due to the illiquidity in the secondary market for these CDOs, the Company estimates the fair value of these securities using discounted cash flow analyses with the assistance of a structured credit valuation firm.

Prepayment assumptions are a key factor in estimating the cash flows of CDOs. Prepayments may occur on the collateral underlying the Company’s CDOs based on call options or other factors. Most of the collateral underlying the CDOs have a 5-year call option (on the fifth anniversary of issuance, the issuer has the right to call the security at par). In addition, most underlying indentures trigger an issuer call right if a capital treatment event occurs, such as a regulatory change that affects its status as Tier 1 capital (as defined in federal regulations). The Dodd-Frank Act constituted such an event for certain holding companies. Specifically, companies with $15 billion or more in consolidated assets can no longer include hybrid capital instruments, such as trust-preferred securities, in Tier 1 capital beginning January 1, 2013. As of December 31, 2011, the Company assumed a 15% prepayment rate for those banks with greater than $15 billion in assets in year 2 (the start of the phase out period for Tier 1 capital treatment), followed by an annual prepayment rate of 1%.

For additional discussion of this valuation methodology, refer to Note 22, “Fair Value.”

Certain Characteristics and Metrics of the CDOs as of December 31, 2011

(Dollar amounts in thousands)

Number	Class	Original Par		Amortized Cost		Fair Value				Number of Banks/ Insurers	% of Banks/ Insurers Currently Performing	Actual Deferrals and Defaults as a % of the Original Collateral (1)	Expected Deferrals and Defaults as a % of the Remaining Performing Collateral (1)	Excess Subordination as a % of  the Remaining Performing Collateral (2)
								Lowest Credit Rating Assigned to the Security
								Moody’s	Fitch
1	C-1	$	17,500	$	7,140	$	3,000	Ca	C	34	73.9%	15.8%	24.5%	0.0%
2	C-1		15,000		7,132		1,494	Ca	C	47	82.5%	16.1%	23.5%	0.0%
3	C-1		15,000		13,069		3,080	Ca	C	48	77.4%	9.0%	16.8%	7.2%
4	B1		15,000		13,922		3,900	Ca	C	35	55.6%	37.3%	32.3%	0.0%
5	C		10,000		1,317		303	C	C	33	58.9%	45.4%	31.3%	0.0%
6	C		6,500		6,179		1,617	Ca	C	54	68.4%	24.3%	12.7%	9.8%
7 (3)	A-3L		6,750		-		-	N/A	N/A	N/A	N/A	N/A	N/A	N/A
		$	85,750	$	48,759	$	13,394

(1)	Deferrals and defaults are provided net of recoveries. No recovery is assumed for collateral that has already defaulted. For deferring collateral, the Company assumes a recovery rate of 10% of par for banks, thrifts, and other depository institutions and 15% of par for insurance companies.
(2)	Excess subordination represents additional defaults in excess of current defaults that the CDO can absorb before the security experiences any credit impairment. The excess subordination percentage is calculated by dividing the amount of potential additional loss that can be absorbed (before the receipt of all expected future principal and interest payments is affected) by the total balance of performing collateral. Even with excess subordination, the CDO could experience an OTTI charge if future deterioration of underlying collateral in excess of current excess subordination is anticipated.
(3)	Characteristics and metrics are not reported for this CDO since the security had an amortized cost and fair value of zero as of December 31, 2011.

Credit-Related CDO Impairment Losses

(Dollar amounts in thousands)

	Years Ended December 31,
Number	2011		2010		2009		2008 (1)		Life-to-Date
1	$	-	$	-	$	8,474	$	1,886	$	10,360
2		525		794		6,549		-		7,868
3		411		142		1,017		-		1,570
4		-		684		394		-		1,078
5		-		2,801		5,769		-		8,570
6		-		243		-		-		243
7		-		-		2,306		4,444		6,750
	$	936	$	4,664	$	24,509	$	6,330	$	36,439

(1) Amount is shown net of an $18.5 million adjustment recorded on January 1, 2009 pursuant to the adoption of new accounting guidance related to the recognition of OTTI.