NOTE 6 – Available-for-Sale and Held-to-Maturity Securities

The following tables provide a summary of the amortized cost and fair values of the available-for-sale securities and held-to-maturity securities at March 31, 2012 and December 31, 2011 (in thousands):


	March 31, 2012
	Amortized cost		Gross unrealized gains ⁽¹⁾		Gross unrealized losses ⁽¹⁾			Estimated fair value
Available-for-sale securities
U.S. government securities	$	1,115	$	2	$	(1	)	$	1,116
State and municipal securities		79,351		4,540		(425	)		83,466
Mortgage-backed securities:
Agency		457,608		8,687		(413	)		465,882
Commercial		283,746		3,664		(542	)		286,868
Non-agency		16,458		231		—			16,689
Corporate fixed income securities		466,221		4,647		(2,771	)		468,097
Asset-backed securities		25,252		498		(333	)		25,417
	$	1,329,751	$	22,269	$	(4,485	)	$	1,347,535
Held-to-maturity securities ⁽²⁾
Asset-backed securities	$	251,832	$	6,221	$	(2,681	)	$	255,372
Corporate fixed income securities		55,519		56		(1,331	)		54,244
Municipal auction rate securities		20,096		846		(725	)		20,217
	$	327,447	$	7,123	$	(4,737	)	$	329,833

	December 31, 2011
	Amortized cost		Gross unrealized gains ⁽¹⁾		Gross unrealized losses ⁽¹⁾			Estimated fair value
Available-for-sale securities
U.S. government securities	$	1,105	$	—	$	(2	)	$	1,103
State and municipal securities		82,256		4,979		(303	)		86,932
Mortgage-backed securities:
Agency		396,952		8,469		(759	)		404,662
Commercial		270,677		1,811		(978	)		271,510
Non-agency		17,701		135		(376	)		17,460
Corporate fixed income securities		409,503		2,108		(5,626	)		405,985
Asset-backed securities		26,011		548		(70	)		26,489
	$	1,204,205	$	18,050	$	(8,114	)	$	1,214,141
Held-to-maturity securities ⁽²⁾
Asset-backed securities	$	122,148	$	2,953	$	(3,138	)	$	121,963
Corporate fixed income securities		55,544		56		(2,016	)		53,584
Municipal auction rate securities		12,792		733		(1	)		13,524
	$	190,484	$	3,742	$	(5,155	)	$	189,071

⁽¹⁾Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss.

⁽²⁾Held-to-maturity securities are carried in the consolidated statements of financial condition at amortized cost, and the changes in the value of these securities, other than impairment charges, are not reported on the consolidated financial statements.

For the three months ended March 31, 2012, we received proceeds of $2.7 million from the sale of available-for-sale securities, which resulted in realized gains of an immaterial amount. During the three months ended March 31, 2012 and 2011, unrealized gains, net of deferred taxes, of $4.9 million and $1.2 million, respectively, were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

The table below summarizes the amortized cost and fair values of debt securities, by contractual maturity (in thousands). Expected maturities may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2012
	Available-for-sale securities				Held-to-maturity securities
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Debt securities
Within one year	$	36,257	$	36,424	$	—	$	—
After one year through three years		318,885		322,515		—		—
After three years through five years		118,776		116,776		21,265		20,909
After five years through ten years		5,583		6,207		143,413		142,717
After ten years		92,438		96,174		162,769		166,207

Mortgage-backed securities
After one year through three years		9,528		10,003		—		—
After five years through ten years		17,408		17,815		—		—
After ten years		730,876		741,621		—		—
	$	1,329,751	$	1,347,535	$	327,447	$	329,833

The carrying value of securities pledged as collateral to secure public deposits and other purposes was $706.3 million and $634.8 million at March 31, 2012 and December 31, 2011, respectively.

The following table is a summary of the amount of gross unrealized losses and the estimated fair value by length of time that the available-for-sale securities have been in an unrealized loss position at March 31, 2012 (in thousands):


	Less than 12 months					12 months or more					Total
	Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value
Available-for-sale securities
U.S. government securities	$	(1	)	$	109	$	—		$	—	$	(1	)	$	109
State and municipal securities		(425	)		26,129		—			—		(425	)		26,129
Mortgage-backed securities:
Agency		(413	)		163,201		—			—		(413	)		163,201
Commercial		(542	)		46,227		—			—		(542	)		46,227
Corporate fixed income securities		(1,301	)		57,026		(1,470	)		28,512		(2,771	)		85,538
Asset-backed securities		(333	)		15,196		—			—		(333	)		15,196
	$	(3,015	)	$	307,888	$	(1,470	)	$	28,512	$	(4,485	)	$	336,400

The gross unrealized losses on our available-for-sale securities of $4.5 million as of March 31, 2012 relate to 37 individual securities.

Certain investments in the available-for-sale portfolio at March 31, 2012, are reported in the consolidated statements of financial condition at an amount less than their amortized cost. The total fair value of these investments at March 31, 2012, was $336.4 million, which was 25.0% of our available-for-sale investment portfolio. The amortized cost basis of these investments was $331.9 million at March 31, 2012. As discussed in more detail below, we conduct periodic reviews of all securities with unrealized losses to assess whether the impairment is other-than-temporary.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position quarterly to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment (“OTTI”) assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we consider a number of qualitative and quantitative criteria in our assessment, including the extent and duration of the impairment; recent events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings and the failure of the issuer to make scheduled interest or principal payments; the value of underlying collateral; and current market conditions.

If we determine that impairment on our debt securities is other-than-temporary and we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings. If we have not made a decision to sell the security and we do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of OTTI in earnings. The remaining unrealized loss due to factors other than credit, or the non-credit component, is recorded in accumulated other comprehensive loss. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected future cash flows, discounted based on the purchase yield. The non-credit component represents the difference between the security’s fair value and the present value of expected future cash flows. Based on the evaluation, we recognized a credit-related OTTI of $0.2 million in earnings for the three months ended March 31, 2012.

We estimate the portion of loss attributable to credit using a discounted cash flow model. Key assumptions used in estimating the expected cash flows include default rates, loss severity and prepayment rates. Assumptions used can vary widely based on the collateral underlying the securities and are influenced by factors such as collateral type, loan interest rate, geographical location of the borrower, and borrower characteristics.

We believe the gross unrealized losses related to all other securities of $4.5 million as of March 31, 2012 are attributable to issuer specific credit spreads and changes in market interest rates and asset spreads. We therefore do not expect to incur any credit losses related to these securities. In addition, we have no intent to sell these securities with unrealized losses and it is not more likely than not that we will be required to sell these securities prior to recovery of the amortized cost. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.