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Investment Securities

3 Months Ended

Mar. 31, 2012

NOTE 5: Investment Securities

The amortized cost and fair values of investment securities available for sale were as follows.

			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses			Fair value
		($ in Thousands)
March 31, 2012:
U.S. Treasury securities	$	1,005	$	―	$	(4)	$	1,001
Federal agency securities		7		1		―		8
Obligations of state and political subdivisions		792,854		43,068		(258)		835,664
(municipal securities)
Residential mortgage-related securities		3,440,370		114,939		(879)		3,554,430
Commercial mortgage-related securities		17,779		1,524		―		19,303
Asset-backed securities⁽¹⁾		163,466		1		(453)		163,014
Other securities (debt and equity)		93,490		2,427		(237)		95,680
Total investment securities available for sale	$	4,508,971	$	161,960	$	(1,831)	$	4,669,100

			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses			Fair value
		($ in Thousands)
December 31, 2011:
U.S. Treasury securities	$	1,000	$	1	$	―	$	1,001
Federal agency securities		24,031		18		―		24,049
Obligations of state and political subdivisions
(municipal securities)		797,691		49,583		(28)		847,246
Residential mortgage-related securities		3,674,696		112,357		(1,463)		3,785,590
Commercial mortgage-related securities		16,647		1,896		―		18,543
Asset-backed securities⁽¹⁾		188,439		―		(707)		187,732
Other securities (debt and equity)		72,896		1,891		(1,465)		73,322
Total investment securities available for sale	$	4,775,400	$	165,746	$	(3,663)	$	4,937,483

(1) The asset-backed securities position is largely comprised of senior, floating rate, tranches of student loan securities issued by SLM Corp (“Sallie Mae”) and guaranteed under the Federal Family Education Loan Program (“FFELP”).

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

($ in Thousands)		Amortized Cost			Fair Value
Due in one year or less		$	44,685	$	45,223
Due after one year through five years			202,823		209,057
Due after five years through ten years			556,206		588,599
Due after ten years			76,516		80,355
	Total debt securities		880,230		923,234
Residential mortgage-related securities			3,440,370		3,554,430
Commercial mortgage-related securities			17,779		19,303
Asset-backed securities			163,466		163,014
Equity securities			7,126		9,119
	Total investment securities available for sale	$	4,508,971	$	4,669,100

The following represents gross unrealized losses and the related fair value of investment securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2012.

			Less than 12 months				12 months or more				Total
		Unrealized			Fair	Unrealized			Fair	Unrealized			Fair
			Losses		Value		Losses		Value		Losses		Value
			($ in Thousands)
March 31, 2012:
U.S. Treasury securities		$	(4)	$	1,001	$	―	$	―	$	(4)	$	1,001
Obligations of state and political
	subdivisions (municipal securities)		(241)		15,070		(17)		348		(258)		15,418
Residential mortgage-related securities			(673)		179,764		(206)		3,153		(879)		182,917
Asset-backed securities			(8)		3,769		(445)		137,982		(453)		141,751
Other securities (debt and equity)			(46)		15,824		(191)		322		(237)		16,146
	Total	$	(972)	$	215,428	$	(859)	$	141,805	$	(1,831)	$	357,233

The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security's decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in the other-than-temporary impairment analysis include, the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions. In addition, with regards to its debt securities, the Corporation may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain debt securities in unrealized loss positions, the Corporation prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Based on the Corporation's evaluation, management does not believe any unrealized loss at March 31, 2012, represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. At March 31, 2012, the number of investment securities in an unrealized loss position for less than 12 months for U.S. Treasury, municipal, residential mortgage-related, and asset-backed securities was 1, 35, 18 and 1, respectively. For investment securities in an unrealized loss position for 12 months or more, the number of individual securities in the municipal, residential mortgage-related, and asset-backed securities categories was 1, 16 and 28, respectively. The unrealized losses reported for residential mortgage-related securities relate to non-agency residential mortgage-related securities as well as residential mortgage-related securities issued by government agencies such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). At March 31, 2012, the unrealized loss position on other securities was primarily comprised of 2 individual trust preferred debt securities pools and 1 floating rate note. The Corporation currently does not intend to sell nor does it believe that it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.

The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for 2011 and the three months ended March 31, 2012, respectively.

		Non-agency
		Mortgage-Related		Trust Preferred
		Securities		Debt Securities			Total
		($ in Thousands)
Balance of credit-related other-than-temporary
	impairment at December 31, 2010	$	(17,556)	$	(10,019)	$	(27,575)
Credit losses on newly identified impairment			(2)		(816)		(818)
Balance of credit-related other-than-temporary							.
	impairment at December 31, 2011	$	(17,558)	$	(10,835)	$	(28,393)
Reduction due to credit impaired securities sold			17,026		4,157		21,183
Balance of credit-related other-than-temporary
	impairment at March 31, 2012	$	(532)	$	(6,678)	$	(7,210)

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011.

			Less than 12 months				12 months or more				Total
		Unrealized				Unrealized				Unrealized
		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
			($ in Thousands)
December 31, 2011:
Obligations of state and political
	subdivisions (municipal securities)	$	(10)	$	971	$	(18)	$	348	$	(28)	$	1,319
Residential mortgage-related securities			(1,443)		186,954		(20)		1,469		(1,463)		188,423
Asset-backed securities			(9)		4,091		(698)		174,640		(707)		178,731
Other securities (debt and equity)			(671)		45,395		(794)		522		(1,465)		45,917
	Total	$	(2,133)	$	237,411	$	(1,530)	$	176,979	$	(3,663)	$	414,390

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stocks: The Corporation is required to maintain Federal Reserve stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At March 31, 2012 and December 31, 2011, the Corporation had FHLB stock of $108 million and $121 million, respectively. The Corporation had Federal Reserve Bank stock of $70 million at both March 31, 2012 and December 31, 2011.

The Corporation reviewed these securities for impairment, including but not limited to, consideration of operating performance, the severity and duration of market value declines, as well as its liquidity and funding position. After evaluating all of these considerations, the Corporation believes the cost of these investments will be recovered and no impairment has been recorded on these securities during 2011 or the first quarter of 2012. In February 2012, the FHLB of Chicago initiated a tender offer for certain of its shares, whereby the FHLB would repurchase its shares at par. The Corporation participated in the tender and reduced its equity holdings in the FHLB of Chicago by $13 million. The Corporation plans to further reduce its FHLB stock position during 2012.

- Definition

Tabular disclosure of investments in certain debt and equity securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).

+ References

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