Audited Financial Statements For pooled trust preferred securities, the Company estimated expected future cash flows of the security by estimating  the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit  enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the  underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses  (which consider default probabilities derived from issuer credit ratings for the underlying collateral). The probability- weighted expected future cash flows of the security are then discounted at the interest rate used to recognize income on the  security to arrive at a present value amount. Excess subordination is defined as the amount of performing collateral that is in excess of what is needed to pay-off a  specified class of securities and all classes senior to the specified class. Performing collateral is defined as total collateral  minus all collateral that is currently deferring or currently in default. This definition assumes that all collateral that is currently deferring will default with a zero recovery rate. The underlying issuers can cure the deferral, or some portion  greater than zero could be recovered on default of an underlying issuer. Excess subordination, as defined previously, does  not consider any excess interest spread that is built into the structure of the security, which provides another source of  repayment for the bonds. At December 31, 2011 and 2010, respectively, there was no excess subordination for the Class B notes of ALESCO  Preferred Funding XVII, Ltd. The following table presents a roll-forward of the credit loss component of the amortized cost of debt securities that the  Company has written down for other-than-temporary impairment and the credit component of the loss is recognized in  earnings (referred to as “credit-impaired” debt securities). Other-than-temporary impairments recognized in earnings for the  years ended December 31, 2011, 2010 and 2009, respectively, for credit-impaired debt securities are presented as additions  in two components based upon whether the current period is the first time the debt security was credit-impaired (initial credit  impairment) or is not the first time the debt security was credit-impaired (subsequent credit impairments). The credit loss  component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit-impaired  debt securities. Additionally, the credit loss component is reduced if the Company receives cash flows in excess of what it  expected to receive over the remaining life of the credit-impaired debt security, the security matures or is fully written-down  and deemed worthless. Changes in the credit loss component of credit-impaired debt securities were:  Other-Than-Temporarily Impaired Securities Year ended December 31 (Dollars in thousands) 2011 2010 2009 Balance, beginning of period $ 2,938 4,570 — Additions: Initial credit impairments — 1,160 2,663 Subsequent credit impairments 338 58 1,907 Reductions: Securities sold — (975) — Due to change in intent or requirement to sell Securities fully written down and deemed worthless — (1,875) — Increases in expected cash flows  — Balance, end of period $ 3,276 2,938 4,570 page 49