NOTE 8 – 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 September 30, 2013 and December 31, 2012 (in thousands):


	September 30, 2013
	Amortized cost		Gross unrealized gains⁽¹⁾		Gross unrealized losses⁽¹⁾		Estimated fair value
Available-for-sale securities:
U.S. government agency securities	$	1,229	$	-	$	(3)	$	1,226
State and municipal securities		169,799		1,939		(8,324)		163,414
Mortgage-backed securities:
Agency		176,024		2,976		(2,067)		176,933
Commercial		229,962		3,273		(1,526)		231,709
Non-agency		4,746		92		-		4,838
Corporate fixed income securities		498,966		5,088		(4,088)		499,966
Asset-backed securities		155,384		240		(2,139)		153,485
	$	1,236,110	$	13,608	$	(18,147)	$	1,231,571
Held-to-maturity securities⁽²⁾
Mortgage-backed securities:
Agency	$	977,514	$	8,006	$	(420)	$	985,100
Commercial		59,390		87		-		59,477
Asset-backed securities		609,978		6,704		(3,646)		613,036
Corporate fixed income securities		55,352		-		(2,702)		52,650
Municipal auction rate securities		21,248		1,023		-		22,271
	$	1,723,482	$	15,820	$	(6,768)	$	1,732,534


	December 31, 2012
	Amortized cost		Gross unrealized gains⁽¹⁾		Gross unrealized losses⁽¹⁾		Estimated fair value
Available-for-sale securities:
U.S. government agency securities	$	1,114	$	1	$	(2)	$	1,113
State and municipal securities		153,885		4,648		(1,113)		157,420
Mortgage-backed securities:								-
Agency		676,861		8,140		(153)		684,848
Commercial		255,255		5,902		(183)		260,974
Non-agency		13,077		801		-		13,878
Corporate fixed income securities		474,338		7,590		(1,746)		480,182
Asset-backed securities		26,572		378		(197)		26,753
	$	1,601,102	$	27,460	$	(3,394)	$	1,625,168
Held-to-maturity securities⁽²⁾
Asset-backed securities	$	630,279	$	9,364	$	(2,971)	$	636,672
Corporate fixed income securities		55,420		36		(519)		54,937
Municipal auction rate securities		22,309		1,376		(20)		23,665
	$	708,008	$	10,776	$	(3,510)	$	715,274

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

⁽²⁾	Held-to-maturity securities are carried at historical cost or at fair value at the time of transfer from the available-for-sale to held-to-maturity category, adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment.

During the third quarter of 2013, we transferred $1.1 billion of mortgage-backed securities from our available-for-sale portfolio to the held-to-maturity category reflecting our company’s intent to hold those securities to maturity.

For the three and nine months ended September 30, 2013, we received proceeds of $4.5 million and $194.1 million, respectively, from the sale of available-for-sale securities, which resulted in realized gains of $0.2 million and $1.7 million, respectively. For the three and nine months ended September 30, 2012, we received proceeds of $92.4 million and $186.5 million, respectively, from the sale of available-for-sale securities, which resulted in realized gains of $1.0 million and $3.1 million, respectively.

During the three and nine months ended September 30, 2013, unrealized losses, net of deferred tax benefits, of $8.6 million and $48.6 million, respectively, were recorded in accumulated other comprehensive income in the consolidated statements of financial condition. During the three and nine months ended September 30, 2012, unrealized gains, net of deferred taxes, of $8.4 million and $12.8 million, respectively, were recorded in accumulated other comprehensive income 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.


	September 30, 2013
	Available-for-sale securities				Held-to-maturity securities
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Debt securities
Within one year	$	156,780	$	158,397	$	-	$	-
After one year through three years		190,728		193,606		15,057		14,669
After three years through five years		123,055		121,942		41,609		39,306
After five years through ten years		40,262		37,896		384,547		385,347
After ten years		314,553		306,250		1,282,269		1,293,212
Mortgage-backed securities
After one year through three years		9,154		9,355
After three years through five years		967		991		-		-
After five years through ten years		66,438		66,131		-		-
After ten years		334,173		337,003		-		-
	$	1,236,110	$	1,231,571	$	1,723,482	$	1,732,534

At September 30, 2013 and December 31, 2012, securities of $539.9 million and $613.8 million, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits.

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 September 30, 2013 (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	$	(3)	$	734	$	-	$	-	$	(3)	$	734
State and municipal securities		(7,170)		87,428		(1,154)		32,096		(8,324)		119,524
Mortgage-backed securities:
Agency		(2,067)		83,099		-		-		(2,067)		83,099
Commercial		(1,526)		40,136		-		-		(1,526)		40,136
Corporate fixed income securities		(3,258)		134,888		(830)		44,455		(4,088)		179,343
Asset-backed securities		(2,139)		133,915		-		-		(2,139)		133,915
	$	(16,163)	$	480,200	$	(1,984)	$	76,551	$	(18,147)	$	556,751

The gross unrealized losses on our available-for-sale securities of $18.1 million as of September 30, 2013 relate to 79 individual securities.

Certain investments in the available-for-sale portfolio at September 30, 2013, 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 September 30, 2013, was $556.8 million, which was 45.2% of our available-for-sale investment portfolio. The amortized cost basis of these investments was $574.9 million at September 30, 2013. 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. There were no credit-related OTTI charges during the three and nine months ended September 30, 2013.

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 $18.1 million as of September 30, 2013 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.