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 December 31, 2014 and 2013 (in thousands):


	December 31, 2014
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Estimated Fair Value
Available-for-sale securities:
U.S. government agency securities	$	1,613	$	1	$	(4)	$	1,610
State and municipal securities		76,518		20		(2,137)		74,401
Mortgage-backed securities:
Agency		206,982		3,137		(913)		209,206
Commercial		107,100		633		(89)		107,644
Non-agency		3,186		5		(54)		3,137
Corporate fixed income securities		336,210		2,016		(820)		337,406
Asset-backed securities		788,908		1,321		(10,155)		780,074
	$	1,520,517	$	7,133	$	(14,172)	$	1,513,478
Held-to-maturity securities (2)
Mortgage-backed securities:
Agency	$	884,451	$	32,926	$	(42)	$	917,335
Commercial		59,462		2,257		-		61,719
Non-agency		1,081		-		(17)		1,064
Asset-backed securities		177,335		3,151		(2,645)		177,841
Corporate fixed income securities		55,236		4		(1,223)		54,017
	$	1,177,565	$	38,338	$	(3,927)	$	1,211,976


	December 31, 2013
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)		Estimated Fair Value
Available-for-sale securities:
U.S. government agency securities	$	1,074	$	-	$	(2)	$	1,072
State and municipal securities		96,475		739		(6,537)		90,677
Mortgage-backed securities:								-
Agency		184,533		2,859		(3,405)		183,987
Commercial		209,949		3,084		(1,787)		211,246
Non-agency		4,547		72		-		4,619
Corporate fixed income securities		496,385		4,769		(2,838)		498,316
Asset-backed securities		769,553		2,499		(5,716)		766,336
	$	1,762,516	$	14,022	$	(20,285)	$	1,756,253
Held-to-maturity securities (2)
Mortgage-backed securities:
Agency	$	968,759	$	1,156	$	(7,915)	$	962,000
Commercial		59,404		-		(186)		59,218
Asset-backed securities		228,623		6,157		(2,774)		232,006
Corporate fixed income securities		55,329		11		(2,605)		52,735
Municipal auction rate securities		-		-		-		-
	$	1,312,115	$	7,324	$	(13,480)	$	1,305,959

⁽¹⁾

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

⁽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.

During the year ended December 31, 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. During the year ended December 31, 2013, we transferred $387.5 million from our held-to-maturity portfolio to the available-for-sale category as certain CLO investments may become non-compliant under the provisions of the new Volcker Rule, which could require us to sell them before maturity.

For the years ended December 31, 2014, 2013, and 2012, we received proceeds of $300.3 million, $197.5 million, and $250.2 million, respectively, from the sale of available-for-sale securities, which resulted in realized gains of $3.7 million, $2.0 million, and $3.8 million, respectively.

During the years ended December 31, 2014 and 2013, unrealized gains, net of deferred taxes, of $1.8 million and $48.5 million, respectively, were recorded in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition. During the year ended December 31, 2012, unrealized gains, net of deferred taxes, of $8.7 million were recorded in accumulated other comprehensive income/(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.


	December 31, 2014
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	132,004	$	132,432	$	15,025	$	15,027
After one year through three years		46,936		47,253		-		-
After three years through five years		121,655		122,311		40,211		38,991
After five years through ten years		299,752		298,294		-		-
After ten years		602,902		593,201		177,335		177,840
Mortgage-backed securities
Within one year		-		-		-		-
After one year through three years		120		122		-		-
After five years through ten years		78,994		81,182		59,462		61,719
After ten years		238,154		238,683		885,532		918,399
	$	1,520,517	$	1,513,478	$	1,177,565	$	1,211,976

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at December 31, 2014, are as follows (in thousands):


	Within 1 Year		1 - 5 Years		5 - 10 Years		After 10 Years		Total
Available-for-sale: 1
U.S. government agency securities	$	452	$	1,158	$	-	$	-	$	1,610
State and municipal securities		-		-		1,655		72,746		74,401
Mortgage-backed securities:
Agency		-		-		40,223		168,983		209,206
Commercial		-		-		40,959		66,685		107,644
Non-agency		-		122		-		3,015		3,137
Corporate fixed income securities		131,980		163,407		42,019		-		337,406
Asset-backed securities		-		4,999		254,620		520,455		780,074
	$	132,432	$	169,686	$	379,476	$	831,884	$	1,513,478

Held-to-maturity:
Mortgage-backed securities:
Agency	$	-	$	-	$	-	$	884,451	$	884,451
Commercial		-		-		59,462		-		59,462
Non-agency		-		-		-		1,081		1,081
Asset-backed securities		-		-		-		177,335		177,335
Corporate fixed income securities		15,025		40,211		-		-		55,236
	$	15,025	$	40,211	$	59,462	$	1,062,867	$	1,177,565

1Due to the immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax equivalent basis.

At December 31, 2014 and 2013, securities of $1.2 billion and $505.5 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 shows the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at December 31, 2014 (in thousands):


	December 31, 2014
	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	$	(4)	$	987	$	-	$	-	$	(4)	$	987
State and municipal securities		(6)		2,957		(2,131)		65,294		(2,137)		68,251
Mortgage-backed securities:
Agency		(238)		38,453		(675)		46,533		(913)		84,986
Commercial		(7)		4,893		(82)		10,043		(89)		14,936
Non-agency		(54)		2,888		-		-		(54)		2,888
Corporate fixed income securities		(80)		33,940		(740)		65,003		(820)		98,943
Asset-backed securities		(4,447)		389,422		(5,708)		221,361		(10,155)		610,783
	$	(4,836)	$	473,540	$	(9,336)	$	408,234	$	(14,172)	$	881,774


Held-to-maturity securities
Mortgage-backed securities:
Agency		(91)		8,217		(7,824)		846,119		(7,915)		854,336
Commercial		-		-		(186)		59,804		(186)		59,804
Asset-backed securities		-		-		(2,774)		95,580		(2,774)		95,580
Corporate fixed income securities		-		-		(2,605)		50,332		(2,605)		50,332
	$	(91)	$	8,217	$	(13,389)	$	1,051,835	$	(13,480)	$	1,060,052

At December 31, 2014, the amortized cost of 100 securities classified as available for sale exceeded their fair value by $14.2 million, of which $9.3 million related to investment securities that had been in a loss position for 12 months or longer. The total fair value of these investments at December 31, 2014, was $881.1 million, which was 58.3% of our available-for-sale investment portfolio.

At December 31, 2014, the carrying value of 22 securities held to maturity exceeded their fair value by $3.9 million, of which $3.6 million related to securities held to maturity that have been in a loss position for 12 months or longer. 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. There was no credit-related OTTI recognized during the years ended December 31, 2014 and 2013. Based on the evaluation, we recognized a credit-related OTTI of $0.6 million in earnings for the year ended December 31, 2012.

We believe the gross unrealized losses related to all other securities of $14.2 million as of December 31, 2014, 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. No OTTI charge was recorded in 2014 related to these securities. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.