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, 2015 and December 31, 2014 (in thousands):

	September 30, 2015
	Amortized Cost		Gross Unrealized Gains ¹		Gross Unrealized Losses ¹			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	1,703	$	7	$	(2	)	$	1,708
State and municipal securities		76,095		10		(1,926	)		74,179
Mortgage-backed securities:
Agency		27,415		294		(289	)		27,420
Commercial		17,775		212		(4	)		17,983
Non-agency		2,829		2		(46	)		2,785
Corporate fixed income securities		88,270		1,050		(595	)		88,725
Asset-backed securities		449,685		1,342		(3,995	)		447,032
	$	663,772	$	2,917	$	(6,857	)	$	659,832
Held-to-maturity securities ²
Mortgage-backed securities:
Agency	$	802,549	$	34,457	$	(27	)	$	836,979
Commercial		59,506		3,161		—			62,667
Non-agency		953		—		(13	)		940
Asset-backed securities		177,617		2,429		(2,913	)		177,133
Corporate fixed income securities		55,168		—		(385	)		54,783
	$	1,095,793	$	40,047	$	(3,338	)	$	1,132,502

	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

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.

For the three and nine months ended September 30, 2015 we received proceeds of $89.0 million and $641.6 million, respectively, from the sale of available-for-sale securities, which resulted in net realized gains of $0.1 million and $3.2 million, respectively.

During the three months ended September 30, 2015 and 2014, unrealized losses, net of deferred tax benefit, of $0.6 million and $3.9 million, respectively, were recorded in accumulated other comprehensive income in the consolidated statements of financial condition. During the nine months ended September 30, 2015 and 2014, unrealized gains, net of deferred taxes, of $5.3 million and $1.7 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, 2015
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	9,756	$	9,816	$	15,006	$	15,004
After one year through three years		48,743		49,321		40,162		39,779
After three years through five years		1,006		1,220		—		—
After five years through ten years		158,380		156,642		—		—
After ten years		397,868		394,644		177,617		177,133
Mortgage-backed securities
After one year through three years		80		81		—		—
After five years through ten years		653		677		59,506		62,667
After ten years		47,286		47,431		803,502		837,919
	$	663,772	$	659,832	$	1,095,793	$	1,132,502

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at September 30, 2015, 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	$	730	$	978	$	—	$	—	$	1,708
State and municipal securities		—		—		7,394		66,785		74,179
Mortgage-backed securities:
Agency		—		—		677		26,744		27,421
Commercial		—		—		—		17,983		17,983
Non-agency		—		81		—		2,704		2,785
Corporate fixed income securities		9,086		49,563		30,075		—		88,724
Asset-backed securities		—		-		119,173		327,859		447,032
	$	9,816	$	50,622	$	157,319	$	442,075	$	659,832
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	—	$	802,549	$	802,549
Commercial		—		—		59,506		—		59,506
Non-agency		—		—		—		953		953
Asset-backed securities		—		—		—		177,617		177,617
Corporate fixed income securities		15,006		40,162		—		—		55,168
	$	15,006	$	40,162	$	59,506	$	981,119	$	1,095,793

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

At September 30, 2015 and December 31, 2014, securities and loans of $908.2 million and $1.2 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. At September 30, 2015, securities of $388.5 million were pledged with the Federal Reserve discount window.

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 September 30, 2015 (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	$	(2	)	$	131	$	—		$	—	$	(2	)	$	131
State and municipal securities		(519	)		36,731		(1,408	)		35,773		(1,927	)		72,504
Mortgage-backed securities:
Agency		—			—		(289	)		8,794		(289	)		8,794
Commercial		(4	)		3,474		—			—		(4	)		3,474
Non-agency		(46	)		2,608		—			—		(46	)		2,608
Corporate fixed income securities		(595	)		25,102		—			—		(595	)		25,102
Asset-backed securities		(1,073	)		137,510		(2,921	)		137,224		(3,994	)		274,734
	$	(2,239	)	$	205,556	$	(4,618	)	$	181,791	$	(6,857	)	$	387,347
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	—		$	—	$	(27	)	$	2,309	$	(27	)	$	2,309
Non-agency		—			—		(13	)		940		(13	)		940
Asset-backed securities		(73	)		9,122		(2,578	)		64,675		(2,651	)		73,797
Corporate fixed income securities		—			—		(385	)		49,783		(385	)		49,783
	$	(73	)	$	9,122	$	(3,003	)	$	117,707	$	(3,076	)	$	126,829

At September 30, 2015, the amortized cost of 48 securities classified as available for sale exceeded their fair value by $6.9 million, of which $4.6 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 September 30, 2015, was $387.3 million, which was 58.7% of our available-for-sale portfolio.

At September 30, 2015, the carrying value of 21 securities held to maturity exceeded their fair value by $3.1million, of which $3.0 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 three and nine months ended September 30, 2015 and 2014.

We believe the gross unrealized losses related to all other securities of $9.9 million as of September 30, 2015, 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 during the three and nine months ended September 30, 2015 related to these securities. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.