NOTE 6 – 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, 2016 and December 31, 2015 (in thousands):

	September 30, 2016
	Amortized Cost		Gross Unrealized Gains ¹		Gross Unrealized Losses ¹			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	4,440	$	8	$	(2	)	$	4,446
State and municipal securities		75,707		45		(1,892	)		73,860
Mortgage-backed securities:
Agency		366,610		820		(1,794	)		365,636
Commercial		77,752		78		(559	)		77,271
Non-agency		2,244		-		(153	)		2,091
Corporate fixed income securities		819,843		9,247		(320	)		828,770
Asset-backed securities		1,785,675		9,834		(2,316	)		1,793,193
	$	3,132,271	$	20,032	$	(7,036	)	$	3,145,267
Held-to-maturity securities ²
Mortgage-backed securities:
Agency	$	1,643,479	$	48,873	$	(398	)	$	1,691,954
Commercial		59,566		3,701		—			63,267
Non-agency		701		—		(13	)		688
Asset-backed securities		497,362		7,873		(1,312	)		503,923
Corporate fixed income securities		40,095		165		—			40,260
	$	2,241,203	$	60,612	$	(1,723	)	$	2,300,092

	December 31, 2015
	Amortized Cost		Gross Unrealized Gains ¹		Gross Unrealized Losses ¹			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	1,700	$	1	$	(3	)	$	1,698
State and municipal securities		75,953		28		(1,814	)		74,167
Mortgage-backed securities:
Agency		306,309		125		(1,541	)		304,893
Commercial		11,177		134		(1	)		11,310
Non-agency		2,679		2		(163	)		2,518
Corporate fixed income securities		321,017		743		(2,352	)		319,408
Asset-backed securities		922,563		774		(7,424	)		915,913
	$	1,641,398	$	1,807	$	(13,298	)	$	1,629,907
Held-to-maturity securities ²
Mortgage-backed securities:
Agency	$	1,257,808	$	23,346	$	(3,105	)	$	1,278,049
Commercial		59,521		1,832		—			61,353
Non-agency		929		—		(15	)		914
Asset-backed securities		496,996		2,076		(4,139	)		494,933
Corporate fixed income securities		40,145		—		(396	)		39,749
	$	1,855,399	$	27,254	$	(7,655	)	$	1,874,998

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

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 three and nine months ended September 30, 2016, there were no sales of available-for-sale securities. 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, 2016, unrealized gains, net of deferred taxes, of $4.4 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the three months ended September 30, 2015, unrealized losses, net of deferred taxes, of $1.8 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

During the nine months ended September 30, 2016, unrealized gains, net of deferred taxes, of $14.9 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the nine months ended September 30, 2015, unrealized gains, net of deferred taxes, of $1.8 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

The table below summarizes the amortized cost and fair values of debt securities by contractual maturity. 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, 2016
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	23,542	$	23,575	$		$
After one year through three years		272,434		274,519		40,095		40,260
After three years through five years		400,553		406,700		—		—
After five years through ten years		618,997		620,642		—		—
After ten years		1,370,139		1,374,833		497,361		503,923
Mortgage-backed securities
Within one year		23		23		—		—
After one year through three years		—		—		—		—
After three years through five years		—		—		59,566		63,267
After five years through ten years		59,143		58,674		181,413		183,657
After ten years		387,440		386,301		1,462,768		1,508,985
	$	3,132,271	$	3,145,267	$	2,241,203	$	2,300,092

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at September 30, 2016, 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	$	1,428	$	3,018	$	—	$	—	$	4,446
State and municipal securities		—		—		17,337		56,523		73,860
Mortgage-backed securities:		—				-		-
Agency		—		—		517		365,119		365,636
Commercial		—		—		58,157		19,114		77,271
Non-agency		23		—		—		2,068		2,091
Corporate fixed income securities		22,146		678,202		128,422		—		828,770
Asset-backed securities		—		—		474,884		1,318,309		1,793,193
	$	23,597	$	681,220	$	679,317	$	1,761,133	$	3,145,267
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	181,413	$	1,462,066	$	1,643,479
Commercial		—		59,566		—		—		59,566
Non-agency		—		—		—		701		701
Asset-backed securities		—		—		—		497,362		497,362
Corporate fixed income securities		—		40,095		—		—		40,095
	$	—	$	99,661	$	181,413	$	1,960,129	$	2,241,203

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, 2016 and December 31, 2015, securities of $1.9 billion and $1.4 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, 2016 and December 31, 2015, securities of $1.7 billion and $1.1 billion, respectively, 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, 2016 (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	)	$	1,808	$	—		$	—	$	(2	)	$	1,808
State and municipal securities		(33	)		9,467		(1,859	)		61,659		(1,892	)		71,126
Mortgage-backed securities:
Agency		(1,739	)		224,447		(55	)		7,550		(1,794	)		231,997
Commercial		(559	)		75,379		—			—		(559	)		75,379
Non-agency		—			23		(153	)		2,016		(153	)		2,039
Corporate fixed income securities		(320	)		175,119		—			—		(320	)		175,119
Asset-backed securities		(2,233	)		241,700		(83	)		11,375		(2,316	)		253,075
	$	(4,886	)	$	727,943	$	(2,150	)	$	82,600	$	(7,036	)	$	810,543
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	(377	)	$	192,269	$	(21	)	$	1,595	$	(398	)	$	193,864
Non-agency		—			—		(13	)		689		(13	)		689
Asset-backed securities		(80	)		49,920		(1,232	)		61,718		(1,312	)		111,638
Corporate fixed income securities		—			—		—			—		—			—
	$	(457	)	$	242,189	$	(1,266	)	$	64,002	$	(1,723	)	$	306,191

At September 30, 2016, the amortized cost of 73 securities classified as available for sale exceeded their fair value by $7.0 million, of which $2.2 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, 2016, was $810.5 million, which was 25.8% of our available-for-sale portfolio.

At September 30, 2016, the carrying value of 21 securities held to maturity exceeded their fair value by $1.7 million, of which $1.3 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, 2016 and 2015.

We believe the gross unrealized losses of $8.8 million related to our investment portfolio, as of September 30, 2016, 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.