3. Securities

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS and HTM securities at December 31, 2012 and September 30, 2012. The majority of the MBS and investment portfolios are composed of securities issued by U.S. government-sponsored enterprises (“GSEs”).


	December 31, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
AFS:
GSE debentures	$	762,673	$	3,401	$	545	$	765,529
MBS		459,706		30,314		1		490,019
Trust preferred securities		2,900		--		436		2,464
Municipal bonds		1,312		68		--		1,380
		1,226,591		33,783		982		1,259,392
HTM:
MBS		1,834,168		71,384		1,123		1,904,429
Municipal bonds		43,067		1,549		6		44,610
GSE debentures		24,993		83		--		25,076
		1,902,228		73,016		1,129		1,974,115
	$	3,128,819	$	106,799	$	2,111	$	3,233,507


	September 30, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
AFS:
GSE debentures	$	857,409	$	4,317	$	2	$	861,724
MBS		505,169		35,137		--		540,306
Municipal bonds		2,435		81		--		2,516
Trust preferred securities		2,912		--		614		2,298
		1,367,925		39,535		616		1,406,844
HTM:
MBS		1,792,636		79,883		--		1,872,519
GSE debentures		49,977		247		--		50,224
Municipal bonds		45,334		1,822		--		47,156
		1,887,947		81,952		--		1,969,899
	$	3,255,872	$	121,487	$	616	$	3,376,743

The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at December 31, 2012 and September 30, 2012 was reported and the continuous unrealized loss position for at least 12 months or less than 12 months as of December 31, 2012 and September 30, 2012.


	December 31, 2012
	Less Than					Equal to or Greater
	12 Months					Than 12 Months
		Estimated		Unrealized			Estimated		Unrealized
	Count	Fair Value		Losses		Count	Fair Value		Losses
	(Dollars in thousands)
AFS:
GSE debentures	6	$	138,605	$	545	--	$	--	$	--
MBS	1		37		1	--		--		--
Trust preferred securities	--		--		--	1		2,464		436
	7	$	138,642	$	546	1	$	2,464	$	436

HTM:
MBS	9	$	188,944	$	1,123	--	$	--	$	--
Municipal bonds	2		977		6	--		--		--
GSE debentures	--		--		--	--		--		--
	11	$	189,921	$	1,129	--	$	--	$	--


	September 30, 2012
	Less Than					Equal to or Greater
	12 Months					Than 12 Months
		Estimated		Unrealized			Estimated		Unrealized
	Count	Fair Value		Losses		Count	Fair Value		Losses
	(Dollars in thousands)
AFS:
GSE debentures	2	$	42,733	$	2	--	$	--	$	--
MBS	--		--		--	--		--		--
Trust preferred securities	--		--		--	1		2,298		614
	2	$	42,733	$	2	1	$	2,298	$	614

HTM:
MBS	--	$	--	$	--	--	$	--	$	--
Municipal bonds	--		--		--	--		--		--
GSE debentures	--		--		--	--		--		--
	--	$	--	$	--	--	$	--	$	--

On a quarterly basis, management conducts a formal review of securities for the presence of an other-than-temporary impairment. Management assesses whether an other-than-temporary impairment is present when the fair value of a security is less than its amortized cost basis at the balance sheet date. For such securities, other-than-temporary impairment is considered to have occurred if the Company intends to sell the security, if it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or if the present value of expected cash flows is not sufficient to recover the entire amortized cost.

The unrealized losses at December 31, 2012 are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Additionally, the impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity. The unrealized losses at September 30, 2012 are primarily a result of a decrease in the credit rating of the Bank’s trust preferred security since the time of purchase. Management reviews the underlying cash flows of this security on a quarterly basis. As of December 31, 2012 and September 30, 2012, the analysis indicated the present value of future expected cash flows are adequate to recover the entire amortized cost. Management neither intends to sell this security, nor is it more likely than not that the Company will be required to sell the security before the recovery of the remaining amortized cost amount, which could be at maturity. As a result of the analysis discussed above, management does not believe any other-than-temporary impairments exist at December 31, 2012, nor did any at September 30, 2012.

The amortized cost and estimated fair value of securities by remaining contractual maturity without consideration for call features or pre-refunding dates as of December 31, 2012 are shown below. Actual maturities of MBS may differ from contractual maturities because borrowers have the right to prepay obligations, generally without penalties. As of December 31, 2012, the amortized cost of the securities in our portfolio which are callable or have pre-refunding dates within one year totaled $598.9 million. Maturities of MBS depend on the repayment characteristics and experience of the underlying financial instruments. Issuers of certain investment securities have the right to call and prepay obligations with or without prepayment penalties.


		AFS				HTM
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
		(Dollars in thousands)
One year or less	$	191	$	195	$	5,136	$	5,181
One year through five years		639,588		643,338		54,557		55,836
Five years through ten years		267,606		278,305		390,391		404,936
Ten years and thereafter		319,206		337,554		1,452,144		1,508,162
	$	1,226,591	$	1,259,392	$	1,902,228	$	1,974,115

The following table presents the carrying value of the MBS in our portfolio by issuer as of the dates indicated.


	December 31, 2012		September 30, 2012
		(Dollars in thousands)
Federal National Mortgage Association (“FNMA”)	$	1,358,418	$	1,324,293
Federal Home Loan Mortgage Corporation (“FHLMC”)		789,337		824,197
Government National Mortgage Association		176,124		183,778
Private Issuer		308		674
	$	2,324,187	$	2,332,942

The following table presents the taxable and non-taxable components of interest income on investment securities for the time periods indicated.


	For the Three Months Ended
	December 31,
		2012		2011
	(Dollars in thousands)
Taxable	$	2,539	$	4,196
Non-taxable		326		441
	$	2,865	$	4,637

The following table summarizes the amortized cost and estimated fair value of securities pledged as collateral as of the dates indicated.


		December 31, 2012				September 30, 2012
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
		(Dollars in thousands)
Repurchase agreements	$	400,529	$	426,106	$	400,827	$	427,864
Public unit deposits		217,839		228,423		219,913		232,514
Federal Reserve Bank		45,952		48,053		49,472		52,122
	$	664,320	$	702,582	$	670,212	$	712,500