3. Securities

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


	June 30, 2014
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
AFS:
GSE debentures	$	554,821	$	439	$	4,829	$	550,431
MBS		287,496		15,994		47		303,443
Trust preferred securities		2,524		--		168		2,356
Municipal bonds		1,117		25		--		1,142
		845,958		16,458		5,044		857,372
HTM:
MBS		1,600,567		36,503		10,332		1,626,738
Municipal bonds		36,476		719		16		37,179
		1,637,043		37,222		10,348		1,663,917
	$	2,483,001	$	53,680	$	15,392	$	2,521,289


	September 30, 2013
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
		(Dollars in thousands)
AFS:
GSE debentures	$	709,118	$	996	$	7,886	$	702,228
MBS		345,263		18,701		--		363,964
Trust preferred securities		2,594		--		171		2,423
Municipal bonds		1,308		44		--		1,352
		1,058,283		19,741		8,057		1,069,967
HTM:
MBS		1,683,744		39,878		16,984		1,706,638
Municipal bonds		34,279		943		14		35,208
		1,718,023		40,821		16,998		1,741,846
	$	2,776,306	$	60,562	$	25,055	$	2,811,813

The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.


	June 30, 2014
	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	3	$	74,660	$	94	18	$	403,920	$	4,735
MBS	2		12,501		46	1		35		1
Trust preferred securities	--		--		--	1		2,356		168
	5	$	87,161	$	140	20	$	406,311	$	4,904

HTM:
MBS	7	$	119,381	$	501	26	$	439,796	$	9,831
Municipal bonds	6		2,971		11	1		741		5
	13	$	122,352	$	512	27	$	440,537	$	9,836


	September 30, 2013
	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	19	$	426,482	$	7,213	1	$	24,327	$	673
Trust preferred securities	--		--		--	1		2,423		171
	19	$	426,482	$	7,213	2	$	26,750	$	844

HTM:
MBS	40	$	710,291	$	16,984	--	$	--	$	--
Municipal bonds	3		1,299		14	--		--		--
	43	$	711,590	$	16,998	--	$	--	$	--

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 June 30, 2014 and September 30, 2013, excluding the trust preferred security discussed below, are primarily a result of an increase in market yields from the time the securities were purchased. 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. As a result of the analysis, management does not believe any other-than-temporary impairments existed at June 30, 2014 or September 30, 2013.

The unrealized losses related to the trust preferred security held by the Bank at June 30, 2014 and September 30, 2013 were primarily a result of a decrease in the security’s credit rating since the time of purchase. Management reviews the underlying cash flows of this security on a quarterly basis. As of June 30, 2014 and September 30, 2013, the cash flow analysis indicated the present value of future expected cash flows are adequate to recover the entire amortized cost. In January 2014, five federal agencies, including the Office of the Comptroller of the Currency (“OCC”) and the SEC, approved an interim final rule permitting banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Volcker Rule”). The final rule became effective on April 1, 2014. The Bank’s trust preferred security is included on the non-exclusive list of issuers that meet the requirements of the interim and final rule (provided by the federal banking agencies) and is therefore exempt from the provisions of the Volcker Rule. Based on this, 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. Based on its analysis, management does not believe any other-than-temporary impairments existed related to the trust preferred security at June 30, 2014 or September 30, 2013.

Maturities of MBS depend on the repayment characteristics and experience of the underlying financial instruments. Actual maturities of MBS may differ from contractual maturities because borrowers have the right to prepay obligations, generally without penalties. Additionally, issuers of callable investment securities have the right to call and prepay obligations with or without prepayment penalties prior to the maturity dates of the securities. The amortized cost and estimated fair value of securities by remaining contractual maturity, without consideration for call features or pre-refunding dates, as of June 30, 2014 are shown below.


		AFS				HTM
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
		(Dollars in thousands)
One year or less	$	200	$	202	$	5,414	$	5,451
One year through five years		510,931		508,456		81,251		85,476
Five years through ten years		131,298		135,501		458,521		461,267
Ten years and thereafter		203,529		213,213		1,091,857		1,111,723
	$	845,958	$	857,372	$	1,637,043	$	1,663,917

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


	June 30, 2014		September 30, 2013
		(Dollars in thousands)
Federal National Mortgage Association (“FNMA”)	$	1,108,947	$	1,250,948
Federal Home Loan Mortgage Corporation (“FHLMC”)		632,224		629,216
Government National Mortgage Association		162,839		167,544
	$	1,904,010	$	2,047,708

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


	For the Three Months Ended				For the Nine Months Ended
	June 30,				June 30,
		2014		2013		2014		2013
	(Dollars in thousands)
Taxable	$	1,508	$	2,143	$	4,947	$	6,828
Non-taxable		231		296		727		933
	$	1,739	$	2,439	$	5,674	$	7,761

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


		June 30, 2014				September 30, 2013
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
		(Dollars in thousands)
Repurchase agreements	$	347,536	$	361,377	$	353,648	$	364,593
Public unit deposits		312,142		316,412		272,016		274,917
Federal Reserve Bank		27,929		28,906		34,261		35,477
	$	687,607	$	706,695	$	659,925	$	674,987