NOTE 4: SECURITIES

The following tables summarize the Company’s portfolio of securities available for sale at December 31, 2015 and 2014:


	December 31, 2015
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE⁽¹⁾ certificates	$	53,820	$	33	$	1	$	53,852

Other Securities:
Municipal bonds	$	725	$	70	$	—	$	795
Capital trust notes		9,444		—		2,480		6,964
Preferred stock		118,205		7,415		248		125,372
Mutual funds and common stock⁽²⁾		16,877		470		75		17,272

Total other securities	$	145,251	$	7,955	$	2,803	$	150,403

Total securities available for sale	$	199,071	$	7,988	$	2,804	$	204,255

(1)

Government-sponsored enterprise.

(2)

Primarily consists of mutual funds that are Community Reinvestment Act-qualified investments.


	December 31, 2014
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	18,350	$	1,350	$	—	$	19,700

Other Securities:
Municipal bonds	$	841	$	101	$	—	$	942
Capital trust notes		13,431		31		1,980		11,482
Preferred stock		118,205		5,246		440		123,011
Common stock		17,943		748		43		18,648

Total other securities	$	150,420	$	6,126	$	2,463	$	154,083

Total securities available for sale	$	168,770	$	7,476	$	2,463	$	173,783

The following tables summarize the Company’s portfolio of securities held to maturity at December 31, 2015 and 2014:


	December 31, 2015
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,269,828	$	2,269,828	$	76,827	$	4,722	$	2,341,933
GSE CMOs ⁽¹⁾		1,325,033		1,325,033		53,236		57		1,378,212

Total mortgage-related securities	$	3,594,861	$	3,594,861	$	130,063	$	4,779	$	3,720,145

Other Securities:
GSE debentures	$	2,159,856	$	2,159,856	$	23,892	$	7,568	$	2,176,180
Corporate bonds		73,756		73,756		10,503		—		84,259
Municipal bonds		75,317		75,317		262		1,084		74,495
Capital trust notes		74,317		65,600		3,750		15,900		53,450

Total other securities	$	2,383,246	$	2,374,529	$	38,407	$	24,552	$	2,388,384

Total securities held to maturity ⁽²⁾	$	5,978,107	$	5,969,390	$	168,470	$	29,331	$	6,108,529

(1)

Collateralized mortgage obligations.

(2)

Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. At December 31, 2015, the non-credit portion of OTTI recorded in AOCL was $8.7 million (before taxes).


	December 31, 2014
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,468,791	$	2,468,791	$	106,414	$	3,838	$	2,571,367
GSE CMOs		1,610,243		1,610,243		65,075		711		1,674,607

Total mortgage-related securities	$	4,079,034	$	4,079,034	$	171,489	$	4,549	$	4,245,974

Other Securities:
GSE debentures	$	2,635,989	$	2,635,989	$	24,173	$	32,920	$	2,627,242
Corporate bonds		73,317		73,317		12,113		—		85,430
Municipal bonds		58,682		58,682		—		1,027		57,655
Capital trust notes		84,476		75,645		5,193		11,168		69,670

Total other securities	$	2,852,464	$	2,843,633	$	41,479	$	45,115	$	2,839,997

Total securities held to maturity ⁽¹⁾	$	6,931,498	$	6,922,667	$	212,968	$	49,664	$	7,085,971

(1)

Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. At December 31, 2014, the non-credit portion of OTTI recorded in AOCL was $8.8 million (before taxes).

At December 31, 2015 and 2014, respectively, the Company had $664.0 million and $515.3 million of FHLB stock, at cost, with the year-end 2015 amount consisting entirely of stock in the FHLB-NY. The Company is required to maintain an investment in FHLB-NY stock in order to have access to the funding it provides.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the years ended December 31, 2015, 2014 and 2013:


	December 31,
(in thousands)	2015		2014		2013
Gross proceeds	$	278,689	$	333,725	$	631,802
Gross realized gains		1,159		6,186		9,529
Gross realized losses		4		—		45

In addition, during the twelve months ended December 31, 2015, the Company sold held-to-maturity securities with gross proceeds of $44.1 million and realized gains of $2.9 million. During the twelve months ended December 31, 2014, the Company sold held-to-maturity securities with gross proceeds of $139.3 million and realized gains of $7.8 million. All of the held-to-maturity securities sold in 2015 and 2014 were securities on which the Company had collected a substantial portion (at least 85%) of the initial principal balance.

In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2015. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).


(in thousands)	For the Twelve Months Ended December 31, 2015
Beginning credit loss amount as of December 31, 2014	$	199,008
Add: Initial other-than-temporary credit losses		—
Subsequent other-than-temporary credit losses		—
Amount previously recognized in AOCL		—
Less: Realized losses for securities sold		—
Securities intended or required to be sold		—
Increase in expected cash flows on debt securities		242

Ending credit loss amount as of December 31, 2015	$	198,766

The following table summarizes the carrying amounts and estimated fair values of held-to-maturity mortgage-backed securities and debt securities, and the amortized costs and estimated fair values of available-for-sale securities, at December 31, 2015, by contractual maturity.


	At December 31, 2015
(dollars in thousands)	Mortgage- Related Securities		Average Yield			U.S. Treasury and GSE Obligations		Average Yield			State, County, and Municipal		Average Yield ⁽¹⁾			Other Debt Securities ⁽²⁾		Average Yield			Fair Value
Held-to-Maturity Securities:
Due within one year	$	—		—	%	$	—		—	%	$	435		2.96	%	$	—		—	%	$	436
Due from one to five years		307,108		3.71			59,860		4.17			—		—			—		—			389,464
Due from five to ten years		2,857,493		3.21			2,099,996		2.74			—		—			64,109		4.70			5,140,090
Due after ten years		430,260		2.97			—		—			74,882		2.90			75,247		5.07			578,539

Total securities held to maturity	$	3,594,861		3.22	%	$	2,159,856		2.78	%	$	75,317		2.90	%	$	139,356		4.90	%	$	6,108,529

Available-for-Sale Securities: ⁽³⁾
Due within one year	$	—		—	%	$	—		—	%	$	149		6.39	%	$	—		—	%	$	154
Due from one to five years		1,860		7.45			—		—			576		6.56			—		—			2,533
Due from five to ten years		—		—			—		—			—		—			—		—			—
Due after ten years		51,960		4.98			—		—			—		—			9,444		4.30			58,924

Total securities available for sale	$	53,820		5.06	%	$	—		—	%	$	725		6.52	%	$	9,444		4.30	%	$	61,611

(1)

Not presented on a tax-equivalent basis.

(2)

Includes corporate bonds and capital trust notes. Included in capital trust notes are $62,000 of pooled trust preferred securities held to maturity, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.

(3)

As equity securities have no contractual maturity, they have been excluded from this table.

The following table presents held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2015:


At December 31, 2015	Less than Twelve Months				Twelve Months or Longer				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Held-to-Maturity Securities:
GSE debentures	$	547,484	$	728	$	1,176,949	$	6,840	$	1,724,433	$	7,568
GSE certificates		299,019		4,608		3,899		114		302,918		4,722
GSE CMOs		9,943		57		—		—		9,943		57
Municipal bonds		42,083		1,084		—		—		42,083		1,084
Capital trust notes		24,601		399		20,710		15,501		45,311		15,900

Total temporarily impaired held-to-maturity securities	$	923,130	$	6,876	$	1,201,558	$	22,455	$	2,124,688	$	29,331

Temporarily Impaired Available-for-Sale Securities:
GSE certificates	$	51,959	$	1	$	—	$	—	$	51,959	$	1
Capital trust notes		1,968		32		4,997		2,448		6,965		2,480
Equity securities		51,775		323		—		—		51,775		323

Total temporarily impaired available-for-sale securities	$	105,702	$	356	$	4,997	$	2,448	$	110,699	$	2,804


At December 31, 2014	Less than Twelve Months				Twelve Months or Longer				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Held-to-Maturity Securities:
GSE debentures	$	—	$	—	$	2,204,399	$	32,920	$	2,204,399	$	32,920
GSE certificates		—		—		242,909		3,838		242,909		3,838
GSE CMOs		—		—		72,209		711		72,209		711
Municipal bonds		13,735		195		43,058		832		56,793		1,027
Capital trust notes		—		—		25,019		11,168		25,019		11,168

Total temporarily impaired held-to-maturity securities	$	13,735	$	195	$	2,587,594	$	49,469	$	2,601,329	$	49,664

Temporarily Impaired Available-for-Sale Securities:
Capital trust notes	$	—	$	—	$	5,451	$	1,980	$	5,451	$	1,980
Equity securities		53,721		364		15,174		119		68,895		483

Total temporarily impaired available-for-sale securities	$	53,721	$	364	$	20,625	$	2,099	$	74,346	$	2,463

An OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security, or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts of impairment relating to factors other than credit losses are recorded in AOCL.

Securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of OTTI. When the Company intends to sell such securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than the cost; adverse conditions specifically related to the industry, the geographic area, or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in the fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining life of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred.

The Company’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of December 31, 2015, the Company did not intend to sell its securities with an unrealized loss position, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss position were not other-than-temporarily impaired as of December 31, 2015. Other factors considered in determining whether or not an impairment is temporary include the severity of the impairment; the cause of the impairment; the near-term prospects of the issuer; and the forecasted recovery period using current estimates of volatility in market interest rates, including liquidity and risk premiums.

Management’s assertion regarding its intent not to sell, or that it is not more likely than not that the Company will be required to sell a security before its anticipated recovery, is based on a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity), and management’s intended strategy with respect to the identified security or portfolio. If management does have the intent to sell, or believes it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the unrealized loss is charged directly to earnings in the Consolidated Statement of Operations and Comprehensive (Loss) Income.

The unrealized losses on the Company’s GSE mortgage-related securities, GSE municipal bonds, and GSE debentures at December 31, 2015 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. These securities are not expected to be settled at a price that is less than the amortized cost of the Company’s investment.

The Company reviews quarterly financial information related to its investments in municipal bonds and capital trust notes, as well as other information that is released by each of the issuers of such bonds and notes, to determine their continued creditworthiness. The contractual terms of these investments do not permit settling the securities at prices that are less than the amortized costs of the investments. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Future events that could trigger material unrecoverable declines in the fair values of the Company’s investments, and thus result in potential OTTI losses, include, but are not limited to: government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; deteriorating credit enhancement; net operating losses; and illiquidity in the financial markets.

At December 31, 2015, the Company’s equity securities portfolio consisted of perpetual preferred stock, common stock, and mutual funds. The Company considers a decline in the fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. The unrealized losses on the Company’s equity securities at December 31, 2015, were primarily caused by market volatility. The Company evaluated the near-term prospects of recovering the fair value of these securities, together with the severity and duration of impairment to date, and determined that they were not other than temporarily impaired. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair value, or the failure of the securities to fully recover in value as presently forecasted by management. Either event could cause the Company to record an OTTI loss in a future period. Events that could trigger a material decline in the fair value of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolio of the issuer in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuer.

The investment securities designated as having a continuous loss position for twelve months or more at December 31, 2015 consisted of seven agency debt securities, five capital trust notes, and two agency mortgage-backed securities. At December 31, 2014, the investment securities designated as having a continuous loss position for twelve months or more consisted of 16 agency mortgage-backed securities, 17 GSE debt securities, three GSE CMOs, five capital trust notes, two GSE municipal bonds, and one preferred stock security. At December 31, 2015 and 2014, the combined market value of the respective securities represented unrealized losses of $24.9 million and $51.6 million. At December 31, 2015, the fair value of securities having a continuous loss position for twelve months or more was 2.0% below the collective amortized cost of $1.2 billion. At December 31, 2014, the fair value of such securities was 1.9% below the collective amortized cost of $2.7 billion.