Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2014:

	September 30, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized
(in thousands)	Cost		Gain		Loss		Fair Value
Mortgage-Related Securities:
GSE ⁽¹⁾ certificates	$	19,295	$	1,397	$	--	$	20,692
GSE CMOs ⁽²⁾		59,499		743		1,167		59,075
Private label CMOs		9,417		--		50		9,367
Total mortgage-related securities	$	88,211	$	2,140	$	1,217	$	89,134
Other Securities:
Municipal bonds	$	964	$	133	$	--	$	1,097
Capital trust notes		13,428		51		1,870		11,609
Preferred stock		118,205		5,116		635		122,686
Common stock		17,943		608		45		18,506
Total other securities	$	150,540	$	5,908	$	2,550	$	153,898
Total securities available for sale	$	238,751	$	8,048	$	3,767	$	243,032

(1)	Government-sponsored enterprise

(2)	Collateralized mortgage obligations

At September 30, 2014, the fair value of marketable equity securities included corporate preferred stock of $122.7 million and common stock of $18.5 million, with the latter primarily consisting of mutual funds that are Community Reinvestment Act-qualified investments.

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2013:

	December 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized
(in thousands)	Cost		Gain		Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	23,759	$	1,442	$	1	$	25,200
GSE CMOs		62,082		598		1,861		60,819
Private label CMOs		10,214	--			12		10,202
Total mortgage-related securities	$	96,055	$	2,040	$	1,874	$	96,221
Other Securities:
Municipal bonds	$	957	$	69	$	--	$	1,026
Capital trust notes		13,419		60		1,681		11,798
Preferred stock		118,205		1,936		3,902		116,239
Common stock		51,654		4,093		293		55,454
Total other securities	$	184,235	$	6,158	$	5,876	$	184,517
Total securities available for sale	$	280,290	$	8,198	$	7,750	$	280,738

The following tables summarize the Company’s portfolio of securities held to maturity at September 30, 2014 and December 31, 2013:

	September 30, 2014
					Gross		Gross
	Amortized		Carrying		Unrealized		Unrealized
(in thousands)	Cost		Amount		Gain		Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,515,030	$	2,515,030	$	74,212	$	13,892	$	2,575,350
GSE CMOs		1,764,784		1,764,784		55,971		3,352		1,817,403
Total mortgage-related securities	$	4,279,814	$	4,279,814	$	130,183	$	17,244	$	4,392,753
Other Securities:
GSE debentures	$	2,780,330	$	2,780,330	$	16,530	$	86,860	$	2,710,000
Corporate bonds		73,211		73,211		12,381		--		85,592
Municipal bonds		59,277		59,277		5		1,775		57,507
Capital trust notes		84,470		75,612		5,587		10,036		71,163
Total other securities	$	2,997,288	$	2,988,430	$	34,503	$	98,671	$	2,924,262
Total securities held to maturity ⁽¹⁾	$	7,277,102	$	7,268,244	$	164,686	$	115,915	$	7,317,015

(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 September 30, 2014, the non-credit portion of OTTI recorded in AOCL was $8.9 million (before taxes).

	December 31, 2013
					Gross		Gross
	Amortized		Carrying		Unrealized		Unrealized
(in thousands)	Cost		Amount		Gain		Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,529,102	$	2,529,102	$	30,145	$	61,280	$	2,497,967
GSE CMOs		1,878,885		1,878,885		29,330		22,520		1,885,695
Total mortgage-related securities	$	4,407,987	$	4,407,987	$	59,475	$	83,800	$	4,383,662
Other Securities:
GSE debentures	$	3,053,253	$	3,053,253	$	6,512	$	208,506	$	2,851,259
Corporate bonds		72,899		72,899		11,063		--		83,962
Municipal bonds		60,462		60,462		19		3,849		56,632
Capital trust notes		84,871		75,681		3,134		9,086		69,729
Total other securities	$	3,271,485	$	3,262,295	$	20,728	$	221,441	$	3,061,582
Total securities held to maturity ⁽¹⁾	$	7,679,472	$	7,670,282	$	80,203	$	305,241	$	7,445,244

(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, 2013, the non-credit portion of OTTI recorded in AOCL was $9.2 million (before taxes).

The Company had $520.4 million and $561.4 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at September 30, 2014 and December 31, 2013, respectively, primarily consisting of stock in the FHLB-New York (“FHLB-NY”). The Company is required to maintain an investment in FHLB-NY stock in order to have access to the funding it provides to the Company.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the nine months ended September 30, 2014 and 2013:

	For the Nine Months Ended
	September 30,
(in thousands)	2014		2013
Gross proceeds	$	254,491	$	593,551
Gross realized gains		5,317		6,212
Gross realized losses		--		--

In addition, during the nine months ended September 30, 2013, the Company sold held-to-maturity securities with gross proceeds of $191.1 million and gross realized gains of $11.6 million, all of which were securities on which the Company had collected a substantial portion (at least 85%) of the initial principal balance. No comparable sales occurred in the first nine months of 2014.

In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2014. 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).

	For the Nine Months Ended
(in thousands)	September 30, 2014
Beginning credit loss amount as of December 31, 2013	$	216,334
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		--
Increases in expected cash flows on debt securities		--
Ending credit loss amount as of September 30, 2014	$	216,334

The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated fair values of available-for-sale debt securities, at September 30, 2014, by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the ends of the estimated average lives of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.

	At September 30, 2014
						U.S.
	Mortgage-					Treasury
	Related		Average			and GSE		Average			Municipal		Average			Other Debt		Average
(dollars in thousands)	Securities		Yield			Obligations		Yield			Bonds		Yield ⁽¹⁾			Securities ⁽²⁾		Yield			Fair Value
Held-to-Maturity Securities:
Due within one year	$	--	--		%	$	--	--		%	$	--	--		%	$	--	--		%	$	--
Due from one to five years		841		5.89			60,190		4.17			967		2.96			--		--			67,544
Due from five to ten years		3,233,780		3.22			2,707,852		2.74			--		--			47,251		3.14			6,000,178
Due after ten years		1,045,193		3.36			12,288		3.99			58,310		2.85			101,572		5.80			1,249,293
Total debt securities held to maturity	$	4,279,814		3.25	%	$	2,780,330		2.78	%	$	59,277		2.85	%	$	148,823		4.96	%	$	7,317,015
Available-for-Sale Securities:⁽³⁾
Due within one year	$	--	--		%	$	--	--		%	$	125		6.09	%	$	--	--		%	$	126
Due from one to five years		4,083		6.82			--		--			558		6.45			--		--			4,921
Due from five to ten years		16,137		3.72			--		--			281		6.63			--		--			17,416
Due after ten years		67,991		3.59			--		--			--		--			13,428		5.67			79,377
Total debt securities available for sale	$	88,211		3.76	%	$	--	--		%	$	964		6.46	%	$	13,428		5.67	%	$	101,840

(1)	Not presented on a tax-equivalent basis.

(2)	Consists of corporate bonds and capital trust notes. Included in capital trust notes are $247,000 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 September 30, 2014:

At September 30, 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 Debt Securities:
GSE debentures	$	129,894	$	75	$	2,150,525	$	86,785	$	2,280,419	$	86,860
GSE certificates		269,519		1,606		493,289		12,286		762,808		13,892
GSE CMOs		52,932		93		147,839		3,259		200,771		3,352
Municipal bonds		14,078		158		42,456		1,617		56,534		1,775
Capital trust notes		24,907		93		36,238		9,943		61,145		10,036
Total temporarily impaired held-to-maturity debt securities	$	491,330	$	2,025	$	2,870,347	$	113,890	$	3,361,677	$	115,915
Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
Private label CMOs	$	9,367	$	50	$	--	$	--	$	9,367	$	50
GSE CMOs		--		--		45,456		1,167		45,456		1,167
Capital trust notes		1,993		8		5,566		1,862		7,559		1,870
Total temporarily impaired available-for-sale debt securities	$	11,360	$	58	$	51,022	$	3,029	$	62,382	$	3,087
Equity securities		8,897		171		14,784		509		23,681		680
Total temporarily impaired available-for-sale securities	$	20,257	$	229	$	65,806	$	3,538	$	86,063	$	3,767

At December 31, 2013	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 Debt Securities:
GSE debentures	$	2,777,417	$	208,506	$	--	$	--	$	2,777,417	$	208,506
GSE certificates		1,684,793		61,280		--		--		1,684,793		61,280
GSE CMOs		936,691		22,520		--		--		936,691		22,520
Municipal bonds		55,333		3,849		--		--		55,333		3,849
Capital trust notes		24,900		100		37,181		8,986		62,081		9,086
Total temporarily impaired held-to-maturity debt securities	$	5,479,134	$	296,255	$	37,181	$	8,986	$	5,516,315	$	305,241

Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates	$	--	$	--	$	110	$	1	$	110	$	1
Private label CMOs		10,202		12		--		--		10,202		12
GSE CMOs		44,725		1,861		--		--		44,725		1,861
Capital trust notes		1,992		8		5,746		1,673		7,738		1,681
Total temporarily impaired available-for-sale debt securities	$	56,919	$	1,881	$	5,856	$	1,674	$	62,775	$	3,555
Equity securities		75,886		4,195		--		--		75,886		4,195
Total temporarily impaired available-for-sale securities	$	132,805	$	6,076	$	5,856	$	1,674	$	138,661	$	7,750

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 relating to factors other than credit losses are recorded in AOCL. FASB guidance also requires additional disclosures regarding the calculation of credit losses, as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired.

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 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 September 30, 2014, 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 September 30, 2014.

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 Income and Comprehensive Income.

The unrealized losses on the Company’s GSE mortgage-related securities and GSE debentures at September 30, 2014 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. It is expected that these securities will not be settled at a price that is less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments, and it is not more likely than not that the Company will be required to sell them before the anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other than temporarily impaired at September 30, 2014.

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; therefore, the Company expects that these investments will not be settled at prices that are less than their amortized costs. 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. Because the Company does not have the intent to sell the investments, and it is not more likely than not that the Company will be required to sell them before the anticipated recovery of fair value, which may be at maturity, it did not consider these investments to be other-than-temporarily impaired at September 30, 2014. 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 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 further illiquidity in the financial markets.

At September 30, 2014, 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 the end of September 2014 were primarily caused by market volatility. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and its ability and intent to hold these investments for a reasonably sufficient period of time to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2014. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values, or the failure of the securities to fully recover in value as presently forecasted by management. This potentially would cause the Company to record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.

The investment securities designated as having a continuous loss position for twelve months or more at September 30, 2014 consisted of thirty-one agency mortgage-backed securities, seventeen agency debt securities, six agency CMOs, six capital trust notes, two municipal bonds, and one preferred stock security. At December 31, 2013, the investment securities designated as having a continuous loss position for twelve months or more consisted of six capital trust notes and one mortgage-backed security. At September 30, 2014 and December 31, 2013, the combined market value of the respective securities represented unrealized losses of $117.4 million and $10.7 million. At September 30, 2014, the fair value of securities having a continuous loss position for twelve months or more was 3.9% below the collective amortized cost of $3.1 billion. At December 31, 2013, the fair value of such securities was 19.9% below the collective amortized cost of $53.7 million.