Note 4. Securities

The following tables summarize the Company’s portfolio of securities available for sale at September 30, 2016 and December 31, 2015:


	September 30, 2016
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates ⁽¹⁾	$	7,824	$	3	$	—	$	7,827

Other Securities:
Municipal bonds	$	731	$	68	$	—	$	799
Capital trust notes		9,455		2		2,481		6,976
Preferred stock		118,205		9,782		8		127,979
Mutual funds and common stock ⁽²⁾		16,877		687		—		17,564

Total other securities	$	145,268	$	10,539	$	2,489	$	153,318

Total securities available for sale	$	153,092	$	10,542	$	2,489	$	161,145

(1)	Government-sponsored enterprise.

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


	December 31, 2015
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE 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
Common stock		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

The following tables summarize the Company’s portfolio of securities held to maturity at September 30, 2016 and December 31, 2015:


	September 30, 2016
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,231,754	$	2,231,754	$	156,154	$	—	$	2,387,908
GSE CMOs ⁽¹⁾		1,119,704		1,119,704		75,607		—		1,195,311

Total mortgage-related securities	$	3,351,458	$	3,351,458	$	231,761	$		$	3,583,219

Other Securities:
GSE debentures	$	88,527	$	88,527	$	6,084	$	—	$	94,611
Municipal bonds		72,187		72,187		2,698		—		74,885
Corporate bonds		74,101		74,101		10,753		—		84,854
Capital trust notes		74,277		65,652		3,918		14,053		55,517

Total other securities	$	309,092	$	300,467	$	23,453	$	14,053	$	309,867

Total securities held to maturity ⁽²⁾	$	3,660,550	$	3,651,925	$	255,214	$	14,053	$	3,893,086

(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 Accumulated Other Comprehensive Loss (“AOCL”). At September 30, 2016, the non-credit portion of OTTI recorded in AOCL was $8.6 million, pre-tax.


	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		1,325,033		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
Municipal bonds		75,317		75,317		262		1,084		74,495
Corporate bonds		73,756		73,756		10,503		—		84,259
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 ⁽¹⁾	$	5,978,107	$	5,969,390	$	168,470	$	29,331	$	6,108,529

(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, 2015, the non-credit portion of OTTI recorded in AOCL was $8.7 million, pre-tax.

At September 30, 2016 and December 31, 2015, respectively, the Company had $586.4 million and $664.0 million of Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost. In order to have access to the funding provided by the FHLB-NY, the Company is required to maintain an investment in FHLB-NY stock.

The following table summarizes the gross proceeds and gross realized gains from the sale of available-for-sale securities during the nine months ended September 30, 2016 and 2015:


	For the Nine Months Ended September 30,
(in thousands)	2016		2015
Gross proceeds	$	264,413	$	256,900
Gross realized gains		413		400

In addition, during the nine months ended September 30, 2015, the Company sold held-to-maturity securities with gross proceeds of $19.7 million and gross realized gains of $543,000, 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 2016.

In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2016. 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 Nine Months Ended September 30, 2016
Beginning credit loss amount as of January 1, 2016		$	198,766
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 cash flows on debt securities		135

Ending credit loss amount as of September 30, 2016		$	198,631

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 September 30, 2016, by contractual maturity.


	At September 30, 2016
(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	$	—		—	%	$	—		—	%	$	109		2.96	%	$	—		—	%	$	109
Due from one to five years		655,716		3.73			66,604		4.14			—		—			47,970		3.32			830,343
Due from five to ten years		2,338,989		3.09			21,923		3.52			—		—			16,447		9.05			2,550,076
Due after ten years		356,753		2.97			—		—			72,078		2.88			75,336		5.25			512,558

Total securities held to maturity	$	3,351,458		3.20	%	$	88,527		3.99	%	$	72,187		2.88	%	$	139,753		5.03	%	$	3,893,086

Available-for-Sale Securities: ⁽³⁾
Due within one year	$	—		—	%	$	—		—	%	$	150		6.39	%	$	—		—	%	$	151
Due from one to five years		—		—			—		—			581		6.56			—		—			648
Due from five to ten years		7,824		1.90			—		—			—		—			—		—			7,827
Due after ten years		—		—			—		—			—		—			9,455		4.52			6,976

Total securities available for sale	$	7,824		1.90	%	$	—		—	%	$	731		6.53	%	$	9,455		4.52	%	$	15,602

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

(2)	Includes corporate bonds and capital trust notes.

(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, 2016:


At September 30, 2016	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:
Capital trust notes	$	—	$	—	$	22,177	$	14,053	$	22,177	$	14,053

Total temporarily impaired held-to-maturity securities	$	—	$	—	$	22,177	$	14,053	$	22,177	$	14,053

Temporarily Impaired Available-for-Sale Securities:
Capital trust notes	$	—	$	—	$	4,974	$	2,481	$	4,974	$	2,481
Equity securities		15,285		8		—		—		15,285		8

Total temporarily impaired available-for-sale securities	$	15,285	$	8	$	4,974	$	2,481	$	20,259	$	2,489


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

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.

At September 30, 2016, the Company had unrealized losses on certain capital trust notes and equity securities.

The Company reviews quarterly financial information related to its investments in capital trust notes, as well as other information that is released by each of the issuers of such notes, to determine their continued creditworthiness. 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; net operating losses; and illiquidity in the financial markets.

The Company considers a decline in the fair value of 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 September 30, 2016 were 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 to the failure of the securities to fully recover in value as currently anticipated 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 September 30, 2016 consisted of five capital trust notes. At December 31, 2015, the investment securities designated as having a continuous loss position for twelve months or more consisted of seven agency debt securities, five capital trust notes, and two agency mortgage-backed securities. At September 30, 2016 and December 31, 2015, the combined market value of the respective securities represented unrealized losses of $16.5 million and $24.9 million. At September 30, 2016, the fair value of securities having a continuous loss position for twelve months or more was 37.8% below the collective amortized cost of $43.7 million. At December 31, 2015, the fair value of such securities was 2.0% below the collective amortized cost of $1.2 billion.