4.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are publicly traded, and the estimated fair values were obtained from an independent pricing service based upon market quotes.


	March 31, 2014
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency	$	335,412	$	3	$	(18,586	)	$	316,829		11.52	%
Residential mortgage-backed securities		1,511,226		16,365		(15,415	)		1,512,176		54.99	%
CMO’s / REMIC’s - residential		344,470		7,466		(563	)		351,373		12.78	%
Municipal bonds		545,259		21,588		(2,162	)		564,685		20.53	%
Other securities		5,000		—		—			5,000		0.18	%

Total	$	2,741,367	$	45,422	$	(36,726	)	$	2,750,063		100.00	%


	December 31, 2013
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency	$	350,378	$	22	$	(23,875	)	$	326,525		12.26	%
Residential mortgage-backed securities		1,391,631		13,100		(24,788	)		1,379,943		51.81	%
CMO’s / REMIC’s - residential		361,573		6,576		(1,974	)		366,175		13.75	%
Municipal bonds		571,145		18,839		(3,893	)		586,091		22.00	%
Other securities		5,000		—		(92	)		4,908		0.18	%

Total	$	2,679,727	$	38,537	$	(54,622	)	$	2,663,642		100.00	%

Approximately 79% of the available-for-sale portfolio at March 31, 2014 represents securities issued by the U.S government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. All non-agency available-for-sale CMO/REMIC issues held are rated investment grade or better by either Standard & Poor’s or Moody’s, as of March 31, 2014 and December 31, 2013. The Bank has $505,000 in CMO/REMIC’s backed by whole loans issued by private-label companies (nongovernment sponsored).

During the first quarter of 2013, management identified 13 securities with a par value of $94.2 million that were experiencing accelerated prepayment speeds that were causing deterioration in yield. These securities were sold and the Company recognized a net pre-tax gain on sale of $2.1 million. There were no realized gains or losses for the three months ended March 31, 2014.

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary.


	March 31, 2014
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Available-for-sale:
Government agency	$	143,534	$	6,842	$	164,282	$	11,744	$	307,816	$	18,586
Residential mortgage-backed securities		542,041		7,062		148,952		8,353		690,993		15,415
CMO / REMICs - residential		52,196		539		15,693		24		67,889		563
Municipal bonds		16,068		865		28,076		1,297		44,144		2,162
Other securities		—		—		—		—		—		—

Total	$	753,839	$	15,308	$	357,003	$	21,418	$	1,110,842	$	36,726


	December 31, 2013
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Available-for-sale:
Government agency	$	267,936	$	20,514	$	38,563	$	3,361	$	306,499	$	23,875
Residential mortgage-backed securities		851,621		23,313		22,999		1,475		874,620		24,788
CMO / REMICs - residential		104,322		1,780		17,747		194		122,069		1,974
Municipal bonds		47,116		3,359		10,338		534		57,454		3,893
Other securities		4,908		92		—		—		4,908		92

Total	$	1,275,903	$	49,058	$	89,647	$	5,564	$	1,365,550	$	54,622

The following summarizes our analysis of these securities and the unrealized losses. This assessment was based on the following factors: i) the length of the time and the extent to which the fair value has been less than amortized cost; ii) adverse condition specifically related to the security, an industry, or a geographic area and whether or not the Company expects to recover the entire amortized cost, iii) historical and implied volatility of the fair value of the security; iv) the payment structure of the security and the likelihood of the issuer being able to make payments in the future; v) failure of the issuer of the security to make scheduled interest or principal payments, vi) any changes to the rating of the security by a rating agency, and vii) recoveries or additional declines in fair value subsequent to the balance sheet date.

CMO Held-to-Maturity — The Company has one investment security classified as held-to-maturity. This security was issued by Countrywide Financial and is collateralized by Alt-A mortgages. The mortgages are primarily fixed-rate, 30-year loans, originated in early 2006 with average FICO scores of 715 and an average LTV of 71% at origination. The security was a senior security in the securitization, was rated triple AAA at origination and was supported by subordinate securities. This security is classified as held-to-maturity as the Bank has both the intent and ability to hold this debt security to maturity. The Bank acquired this security in February 2008 at a price of 98.25%. The significant decline in the fair value of the security first appeared in August 2008 at the time the financial crisis in the markets occurred and the market for securities collateralized by Alt-A mortgages diminished.

As of March 31, 2014, the unrealized loss on this security was zero and the current fair value on the security was 77.24% of the current par value. This Alt-A bond, with a book value of $1.7 million as of March 31, 2014, has had $1.9 million in net impairment losses to date. These losses have been recorded as a reduction to noninterest income. The security is rated non-investment grade. We evaluated the security for an other-than-temporary decline in fair value as of March 31, 2014. The key assumptions include default rates, loss severities and prepayment rates. There were no changes in credit related other-than temporary impairment recognized in earnings for the three months ended March 31, 2014 and 2013.

Government Agency & Government-Sponsored Enterprise— The government agency bonds are backed by the full faith and credit of agencies of the U.S. Government. While the Government-Sponsored Enterprise bonds are not expressly guaranteed by the U.S. Government, they are currently being supported by the U.S. Government under a conservatorship arrangement. As of March 31, 2014, approximately $134.3 million in U.S. government agency bonds are callable. These securities are bullet securities, that is, they have a defined maturity date on which the principal is paid. The contractual term of these investments provides that the Company will receive the face value of the bond at maturity which will equal the amortized cost of the bond. Interest is received throughout the life of the security.

Mortgage-Backed Securities and CMO/REMICs— Almost all of the Company’s available-for-sale mortgage-backed and CMO/REMICs securities are issued by government agencies or government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. These securities are collateralized or backed by the underlying residential mortgages. All mortgage-backed securities are considered to be rated investment grade with a weighted average life of approximately 4.3 years. Of the total MBS/CMO, 99.97% have the implied guarantee of U.S. government-sponsored agencies and enterprises. The remaining 0.03% are issued by banks. Accordingly, it is expected the securities would not be settled at a price less than the amortized cost of the bonds.

Municipal Bonds—The majority of the Company’s municipal bonds are insured by the largest bond insurance companies with maturities of approximately 8.9 years. The Company diversifies its holdings by owning selections of securities from different issuers and by holding securities from geographically diversified municipal issuers, thus reducing the Company’s exposure to any single adverse event. Because we believe the decline in fair value is attributable to the changes in interest rates and not credit quality and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized costs, which may be at maturity, management does not consider these investments to be other than temporarily impaired at March 31, 2014.

On an ongoing basis, we monitor the quality of our municipal bond portfolio in light of the current financial problems exhibited by certain monoline insurance companies. Many of the securities that would not be rated without insurance are pre-refunded and/or are general obligation bonds. We continue to monitor municipalities, which includes a review of the respective municipalities’ audited financial statements to determine whether there are any audit or performance issues. We use outside brokers to assist us in these analyses. Based on our monitoring of the municipal marketplace, to our knowledge, none of the municipalities are exhibiting financial problems that would lead us to believe that there is an OTTI for any given security.

At March 31, 2014 and December 31, 2013, investment securities having a carrying value of approximately $2.63 billion and $2.60 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at March 31, 2014, by contractual maturity, are shown in the table below. Although mortgage-backed securities and CMO/REMICs have contractual maturities through 2043, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed securities and CMO/REMICs are included in maturity categories based upon estimated prepayment speeds.


	March 31, 2014
	Amortized Cost		Fair Value		Weighted- Average Yield
	(Dollars in thousands)
Available-for-sale:
Due in one year or less	$	113,183	$	116,202		3.25	%
Due after one year through five years		1,718,930		1,750,370		2.56	%
Due after five years through ten years		865,160		840,172		2.14	%
Due after ten years		44,094		43,319		3.57	%

Total	$	2,741,367	$	2,750,063		2.47	%

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through March 31, 2014.