5.	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, 2016
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency/GSEs	$	5,750	$	10	$	-	$	5,760		0.25%
Residential mortgage-backed securities		1,710,383		48,667		-		1,759,050		76.66%
CMOs/REMICs - residential		360,790		7,745		-		368,535		16.06%
Municipal bonds		153,761		2,523		(59)		156,225		6.81%
Other securities		5,000		89		-		5,089		0.22%

Total available-for-sale securities	$	2,235,684	$	59,034	$	(59)	$	2,294,659		100.00%

Investment securities held-to-maturity (1):
Government agency/GSEs	$	272,934	$	5,687	$	-	$	278,621		33.58%
Residential mortgage-backed securities		225,079		3,085		-		228,164		27.69%
CMO		1,226		499		-		1,725		0.15%
Municipal bonds		313,654		4,788		(1,024)		317,418		38.58%

Total held-to-maturity securities	$	812,893	$	14,059	$	(1,024)	$	825,928		100.00%


	December 31, 2015
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Government agency/GSEs	$	5,752	$	-	$	(7)	$	5,745		0.24%
Residential mortgage-backed securities		1,788,857		26,001		(1,761)		1,813,097		76.55%
CMOs/REMICs - residential		380,166		4,689		(1,074)		383,781		16.20%
Municipal bonds		157,940		3,036		(3)		160,973		6.80%
Other securities		5,000		50		-		5,050		0.21%

Total available-for-sale securities	$	2,337,715	$	33,776	$	(2,845)	$	2,368,646		100.00%

Investment securities held-to-maturity (1):
Government agency/GSEs	$	293,338	$	1,176	$	(734)	$	293,780		34.47%
Residential mortgage-backed securities		232,053		-		(1,293)		230,760		27.27%
CMO		1,284		569		-		1,853		0.15%
Municipal bonds		324,314		3,051		(719)		326,646		38.11%

Total held-to-maturity securities	$	850,989	$	4,796	$	(2,746)	$	853,039		100.00%

(1)

Securities held-to-maturity are presented in the condensed consolidated balance sheets at amortized cost.

During the quarter ended September 30, 2015, investment securities were transferred from the available-for-sale security portfolio to the held-to-maturity security portfolio. Transfers of securities into the held-to-maturity category from the available-for-sale category are transferred at fair value at the date of transfer. The fair value of these securities at the date of transfer was $898.6 million. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income (“AOCI”) and in the carrying value of the held-to-maturity securities. The net unrealized holding gain at the date of transfer was $3.9 million after-tax and will continue to be reported in AOCI and amortized over the remaining life of the securities as a yield adjustment. At March 31, 2016, investment securities HTM totaled $812.9 million. The after-tax unrealized gain reported in AOCI on investment securities HTM was $2.5 million at March 31, 2016.

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax.


	For the Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Investment securities available-for-sale:
Taxable	$	11,380	$	12,923
Tax-advantaged		1,419		5,011
Investment securities held-to-maturity:
Taxable		2,620		38
Tax-advantaged		2,728		-

Total interest income from investment securities	$	18,147	$	17,972

Approximately 85% of the total investment securities portfolio at March 31, 2016 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 Collateralized Mortgage Obligations (“CMO”)/Real Estate Mortgage Investment Conduit (“REMIC”) issues held are rated investment grade or better by either Standard & Poor’s or Moody’s, as of March 31, 2016 and December 31, 2015. At March 31, 2016, the Bank had $1.4 million in CMOs backed by whole loans issued by private-label companies (nongovernment sponsored).

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, 2016 and December 31, 2015. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary.


	March 31, 2016
	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)
Investment securities available-for-sale:
Government agency/GSEs	$	-	$	-	$	-	$	-	$	-	$	-
Residential mortgage-backed securities		-		-		-		-		-		-
CMOs/REMICs - residential		-		-		-		-		-		-
Municipal bonds		3,656		(58)		5,966		(1)		9,622		(59)
Other securities		-		-		-		-		-		-

Total available-for-sale securities	$	3,656	$	(58)	$	5,966	$	(1)	$	9,622	$	(59)


Investment securities held-to-maturity:
Government agency/GSEs	$	-	$	-	$	-	$	-	$	-	$	-
Residential mortgage-backed securities		-		-		-		-		-		-
CMO		-		-		-		-		-		-
Municipal bonds		92,467		(1,024)		-		-		92,467		(1,024)
Other securities		-		-		-		-		-		-

Total held-to-maturity securities	$	92,467	$	(1,024)	$	-	$	-	$	92,467	$	(1,024)


	December 31, 2015
	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)
Investment securities available-for-sale:
Government agency/GSEs	$	5,745	$	(7)	$	-	$	-	$	5,745	$	(7)
Residential mortgage-backed securities		437,699		(1,761)		-		-		437,699		(1,761)
CMOs/REMICs - residential		171,923		(1,074)		-		-		171,923		(1,074)
Municipal bonds		398		(2)		5,961		(1)		6,359		(3)
Other securities		-		-		-		-		-		-

Total available-for-sale securities	$	615,765	$	(2,844)	$	5,961	$	(1)	$	621,726	$	(2,845)


Investment securities held-to-maturity:
Government agency/GSEs	$	84,495	$	(734)	$	-	$	-	$	84,495	$	(734)
Residential mortgage-backed securities		230,760		(1,293)		-		-		230,760		(1,293)
CMO		-		-		-		-		-		-
Municipal bonds		110,119		(719)		-		-		110,119		(719)
Other securities		-		-		-		-		-		-

Total held-to-maturity securities	$	425,374	$	(2,746)	$	-	$	-	$	425,374	$	(2,746)

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.

Government Agency & Government-Sponsored Enterprise (“GSE”) — 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, 2016, approximately $201.1 million in U.S. government agency bonds were 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. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds.

Mortgage-Backed Securities (“MBS”) and CMOs/REMICs— Most of the Company’s mortgage-backed and CMOs/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 3.8 years. Of the total MBS/CMO, 99.94% have the implied guarantee of U.S. Government-Sponsored Agencies and Enterprises. The remaining 0.06% are issued by banks. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds. There were no credit-related Other-Than-Temporary Impairment (“OTTI”) recognized in earnings for the three months ended March 31, 2016 and December 31, 2015.

Municipal Bonds—The majority of the municipal bonds, with maturities of approximately 8.5 years, are insured by the largest U.S. bond insurance companies. 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. The decline in fair value is attributable to the changes in interest rates and not credit quality. Since 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. These investments are not considered other than temporarily impaired at March 31, 2016.

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.

At March 31, 2016 and December 31, 2015, investment securities having a carrying value of approximately $2.76 billion and $2.81 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, 2016, by contractual maturity, are shown in the table below. Although mortgage-backed securities and CMOs/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 CMOs/REMICs are included in maturity categories based upon estimated prepayment speeds.


	March 31, 2016
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	15,931	$	16,125	$	-	$	-
Due after one year through five years		1,789,155		1,837,957		149,171		150,627
Due after five years through ten years		145,732		148,847		366,305		370,388
Due after ten years		284,866		291,730		297,417		304,913

Total investment securities	$	2,235,684	$	2,294,659	$	812,893	$	825,928

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, 2016.