6. INVESTMENT AND MORTGAGE-BACKED SECURITIES

The Company adopted ASU 2016-01 on January 1, 2018. As a result of adoption all registered mutual funds and trading securities were reclassified as marketable equity securities on the Consolidated Statement of Financial Conditions and are recorded at fair value with changes in fair value recorded through the income statement. Additionally, $153 of unrealized gains, net of taxes, was reclassified from accumulated other comprehensive income to beginning retained earnings on January 1, 2018. Marketable equity securities are excluded from the tables for the year ended December 31, 2018.

The following tables summarize the major categories of securities owned by the Company as of the dates indicated:

	At December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt securities available-for-sale:
Agency Notes	$	25,110	$	45	$	(10	)	$	25,145
Corporate Securities		11,167		—		(32	)		11,135
Pass-through MBS issued by Government-sponsored Enterprises ("GSEs")		356,039		574		(2,000	)		354,613
Agency Collateralized Mortgage Obligation ("CMO")		113,470		157		(1,635	)		111,992
Total debt securities available-for-sale	$	505,786	$	776	$	(3,677	)	$	502,885

	At December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment securities available-for-sale:
Registered Mutual Funds	$	3,779	$	311	$	(84	)	$	4,006
Pass-through MBS issued by GSEs		72,938		16		(325	)		72,629
CMO		278,251		669		(165	)		278,755
Total investment securities available-for-sale	$	354,968	$	996	$	(574	)	$	355,390

The carrying amount of securities pledged as collateral for the Bank’s first loss guarantee (see Note 9) at December 31, 2018 and December 31, 2017 was $27,248 and $28,738, respectively.

At year-end 2018 and 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.

At December 31, 2018, agency notes possessed a weighted average contractual maturity of 4.1 years. As of December 31, 2018, the available-for-sale agency CMO and MBS securities had a weighted average term to maturity of 13.0 years. At December 31, 2018, corporate securities possessed a weighted average contractual maturity of 4.2 years.

During the year ended December 31, 2017, the Company sold its entire portfolio of investment securities held-to-maturity consisting of six TRUP CDO securities, of which five were deemed to be OTTI. The TRUP CDO portfolio was sold as part of the Company’s strategy to take advantage of investment opportunities. The amortized cost of the TRUP CDO portfolio was $5,331 at the time of the sale. The amortized cost represents the purchase amortized/historical cost less $8,553 of OTTI charges previously recognized and $705 of the unamortized portion of unrealized losses that were recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity). As a result of the sale, the pre-tax balances of both the unamortized portion of the unrealized losses at transfer to held-to-maturity of $705 and the unamortized portion of previous credit losses of $524 were reclassified out of accumulated comprehensive loss during the year ended December 31, 2017. Gross proceeds from the sale of the TRUP CDOs were $9,167 for the year ended December 31, 2017. Gross gains of $3,048 and gross losses of $441 were recognized on these sales. There were no sales of held-to-maturity securities during the year ended December 31, 2018. The Company will evaluate purchases of securities for appropriate classification.

Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $274 during the year ended December 31, 2018. Gross gains of $4 were recognized on these sales for the year ended December 31, 2018. The tax expense related to the gain on sales of MBS available-for-sale recognized during the year ended December 31, 2018 was $1. Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $15,000 during the year ended December 31, 2017. Gross losses of $36 were recognized on these sales for the year ended December 31, 2017. The tax benefit related to the loss on sales of MBS available-for-sale recognized during the year ended December 31, 2017 was $16. There were no sales of pass-through MBS issued by GSEs during the year ended December 31, 2016.

Proceeds from the sales of available-for-sale CMOs totaled $158,484 during the year ended December 31, 2018. Gross gains of $1,366 were recognized on these sales. The tax expense related to the gain on sales of available-for-sale CMOs recognized during the year ended December 31, 2018 was $437. There were no sales of agency CMO securities available-for-sale during the years ended December 31, 2017 or 2016.

The Company holds marketable equity securities (disclosed as both investment securities available-for-sale and trading securities as of December 31, 2017) as the underlying mutual fund investments of the BMP, held in a rabbi trust. The Company may sell these securities on a periodic basis in order to pay retirement benefits to plan retirees. There are no gains or losses recognized from the sales of marketable equity securities. A summary of the sales of marketable equity securities is listed below for the periods indicated:

	Year Ended December 31,
	2018		2017		2016
Proceeds:
Marketable equity securities	$	1,059	$	—	$	—
Investment securities available-for-sale		—		377		—
Trading securities		—		4,629		3,648

The remaining gain or loss on securities shown in the consolidated statements of income was due to market valuation changes. Net losses of $302 were recognized on marketable equity securities for the year ended December 31, 2018. Net gains of $133 and $123 were recognized on trading securities during years ended December 31, 2017 and December 31, 2016, respectively.

The following table summarizes the gross unrealized losses and fair value of investment securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position for the periods indicated:

	December 31, 2018
	Less than 12 Consecutive Months				12 Consecutive Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities available-for-sale:
Agency Notes	$	5,100	$	10	$	—	$	—	$	5,100	$	10
Corporate Securities		11,135		32		—		—		11,135		32
Pass through MBS issued by GSEs		216,451		1,049		45,489		951		261,940		2,000
Agency CMO		52,605		439		39,833		1,196		92,438		1,635

	December 31, 2017
	Less than 12 Consecutive Months				12 Consecutive Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment securities available-for-sale:
Registered Mutual Funds	$	—	$	—	$	2,591	$	84	$	2,591	$	84
Pass through MBS issued by GSEs		55,819		325		—		—		55,819		325
Agency CMO		86,746		96		3,168		69		89,914		165

The issuers of debt securities available-for-sale are U.S. government-sponsored entities or agencies. The decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality. It is likely that the Company will not be required to sell the securities before their anticipated recovery, and as such, the Company does not consider these securities to be other-than-temporarily-impaired at December 31, 2018.

TRUP CDOs That Have Maintained an Unrealized Holding Loss for 12 or More Consecutive Months

The Company sold its TRUP CDOs portfolio during the year ended December 31, 2017. At December 31, 2016, there were two TRUP CDOs with unrealized holding losses 12 or more consecutive months. The impairment of one of those TRUP CDOs was deemed temporary, as management believed that the full recorded balance of the investments would be realized. In making this determination, management considered the following at December 31, 2016:

●

Based upon an internal review of the collateral backing the TRUP CDOs portfolio, which accounted for current and prospective deferrals, the securities could reasonably be expected to continue making all contractual payments

●

There were no cash or working capital requirements nor contractual or regulatory obligations that would compel the Company to sell these securities prior to their forecasted recovery or maturity

●

The securities have a pool of underlying issuers comprised primarily of banks

●

None of the securities have exposure to real estate investment trust issued debt (which has experienced high default rates)

●

The securities feature either a mandatory auction or a de-leveraging mechanism that could result in principal repayments to the Bank prior to the stated maturity of the security

●

The securities are adequately collateralized

The unrealized loss on the second TRUP CDO with unrealized holding losses for 12 or more consecutive months was considered to be other than temporary. See below for a discussion of OTTI.

TRUP CDOs with OTTI

On September 1, 2008, the Bank transferred eight TRUP CDOs (i.e., investment securities primarily secured by the preferred debt obligations of a pool of U.S. banks with a small portion secured by debt obligations of insurance companies) with an amortized cost of $19,922 from its available-for-sale portfolio to its held-to-maturity portfolio. Based upon the lack of an orderly market for these securities, management determined that a formal election to hold them to maturity was consistent with its initial investment decision. On the date of transfer, the unrealized loss of $8,420 on these securities continued to be recognized as a component of accumulated other comprehensive loss within the Company's consolidated stockholders' equity (net of income tax benefit), and was expected to be amortized over the remaining average life of the securities. Activity related to amortization of unrealized transfer loss previously recognized upon transfer of TRUP CDOs to held to maturity securities was as follows:

	For the year ended December 31,
	2017			2016
Cumulative balance at the beginning of the period	$	756		$	807
Amortization		(50	)		(51	)
Reduction for previous credit losses realized on securities sold		(706	)		—
Cumulative balance at end of the period	$	—		$	756

As of each reporting period through June 30, 2017, the Company applied the protocol established by ASC 320-10-65 in order to determine whether OTTI existed for its TRUP CDOs and/or to measure, for TRUP CDOs that were determined to be other than temporarily impaired, the credit related and non-credit related components of OTTI. The Company sold its entire TRUP CDO portfolio in August of 2017. As of the date of the sale of the TRUP CDO portfolio, five TRUP CDOs were determined to meet the criteria for OTTI based upon this analysis, and no additional OTTI charges were recognized.

The following table provides a reconciliation of the pre-tax OTTI charges recognized on the Company's TRUP CDOs:

	At or for the Year Ended December 31, 2017									At or for the Year Ended December 31, 2016
	Credit Related OTTI Recognized in Earnings			Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss			Total OTTI Charge			Credit Related OTTI Recognized in Earnings			Non-Credit OTTI Recognized in Accumulated Other Comprehensive Loss			Total OTTI Charge
Cumulative pre-tax balance at the beginning of the period	$	8,613		$	544		$	9,157		$	8,717		$	578		$	9,295
(Amortization) Accretion of previously recognized OTTI		(60	)		(20	)		(80	)		(104	)		(34	)		(138	)
Reductions for previous credit losses realized on securities sold during the year		(8,553	)		(524	)		(9,077	)		—			—			—
Cumulative pre-tax balance at end of the period	$	—			—			—		$	8,613		$	544		$	9,157

There was no activity related to OTTI charges recognized on the Company's registered mutual funds during the year ended December 31, 2018, 2017, or 2016.