NOTE 6 – Available-for-Sale and Held-to-Maturity Securities

The following tables provide a summary of the amortized cost and fair values of the available-for-sale securities and held-to-maturity securities at September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	4,705	$	—	$	(19	)	$	4,686
State and municipal securities		75,288		—		(3,327	)		71,961
Mortgage-backed securities:
Agency		314,255		102		(2,469	)		311,888
Commercial		75,842		34		(3,143	)		72,733
Non-agency		1,619		—		—			1,619
Corporate fixed income securities		1,070,694		4,324		(2,642	)		1,072,376
Asset-backed securities		2,140,688		19,901		(1,554	)		2,159,035
	$	3,683,091	$	24,361	$	(13,154	)	$	3,694,298
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,392,113	$	17,065	$	(12,569	)	$	1,396,609
Commercial		59,336		2,093		—			61,429
Asset-backed securities		2,063,289		13,095		(1,816	)		2,074,568
Corporate fixed income securities		40,027		54		(41	)		40,040
	$	3,554,765	$	32,307	$	(14,426	)	$	3,572,646

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	4,213	$	2	$	(18	)	$	4,197
State and municipal securities		76,066		—		(3,576	)		72,490
Mortgage-backed securities:
Agency		340,738		298		(2,304	)		338,732
Commercial		77,417		59		(4,703	)		72,773
Non-agency		2,032		—		(140	)		1,892
Corporate fixed income securities		830,695		1,418		(8,602	)		823,511
Asset-backed securities		1,858,929		9,857		(1,068	)		1,867,718
	$	3,190,090	$	11,634	$	(20,411	)	$	3,181,313
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,567,758	$	14,537	$	(17,037	)	$	1,565,258
Commercial		59,581		1,786		—			61,367
Non-agency		688		—		(13	)		675
Asset-backed securities		1,370,300		6,242		(3,396	)		1,373,146
Corporate fixed income securities		40,078		30		—			40,108
	$	3,038,405	$	22,595	$	(20,446	)	$	3,040,554

⁽¹⁾	Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss.

⁽²⁾	Held-to-maturity securities are carried in the consolidated statements of financial condition at amortized cost, and the changes in the value of these securities, other than impairment charges, are not reported on the consolidated financial statements.

There were no sales of available-for-sale securities during the three months ended September 30, 2017. For the nine months ended September 30, 2017, we received proceeds of $87.3 million from the sale of available-for-sale securities, which resulted in realized gains of $0.4 million. There were no sales of available-for-sale securities during the three and nine months ended September 30, 2016.

During the three months ended September 30, 2017 and September 30, 2016, unrealized gains, net of deferred taxes, of $4.7 million and $4.5 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the nine months ended September 30, 2017 and September 30, 2016, unrealized gains, net of deferred taxes, of $12.3 million and $14.9 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

The table below summarizes the amortized cost and fair values of debt securities by contractual maturity. Expected maturities may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2017
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	162,117	$	162,402	$	40,027	$	40,041
After one year through three years		203,072		204,360		—		—
After three years through five years		349,602		349,427		—		—
After five years through ten years		794,146		797,204		335,021		335,834
After ten years		1,782,438		1,794,665		1,728,268		1,738,733
Mortgage-backed securities
After three years through five years		—		—		59,336		61,428
After five years through ten years		58,428		55,982		152,555		151,316
After ten years		333,288		330,258		1,239,558		1,245,294
	$	3,683,091	$	3,694,298	$	3,554,765	$	3,572,646

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at September 30, 2017, are as follows (in thousands):

	Within 1 Year		1-5 Years		5-10 Years		After 10 Years		Total
Available-for-sale: ⁽¹⁾
U.S. government agency securities	$	1,996	$	2,690	$	—	$	—	$	4,686
State and municipal securities		375		189		16,621		54,776		71,961
Mortgage-backed securities:										-
Agency		—		—		361		311,527		311,888
Commercial		—		—		55,621		17,112		72,733
Non-agency		—		—		—		1,619		1,619
Corporate fixed income securities		160,031		550,908		361,437		—		1,072,376
Asset-backed securities		—		—		419,146		1,739,889		2,159,035
	$	162,402	$	553,787	$	853,186	$	2,124,923	$	3,694,298
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	152,555	$	1,239,558	$	1,392,113
Commercial	—			59,336	—		—			59,336
Asset-backed securities	—		—			335,021		1,728,268		2,063,289
Corporate fixed income securities		40,027	—		—		—			40,027
	$	40,027	$	59,336	$	487,576	$	2,967,826	$	3,554,765

⁽¹⁾	Due to the immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax-equivalent basis.

At September 30, 2017 and December 31, 2016, securities of $1.8 billion and $2.0 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. At September 30, 2017 and December 31, 2016, securities of $2.3 billion and $1.7 billion, respectively, were pledged with the Federal Reserve discount window.

The following table shows the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at September 30, 2017 (in thousands):

	Less than 12 months					12 months or more					Total
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government securities	$	(19	)	$	4,686	$	—		$	—	$	(19	)	$	4,686
State and municipal securities		(11	)		3,054		(3,316	)		68,907		(3,327	)		71,961
Mortgage-backed securities:
Agency		(942	)		151,575		(1,527	)		147,738		(2,469	)		299,313
Commercial		—			—		(3,143	)		71,293		(3,143	)		71,293
Non-agency		—			—		—			1,593		—			1,593
Corporate fixed income securities		(820	)		213,865		(1,822	)		171,610		(2,642	)		385,475
Asset-backed securities		(1,554	)		22,457		—			—		(1,554	)		22,457
	$	(3,346	)	$	395,637	$	(9,808	)	$	461,141	$	(13,154	)	$	856,778
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	(5,719	)	$	575,048	$	(6,850	)	$	221,305	$	(12,569	)	$	796,353
Asset-backed securities		(30	)		35,198		(1,786	)		42,920		(1,816	)		78,118
Corporate fixed income securities		(41	)		9,965		—			—		(41	)		9,965
	$	(5,790	)	$	620,211	$	(8,636	)	$	264,225	$	(14,426	)	$	884,436

At September 30, 2017, the amortized cost of 134 securities classified as available for sale exceeded their fair value by $13.2 million, of which $9.8 million related to investment securities that had been in a loss position for 12 months or longer. The total fair value of these investments at September 30, 2017, was $856.8 million, which was 23.2% of our available-for-sale portfolio.

At September 30, 2017, the carrying value of 41 securities held to maturity exceeded their fair value by $14.4 million, of which $8.6 million related to securities held to maturity that have been in a loss position for 12 months or longer. As discussed in more detail below, we conduct periodic reviews of all securities with unrealized losses to assess whether the impairment is other-than-temporary.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position quarterly to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment (“OTTI”) assessment is a subjective process requiring the use of judgments and assumptions. There was no credit-related OTTI recognized during the three and nine months ended September 30, 2017 and 2016.

We believe the gross unrealized losses of $27.6 million related to our investment portfolio, as of September 30, 2017, are attributable to issuer-specific credit spreads and changes in market interest rates and asset spreads. We, therefore, do not expect to incur any credit losses related to these securities. In addition, we have no intent to sell these securities with unrealized losses, and it is not more likely than not that we will be required to sell these securities prior to recovery of the amortized cost. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.