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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	5,106	$	1	$	(58	)	$	5,049
State and municipal securities		73,669	—			(4,208	)		69,461
Mortgage-backed securities:
Agency		266,175		30		(4,962	)		261,243
Commercial		74,979		12		(5,511	)		69,480
Non-agency		1,383		23	—				1,406
Corporate fixed income securities		1,297,026		1,632		(28,042	)		1,270,616
Asset-backed securities		1,795,759		7,277		(4,855	)		1,798,181
	$	3,514,097	$	8,975	$	(47,636	)	$	3,475,436
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,300,376	$	215	$	(39,414	)	$	1,261,177
Commercial		57,734		—		(112	)		57,622
Asset-backed securities		3,161,875		6,045		(8,320	)		3,159,600
	$	4,519,985	$	6,260	$	(47,846	)	$	4,478,399

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	5,022	$	—	$	(39	)	$	4,983
State and municipal securities		74,691		—		(4,132	)		70,559
Mortgage-backed securities:
Agency		308,409		102		(2,981	)		305,530
Commercial		75,548		28		(3,088	)		72,488
Non-agency		1,568		—		—			1,568
Corporate fixed income securities		1,213,262		3,832		(5,652	)		1,211,442
Asset-backed securities		2,098,958		12,877		(4,897	)		2,106,938
	$	3,777,458	$	16,839	$	(20,789	)	$	3,773,508
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,334,833	$	13,621	$	(16,208	)	$	1,332,246
Commercial		58,971		1,313		—			60,284
Asset-backed securities		2,264,283		15,526		(1,862	)		2,277,947
Corporate fixed income securities		40,011		27		(37	)		40,001
	$	3,698,098	$	30,487	$	(18,107	)	$	3,710,478

⁽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 six months ended June 30, 2018. For the three and six months ended June 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.

During the three months ended June 30, 2018 and June 30, 2017, unrealized losses, net of deferred taxes, of $11.9 million and unrealized gains, net of deferred taxes of $3.8 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the six months ended June 30, 2018 and June 30, 2017, unrealized losses, net of deferred taxes, of $24.9 million and unrealized gains, net of deferred taxes, of $7.5 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.

	June 30, 2018
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	76,821	$	76,617	$	—	$	—
After one year through three years		344,701		338,138	—		—
After three years through five years		316,001		308,923	—		—
After five years through ten years		802,601		789,543		526,011		526,945
After ten years		1,631,436		1,630,086		2,635,864		2,632,655
Mortgage-backed securities
After three years through five years	—		—			57,734		57,622
After five years through ten years		1,007		966		192,248		186,159
After ten years		341,530		331,163		1,108,128		1,075,018
	$	3,514,097	$	3,475,436	$	4,519,985	$	4,478,399

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at June 30, 2018, 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	$	1,090	$	3,959	$	—	$	—	$	5,049
State and municipal securities		354		—		18,444		50,663		69,461
Mortgage-backed securities:
Agency		—		—		966		260,277		261,243
Commercial		—		—		—		69,480		69,480
Non-agency		—		—		—		1,406		1,406
Corporate fixed income securities		75,173		643,102		552,341		—		1,270,616
Asset-backed securities		—		—		218,758		1,579,423		1,798,181
	$	76,617	$	647,061	$	790,509	$	1,961,249	$	3,475,436
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	192,248	$	1,108,128	$	1,300,376
Commercial		—		57,734		—		—		57,734
Asset-backed securities		—		—		526,011		2,635,864		3,161,875
	$	—	$	57,734	$	718,259	$	3,743,992	$	4,519,985

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

At June 30, 2018 and December 31, 2017, securities of $2.1 billion and $2.2 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. At June 30, 2018 and December 31, 2017, securities of $2.3 billion and $2.0 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 June 30, 2018 (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	$	(58	)	$	4,811	$	—		$	—	$	(58	)	$	4,811
State and municipal securities		(2	)		354		(4,206	)		69,107		(4,208	)		69,461
Mortgage-backed securities:
Agency		(2,328	)		83,211		(2,634	)		156,268		(4,962	)		239,479
Commercial		—			—		(5,511	)		68,386		(5,511	)		68,386
Corporate fixed income securities		(20,942	)		775,896		(7,100	)		181,077		(28,042	)		956,973
Asset-backed securities		(4,855	)		348,972		—			—		(4,855	)		348,972
	$	(28,185	)	$	1,213,244	$	(19,451	)	$	474,838	$	(47,636	)	$	1,688,082
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	(7,590	)	$	488,456	$	(31,824	)	$	622,653	$	(39,414	)	$	1,111,109
Commercial		(112	)		57,622		—			—		(112	)		57,622
Asset-backed securities		(5,962	)		1,007,827		(2,358	)		37,121		(8,320	)		1,044,948
	$	(13,664	)	$	1,553,905	$	(34,182	)	$	659,774	$	(47,846	)	$	2,213,679

At June 30, 2018, the amortized cost of 218 securities classified as available for sale exceeded their fair value by $47.6 million, of which $19.5 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 June 30, 2018, was $1.7 billion, which was 48.6% of our available-for-sale portfolio.

At June 30, 2018, the carrying value of 116 securities held to maturity exceeded their fair value by $47.8 million, of which $34.2 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 six months ended June 30, 2018 and 2017.

We believe the gross unrealized losses of $95.5 million related to our investment portfolio, as of June 30, 2018, 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.