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

	September 30, 2018
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	5,226	$	—	$	(61	)	$	5,165
State and municipal securities		73,253		—		(4,377	)		68,876
Mortgage-backed securities:
Agency		256,120		29		(5,341	)		250,808
Commercial		74,698		8		(5,883	)		68,823
Non-agency		1,281		—		(12	)		1,269
Corporate fixed income securities		1,200,498		2,542		(25,725	)		1,177,315
Asset-backed securities		1,782,052		3,109		(7,810	)		1,777,351
	$	3,393,128	$	5,688	$	(49,209	)	$	3,349,607
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,244,582	$	—	$	(48,907	)	$	1,195,675
Commercial		55,351		—		(343	)		55,008
Asset-backed securities		3,265,520		4,940		(14,758	)		3,255,702
	$	4,565,453	$	4,940	$	(64,008	)	$	4,506,385

	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.

For the three and nine months ended September 30, 2018, we received proceeds of $55.4 million from the sale of available-for-sale securities, which resulted in a realized loss of $0.4 million. 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.

During the three months ended September 30, 2018 and September 30, 2017, unrealized losses, net of deferred taxes, of $3.1 million and unrealized gains, net of deferred taxes of $4.7 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the nine months ended September 30, 2018 and September 30, 2017, unrealized losses, net of deferred taxes, of $28.1 million and unrealized gains, net of deferred taxes, of $12.3 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, 2018
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	37,338	$	37,275	$	—	$	—
After one year through three years		380,761		372,133		—		—
After three years through five years		351,855		345,895		—		—
After five years through ten years		698,866		689,934		478,024		478,491
After ten years		1,592,209		1,583,470		2,787,496		2,777,211
Mortgage-backed securities
After one year through three years		163		163		55,351		55,008
After three years through five years		1,360		1,365		—		—
After five years through ten years		6,242		6,194		180,433		173,389
After ten years		324,334		313,178		1,064,149		1,022,286
	$	3,393,128	$	3,349,607	$	4,565,453	$	4,506,385

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at September 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	$	1,657	$	3,508	$	—	$	—	$	5,165
State and municipal securities		395		—		18,272		50,209		68,876
Mortgage-backed securities:
Agency		—		1,528		6,194		243,086		250,808
Commercial		—		—		—		68,823		68,823
Non-agency		—		—		—		1,269		1,269
Corporate fixed income securities		35,223		714,520		427,572		—		1,177,315
Asset-backed securities		—		—		244,090		1,533,261		1,777,351
	$	37,275	$	719,556	$	696,128	$	1,896,648	$	3,349,607
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	180,433	$	1,064,149	$	1,244,582
Commercial		—		55,351		—		—		55,351
Asset-backed securities		—		—		478,024		2,787,496		3,265,520
	$	—	$	55,351	$	658,457	$	3,851,645	$	4,565,453

⁽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, 2018 and December 31, 2017, securities of $2.0 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 September 30, 2018 and December 31, 2017, securities of $2.1 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 September 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	$	(61	)	$	5,040	$	—		$	—	$	(61	)	$	5,040
State and municipal securities		—			—		(4,377	)		68,481		(4,377	)		68,481
Mortgage-backed securities:
Agency		(731	)		40,606		(4,610	)		188,110		(5,341	)		228,716
Commercial		—			—		(5,883	)		67,841		(5,883	)		67,841
Non-agency		(12	)		1,261		—			—		(12	)		1,261
Corporate fixed income securities		(14,053	)		565,671		(11,672	)		310,351		(25,725	)		876,022
Asset-backed securities		(7,810	)		517,276		—			—		(7,810	)		517,276
	$	(22,667	)	$	1,129,854	$	(26,542	)	$	634,783	$	(49,209	)	$	1,764,637
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	(11,804	)	$	556,381	$	(37,103	)	$	639,295	$	(48,907	)	$	1,195,676
Commercial		(343	)		55,008		—			—		(343	)		55,008
Asset-backed securities		(12,298	)		1,675,810		(2,460	)		42,507		(14,758	)		1,718,317
	$	(24,445	)	$	2,287,199	$	(39,563	)	$	681,802	$	(64,008	)	$	2,969,001

At September 30, 2018, the amortized cost of 232 securities classified as available for sale exceeded their fair value by $49.2 million, of which $26.5 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 September 30, 2018, was $1.8 billion, which was 52.7% of our available-for-sale portfolio.

At September 30, 2018, the carrying value of 152 securities held to maturity exceeded their fair value by $64.0 million, of which $39.6 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, 2018 and 2017.

We believe the gross unrealized losses of $113.2 million related to our investment portfolio, as of September 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.