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, 2017 and December 31, 2016 (in thousands):

	June 30, 2017
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	4,584	$	—	$	(19	)	$	4,565
State and municipal securities		75,685		2		(3,305	)		72,382
Mortgage-backed securities:
Agency		321,352		131		(2,421	)		319,062
Commercial		76,131		42		(3,485	)		72,688
Non-agency		1,721		—		(104	)		1,617
Corporate fixed income securities		971,867		2,843		(3,579	)		971,131
Asset-backed securities		2,000,561		13,367		—			2,013,928
	$	3,451,901	$	16,385	$	(12,913	)	$	3,455,373
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,454,314	$	16,885	$	(14,474	)	$	1,456,725
Commercial		59,518		2,088		—			61,606
Asset-backed securities		1,754,093		11,405		(2,063	)		1,763,435
Corporate fixed income securities		40,045		69		—			40,114
	$	3,307,970	$	30,447	$	(16,537	)	$	3,321,880

	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.

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. There were no sales of available-for-sale securities during the three and six months ended June 30, 2016.

During the three months ended June 30, 2017 and June 30, 2016, unrealized gains, net of deferred taxes, of $3.8 million and $ 11.4 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the six months ended June 30, 2017 and June 30, 2016, unrealized gains, net of deferred taxes, of $7.5 million and $10.4 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, 2017
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	142,136	$	142,514	$	40,045	$	40,114
After one year through three years		138,597		139,032		—		—
After three years through five years		432,593		432,306		—		—
After five years through ten years		702,630		703,979		335,011		335,513
After ten years		1,636,741		1,644,175		1,419,082		1,427,922
Mortgage-backed securities
After three years through five years		—		—		59,518		61,606
After five years through ten years		58,618		55,846		162,429		161,038
After ten years		340,586		337,521		1,291,885		1,295,687
	$	3,451,901	$	3,455,373	$	3,307,970	$	3,321,880

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at June 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	$	824	$	3,741	$	—	$	—	$	4,565
State and municipal securities		200		375		16,738		55,069		72,382
Mortgage-backed securities:
Agency		—		—		412		318,650		319,062
Commercial		—		—		55,434		17,254		72,688
Non-agency		—		—		—		1,617		1,617
Corporate fixed income securities		141,490		567,222		262,419		—		971,131
Asset-backed securities		—		—		424,822		1,589,106		2,013,928
	$	142,514	$	571,338	$	759,825	$	1,981,696	$	3,455,373
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	162,429	$	1,291,885	$	1,454,314
Commercial		—		59,518		—		—		59,518
Asset-backed securities		—		—		335,011		1,419,082		1,754,093
Corporate fixed income securities		40,045		—		—		—		40,045
	$	40,045	$	59,518	$	497,440	$	2,710,967	$	3,307,970

⁽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, 2017 and December 31, 2016, securities of $1.9 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 June 30, 2017 and December 31, 2016, securities of $1.9 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 June 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	)	$	4,565	$	—		$	—	$	(19	)	$	4,565
State and municipal securities		(261	)		9,765		(3,044	)		60,113		(3,305	)		69,878
Mortgage-backed securities:
Agency		(604	)		155,073		(1,817	)		133,664		(2,421	)		288,737
Commercial		(3,485	)		71,139		—			—		(3,485	)		71,139
Non-agency		—			—		(104	)		1,585		(104	)		1,585
Corporate fixed income securities		(3,579	)		396,324		—			—		(3,579	)		396,324
	$	(7,948	)	$	636,866	$	(4,965	)	$	195,362	$	(12,913	)	$	832,228
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	(14,457	)	$	830,887	$	(17	)	$	1,165	$	(14,474	)	$	832,052
Asset-backed securities		(312	)		116,997		(1,751	)		34,391		(2,063	)		151,388
	$	(14,769	)	$	947,884	$	(1,768	)	$	35,556	$	(16,537	)	$	983,440

At June 30, 2017, the amortized cost of 124 securities classified as available for sale exceeded their fair value by $12.9 million, of which $5.0 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, 2017, was $832.2 million, which was 24.1% of our available-for-sale portfolio.

At June 30, 2017, the carrying value of 45 securities held to maturity exceeded their fair value by $16.5 million, of which $1.8 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, 2017 and 2016.

We believe the gross unrealized losses of $29.5 million related to our investment portfolio, as of June 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.