4. Investments

Available-For-Sale Investments

At June 30, 2018, investments - debt securities and restricted investments classified as available-for-sale securities were as follows:


			Gross Unrealized		Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Investments - debt securities:
U.S. Treasury securities	$	9,961	$	—	$	15	$	9,946
Corporate debt securities		5,042		28		814		4,256
		15,003		28		829		14,202
Restricted investments:
Short-term bond		3,252		—		13		3,239
Money market fund		167		—		—		167
		3,419		—		13		3,406
	$	18,422	$	28	$	842	$	17,608

At December 31, 2017, investments - debt securities, investments - equity securities and restricted investments classified as available-for-sale securities were as follows:


			Gross Unrealized		Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Investments - debt securities:
U.S. Treasury securities	$	9,892	$	—	$	22	$	9,870
Corporate debt securities		67,781		411		1,817		66,375
		77,673		411		1,839		76,245

Investments - equity securities:
Preferred stock		35,955		423		1,355		35,023

Restricted investments:
Short-term bond		4,264		—		13		4,251
Money market fund		218		—		—		218
		4,482		—		13		4,469
	$	118,110	$	834	$	3,207	$	115,737

During the six months ended June 30, 2018, realized losses from the sale of available-for-sale securities were $1.1 million and proceeds from the sale of available-for-sale securities were $64.6 million.

During the three and six months ended June 30, 2017, realized gains from the sale of available for-sale securities were $7.7 million and $10.9 million, respectively. During the six months ended June 30, 2017 proceeds from the sale of available-for-sale securities were $110.4 million.

The following table provides the U.S. Treasury securities, corporate debt securities and restricted investments unrealized loss position and related fair values as of June 30, 2018:


	Less Than 12 Months				12 Months or Greater
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
Investments - debt securities:
U.S. Treasury securities	$	9,946	$	15	$	—	$	—
Corporate debt securities		—		—		4,159		814
Restricted investments:
Short-term bond		—		—		3,239		13
	$	9,946	$	15	$	7,398	$	827

The following table provides the U.S. Treasury securities, corporate debt securities, preferred stock and restricted investments unrealized loss position and related fair values as of December 31, 2017:


	Less Than 12 Months				12 Months or Greater
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
Investments - debt securities:
U.S. Treasury securities	$	9,870	$	22	$	—	$	—
Corporate debt securities		15,515		691		29,595		1,126
Investments - equity securities:
Preferred stock		11,263		1,337		1,986		18
Restricted investments:
Short-term bond		—		—		4,251		13
	$	36,648	$	2,050	$	35,832	$	1,157

As of June 30, 2018, the Company had unrealized losses of $0.8 million related to U.S. Treasury securities, corporate debt securities and restricted investments. The Company had unrealized losses of $3.2 million as of December 31, 2017 related to U.S. Treasury securities, corporate debt securities, preferred stock and restricted investments. As of June 30, 2018 and December 31, 2017, the Company did not intend to sell the investments - debt securities with a material unrealized loss and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery, which could be maturity. During the six months ended June 30, 2018, the Company determined unrealized losses related to its corporate debt securities were other-than-temporarily impaired and recorded an impairment of $0.1 million for credit-related loss in investment income, net in the Company’s condensed consolidated statements of income. During the six months ended June 30, 2017, the Company determined unrealized losses related to its corporate debt securities and preferred stock were other-than-temporarily impaired and recorded an impairment of $0.4 million for credit-related loss in investment income, net in the Company’s condensed consolidated statements of income.

The amortized cost and estimated fair value of investments - debt securities and restricted investments classified as available-for-sale at June 30, 2018, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities since certain borrowers have the right to call or prepay obligations.


	Amortized Cost		Fair Value
Due in one year or less	$	12,654	$	12,393
Due after one year through five years		2,280		1,711
Due after five years through ten years		69		98
		15,003		14,202
Restricted investments		3,419		3,406
	$	18,422	$	17,608

Investments - Equity Securities

At June 30, 2018, investments - equity securities included $38.8 million of preferred stock investments recorded at fair value. During the three and six months ended June 30, 2018, unrealized gains on investments - equity securities of $1.3 million and $0.7 million, respectively were included within investment income, net on the condensed consolidated statements of income due to the adoption of ASU 2016‑01 on January 1, 2018. Prior to 2018, unrealized gains or losses related to these investments were recorded in accumulated other comprehensive income (loss). As of January 1, 2018 the outstanding unrealized losses of $0.9 million were reclassified to retained earnings with the adoption of ASU 2016‑01.

Investment Management Agreement

Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board of Directors (the “Board”). He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC (“Fairholme”), which wholly owns Fairholme Capital Management, L.L.C. (“FCM”), a registered investment advisor registered with the Securities and Exchange Commission and the Fairholme Trust Company, L.L.C. (“FTC”), a non-depository trust company regulated by the Florida Office of Financial Regulation. Mr. Berkowitz is the Chief Investment Officer of FCM, and the Chief Executive Officer and a director of FTC. Since April 2013, FCM has provided investment advisory services to the Company directly, or more recently, as the sub-advisor to FTC, which has resulted in a total of $61.9 million of pre-tax income to the Company from April 2013 through June 30, 2018. Neither FCM nor FTC receives any compensation for services as the Company’s investment advisor. As of June 30, 2018, Fairholme, including Mr. Berkowitz and clients of FCM and FTC, collectively, beneficially owned 44.38% of the Company’s common stock. FCM and its client, The Fairholme Fund, a series of the Fairholme Funds, Inc., may be deemed affiliates of the Company.

Both Mr. Cesar Alvarez and Mr. Howard Frank are members of the Company’s Board and also serve as directors of Fairholme Funds, Inc. Mr. Alvarez is also a director of FTC.

Pursuant to the terms of an Investment Management Agreement, as amended, with the Company (the “Agreement”), FTC agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board. The investment guidelines are set forth in the Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires the consent of at least two members of the Investment Committee, (iii) 25% of the investment account must be held in cash or cash equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value, and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase.