ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K INVESTORS BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements At December 31, 2016 Amortized cost Net unrealized losses (1) Carrying Value Gross unrecognized gains (2) Gross unrecognized losses (2) Estimated fair value (In thousands) Held-to-maturity: Debt securities: Government-sponsored enterprises $ 2,128 — 2,128 12 — 2,140 Municipal bonds 37,978 — 37,978 1,515 — 39,493 Corporate and other debt securities 65,852 21,760 44,092 40,153 — 84,245 Total debt securities held-to-maturity 105,958 21,760 84,198 41,680 — 125,878 Mortgage-backed securities: Federal Home Loan Mortgage Corporation 411,692 1,559 410,133 793 3,502 407,424 Federal National Mortgage Association 1,246,635 1,802 1,244,833 3,635 15,389 1,233,079 Government National Mortgage Association 16,392 — 16,392 28 — 16,420 Total mortgage- backed securities held-to-maturity 1,674,719 3,361 1,671,358 4,456 18,891 1,656,923 Total held-to-maturity securities $1,780,677 25,121 1,755,556 46,136 18,891 1,782,801 (1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and is being amortized through accumulated other comprehensive income (loss) over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income (loss) over the remaining life of the securities. (2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other-than-temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet. At December 31, 2017, corporate and other debt securities include a portfolio of collateralized debt obligations backed by pooled trust preferred securities (“TruPS”), principally issued by banks and to a lesser extent insurance companies, real estate investment trusts, and collateralized debt obligations. At December 31, 2017 the TruPS had a carrying value and estimated fair value of $43.1 million and $81.2 million, respectively. While all were investment grade at purchase, securities classified as non-investment grade at December 31, 2017 had an amortized cost and estimated fair value of $41.0 million and $74.9 million, respectively. Fair value is derived from considering specific assumptions, including terms of the TruPS structure, events of deferrals, defaults and liquidations, the projected cash flow for principal and interest payments, and discounted cash flow modeling. Investment securities with a carrying value of $1.11 billion and an estimated fair value of $1.09 billion are pledged to secure borrowings and municipal deposits. The contractual maturities of the Bank’s mortgage-backed securities are generally less than 20 years with effective lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due to underlying loan prepayments or early call privileges of the issuer, therefore, mortgage-backed securities are not included in the following table. The amortized cost and estimated fair value of debt securities at December 31, 2017, by contractual maturity, are shown below. 92