ISBC 2017 Form 10-K & 2018 Proxy Statement

FORM 10-K At December 31, 2017, except for our investments in Fannie Mae and Freddie Mac securities, we had no investment in the securities of any issuer that had an aggregate book value in excess of 10% of our equity. Portfolio Maturities and Coupon. The composition, maturities and coupon rate of the securities portfolio at December 31, 2017 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Municipal securities coupons have not been adjusted to a tax-equivalent basis. One Year or Less More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Total Securities Carrying Value Weighted Average Coupon Carrying Value Weighted Average Coupon Carrying Value Weighted Average Coupon Carrying Value Weighted Average Coupon Carrying Value Fair Value Weighted Average Coupon (Dollars in thousands) Available-for-Sale: Equity securities $ — — % $ — — % $ — — % $ 4,911 — % $ 4,911 $ 5,701 — % Mortgage-backed securities: Federal Home Loan Mortgage Corporation — — — — 101,275 2.44 547,785 2.18 649,060 640,242 2.22 Federal National Mortgage Association — — 11,384 2.60 213,633 2.24 1,097,238 2.15 1,322,255 1,303,576 2.17 Government National Mortgage Association — — — — 15,264 1.73 24,313 1.90 39,577 38,208 1.83 Total mortgage-backed securities — — 11,384 2.60 330,172 2.28 1,669,336 2.15 2,010,892 1,982,026 2.18 Total available-for- sale securities $ — — % $11,384 2.60% $330,172 2.28% $1,674,247 2.15% $2,015,803 $1,987,727 2.17% Held-to-Maturity: Debt securities: Government sponsored enterprises $ 2,037 1.55% $ — — % $ 41,244 2.58% $ — — % $ 43,281 $ 42,596 2.53% Municipal bonds 36,295 1.92 — — 4,300 9.13 — — 40,595 41,846 2.69 Corporate and other debt securities — — — — 5,000 5.13 43,087 2.79 48,087 86,294 3.03 38,332 1.91 — — 50,544 3.39 43,087 2.79 131,963 170,736 2.76 Mortgage-backed securities: Federal Home Loan Mortgage Corporation — — 97 5.37 200,476 2.46 272,772 2.28 473,345 468,436 2.36 Federal National Mortgage Association — — 25,037 1.73 277,781 2.18 798,275 2.38 1,101,093 1,091,600 2.31 Government National Mortgage Association — — — — — — 90,220 2.59 90,220 89,353 2.59 Total mortgage-backed securities — — 25,134 1.74 478,257 2.30 1,161,267 2.37 1,664,658 1,649,389 2.34 Total held-to-maturity securities $38,332 1.91% $25,134 1.74% $528,801 2.40% $1,204,354 2.39% $1,796,621 $1,820,125 2.37% Sources of Funds General. Deposits are the primary source of funds used for our lending and investment activities. Our strategy is to increase core deposit growth to fund these activities. In addition, we use a significant amount of borrowings, primarily advances from the Federal Home Loan Bank of New York (“FHLB”), to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds. Additional sources of funds include principal and interest payments from loans and securities, loan and security prepayments and maturities, repurchase agreements, brokered deposits, income on other earning assets and retained earnings. While cash flows from loans and securities payments can be relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Deposits. At December 31, 2017, we held $17.36 billion in total deposits, representing 78.9% of our total liabilities. Although recent increases in market interest rates have resulted in consumer preference for and growth in time deposits, our deposit strategy has been focused on attracting core deposits (savings, checking and money market accounts) as they 18