Note 6 — Investment Securities

The Company classifies debt and equity securities into one of three categories: held-to maturity, available-for-sale, or trading. Such securities are reassessed for appropriate classification at each reporting date. Securities classified as “held-to-maturity” are carried at amortized cost for financial statement reporting, while securities classified as “available-for-sale” and “trading” are carried at their fair value. Unrealized holding gains and losses are included in net income for those securities classified as “trading,” while unrealized holding gains and losses related to those securities classified as “available-for-sale” are excluded from net income and reported net of tax as other comprehensive income (loss) and accumulated other comprehensive income (loss) until realized, or in the case of losses, when deemed other than temporary.

The amortized cost and estimated fair value by type of investment security at September 30, 2017 are as follows:


	Held to Maturity
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Carrying
	cost		gains		losses		fair value		value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400


	Available-for-Sale
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Carrying
	cost		gains		losses		fair value		value(1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	4,031,240	$	21,637	$	(41,311)	$	4,011,566	$	4,011,566
Obligations of states and political subdivisions		231,262		9,393		(109)		240,546		240,546
Equity securities		28,075		357		(356)		28,076		28,076
Total investment securities	$	4,290,577	$	31,387	$	(41,776)	$	4,280,188	$	4,280,188

(1)

Included in the carrying value of residential mortgage-backed securities are $700,593 of mortgage-backed securities issued by Ginnie Mae and $3,310,973 of mortgage-backed securities issued by Fannie Mae and Freddie Mac.

The amortized cost and estimated fair value by type of investment security at December 31, 2016 are as follows:


	Held to Maturity
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Carrying
	cost		gains		losses		fair value		value
	(Dollars in Thousands)
Other securities	$	2,400	$	—	$	—	$	2,400	$	2,400
Total investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400


	Available-for-Sale
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair		Carrying
	cost		gains		losses		value		value(1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	3,946,144	$	18,246	$	(69,920)	$	3,894,470	$	3,894,470
Obligations of states and political subdivisions		244,622		10,783		(433)		254,972		254,972
Equity securities		28,075		314		(482)		27,907		27,907
Total investment securities	$	4,218,841	$	29,343	$	(70,835)	$	4,177,349	$	4,177,349

(1)

Included in the carrying value of residential mortgage-backed securities are $850,033 of mortgage-backed securities issued by Ginnie Mae, $3,026,832 of mortgage-backed securities issued by Fannie Mae and Freddie Mac and $17,605 issued by non-government entities.

The amortized cost and estimated fair value of investment securities at September 30, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.


	Held to Maturity				Available-for-Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		fair value		Cost		fair value
	(Dollars in Thousands)
Due in one year or less	$	1,075	$	1,075	$	—	$	—
Due after one year through five years		1,325		1,325		—		—
Due after five years through ten years		—		—		1,939		1,990
Due after ten years		—		—		229,323		238,556
Residential mortgage-backed securities		—		—		4,031,240		4,011,566
Equity securities		—		—		28,075		28,076
Total investment securities	$	2,400	$	2,400	$	4,290,577	$	4,280,188

Residential mortgage-backed securities are securities primarily issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), or the Government National Mortgage Association (“Ginnie Mae”). Investments in residential mortgage-backed securities issued by Ginnie Mae are fully guaranteed by the U.S. Government. Investments in residential mortgage-backed securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government, however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008 and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae or Freddie Mac are rated consistently as AAA rated securities.

The amortized cost and fair value of available-for-sale investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $1,484,916,000 and $1,472,254,000, respectively, at September 30, 2017.

Proceeds from the sale and calls of securities available-for-sale were $7,235,000 and $279,419,000 for the three and nine months ended September 30, 2017, respectively, which included $0 and $266,967,000 of mortgage-backed securities, respectively. Gross gains of $0 and $1,186,000 and gross losses of $0 and $2,798,000 were realized on the sales for the three and nine months ended September 30, 2017, respectively. Proceeds from the sale of securities available-for-sale were $130,499,000 and $326,037,000 for the three and nine months ended September 30, 2016, respectively, which included $117,713,000 and $311,931,000 of mortgage-backed securities, respectively. Gross gains of $2,000 and $586,000 and gross losses of $1,347,000 and $2,291,000 were realized on the sales for the three and nine months ended September 30, 2016, respectively.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2017, were as follows:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in Thousands)
Available-for-sale:
Residential mortgage-backed securities	$	2,026,450	$	(24,622)	$	857,381	$	(16,689)	$	2,883,831	$	(41,311)
Obligations of states and political subdivisions		12,612		(101)		524		(8)		13,136		(109)
Equity securities		16,743		(257)		2,151		(99)		18,894		(356)
	$	2,055,805	$	(24,980)	$	860,056	$	(16,796)	$	2,915,861	$	(41,776)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in Thousands)
Available-for-sale:
Residential mortgage-backed securities	$	2,513,872	$	(52,245)	$	396,695	$	(17,675)	$	2,910,567	$	(69,920)
Obligations of states and political subdivisions		31,104		(433)		—		—		31,104		(433)
Equity securities		14,066		(184)		5,452		(298)		19,518		(482)
	$	2,559,042	$	(52,862)	$	402,147	$	(17,973)	$	2,961,189	$	(70,835)

The unrealized losses on investments in residential mortgage-backed securities are primarily caused by changes in market interest rates. Residential mortgage-backed securities are primarily securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. The contractual cash obligations of the securities issued by Ginnie Mae are fully guaranteed by the U.S. Government. The contractual cash obligations of the securities issued by Freddie Mac and Fannie Mae are not fully guaranteed by the U.S. Government; however, the Company believes that the quality of the bonds is similar to other AAA rated bonds with limited credit risk, particularly given the placement of Fannie Mae and Freddie Mac into conservatorship by the federal government in early September 2008, and because securities issued by others that are collateralized by residential mortgage-backed securities issued by Fannie Mae and Freddie Mac are rated consistently as AAA rated securities. The decrease in fair value on residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae is due to market interest rates. The Company has no intent to sell and will more than likely not be required to sell before a market price recovery or maturity of the securities; therefore, it is the conclusion of the Company that the investments in residential mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae are not considered other-than-temporarily impaired. The Company had a small investment in non-agency residential mortgage-backed securities that have additional market volatility beyond economically induced interest rate events, which were sold in the first quarter of 2017. The Company concluded that the investments in non-agency residential mortgage-backed securities were other-than-temporarily impaired due to both credit and other than credit issues for the three and nine months ended September 30, 2016. Impairment charges of $90,000 ($58,500, after tax) and $281,000 ($182,650, after tax) were recorded for the three and nine months ended September 30, 2016, respectively. The impairment charge represents the credit related impairment on the securities.

The unrealized losses on investments in other securities are caused by fluctuations in market interest rates. The underlying cash obligations of the securities are guaranteed by the entity underwriting the debt instrument. The Company believes that the entity issuing the debt will honor its interest payment schedule, as well as the full debt at maturity. The decrease in fair value is primarily due to market interest rates and not other factors, and because the Company has no intent to sell and will more than likely not be required to sell before a market price recovery or maturity of the securities, it is the conclusion of the Company that the investments are not considered other-than-temporarily impaired.

The following tables present a reconciliation of credit-related impairment charges on available-for-sale investment recognized in earnings for the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016 (Dollars in Thousands):


Balance at December 31, 2016	$	13,931
Sale of other-than-temporarily impaired available-for-sale securities during period		(13,931)
Balance at September 30, 2017	$	—


Balance at June 30, 2016	$	13,768
Impairment charges recognized during period		90
Balance at September 30, 2016	$	13,858


Balance at December 31, 2015	$	13,577
Impairment charges recognized during period		281
Balance at September 30, 2016	$	13,858