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Investment Securities
 9 Months Ended
Sep. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
Investment Securities Investment Securities
Investment securities are generally classified as available for sale or held to maturity at the time of purchase. The majority of the Corporation's investment securities are mortgage-related securities issued by the Government National Mortgage Association (“GNMA”) or government-sponsored enterprises ("GSE") such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The amortized cost and fair values of securities available for sale and held to maturity were as follows.
 
September 30, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,003

 
$
—

 
$
(2
)
 
$
1,001

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
494,041

 
12,780

 
(1,560
)
 
505,261

 
GNMA
1,681,380

 
2,504

 
(16,048
)
 
1,667,836

 
Private-label
1,083

 
—

 
(11
)
 
1,072

 
GNMA commercial mortgage-related securities
1,539,169

 
73

 
(26,165
)
 
1,513,077

 
Asset backed securities
108,590

 
63

 
(25
)
 
108,628

 
Other securities (debt and equity)
4,718

 
132

 
(26
)
 
4,824

 
Total investment securities available for sale
$
3,829,984

 
$
15,552

 
$
(43,837
)
 
$
3,801,699

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,192,290

 
$
14,525

 
$
(3,858
)
 
$
1,202,957

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
42,386

 
464

 
(404
)
 
42,446

 
GNMA
444,196

 
3,712

 
(2,615
)
 
445,293

 
GNMA commercial mortgage-related securities
554,707

 
10,250

 
(11,808
)
 
553,149

 
Total investment securities held to maturity
$
2,233,579

 
$
28,951

 
$
(18,685
)
 
$
2,243,845


 
December 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,000

 
$
—

 
$
—

 
$
1,000

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
625,234

 
17,298

 
(2,602
)
 
639,930

 
GNMA
2,028,301

 
1,372

 
(25,198
)
 
2,004,475

 
Private-label
1,134

 
1

 
(14
)
 
1,121

 
GNMA commercial mortgage-related securities
2,064,508

 
356

 
(35,966
)
 
2,028,898

 
Other securities (debt and equity)
4,718

 
105

 
(21
)
 
4,802

 
Total investment securities available for sale
$
4,724,895

 
$
19,132

 
$
(63,801
)
 
$
4,680,226

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)

$
1,145,843

 
$
3,868

 
$
(12,036
)
 
$
1,137,675

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
37,697

 
439

 
(693
)
 
37,443

 
GNMA
89,996

 
216

 
(656
)
 
89,556

 
Total investment securities held to maturity
$
1,273,536

 
$
4,523

 
$
(13,385
)
 
$
1,264,674

The amortized cost and fair values of investment securities available for sale and held to maturity at September 30, 2017, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Available for Sale
 
Held to Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
($ in Thousands)
Due in one year or less
$
1,000

 
$
1,000

 
$
54,259

 
$
48,123

Due after one year through five years
4,703

 
4,675

 
222,037

 
227,978

Due after five years through ten years
—

 
—

 
281,559

 
284,789

Due after ten years
—

 
—

 
634,435

 
642,067

Total debt securities
5,703

 
5,675

 
1,192,290

 
1,202,957

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
494,041

 
505,261

 
42,386

 
42,446

GNMA
1,681,380

 
1,667,836

 
444,196

 
445,293

Private-label
1,083

 
1,072

 
—

 
—

GNMA commercial mortgage-related securities
1,539,169

 
1,513,077

 
554,707

 
553,149

Asset backed securities
108,590

 
108,628

 
—

 
—

Equity securities
18

 
150

 
—

 
—

Total investment securities
$
3,829,984

 
$
3,801,699

 
$
2,233,579

 
$
2,243,845

Ratio of Fair Value to Amortized Cost
 
 
99.3
%
 
 
 
100.5
%

During the nine months ended September 30, 2017, the Corporation reclassified approximately $1 billion of GNMA residential mortgage-related securities and GNMA commercial mortgage-related securities from available for sale to held to maturity. The GNMA residential and commercial mortgage-related securities are principally securities with a CRA component in the underlying collateral. The reclassification of these investment securities was accounted for at fair value. Management elected to transfer these investment securities as the Corporation has the positive intent and ability to hold these investment securities to maturity.
In the third quarter of 2017, the Corporation purchased approximately $109 million of asset backed securities collateralized with government guaranteed student loans.
The proceeds from the sale of investment securities for the first nine months ended September 30, 2017 and 2016 are shown below.
 
Nine Months Ended September 30,
 
2017
 
2016
 
($ in Thousands)
Gross gains on available for sale securities
$
—

 
$
6,403

Gross gains on held to maturity securities
364

 
—

Total gains
364

 
6,403

Gross losses on available for sale securities
—

 
(202
)
Gross losses on held to maturity securities
(5
)
 
—

Total losses
(5
)
 
(202
)
Investment securities gains, net
$
359

 
$
6,201

Proceeds from sales of investment securities
$
16,059

 
$
359,591


During the first nine months of 2017, the Corporation sold approximately $16 million of municipal securities classified as held to maturity due to significant credit concerns and negative actions taken by credit rating agencies, primarily as a result of budgetary pressures in the State of Illinois. These sales resulted in a net gain of approximately $359,000.
Investment securities with a carrying value of approximately $2.9 billion and $1.8 billion at September 30, 2017, and December 31, 2016, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.
The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at September 30, 2017.
 
Less than 12 months
 
12 months or more
 
Total
September 30, 2017
Number
of
Securities
 
Unrealized
Losses
 
Fair
Value
 
Number
of
Securities
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
($ in Thousands)
Investment securities available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
1

 
$
(2
)
 
$
1,001

 
—

 
$
—

 
$
—

 
$
(2
)
 
$
1,001

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
16

 
(1,254
)
 
177,782

 
2

 
(306
)
 
33,842

 
(1,560
)
 
211,624

GNMA
22

 
(9,455
)
 
687,814

 
14

 
(6,593
)
 
378,457

 
(16,048
)
 
1,066,271

Private-label
—

 
—

 
—

 
1

 
(11
)
 
1,072

 
(11
)
 
1,072

GNMA commercial mortgage-related securities
42

 
(4,962
)
 
551,833

 
56

 
(21,203
)
 
891,178

 
(26,165
)
 
1,443,011

Asset backed securities
5

 
(25
)
 
52,851

 
—

 
—

 
—

 
(25
)
 
52,851

Other securities (debt and equity)
1

 
(26
)
 
174

 
—

 
—

 
—

 
(26
)
 
174

Total
87

 
$
(15,724
)
 
$
1,471,455

 
73

 
$
(28,113
)
 
$
1,304,549

 
$
(43,837
)
 
$
2,776,004

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)

195

 
$
(1,195
)
 
$
138,178

 
108

 
$
(2,663
)
 
$
94,432

 
$
(3,858
)
 
$
232,610

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
12

 
(124
)
 
17,816

 
4

 
(280
)
 
9,910

 
(404
)
 
27,726

GNMA
29

 
(1,628
)
 
223,379

 
7

 
(987
)
 
67,981

 
(2,615
)
 
291,360

GNMA commercial mortgage-related securities
5

 
(841
)
 
94,758

 
19

 
(10,967
)
 
427,161

 
(11,808
)
 
521,919

Total
241

 
$
(3,788
)
 
$
474,131

 
138

 
$
(14,897
)
 
$
599,484

 
$
(18,685
)
 
$
1,073,615


For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2016.
 
Less than 12 months
 
12 months or more
 
Total
December 31, 2016
Number
of
Securities
 
Unrealized
Losses
 
Fair
Value
 
Number
of
Securities
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
($ in Thousands)
Investment securities available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
14

 
$
(2,602
)
 
$
244,252

 
—

 
$
—

 
$
—

 
$
(2,602
)
 
$
244,252

GNMA
54

 
(25,198
)
 
1,723,523

 
—

 
—

 
—

 
(25,198
)
 
1,723,523

Private-label
—

 
—

 
—

 
1

 
(14
)
 
1,119

 
(14
)
 
1,119

GNMA commercial mortgage-related securities
74

 
(16,445
)
 
1,427,889

 
21

 
(19,521
)
 
429,258

 
(35,966
)
 
1,857,147

Other securities (debt and equity)
3

 
(21
)
 
1,479

 
—

 
—

 
—

 
(21
)
 
1,479

Total
145

 
$
(44,266
)
 
$
3,397,143

 
22

 
$
(19,535
)
 
$
430,377

 
$
(63,801
)
 
$
3,827,520

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)

700

 
$
(11,937
)
 
$
414,186

 
4

 
$
(99
)
 
$
1,752

 
$
(12,036
)
 
$
415,938

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
14

 
(441
)
 
17,477

 
1

 
(252
)
 
6,031

 
(693
)
 
23,508

GNMA
39

 
(656
)
 
64,633

 
—

 
—

 
—

 
(656
)
 
64,633

Total
753

 
$
(13,034
)
 
$
496,296

 
5

 
$
(351
)
 
$
7,783

 
$
(13,385
)
 
$
504,079


The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider
in the other-than-temporary impairment analysis include, the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.
Based on the Corporation’s evaluation, management does not believe any unrealized loss at September 30, 2017, represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for municipal securities relate to various state and local political subdivisions and school districts. The Corporation currently does not intend to sell nor does it believe that it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis.
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At September 30, 2017, and December 31, 2016, the Corporation had FHLB stock of $97 million and $65 million, respectively. The Corporation had Federal Reserve Bank stock of $76 million and $75 million at September 30, 2017 and December 31, 2016, respectively.