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Investment Securities
 9 Months Ended
Sep. 30, 2018
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”). A portion of the portfolio is also comprised of asset-backed securities backed by student loans made under the Federal Family Education Loan Program ("FFELP"). The amortized cost and fair values of securities available for sale and held to maturity were as follows.
 
September 30, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,001

 
$
—

 
$
(4
)
 
$
997

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
320,148

 
2,658

 
(6,132
)
 
316,674

 
GNMA
2,259,538

 
—

 
(79,528
)
 
2,180,010

 
Private-label
1,022

 
—

 
(4
)
 
1,018

 
GNMA commercial mortgage-related securities
1,306,802

 
—

 
(55,824
)
 
1,250,978

 
FFELP asset backed securities
298,282

 
1,766

 
(101
)
 
299,947

 
Other debt securities
3,000

 
—

 
—

 
3,000

 
Other equity securities
1,573


—


—


1,573

 
Total investment securities available for sale
$
4,191,366

 
$
4,424

 
$
(141,593
)
 
$
4,054,197

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,682,162

 
$
1,216

 
$
(33,332
)
 
$
1,650,046

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
95,603

 
162

 
(3,266
)
 
92,499

 
GNMA
367,536

 
1,753

 
(15,337
)
 
353,952

 
GNMA commercial mortgage-related securities
516,454

 
8,092

 
(26,026
)
 
498,520

 
Total investment securities held to maturity
$
2,661,755

 
$
11,223

 
$
(77,961
)
 
$
2,595,017

 
December 31, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,003

 
$
—

 
$
(7
)
 
$
996

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
457,680

 
9,722

 
(2,634
)
 
464,768

 
GNMA
1,944,453

 
275

 
(31,378
)
 
1,913,350

 
Private-label
1,067

 
—

 
(8
)
 
1,059

 
GNMA commercial mortgage-related securities
1,547,173

 
5

 
(33,901
)
 
1,513,277

 
FFELP asset backed securities
144,322


867


(13
)

145,176

 
Other debt securities
3,200

 
—

 
(12
)
 
3,188

 
Other equity securities
1,519


127


(14
)

1,632

 
Total investment securities available for sale
$
4,100,417

 
$
10,996

 
$
(67,967
)
 
$
4,043,446

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,281,320

 
$
13,899

 
$
(3,177
)
 
$
1,292,042

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
40,995

 
398

 
(489
)
 
40,904

 
GNMA
414,440

 
2,700

 
(6,400
)
 
410,740

 
GNMA commercial mortgage-related securities
546,098


9,546


(15,756
)

539,888

 
Total investment securities held to maturity
$
2,282,853

 
$
26,543

 
$
(25,822
)
 
$
2,283,574


The expected maturities of investment securities available for sale and held to maturity at September 30, 2018 are shown below. Expected maturities may 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
$
2,001

 
$
1,997

 
$
48,561

 
$
48,871

Due after one year through five years
2,000

 
2,000

 
188,337

 
186,335

Due after five years through ten years
—

 
—

 
385,908

 
377,705

Due after ten years
—

 
—

 
1,059,355

 
1,037,135

Total debt securities
4,001

 
3,997

 
1,682,162

 
1,650,046

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
320,148

 
316,674

 
95,603

 
92,499

GNMA
2,259,538

 
2,180,010

 
367,536

 
353,952

Private-label
1,022

 
1,018

 
—

 
—

GNMA commercial mortgage-related securities
1,306,802

 
1,250,978

 
516,454

 
498,520

FFELP asset backed securities
298,282

 
299,947

 
—

 
—

Equity securities
1,573

 
1,573

 
—

 
—

Total investment securities
$
4,191,366

 
$
4,054,197

 
$
2,661,755

 
$
2,595,017

Ratio of Fair Value to Amortized Cost
 
 
96.7
%
 
 
 
97.5
%

The proceeds from the sale of investment securities for the nine months ended September 30, 2018 and 2017 are shown below.
 
Nine Months Ended September 30,
 
2018
 
2017
 
($ in Thousands)
Gross gains on available for sale securities
$
1,954

 
$
—

Gross gains on held to maturity securities
—

 
364

Total gains
1,954

 
364

Gross losses on available for sale securities
(3,938
)
 
—

Gross losses on held to maturity securities
$
—

 
$
(5
)
Total losses
$
(3,938
)
 
$
(5
)
Investment securities gains (losses), net
$
(1,985
)
 
$
359

Proceeds from sales of investment securities
$
601,130

 
$
16,059


During 2018, the Corporation executed a strategy to improve the yield on securities and increase interest income during the current and future calendar years. During the third quarter of 2018, the Corporation sold mortgage-related securities totaling approximately $108 million at a slight gain with all proceeds reinvested into higher-yielding securities. The taxable equivalent yield of the securities sold was 3.08% while the reinvestment was at 3.51%. During the first six months of 2018, the Corporation also sold $40 million of lower yielding GNMA commercial mortgage-related securities.
In addition, on the acquisition date, the Corporation sold Bank Mutual's entire $453 million securities portfolio. The Corporation reinvested these funds into municipal securities. This strategy was completed during August 2018.
During the first nine months of 2017, the Corporation sold approximately $16 million of municipal securities classified as held to maturity due to credit concerns stemming from budgetary pressure and continued credit rating deterioration concerns in the State of Illinois.
Investment securities with a carrying value of approximately $3.7 billion and $3.1 billion at September 30, 2018, and December 31, 2017, 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, 2018.
 
Less than 12 months
 
12 months or more
 
Total
September 30, 2018
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

 
$
(4
)
 
$
997

 
$
(4
)
 
$
997

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
18

 
(583
)
 
60,527

 
14

 
(5,549
)
 
172,119

 
(6,132
)
 
232,646

GNMA
47

 
(29,687
)
 
1,150,098

 
47

 
(49,841
)
 
1,029,912

 
(79,528
)
 
2,180,010

Private-label
—

 
—

 
—

 
1

 
(4
)
 
1,018

 
(4
)
 
1,018

GNMA commercial mortgage-related securities
4

 
(2,397
)
 
63,846

 
89

 
(53,427
)
 
1,187,406

 
(55,824
)
 
1,251,252

FFELP asset backed securities
6

 
(101
)

67,798


—


—


—


(101
)

67,798

Total
75

 
$
(32,768
)

$
1,342,269


152


$
(108,825
)

$
2,391,452


$
(141,593
)

$
3,733,721

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
1,288

 
$
(22,552
)
 
$
1,026,504

 
228

 
$
(10,779
)
 
$
187,493

 
$
(33,332
)
 
$
1,213,997

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
22

 
(1,798
)
 
64,876

 
18

 
(1,469
)
 
25,980

 
(3,266
)
 
90,856

GNMA
39

 
(2,676
)
 
89,367

 
46

 
(12,662
)
 
262,952

 
(15,337
)
 
352,319

GNMA commercial mortgage-related securities
1

 
(951
)
 
28,308

 
24

 
(25,074
)
 
470,212

 
(26,026
)
 
498,520

Total
1,350

 
$
(27,976
)
 
$
1,209,055

 
316

 
$
(49,983
)
 
$
946,637

 
$
(77,961
)
 
$
2,155,692


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, 2017.
 
Less than 12 months
 
12 months or more
 
Total
December 31, 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

 
$
(7
)
 
$
996

 
—

 
$
—

 
$
—

 
$
(7
)
 
$
996

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
9

 
(572
)
 
69,939

 
9

 
(2,062
)
 
142,093

 
(2,634
)
 
212,032

GNMA
44

 
(8,927
)
 
1,028,221

 
25

 
(22,451
)
 
737,198

 
(31,378
)
 
1,765,419

Private-label
—

 
—

 
—

 
1

 
(8
)
 
1,059

 
(8
)
 
1,059

GNMA commercial mortgage-related securities
33

 
(5,554
)
 
480,514

 
70

 
(28,347
)
 
1,026,642

 
(33,901
)
 
1,507,156

FFELP asset backed securities
1

 
(13
)
 
12,158

 
—

 
—

 
—

 
(13
)
 
12,158

Other debt securities
1

 
(12
)
 
188

 
—

 
—

 
—

 
(12
)
 
188

Other equity securities
3

 
(14
)
 
1,487

 
—

 
—

 
—

 
(14
)
 
1,487

Total
92

 
$
(15,099
)
 
$
1,593,503

 
105

 
$
(52,868
)
 
$
1,906,992

 
$
(67,967
)
 
$
3,500,495

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
157

 
$
(746
)
 
$
122,761

 
132

 
$
(2,431
)
 
$
127,043

 
$
(3,177
)
 
$
249,804

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
8

 
(73
)
 
13,143

 
10

 
(417
)
 
16,262

 
(490
)
 
29,405

GNMA
35

 
(3,373
)
 
268,388

 
18

 
(3,026
)
 
120,892

 
(6,399
)
 
389,280

GNMA commercial mortgage-related securities
2

 
(299
)
 
52,997

 
23

 
(15,457
)
 
486,891

 
(15,756
)
 
539,888

Total
202

 
$
(4,491
)
 
$
457,289

 
183

 
$
(21,331
)
 
$
751,088

 
$
(25,822
)
 
$
1,208,377


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, 2018 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 unrealized losses at September 30, 2018 for mortgage-related securities is due to the increase in overall interest rates. The U.S. Treasury 3 year and 5 year rates increased by 90 basis points ("bp") and 74 bp, respectively, from December 31, 2017. The Corporation does not intend to sell nor does it believe that it will be required to sell the securities in an unrealized loss position 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, 2018 and December 31, 2017, the Corporation had FHLB stock of $144 million and $89 million, respectively. The Corporation had Federal Reserve Bank stock of $77 million and $76 million at September 30, 2018 and December 31, 2017, respectively.