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Investment Securities
 9 Months Ended
Sep. 30, 2019
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 amortized cost and fair values of securities available for sale and held to maturity at September 30, 2019 were as follows:
 
($ in Thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair Value
 
 
 
Investment securities available for sale
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)(a)
$
535,977

 
$
17,441

 
$
—

 
$
553,418

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
141,678

 
1,657

 
(326
)
 
143,009

 
GNMA
1,075,922

 
5,983

 
(1,322
)
 
1,080,584

 
Private-label
749

 
9

 
—

 
758

 
Commercial mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
19,996

 
1,795

 
—

 
21,791

 
GNMA
1,363,848

 
10,095

 
(9,996
)
 
1,363,948

 
FFELP asset backed securities
272,871

 
40

 
(3,123
)
 
269,789

 
Other debt securities
3,000

 
—

 
(7
)
 
2,993

 
Total investment securities available for sale
$
3,414,042

 
$
37,021

 
$
(14,774
)
 
$
3,436,289

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
999

 
$
21

 
$
—

 
$
1,019

 
Obligations of state and political subdivisions (municipal securities)(a)
1,346,234

 
73,235

 
(733
)
 
1,418,736

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
86,140

 
1,467

 
(17
)
 
87,590

 
GNMA
295,370

 
4,832

 
(94
)
 
300,108

 
GNMA commercial mortgage-related securities
471,675

 
7,115

 
(4,959
)
 
473,832

 
Total investment securities held to maturity
$
2,200,419

 
$
86,669

 
$
(5,803
)
 
$
2,281,285

(a) As permitted by ASU 2019-04, which was adopted during the third quarter of 2019, the Corporation made a one-time election to transfer municipal securities with an amortized cost of $692 million from held to maturity to available for sale.

The amortized cost and fair values of securities available for sale and held to maturity at December 31, 2018 were as follows:
 
($ in Thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair Value
 
 
 
Investment securities available for sale
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,000

 
$
—

 
$
(1
)
 
$
999

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
296,296

 
2,466

 
(3,510
)
 
295,252

 
GNMA
2,169,943

 
473

 
(41,885
)
 
2,128,531

 
Private-label
1,007

 
—

 
(4
)
 
1,003

 
GNMA commercial mortgage-related securities
1,273,309

 
—

 
(52,512
)
 
1,220,797

 
FFELP asset backed securities
297,347

 
711

 
(698
)
 
297,360

 
Other debt securities
3,000

 
—

 
—

 
3,000

 
Total investment securities available for sale
$
4,041,902

 
$
3,649

 
$
(98,610
)
 
$
3,946,941

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,790,683

 
$
8,255

 
$
(15,279
)
 
$
1,783,659

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
92,788

 
169

 
(1,795
)
 
91,162

 
GNMA
351,606

 
1,611

 
(8,181
)
 
345,035

 
GNMA commercial mortgage-related securities
505,434

 
7,559

 
(22,579
)
 
490,414

 
Total investment securities held to maturity
$
2,740,511

 
$
17,593

 
$
(47,835
)
 
$
2,710,271

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. The expected maturities of investment securities available for sale and held to maturity at September 30, 2019 are shown below:
 
Available for Sale
 
Held to Maturity
($ in Thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
3,045

 
$
3,049

 
$
29,063

 
$
29,208

Due after one year through five years
24,894

 
25,227

 
91,045

 
92,075

Due after five years through ten years
295,533

 
304,383

 
128,365

 
132,716

Due after ten years
215,505

 
223,752

 
1,098,760

 
1,165,757

Total debt securities
538,977

 
556,411

 
1,347,233

 
1,419,755

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
141,678

 
143,009

 
86,140

 
87,590

GNMA
1,075,922

 
1,080,584

 
295,370

 
300,108

Private-label
749

 
758

 
—

 
—

Commercial mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
19,996

 
21,791

 
—

 
—

GNMA
1,363,848

 
1,363,948

 
471,675

 
473,832

FFELP asset backed securities
272,871

 
269,789

 
—

 
—

Total investment securities
$
3,414,042

 
$
3,436,289

 
$
2,200,419

 
$
2,281,285

Ratio of fair value to amortized cost
 
 
100.7
%
 
 
 
103.7
%

Investment securities gains (losses), net includes proceeds from the sale of investment securities as well as any applicable write-ups or write-downs of investment securities. The proceeds from the sale and write-up of investment securities for the nine months ended September 30, 2019 and 2018 are shown below:
 
Nine Months Ended September 30,
($ in Thousands)
2019
 
2018
Gross gains on available for sale securities
$
6,347

 
$
1,954

Gross gains on held to maturity securities
—

 
—

Total gains
6,347

 
1,954

Gross (losses) on available for sale securities
(13,861
)
 
(3,938
)
Gross (losses) on held to maturity securities
—

 
—

Total (losses)
(13,861
)
 
(3,938
)
Write-up of equity securities without readily determinable fair values
13,444

 
—

Investment securities gains (losses), net
$
5,931

 
$
(1,985
)
Proceeds from sales of investment securities
$
1,367,450

 
$
601,130


During the third quarter of 2019, the Corporation made a one-time election to transfer municipal securities with an amortized cost of $692 million from held to maturity to available for sale, as permitted by the adoption of ASU 2019-04 during the quarter. The Corporation sold shorter duration, lower yielding municipal securities that were included in the transfer for proceeds of $157 million at a gain of $3 million, with the proceeds being reinvested into longer duration, higher yielding held to maturity municipal securities. Additionally, during the first nine months of 2019, the Corporation sold $1.2 billion of taxable, floating rate ABS and shorter duration MBS, CMBS, and CMO Agency securities, with the proceeds utilized to pay down borrowings and to reinvest into higher yielding Agency related mortgage securities with slightly longer durations, repositioning the portfolio for a declining rate environment.
The Corporation also donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up its remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of covered litigation, the shares were previously carried at a zero cost basis.
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 the 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 February 1, 2018, the date the Bank Mutual acquisition was completed, the Corporation sold Bank Mutual's entire $453 million securities portfolio. The Corporation originally reinvested the proceeds from the Bank Mutual securities portfolio into GNMA residential mortgage-related securities with the goal of reinvesting future cash flows into municipal securities. That strategy was completed during August 2018.
Investment securities with a carrying value of approximately $3.0 billion at both September 30, 2019 and December 31, 2018 were required to be 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, 2019:
 
Less than 12 months
 
12 months or more
 
Total
($ in Thousands)
Number
of
Securities
 
Unrealized
(Losses)
 
Fair
Value
 
Number
of
Securities
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
Investment securities available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
1

 
$
—

 
$
348

 
—

 
$
—

 
$
—

 
$
—

 
$
348

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
6

 
(38
)
 
21,554

 
10

 
(289
)
 
65,798

 
(326
)
 
87,352

GNMA
4

 
(440
)
 
67,563

 
3

 
(881
)
 
86,930

 
(1,322
)
 
154,493

GNMA commercial mortgage-related securities
15

 
(420
)
 
179,281

 
44

 
(9,576
)
 
653,148

 
(9,996
)
 
832,429

FFELP asset backed securities
18

 
(2,853
)
 
241,852

 
2

 
(270
)
 
13,213

 
(3,123
)
 
255,065

Other debt securities
3

 
(7
)
 
2,993

 
—

 
—

 
—

 
(7
)
 
2,993

Total
47

 
$
(3,758
)
 
$
513,592

 
59

 
$
(11,016
)
 
$
819,089

 
$
(14,774
)
 
$
1,332,681

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
25

 
$
(705
)
 
$
34,087

 
10

 
$
(28
)
 
$
3,846

 
$
(733
)
 
$
37,934

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
3

 
(8
)
 
3,674

 
1

 
(9
)
 
840

 
(17
)
 
4,514

GNMA
1

 
(25
)
 
6,490

 
8

 
(69
)
 
6,938

 
(94
)
 
13,429

GNMA commercial mortgage-related securities
2

 
(56
)
 
29,467

 
21

 
(4,903
)
 
390,602

 
(4,959
)
 
420,069

Total
31

 
$
(794
)
 
$
73,718

 
40

 
$
(5,009
)
 
$
402,227

 
$
(5,803
)
 
$
475,945


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, 2018:
 
Less than 12 months
 
12 months or more
 
Total
($ in Thousands)
Number
of
Securities
 
Unrealized
(Losses)
 
Fair
Value
 
Number
of
Securities
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
Investment securities available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
—

 
$
—

 
$
—

 
1

 
$
(1
)
 
$
999

 
$
(1
)
 
$
999

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
15

 
(31
)
 
17,993

 
17

 
(3,479
)
 
189,405

 
(3,510
)
 
207,398

GNMA
12

 
(4,529
)
 
452,183

 
79

 
(37,355
)
 
1,598,159

 
(41,885
)
 
2,050,342

Private-label
1

 
(4
)
 
1,003

 
—

 
—

 
—

 
(4
)
 
1,003

GNMA commercial mortgage-related securities
—

 
—

 
—

 
93

 
(52,512
)
 
1,220,854

 
(52,512
)
 
1,220,854

FFELP asset backed securities
13

 
(698
)
 
142,432

 
—

 
—

 
—

 
(698
)
 
142,432

Total
41

 
$
(5,262
)
 
$
613,612

 
190

 
$
(93,347
)
 
$
3,009,417

 
$
(98,610
)
 
$
3,623,028

Investment securities held to maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
272

 
$
(2,860
)
 
$
313,212

 
752

 
$
(12,419
)
 
$
509,374

 
$
(15,279
)
 
$
822,586

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
13

 
(780
)
 
57,896

 
22

 
(1,015
)
 
28,888

 
(1,795
)
 
86,784

GNMA
13

 
(414
)
 
19,822

 
66

 
(7,767
)
 
320,387

 
(8,181
)
 
340,209

GNMA commercial mortgage-related securities
—

 
—

 
—

 
25

 
(22,579
)
 
490,414

 
(22,579
)
 
490,414

Total
298

 
$
(4,053
)
 
$
390,929

 
865

 
$
(43,780
)
 
$
1,349,063

 
$
(47,835
)
 
$
1,739,992


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, 2019 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, 2019 for mortgage-related securities have declined due to the decrease in overall interest rates. The U.S. Treasury 3 year and 5 year rates decreased by 90 bp and 96 bp, respectively, from December 31, 2018. 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.
FHLB and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve Bank 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, 2019 and December 31, 2018, the Corporation had FHLB stock of $129 million and $173 million, respectively. The Corporation had Federal Reserve Bank stock of $78 million at September 30, 2019 and $77 million at December 31, 2018.
Equity Securities
Equity securities with readily determinable fair values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds. At both September 30, 2019 and December 31, 2018, the Corporation had equity securities with readily determinable fair values of $2 million.
Equity securities without readily determinable fair values: The Corporation's portfolio of equity securities without readily determinable fair values consists of Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering. During the second quarter of 2019, the Corporation donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up their remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of the covered litigation, the Visa Class B restricted shares were previously carried at a zero cost basis. Thus, the Corporation had equity securities without readily determinable fair values of $13 million at September 30, 2019 and $0 at December 31, 2018.