Note 6 — Investment Securities and Equity Securities with Readily Determinable Fair Values

The Company classifies debt securities into one of three categories: held-to maturity, available-for-sale, or trading. Such debt 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. In accordance with the provisions of ASU 2016-01, which the Company adopted on January 1, 2018, unrealized holding gains and losses related to equity securities with readily determinable fair values are included in net income.

The amortized cost and estimated fair value by type of investment security at March 31, 2018 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 debt investment securities	$	2,400	$	—	$	—	$	2,400	$	2,400


	Available for Sale Debt Securities
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Carrying
	cost		gains		losses		fair value		value(1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	3,748,869	$	9,992	$	(102,778)	$	3,656,083	$	3,656,083
Obligations of states and political subdivisions		206,656		5,564		(130)		212,090		212,090
Total debt investment securities	$	3,955,525	$	15,556	$	(102,908)	$	3,868,173	$	3,868,173

(1)

Included in the carrying value of residential mortgage-backed securities are $610,958 of mortgage-backed securities issued by Ginnie Mae and $3,045,125 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, 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		Estimated
	Amortized		unrealized		unrealized		fair		Carrying
	cost		gains		losses		value		value(1)
	(Dollars in Thousands)
Residential mortgage-backed securities	$	3,943,092	$	14,110	$	(65,969)	$	3,891,233	$	3,891,233
Obligations of states and political subdivisions		225,096		7,871		(16)		232,951		232,951
Equity securities		28,075		293		(482)		27,886		27,886
Total investment securities	$	4,196,263	$	22,274	$	(66,467)	$	4,152,070	$	4,152,070

(1)

Included in the carrying value of residential mortgage-backed securities are $654,063 of mortgage-backed securities issued by Ginnie Mae and $3,237,170 of mortgage-backed securities issued by Fannie Mae and Freddie.

The amortized cost and estimated fair value of investment securities at March 31, 2018, 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	$	1,200	$	1,200	$	—	$	—
Due after one year through five years		1,200		1,200		—		—
Due after five years through ten years		—		—		1,720		1,749
Due after ten years		—		—		204,936		210,341
Residential mortgage-backed securities		—		—		3,748,869		3,656,083
Total debt investment securities	$	2,400	$	2,400	$	3,955,525	$	3,868,173

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 debt investment securities pledged to qualify for fiduciary powers, to secure public monies as required by law, repurchase agreements and short-term fixed borrowings was $1,420,779,000 and $1,465,275,000, respectively, at March 31, 2018.

Proceeds from the sale and calls of debt securities available-for-sale were $18,145,000 for the three months ended March 31, 2018, which included $0 of mortgage-backed securities. Gross gains of $0 and gross losses of $0 were realized on the sales and calls for the three months ended March 31, 2018. Proceeds from the sale and call of debt securities available-for-sale were $121,549,000 for the three months ended March 31, 2017, which included $116,335,000 of mortgage-backed securities. Gross gains of $1,176,000 and gross losses of $249,000 were realized on the sales and calls for the three months ended March 31, 2017.

Gross unrealized losses on debt investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position at March 31, 2018, 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	$	1,246,760	$	(23,016)	$	1,947,535	$	(79,762)	$	3,194,295	$	(102,778)
Obligations of states and political subdivisions		14,931		(119)		515		(11)		15,446		(130)
	$	1,261,691	$	(23,135)	$	1,948,050	$	(79,773)	$	3,209,741	$	(102,908)

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 December 31, 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	$	1,061,577	$	(13,157)	$	2,029,455	$	(52,812)	$	3,091,032	$	(65,969)
Obligations of states and political subdivisions		5,534		(9)		522		(7)		6,056		(16)
Equity securities		11,499		(251)		8,019		(231)		19,518		(482)
	$	1,078,610	$	(13,417)	$	2,037,996	$	(53,050)	$	3,116,606	$	(66,467)

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.

Equity securities with readily determinable fair values consist primarily of Community Reinvestment Act funds. At March 31, 2018 and December 31, 2017, the balance in equity securities with readily determinable fair values recorded at fair value were $27,301,000 and $27,885,000, respectively. Prior to January 1, 2018, the equity securities were included in available-for-sale securities, with the related unrealized gain or loss recorded as a component of other comprehensive income. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2018:



	Three Months Ended
	March 31,
	(Dollars in Thousands)
	2018

Net losses recognized during the period on equity securities	$	(774)
Less: Net gains and (losses) recognized during the period on equity securities sold during the period		—

Unrealized losses recognized during the reporting period on equity securities still held at the reporting date	$	(774)