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Investment Securities
 12 Months Ended
Dec. 31, 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. See Note 1 for the Corporation’s accounting policy for investment securities. The majority of the Corporation's investment securities are mortgage-related securities issued by the Government National Mortgage Association (“GNMA”) or GSEs such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”).
 
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 securities (debt and equity)
4,719

127

(26
)
4,820

 
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


 
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 expected maturities of investment securities available for sale and held to maturity at December 31, 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
$
1,001

 
$
1,001

 
$
50,089

 
$
44,781

Due after one year through five years
4,703

 
4,669

 
226,053

 
229,939

Due after five years through ten years
—

 
—

 
322,413

 
324,380

Due after ten years
—

 
—

 
682,765

 
692,942

Total debt securities
5,704

 
5,670

 
1,281,320

 
1,292,042

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
457,680

 
464,768

 
40,995

 
40,904

GNMA
1,944,453

 
1,913,350

 
414,440

 
410,740

Private-label
1,067

 
1,059

 
—

 
—

GNMA commercial mortgage-related securities
1,547,173

 
1,513,277

 
546,098

 
539,888

FFELP asset backed securities
144,322

 
145,176

 
—

 
—

Equity securities
18

 
146

 
—

 
—

Total investment securities
$
4,100,417

 
$
4,043,446

 
$
2,282,853

 
$
2,283,574

Ratio of Fair Value to Amortized Cost
 
 
98.6
%
 
 
 
100.0
%


During the year ended December 31, 2017, the Corporation reclassified GNMA residential mortgage-related securities and GNMA commercial mortgage-related securities from available for sale to held to maturity with an amortized cost of approximately $1 billion. 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.
Total proceeds and gross realized gains and losses from sales of investment securities for each of the three years ended December 31 were as follows. There were no other-than-temporary impairment write-downs on investment securities for 2017, 2016, or 2015.
 
2017
2016
2015
 
($ in Thousands)
Gross gains on available for sale securities
$
—

$
9,485

$
12,270

Gross gains on held to maturity securities
439

33

—

Total gains
439

9,518

12,270

Gross losses on available for sale securities
—

(202
)
(4,137
)
Gross losses on held to maturity securities
(5
)
—

—

Total losses
(5
)
(202
)
(4,137
)
Investment securities gains, net
$
434

$
9,316

$
8,133

Proceeds from sales of investment securities
$
18,467

$
549,555

$
1,601,947


During 2017, the Corporation sold approximately $18 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 and State of Connecticut. These sales resulted in a net gain of approximately $434,000.
During 2016 and 2015, the Corporation restructured its investment securities portfolio from FNMA and FHLMC mortgage-related securities and reinvested into GNMA mortgage-related securities. The Corporation sold approximately $550 million of FNMA and FHLMC mortgage-related securities in 2016 and sold approximately $1.6 billion in 2015, generating net gains on sales of $9 million and $8 million, respectively. The sales of FNMA and FHLMC mortgage-related securities and the subsequent purchase of GNMA mortgage-related securities lowered risk weighted assets and related capital requirements.
Securities with a carrying value of approximately $3.1 billion and $1.8 billion at December 31, 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 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 securities (debt and equity)
4

(26
)
1,675

—

—

—

(26
)
1,675

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


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 December 31, 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 unrealized losses at December 31, 2017 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 51 bp and 27 bp, respectively, from December 31, 2016. 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.
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 December 31, 2017, and 2016, the Corporation had FHLB stock of $89 million and $65 million, respectively. The Corporation had Federal Reserve Bank stock of $76 million and $75 million at December 31, 2017 and 2016, respectively.