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Investment Securities
 6 Months Ended
Jun. 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.
 
June 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

 
$
—

 
$
(6
)
 
$
996

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
396,368

 
5,573

 
(5,232
)
 
396,709

 
GNMA
2,275,481

 
23

 
(65,315
)
 
2,210,189

 
Private-label
1,037

 
—

 
(5
)
 
1,031

 
GNMA commercial mortgage-related securities
1,400,680

 
—

 
(52,399
)
 
1,348,282

 
FFELP asset backed securities
298,263

 
1,679

 
(111
)
 
299,831

 
Other debt securities
3,000

 
—

 
—

 
3,000

 
Other equity securities
1,613


—


—


1,613

 
Total investment securities available for sale
$
4,377,443

 
$
7,275

 
$
(123,068
)
 
$
4,261,651

 
Investment securities held to maturity
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,593,147

 
$
4,851

 
$
(17,698
)
 
$
1,580,300

 
Residential mortgage-related securities
 
 
 
 
 
 
 
 
FNMA / FHLMC
97,822

 
191

 
(2,306
)
 
95,707

 
GNMA
388,174

 
1,969

 
(13,020
)
 
377,123

 
GNMA commercial mortgage-related securities
523,103

 
8,542

 
(23,832
)
 
507,813

 
Total investment securities held to maturity
$
2,602,247

 
$
15,553

 
$
(56,856
)
 
$
2,560,943

 
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 June 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
$
3,001

 
$
2,996

 
$
46,938

 
$
47,269

Due after one year through five years
1,000

 
1,000

 
200,725

 
199,266

Due after five years through ten years
—

 
—

 
366,997

 
361,260

Due after ten years
—

 
—

 
978,487

 
972,504

Total debt securities
4,001

 
3,996

 
1,593,147

 
1,580,300

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
396,368

 
396,709

 
97,822

 
95,707

GNMA
2,275,481

 
2,210,189

 
388,174

 
377,123

Private-label
1,037

 
1,031

 
—

 
—

GNMA commercial mortgage-related securities
1,400,680

 
1,348,282

 
523,103

 
507,813

FFELP asset backed securities
298,263

 
299,831

 
—

 
—

Equity securities
1,613

 
1,613

 
—

 
—

Total investment securities
$
4,377,443

 
$
4,261,651

 
$
2,602,247

 
$
2,560,943

Ratio of Fair Value to Amortized Cost
 
 
97.4
%
 
 
 
98.4
%

The proceeds from the sale of investment securities for the six months ended June 30, 2018 and 2017 are shown below.
 
Six Months Ended June 30,
 
2018
 
2017
 
($ in Thousands)
Gross gains on available for sale securities
$
—

 
$
—

Gross gains on held to maturity securities
—

 
361

Total gains
—

 
361

Gross losses on available for sale securities
(2,015
)
 
—

Gross losses on held to maturity securities
$
—

 
$
(5
)
Total losses
$
(2,015
)
 
$
(5
)
Investment securities gains (losses), net
$
(2,015
)
 
$
356

Proceeds from sales of investment securities
$
493,060

 
$
16,059


During the first six months of 2018, the Corporation sold approximately $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.
During the first six 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 $3.1 billion at both June 30, 2018 and December 31, 2017 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 June 30, 2018.
 
Less than 12 months
 
12 months or more
 
Total
June 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

 
$
(6
)
 
$
996

 
$
(6
)
 
$
996

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
19

 
(1,613
)
 
100,946

 
9

 
(3,620
)
 
128,509

 
(5,233
)
 
229,455

GNMA
62

 
(31,430
)
 
1,453,394

 
29

 
(33,885
)
 
756,061

 
(65,315
)
 
2,209,455

Private-label
—

 
—

 
—

 
1

 
(5
)
 
1,031

 
(5
)
 
1,031

GNMA commercial mortgage-related securities
22

 
(8,821
)
 
284,733

 
80

 
(43,577
)
 
1,063,701

 
(52,398
)
 
1,348,434

FFELP asset backed securities
7

 
(111
)

100,757


—


—


—


(111
)

100,757

Total
110

 
$
(41,975
)

$
1,939,830


120


$
(81,093
)

$
1,950,298


$
(123,068
)

$
3,890,128

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

890

 
$
(10,814
)
 
$
609,381

 
142

 
$
(6,884
)
 
$
128,244

 
$
(17,698
)
 
$
737,625

Residential mortgage-related securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
25

 
(1,518
)
 
76,046

 
10

 
(788
)
 
14,728

 
(2,306
)
 
90,774

GNMA
61

 
(7,062
)
 
236,008

 
20

 
(5,957
)
 
137,093

 
(13,019
)
 
373,101

GNMA commercial mortgage-related securities
1

 
(813
)
 
29,243

 
24

 
(23,019
)
 
478,570

 
(23,832
)
 
507,813

Total
977

 
$
(20,207
)
 
$
950,678

 
196

 
$
(36,648
)
 
$
758,635

 
$
(56,856
)
 
$
1,709,313


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 June 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 June 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 65 bp and 53 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 June 30, 2018, and December 31, 2017, the Corporation had FHLB stock of $173 million and $89 million, respectively. The Corporation had Federal Reserve Bank stock of $76 million at both June 30, 2018 and December 31, 2017.