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Investment Securities
 12 Months Ended
Dec. 31, 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. 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 GNMA or GSEs such as FNMA and FHLMC. Obligations of state and political subdivisions (municipal securities) and asset backed securities backed by student loans made under FFELP are other security holdings within the Corporation's investment portfolio. The amortized cost and fair values of securities available for sale and held to maturity were as follows:
 
December 31, 2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
 
 
 
 
($ in Thousands)
 
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

 
Other equity securities
1,568

—

—

1,568

 
Total investment securities available for sale
$
4,043,470

$
3,649

$
(98,610
)
$
3,948,510

 
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


 
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 December 31, 2018, 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
$
2,000

 
$
1,999

 
$
48,865

 
$
49,128

Due after one year through five years
2,000

 
2,000

 
187,828

 
186,797

Due after five years through ten years
—

 
—

 
409,682

 
406,702

Due after ten years
—

 
—

 
1,144,309

 
1,141,032

Total debt securities
4,000

 
3,999

 
1,790,683

 
1,783,659

Residential mortgage-related securities
 
 
 
 
 
 
 
FNMA / FHLMC
296,296

 
295,252

 
92,788

 
91,162

GNMA
2,169,943

 
2,128,531

 
351,606

 
345,035

Private-label
1,007

 
1,003

 
—

 
—

GNMA commercial mortgage-related securities
1,273,309

 
1,220,797

 
505,434

 
490,414

FFELP asset backed securities
297,347

 
297,360

 
—

 
—

Equity securities
1,568

 
1,568

 
—

 
—

Total investment securities
$
4,043,470

 
$
3,948,510

 
$
2,740,511

 
$
2,710,271

Ratio of Fair Value to Amortized Cost
 
 
97.7
%
 
 
 
98.9
%


The proceeds from the sale 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 2018, 2017, or 2016.
 
2018
2017
2016
 
($ in Thousands)
Gross gains on available for sale securities
$
1,954

$
—

$
9,485

Gross gains on held to maturity securities
—

439

33

Total gains
1,954

439

9,518

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

(202
)
Gross losses on held to maturity securities
—

(5
)
—

Total losses
(3,938
)
(5
)
(202
)
Investment securities gains (losses), net
$
(1,985
)
$
434

$
9,316

Proceeds from sales of investment securities
$
601,130

$
18,467

$
549,555


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 second quarter 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 originally reinvested the proceeds from the Bank Mutual portfolio into GNMA residential mortgage-related securities with the goal of reinvesting future cash flows into municipal securities. This strategy was completed during August 2018.
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, as part of an ongoing restructuring of its investment securities portfolio initiated during the prior year, the Corporation sold approximately $550 million of FNMA and FHLMC mortgage-related securities for a net gain on sale of $9 million, with the proceeds reinvested into GNMA mortgage-related securities. 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.

Investment securities with a carrying value of approximately $3.0 billion and $3.1 billion at December 31, 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 December 31, 2018:
 
Less than 12 months
12 months or more
Total
December 31, 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

$
(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


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 December 31, 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 December 31, 2018 for mortgage-related securities are due to the increase in overall interest rates. The U.S. Treasury 3 year and 5 year rates increased by 48 bp and 31 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.
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, 2018, and 2017, the Corporation had FHLB stock of $173 million and $89 million, respectively. The Corporation had Federal Reserve Bank stock of $77 million and $76 million at December 31, 2018 and 2017, respectively.