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Securities | 9 Months Ended
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Sep. 30, 2014
Securities |
Securities | Note 2 – Securities Investment Portfolio Management Our investment portfolio serves the liquidity and income needs of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio will also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk. Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital. Securities held-to-maturity are carried at amortized cost and the discount or premium created in the 2013 transfer from available-for-sale securities or at the time of purchase thereafter is accreted or amortized to the maturity or expected payoff date but not an earlier call. In accordance with GAAP, the Company has the positive intent and ability to hold the securities to maturity. Nonmarketable equity investments include Federal Home Loan Bank of Chicago (“FHLBC”) stock and Federal Reserve Bank of Chicago (“Reserve Bank”) stock. FHLBC stock was recorded at $4.3 million and $5.5 million at September 30, 2014, and December 31, 2013, respectively. Reserve Bank stock was recorded at $4.8 million at September 30, 2014, and December 31, 2013. Our FHLBC stock is necessary to maintain access to FHLBC advances. The following table summarizes the amortized cost and fair value of the securities portfolio at September 30, 2014 and December 31, 2013 and the corresponding amounts of gross unrealized gains and losses (in thousands):
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
September 30, 2014: |  | Cost |  | Gains |  | Losses |  | Value
Securities Available-for-Sale |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 1,533 |  | $ | - |  | $ | (1) |  | $ | 1,532
U.S. government agencies |  |  | 1,718 |  |  | - |  |  | (80) |  |  | 1,638
States and political subdivisions |  |  | 13,794 |  |  | 313 |  |  | (228) |  |  | 13,879
Corporate bonds |  |  | 31,272 |  |  | 65 |  |  | (556) |  |  | 30,781
Collateralized mortgage obligations |  |  | 29,951 |  |  | 41 |  |  | (1,575) |  |  | 28,417
Asset-backed securities |  |  | 194,927 |  |  | 98 |  |  | (2,227) |  |  | 192,798
Collateralized loan obligations |  |  | 94,202 |  |  | - |  |  | (1,004) |  |  | 93,198
Total Securities Available-for-Sale |  | $ | 367,397 |  | $ | 517 |  | $ | (5,671) |  | $ | 362,243
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | $ | 37,321 |  | $ | 1,346 |  | $ | (11) |  | $ | 38,656
Collateralized mortgage obligations |  |  | 225,719 |  |  | 2,017 |  |  | (2,049) |  |  | 225,687
Total Securities Held-to-Maturity |  | $ | 263,040 |  | $ | 3,363 |  | $ | (2,060) |  | $ | 264,343
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
December 31, 2013: |  | Cost |  | Gains |  | Losses |  | Value
Securities Available-for-Sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 1,549 |  | $ | - |  | $ | (5) |  | $ | 1,544
U.S. government agencies |  |  | 1,738 |  |  | - |  |  | (66) |  |  | 1,672
States and political subdivisions |  |  | 16,382 |  |  | 629 |  |  | (217) |  |  | 16,794
Corporate bonds |  |  | 15,733 |  |  | 17 |  |  | (648) |  |  | 15,102
Collateralized mortgage obligations |  |  | 66,766 |  |  | 256 |  |  | (3,146) |  |  | 63,876
Asset-backed securities |  |  | 274,118 |  |  | 2,168 |  |  | (3,083) |  |  | 273,203
Total Securities Available-for-Sale |  | $ | 376,286 |  | $ | 3,070 |  | $ | (7,165) |  | $ | 372,191
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | $ | 35,268 |  | $ | 45 |  | $ | (73) |  | $ | 35,240
Collateralized mortgage obligations |  |  | 221,303 |  |  | 643 |  |  | (2,858) |  |  | 219,088
Total Securities Held-to-Maturity |  | $ | 256,571 |  | $ | 688 |  | $ | (2,931) |  | $ | 254,328
The fair value, amortized cost and weighted average yield of debt securities at September 30, 2014, by contractual maturity, were as follows in the table below. Securities not due at a single maturity date are shown separately.
|  |  |  |  | Weighted |  |  |
|  | Amortized |  | Average |  | Fair
Securities Available-for-Sale |  | Cost |  | Yield |  | Value
Due in one year or less |  | $ | 410 |  | 4.50% |  | $ | 421
Due after one year through five years |  |  | 5,811 |  | 2.87% |  |  | 5,992
Due after five years through ten years |  |  | 36,724 |  | 2.44% |  |  | 36,218
Due after ten years |  |  | 5,372 |  | 3.31% |  |  | 5,199
|  |  | 48,317 |  | 2.61% |  |  | 47,830
Collateralized mortgage obligations |  |  | 29,951 |  | 2.46% |  |  | 28,417
Asset-back securities |  |  | 194,927 |  | 2.10% |  |  | 192,798
Collateralized loan obligations |  |  | 94,202 |  | 2.78% |  |  | 93,198
|  | $ | 367,397 |  | 2.37% |  | $ | 362,243
Securities Held-to-Maturity |  |  |  |  |  |  |  |
Mortgage-backed and collateralized mortgage obligations |  | $ | 263,040 |  | 3.05% |  | $ | 264,343
Securities with unrealized losses at September 30, 2014, and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):
|  | Less than 12 months |  | Greater than 12 months |  |  |  |  |  |  |  |
September 30, 2014 |  | in an unrealized loss position |  | in an unrealized loss position |  | Total
|  | Number of |  | Unrealized |  | Fair |  | Number of |  | Unrealized |  | Fair |  | Number of |  | Unrealized |  | Fair
Securities Available-for-Sale |  | Securities |  | Losses |  | Value |  | Securities |  | Losses |  | Value |  | Securities |  | Losses |  | Value
U.S. Treasury |  | 1 |  | $ | 1 |  | $ | 1,532 |  | - |  | $ | - |  | $ | - |  | 1 |  | $ | 1 |  | $ | 1,532
U.S. government agencies |  | - |  |  | - |  |  | - |  | 1 |  |  | 80 |  |  | 1,638 |  | 1 |  |  | 80 |  |  | 1,638
States and political subdivisions |  | 3 |  |  | 215 |  |  | 4,450 |  | 2 |  |  | 13 |  |  | 1,862 |  | 5 |  |  | 228 |  |  | 6,312
Corporate bonds |  | 5 |  |  | 463 |  |  | 20,581 |  | 2 |  |  | 93 |  |  | 2,411 |  | 7 |  |  | 556 |  |  | 22,992
Collateralized mortgage obligations |  | 1 |  |  | 18 |  |  | 4,739 |  | 3 |  |  | 1,557 |  |  | 21,704 |  | 4 |  |  | 1,575 |  |  | 26,443
Asset-backed securities |  | 10 |  |  | 1,231 |  |  | 117,440 |  | 3 |  |  | 996 |  |  | 44,042 |  | 13 |  |  | 2,227 |  |  | 161,482
Collateralized loan obligations |  | 13 |  |  | 1,004 |  |  | 93,198 |  | - |  |  | - |  |  | - |  | 13 |  |  | 1,004 |  |  | 93,198
|  | 33 |  | $ | 2,932 |  | $ | 241,940 |  | 11 |  | $ | 2,739 |  | $ | 71,657 |  | 44 |  | $ | 5,671 |  | $ | 313,597
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | 1 |  | $ | 11 |  | $ | 1,972 |  | - |  | $ | - |  | $ | - |  | 1 |  | $ | 11 |  | $ | 1,972
Collateralized mortgage obligations |  | 13 |  |  | 1,164 |  |  | 83,545 |  | 2 |  |  | 885 |  |  | 37,828 |  | 15 |  |  | 2,049 |  |  | 121,373
|  | 14 |  | $ | 1,175 |  | $ | 85,517 |  | 2 |  | $ | 885 |  | $ | 37,828 |  | 16 |  | $ | 2,060 |  | $ | 123,345
|  | Less than 12 months |  | Greater than 12 months |  |  |  |  |  |  |  |
December 31, 2013 |  | in an unrealized loss position |  | in an unrealized loss position |  | Total
|  | Number of |  | Unrealized |  |  | Fair |  | Number of |  | Unrealized |  |  | Fair |  | Number of |  | Unrealized |  |  | Fair
Securities Available-for-Sale |  | Securities |  | Losses |  |  | Value |  | Securities |  | Losses |  |  | Value |  | Securities |  | Losses |  |  | Value
U.S. Treasury |  | 1 |  | $ | 5 |  | $ | 1,544 |  | - |  | $ | - |  | $ | - |  | 1 |  | $ | 5 |  | $ | 1,544
U.S. government agencies |  | - |  |  | - |  |  | - |  | 1 |  |  | 66 |  |  | 1,672 |  | 1 |  |  | 66 |  |  | 1,672
States and political subdivisions |  | 6 |  |  | 217 |  |  | 4,625 |  | - |  |  | - |  |  | - |  | 6 |  |  | 217 |  |  | 4,625
Corporate bonds |  | 4 |  |  | 429 |  |  | 10,493 |  | 2 |  |  | 219 |  |  | 2,796 |  | 6 |  |  | 648 |  |  | 13,289
Collateralized mortgage obligations |  | 5 |  |  | 3,146 |  |  | 54,021 |  | - |  |  | - |  |  | - |  | 5 |  |  | 3,146 |  |  | 54,021
Asset-backed securities |  | 11 |  |  | 2,836 |  |  | 99,466 |  | 2 |  |  | 247 |  |  | 6,368 |  | 13 |  |  | 3,083 |  |  | 105,834
|  | 27 |  | $ | 6,633 |  | $ | 170,149 |  | 5 |  | $ | 532 |  | $ | 10,836 |  | 32 |  | $ | 7,165 |  | $ | 180,985
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | 6 |  | $ | 73 |  | $ | 19,134 |  | - |  | $ | - |  | $ | - |  | 6 |  | $ | 73 |  | $ | 19,134
Collateralized mortgage obligations |  | 19 |  |  | 2,858 |  |  | 156,632 |  | - |  |  | - |  |  | - |  | 19 |  |  | 2,858 |  |  | 156,632
|  | 25 |  | $ | 2,931 |  | $ | 175,766 |  | - |  | $ | - |  | $ | - |  | 25 |  | $ | 2,931 |  | $ | 175,766
Recognition of other-than-temporary impairment was not necessary in the nine months ended September 30, 2014, or the year ended December 31, 2013. The changes in fair value related primarily to interest rate fluctuations. Our review of other-than-temporary impairment confirmed no credit quality deterioration.

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