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Securities | 12 Months Ended
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Dec. 31, 2014
Securities |
Securities | Note 3: 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. Until the third quarter of 2013, all debt securities had been classified as available-for-sale. 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 FHLBC stock and Reserve Bank stock. FHLBC stock was recorded at $4.3 million and $5.5 million at December 31, 2014, and December 31, 2013. Reserve Bank stock was recorded at $4.8 million at December 31, 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 December 31, 2014 and December 31, 2013 and the corresponding amounts of gross unrealized gains and losses (in thousands):
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
December 31, 2014: |  | Cost |  | Gains |  | Losses |  | Value
Securities Available-for-Sale |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 1,529 |  | $ | - |  | $ | (2) |  | $ | 1,527
U.S. government agencies |  |  | 1,711 |  |  | - |  |  | (87) |  |  | 1,624
States and political subdivisions |  |  | 21,682 |  |  | 432 |  |  | (96) |  |  | 22,018
Corporate bonds |  |  | 31,243 |  |  | 309 |  |  | (567) |  |  | 30,985
Collateralized mortgage obligations |  |  | 65,728 |  |  | 31 |  |  | (2,132) |  |  | 63,627
Asset-backed securities |  |  | 175,565 |  |  | 199 |  |  | (2,268) |  |  | 173,496
Collateralized loan obligations |  |  | 94,236 |  |  | 176 |  |  | (2,203) |  |  | 92,209
Total Securities Available-for-Sale |  | $ | 391,694 |  | $ | 1,147 |  | $ | (7,355) |  | $ | 385,486
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | $ | 37,125 |  | $ | 2,030 |  | $ | - |  | $ | 39,155
Collateralized mortgage obligations |  |  | 222,545 |  |  | 3,005 |  |  | (1,439) |  |  | 224,111
Total Securities Held-to-Maturity |  | $ | 259,670 |  | $ | 5,035 |  | $ | (1,439) |  | $ | 263,266
|  |  |  |  | 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
During the twelve months ended December 31, 2014, we added $16.4 million to the total securities portfolio (net of payoffs, maturities, sales, calls, amortization and accretion). This change is largely found in the 2014 addition of collateralized loan obligations and, to a lesser amount corporate bonds. Holdings of asset backed securities, primarily securities backed by student loan obligations, were reduced in 2014. Securities valued at $267.8 million as of December 31, 2014, (slightly up from $266.7 million at year-end 2013) were pledged to secure deposits and for other purposes. The fair value, amortized cost and weighted average yield of debt securities at December 31, 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 |  | $ | 8,410 |  | 1.65% |  | $ | 8,417 |
Due after one year through five years |  |  | 5,804 |  | 2.87% |  |  | 6,042 |
Due after five years through ten years |  |  | 36,773 |  | 2.43% |  |  | 36,536 |
Due after ten years |  |  | 5,178 |  | 3.27% |  |  | 5,159 |
|  |  | 56,165 |  | 2.43% |  |  | 56,154 |
Collateralized mortgage obligations |  |  | 65,728 |  | 1.80% |  |  | 63,627 |
Asset-backed securities |  |  | 175,565 |  | 1.14% |  |  | 173,496 |
Collateralized loan obligations |  |  | 94,236 |  | 3.22% |  |  | 92,209 |
|  | $ | 391,694 |  | 1.94% |  | $ | 385,486 |
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |
Mortgage-backed and collateralized mortgage obligations |  | $ | 259,670 |  | 3.06% |  | $ | 263,266 |
At December 31, 2014, the Company’s investments include asset-backed securities that are backed by student loans originated under the Federal Family Education Loan program (“FFEL”). Under the FFEL, private lenders made federally guaranteed student loans to parents and students. While the program was modified several times before elimination in 2010, not less than 97% of the original principal amount of the loans made under FFEL were guaranteed by the U.S. Department of Education. A number of major student loan originators packaged loans and sold them as asset-backed securities. The Company has accumulated the securities of the following three different originators that individually amount to over 10% of the Company’s stockholders equity. Information regarding these three issuers and the value of the securities issued follows:
|  | December 31, 2014 |
|  | Amortized |  | Fair |
Issuer |  | Cost |  | Value |
College Loan Corporation |  | $ | 64,634 |  | $ | 64,155 |
Student Loan Consolidation Center Student Loan Trust |  |  | 27,486 |  |  | 27,526 |
GCO Education Loan Funding Corp |  |  | 38,469 |  |  | 37,315 |
Securities with unrealized losses at December 31, 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 |  |  |  |  |  |  |  |
December 31, 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 |  | $ | 2 |  | $ | 1,527 |  | - |  | $ | - |  | $ | - |  | 1 |  | $ | 2 |  | $ | 1,527
U.S. government agencies |  | - |  |  | - |  |  | - |  | 1 |  |  | 87 |  |  | 1,624 |  | 1 |  |  | 87 |  |  | 1,624
States and political subdivisions |  | 4 |  |  | 96 |  |  | 4,896 |  | - |  |  | - |  |  | - |  | 4 |  |  | 96 |  |  | 4,896
Corporate bonds |  | 4 |  |  | 486 |  |  | 15,246 |  | 1 |  |  | 81 |  |  | 1,921 |  | 5 |  |  | 567 |  |  | 17,167
Collateralized mortgage obligations |  | 5 |  |  | 900 |  |  | 38,284 |  | 3 |  |  | 1,232 |  |  | 21,604 |  | 8 |  |  | 2,132 |  |  | 59,888
Asset-backed securities |  | 9 |  |  | 1,077 |  |  | 99,286 |  | 3 |  |  | 1,191 |  |  | 43,662 |  | 12 |  |  | 2,268 |  |  | 142,948
Collateralized loan obligations |  | 12 |  |  | 2,203 |  |  | 82,387 |  | - |  |  | - |  |  | - |  | 12 |  |  | 2,203 |  |  | 82,387
|  | 35 |  | $ | 4,764 |  | $ | 241,626 |  | 8 |  | $ | 2,591 |  | $ | 68,811 |  | 43 |  | $ | 7,355 |  | $ | 310,437
Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateralized mortgage obligations |  | 7 |  | $ | 457 |  | $ | 49,302 |  | 4 |  | $ | 982 |  | $ | 46,283 |  | 11 |  | $ | 1,439 |  | $ | 95,585
|  | 7 |  | $ | 457 |  | $ | 49,302 |  | 4 |  | $ | 982 |  | $ | 46,283 |  | 11 |  | $ | 1,439 |  | $ | 95,585
|  | 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 year ended December 31, 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.
|  | Years ended December 31,
|  | 2014 |  | 2013 |  | 2012
Proceeds from sales of securities |  | $ | 296,013 |  | $ | 533,302 |  | $ | 223,860
Gross realized gains on securities |  |  | 3,231 |  |  | 5,376 |  |  | 1,937
Gross realized losses on securities |  |  | (1,512) |  |  | (7,288) |  |  | (362)
Securities gains (losses), net |  | $ | 1,719 |  | $ | (1,912) |  | $ | 1,575
Income tax expense (benefit) on net realized gains (losses) |  | $ | 704 |  | $ | (784) |  | $ | 641

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