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Securities | 12 Months Ended
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Dec. 31, 2016
Securities |
Securities | Note 4: Securities Investment Portfolio Management Investments are comprised of debt securities and non-marketable equity investments. As of the second quarter of 2016, all debt securities are 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. Nonmarketable equity investments include FHLBC stock and FRBC stock. FHLBC stock was $3.1 million and $3.7 million at December 31, 2016, and December 31, 2015. FRBC stock was $4.8 million at December 31, 2016, and December 31, 2015. 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, 2016 and December 31, 2015, and the corresponding amounts of gross unrealized gains and losses (in thousands):
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
December 31, 2016 |  | Cost |  | Gains |  | Losses |  | Value
Securities available-for-sale |  |  |  |  |  |  |  |
U.S. government agencies mortgage-backed |  | $ | 42,511 |  | $ | - |  | $ | (977) |  | $ | 41,534
States and political subdivisions |  |  | 68,718 |  |  | 258 |  |  | (273) |  |  | 68,703
Corporate bonds |  |  | 10,957 |  |  | 9 |  |  | (336) |  |  | 10,630
Collateralized mortgage obligations |  |  | 174,352 |  |  | 374 |  |  | (3,799) |  |  | 170,927
Asset-backed securities |  |  | 146,391 |  |  | 341 |  |  | (8,325) |  |  | 138,407
Collateralized loan obligations |  |  | 102,504 |  |  | 29 |  |  | (896) |  |  | 101,637
Total securities available-for-sale |  | $ | 545,433 |  | $ | 1,011 |  | $ | (14,606) |  | $ | 531,838
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
December 31, 2015 |  | Cost |  | Gains |  | Losses |  | Value
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 1,509 |  | $ | - |  | $ | - |  | $ | 1,509
U.S. government agencies |  |  | 1,683 |  |  | - |  |  | (127) |  |  | 1,556
U.S. government agencies mortgage-backed |  |  | 2,040 |  |  | - |  |  | (44) |  |  | 1,996
States and political subdivisions |  |  | 30,341 |  |  | 285 |  |  | (100) |  |  | 30,526
Corporate bonds |  |  | 30,157 |  |  | - |  |  | (757) |  |  | 29,400
Collateralized mortgage obligations |  |  | 68,743 |  |  | 24 |  |  | (1,847) |  |  | 66,920
Asset-backed securities |  |  | 241,872 |  |  | 74 |  |  | (10,038) |  |  | 231,908
Collateralized loan obligations |  |  | 94,374 |  |  | - |  |  | (2,123) |  |  | 92,251
Total securities available-for-sale |  | $ | 470,719 |  | $ | 383 |  | $ | (15,036) |  | $ | 456,066
Securities held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency mortgage-backed |  | $ | 36,505 |  | $ | 1,592 |  | $ | - |  | $ | 38,097
Collateralized mortgage obligations |  |  | 211,241 |  |  | 3,302 |  |  | (965) |  |  | 213,578
Total securities held-to-maturity |  | $ | 247,746 |  | $ | 4,894 |  | $ | (965) |  | $ | 251,675
During the twelve months ended December 31, 2016, the total securities portfolio declined $172.0 million. This reduction stemmed from funding needs related to the Talmer branch acquisition and loan growth. Certain portfolios did increase in the year over year period, such as states and political subdivisions and collateralized loan obligations. Purchases totaling $92.3 million were executed in these portfolios during 2016 due to favorable pricing in the rising interest rate environment. These portfolio increases were more than offset by reductions in holdings of asset-backed securities and collateralized mortgage obligations; these reductions were comprised of sales of $287.7 million and paydowns of $31.8 million. Securities valued at $262.6 million as of December 31, 2016, (a decline from $340.2 million at year-end 2015) were pledged to secure deposits and for other purposes. The fair value, amortized cost and weighted average yield of debt securities at December 31, 2016, 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 |  | $ | 14,410 |  | 1.93 | % |  | $ | 14,416 |
Due after one year through five years |  |  | 4,575 |  | 3.02 |  |  |  | 4,571 |
Due after five years through ten years |  |  | 16,855 |  | 2.62 |  |  |  | 16,594 |
Due after ten years |  |  | 43,835 |  | 3.51 |  |  |  | 43,752 |
|  |  | 79,675 |  | 3.01 |  |  |  | 79,333 |
Mortgage-backed and collateralized mortgage obligations |  |  | 216,863 |  | 2.43 |  |  |  | 212,461 |
Asset-backed securities |  |  | 146,391 |  | 2.15 |  |  |  | 138,407 |
Collateralized loan obligations |  |  | 102,504 |  | 3.80 |  |  |  | 101,637 |
Total securities available-for-sale |  | $ | 545,433 |  | 2.70 | % |  | $ | 531,838 |
At December 31, 2016, the Company’s investments include asset-backed securities totaling $117.4 million 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, FFEL securities are generally guaranteed by the U.S. Department of Education (“DOE”) at not less than 97% of the principal amount of the loans. The guarantee will reduce to 85% if the DOE receives reimbursement requests in excess of 5% of insured loans; reimbursement will drop to 75% if reimbursement requests exceed 9% of insured loans. As of December 31, 2016, the likelihood of the decrease in the government guarantee was minimal as the average rate of reimbursement for 2015 was less than 1.0%. A number of major student loan originators packaged FFEL loans and sold them as asset-backed securities. The Company has accumulated the securities of the following two different originators that individually amount to over 10% of the Company’s stockholders equity. Information regarding these two issuers and the value of the securities issued follows:
|  | December 31, 2016 |
|  | Amortized |  | Fair |
Issuer |  | Cost |  | Value |
GCO Education Loan Funding Corp |  | $ | 37,812 |  | $ | 34,678 |
Towd Point Mortgage Trust |  |  | 20,302 |  |  | 19,792 |
Securities with unrealized losses at December 31, 2016, and December 31, 2015, 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 |  | 12 months or more |  |  |  |  |  |  |  |
December 31, 2016 |  | 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. government agencies mortgage-backed |  | 11 |  | $ | 957 |  | $ | 40,636 |  | 1 |  | $ | 20 |  | $ | 898 |  | 12 |  | $ | 977 |  | $ | 41,534
States and political subdivisions |  | 12 |  |  | 273 |  |  | 35,241 |  | - |  |  | - |  |  | - |  | 12 |  |  | 273 |  |  | 35,241
Corporate bonds |  | 1 |  |  | 183 |  |  | 4,817 |  | 2 |  |  | 153 |  |  | 5,328 |  | 3 |  |  | 336 |  |  | 10,145
Collateralized mortgage obligations |  | 16 |  |  | 3,402 |  |  | 117,752 |  | 7 |  |  | 397 |  |  | 18,109 |  | 23 |  |  | 3,799 |  |  | 135,861
Asset-backed securities |  | 4 |  |  | 328 |  |  | 17,604 |  | 12 |  |  | 7,997 |  |  | 107,112 |  | 16 |  |  | 8,325 |  |  | 124,716
Collateralized loan obligations |  | - |  |  | - |  |  | - |  | 12 |  |  | 896 |  |  | 81,613 |  | 12 |  |  | 896 |  |  | 81,613
Total securities available-for-sale |  | 44 |  | $ | 5,143 |  | $ | 216,050 |  | 34 |  | $ | 9,463 |  | $ | 213,060 |  | 78 |  | $ | 14,606 |  | $ | 429,110
|  | Less than 12 months |  | 12 months or more |  |  |  |  |  |  |  |
December 31, 2015 |  | 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. government agencies |  | - |  | $ | - |  | $ | - |  | 1 |  | $ | 127 |  | $ | 1,556 |  | 1 |  | $ | 127 |  | $ | 1,556
U.S. government agencies mortgage-backed |  | 1 |  |  | 44 |  |  | 1,996 |  | - |  |  | - |  |  | - |  | 1 |  |  | 44 |  |  | 1,996
States and political subdivisions |  | 2 |  |  | 19 |  |  | 1,541 |  | 1 |  |  | 81 |  |  | 1,713 |  | 3 |  |  | 100 |  |  | 3,254
Corporate bonds |  | 5 |  |  | 292 |  |  | 14,866 |  | 3 |  |  | 465 |  |  | 14,534 |  | 8 |  |  | 757 |  |  | 29,400
Collateralized mortgage obligations |  | 4 |  |  | 334 |  |  | 16,218 |  | 7 |  |  | 1,513 |  |  | 43,618 |  | 11 |  |  | 1,847 |  |  | 59,836
Asset-backed securities |  | 9 |  |  | 2,080 |  |  | 78,301 |  | 8 |  |  | 7,958 |  |  | 121,217 |  | 17 |  |  | 10,038 |  |  | 199,518
Collateralized loan obligations |  | 5 |  |  | 446 |  |  | 29,480 |  | 9 |  |  | 1,677 |  |  | 62,771 |  | 14 |  |  | 2,123 |  |  | 92,251
Total securities available-for-sale |  | 26 |  | $ | 3,215 |  | $ | 142,402 |  | 29 |  | $ | 11,821 |  | $ | 245,409 |  | 55 |  | $ | 15,036 |  | $ | 387,811
Securities held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateralized mortgage obligations |  | 8 |  | $ | 505 |  | $ | 40,307 |  | 2 |  | $ | 460 |  | $ | 33,842 |  | 10 |  | $ | 965 |  | $ | 74,149
Total securities held-to-maturity |  | 8 |  | $ | 505 |  | $ | 40,307 |  | 2 |  | $ | 460 |  | $ | 33,842 |  | 10 |  | $ | 965 |  | $ | 74,149
Recognition of other-than-temporary impairment was not necessary in the year ended December 31, 2016, or the year ended December 31, 2015. The changes in fair value related primarily to interest rate fluctuations. The Company’s review of other-than-temporary impairment confirmed no credit quality deterioration.
|  | Years ended December 31,
|  | 2016 |  | 2015 |  | 2014
Proceeds from sales of securities |  | $ | 306,400 |  | $ | 70,176 |  | $ | 296,013
Gross realized gains on securities |  |  | 1,675 |  |  | 106 |  |  | 3,231
Gross realized losses on securities |  |  | (3,888) |  |  | (284) |  |  | (1,512)
Securities gains (losses), net |  | $ | (2,213) |  | $ | (178) |  | $ | 1,719
Income tax expense (benefit) on net realized gains (losses) |  | $ | (882) |  | $ | (71) |  | $ | 704

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