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Securities | 6 Months Ended
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Jun. 30, 2017
Securities |
Securities | Note 3 – Securities Investment Portfolio Management Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio 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. FHLBC and FRBC stock are considered nonmarketable equity investments. FHLBC stock was recorded at $3.8 million at June 30, 2017, and $3.1 million at December 31, 2016, and is necessary to maintain access to FHLBC advances, which are utilized as a component to meet the Bank’s daily funding needs. FRBC stock was recorded at $4.8 million at June 30, 2017, and December 31, 2016. The following table summarizes the amortized cost and fair value of the securities portfolio at June 30, 2017, and December 31, 2016, and the corresponding amounts of gross unrealized gains and losses:
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
June 30, 2017 |  | Cost |  | Gains |  | Losses |  | Value
Securities available-for-sale |  |  |  |  |  |  |  |
U.S. government agencies mortgage-backed |  | $ | 21,039 |  | $ | 6 |  | $ | (199) |  | $ | 20,846
States and political subdivisions |  |  | 222,098 |  |  | 4,472 |  |  | (1,052) |  |  | 225,518
Corporate bonds |  |  | 12,807 |  |  | 58 |  |  | (249) |  |  | 12,616
Collateralized mortgage obligations |  |  | 102,717 |  |  | 159 |  |  | (1,963) |  |  | 100,913
Asset-backed securities |  |  | 144,812 |  |  | 557 |  |  | (4,984) |  |  | 140,385
Collateralized loan obligations |  |  | 67,735 |  |  | 305 |  |  | (91) |  |  | 67,949
Total securities available-for-sale |  | $ | 571,208 |  | $ | 5,557 |  | $ | (8,538) |  | $ | 568,227
|  |  |  |  | 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
The fair value, amortized cost and weighted average yield of debt securities at June 30, 2017, 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 |  | $ | 11,600 |  | 2.60 | % |  | $ | 11,636 |
Due after one year through five years |  |  | 1,847 |  | 4.65 |  |  |  | 1,844 |
Due after five years through ten years |  |  | 18,178 |  | 2.88 |  |  |  | 18,202 |
Due after ten years |  |  | 203,280 |  | 3.01 |  |  |  | 206,452 |
|  |  | 234,905 |  | 2.99 |  |  |  | 238,134 |
Mortgage-backed and collateralized mortgage obligations |  |  | 123,756 |  | 2.54 |  |  |  | 121,759 |
Asset-backed securities |  |  | 144,812 |  | 2.21 |  |  |  | 140,385 |
Collateralized loan obligations |  |  | 67,735 |  | 4.01 |  |  |  | 67,949 |
Total securities available-for-sale |  | $ | 571,208 |  | 2.82 | % |  | $ | 568,227 |
At June 30, 2017, the Company’s investments include $119.3 million of 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 and packaged and sold them as asset-backed securities. While the program was modified several times before elimination in 2010, not less than 97% of the outstanding principal amount of the loans made under FFEL are guaranteed by the U.S. Department of Education. In addition to the U.S. Department of Education guarantee, total added credit enhancement in the form of overcollateralization and/or subordination amounted to $13.4 million, or 10.43%, of outstanding principal. The Company has invested in securities issued from one originator that individually amounts to over 10% of the Company’s stockholders equity. As of June 30, 2017, GCO Education Loan Funding Corp’s amortized cost was $27.5 million and fair value was $26.0 million within the Company’s portfolio. Securities with unrealized losses at June 30, 2017, and December 31, 2016, 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 |  |  |  |  |  |  |  |
June 30, 2017 |  | 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 |  | 8 |  | $ | 178 |  | $ | 17,764 |  | 1 |  | $ | 21 |  | $ | 805 |  | 9 |  | $ | 199 |  | $ | 18,569
States and political subdivisions |  | 4 |  |  | 1,052 |  |  | 16,372 |  | - |  |  | - |  |  | - |  | 4 |  |  | 1,052 |  |  | 16,372
Corporate bonds |  | 1 |  |  | 108 |  |  | 4,892 |  | 2 |  |  | 141 |  |  | 5,205 |  | 3 |  |  | 249 |  |  | 10,097
Collateralized mortgage obligations |  | 10 |  |  | 1,776 |  |  | 64,987 |  | 4 |  |  | 187 |  |  | 10,898 |  | 14 |  |  | 1,963 |  |  | 75,885
Asset-backed securities |  | 1 |  |  | 274 |  |  | 4,281 |  | 12 |  |  | 4,710 |  |  | 106,755 |  | 13 |  |  | 4,984 |  |  | 111,036
Collateralized loan obligations |  | 1 |  |  | 91 |  |  | 7,905 |  | - |  |  | - |  |  | - |  | 1 |  |  | 91 |  |  | 7,905
Total securities available-for-sale |  | 25 |  | $ | 3,479 |  | $ | 116,201 |  | 19 |  | $ | 5,059 |  | $ | 123,663 |  | 44 |  | $ | 8,538 |  | $ | 239,864
|  | 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
Recognition of other-than-temporary impairment was not necessary in the three and six months ended June 30, 2017, June 30, 2016, or the year ended December 31, 2016. The changes in fair value related primarily to interest rate fluctuations. Our review of other-than-temporary impairment determined that there was no credit quality deterioration.

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