Note 4: Securities

Investment Portfolio Management

The following table summarizes the amortized cost and fair value of the securities portfolio at December 31, 2018 and December 31, 2017, and the corresponding amounts of gross unrealized gains and losses:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Treasuries	$	4,006	$	-	$	(83)	$	3,923
U.S. government agencies		11,112		-		(161)		10,951
U.S. government agencies mortgage-backed		14,407		45		(377)		14,075
States and political subdivisions		277,112		1,916		(4,961)		274,067
Collateralized mortgage obligations		66,494		79		(2,144)		64,429
Asset-backed securities		108,574		1,165		(225)		109,514
Collateralized loan obligations		65,162		24		(897)		64,289
Total securities available-for-sale	$	546,867	$	3,229	$	(8,848)	$	541,248


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2017	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	4,002	$	-	$	(55)	$	3,947
U.S. government agencies		13,062		8		(9)		13,061
U.S. government agencies mortgage-backed		12,372		7		(165)		12,214
States and political subdivisions		272,240		7,116		(1,264)		278,092
Corporate bonds		823		21		(11)		833
Collateralized mortgage obligations		66,892		202		(1,155)		65,939
Asset-backed securities		113,983		862		(1,913)		112,932
Collateralized loan obligations		54,271		251		(101)		54,421
Total securities available-for-sale	$	537,645	$	8,467	$	(4,673)	$	541,439

Nonmarketable equity investments include FHLBC stock and FRBC stock. FHLBC stock was $7.2 million and $5.4 million at December 31, 2018 and December 31, 2017, respectively. FRBC stock was $6.2 million and $4.8 million at December 31, 2018 and December 31, 2017, respectively. Our FHLBC stock is necessary to maintain access to FHLBC advances.

Securities valued at $318.4 million as of December 31, 2018, an increase from $301.0 million at year-end 2017, were pledged to secure deposits and borrowings, and for other purposes.

The fair value, amortized cost and weighted average yield of debt securities at December 31, 2018, 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	$	494	0.56	%	$	495
Due after one year through five years		6,910	2.00			6,861
Due after five years through ten years		6,202	3.25			6,275
Due after ten years		278,624	3.02			275,310
		292,230	2.99			288,941
Mortgage-backed and collateralized mortgage obligations		80,901	3.24			78,504
Asset-backed securities		108,574	3.65			109,514
Collateralized loan obligations		65,162	5.05			64,289
Total securities available-for-sale	$	546,867	3.41	%	$	541,248

At December 31, 2018, the Company’s investments include asset-backed securities totaling $93.1 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, 2018, the likelihood of the decrease in the government guarantee was minimal as the average rate of reimbursement for 2018 was less than 1.0%.

The Company has accumulated the securities of the following three different originators that individually amount to over 10% of the Company’s stockholders equity. The amortized cost and fair value of securities related to these three issuers are as follows:


	December 31, 2018
	Amortized		Fair
Issuer	Cost		Value
GCO Education Loan Funding Corp	$	27,739	$	27,763
Towd Point Mortgage Trust		34,308		33,318
Student Loan Marketing Association (“SLMA”)		25,808		26,119

Securities with unrealized losses at December 31, 2018, and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:


	Less than 12 months					12 months or more
December 31, 2018	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. Treasuries	-	$	-	$	-	1	$	83	$	3,923	1	$	83	$	3,923
U.S. government agencies	3		100		7,385	1		61		3,566	4		161		10,951
U.S. government agencies mortgage-backed	-		-		-	11		377		11,439	11		377		11,439
States and political subdivisions	4		126		17,713	33		4,835		110,326	37		4,961		128,039
Collateralized mortgage obligations	2		309		15,211	10		1,835		43,687	12		2,144		58,898
Asset-backed securities	-		-		-	4		225		16,473	4		225		16,473
Collateralized loan obligations	7		721		46,547	1		176		7,824	8		897		54,371
Total securities available-for-sale	16	$	1,256	$	86,856	61	$	7,592	$	197,238	77	$	8,848	$	284,094


	Less than 12 months					12 months or more
December 31, 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. Treasuries	1	$	55	$	3,947	-	$	-	$	-	1	$	55	$	3,947
U.S. government agencies	2		9		6,550	-		-		-	2		9		6,550
U.S. government agencies mortgage-backed	4		24		5,501	5		141		4,843	9		165		10,344
States and political subdivisions	13		1,237		45,985	1		27		1,512	14		1,264		47,497
Corporate bonds	-		-		-	1		11		332	1		11		332
Collateralized mortgage obligations	3		31		11,534	8		1,124		40,219	11		1,155		51,753
Asset-backed securities	-		-		-	7		1,913		61,745	7		1,913		61,745
Collateralized loan obligations	3		101		29,313	-		-		-	3		101		29,313
Total securities available-for-sale	26	$	1,457	$	102,830	22	$	3,216	$	108,651	48	$	4,673	$	211,481

Recognition of other-than-temporary impairment was not necessary in the year ended December 31, 2018, or the year ended December 31, 2017. 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.

The following table presents net realized gains (losses) on securities available-for-sale for the years ended:



	Years ended December 31,
Securities available-for-sale	2018			2017			2016
Proceeds from sales of securities	$	94,663		$	232,462		$	306,400
Gross realized gains on securities		369			2,367			1,675
Gross realized losses on securities		(9)			(1,893)			(3,888)
Securities realized gains (losses), net	$	360		$	474		$	(2,213)
Income tax (expense) benefit on net realized gains (losses)	$	(100)		$	(198)		$	882
Effective tax rate applied		27.8	%		41.8	%		39.9	%