CHFC 2017 Annual Report

The following table summarizes the carrying value of investment securities at December 31, 2017, 2016 and 2015: December 31, (Dollars in thousands) 2017 2016 2015 Available-for-Sale: U.S. Treasury securities $ — $ 5,793 $ 5,765 Government sponsored agencies 202,916 215,011 194,989 State and political subdivisions 345,970 300,088 15,120 Residential mortgage-backed securities 150,131 272,282 187,768 Collateralized mortgage obligations 1,033,845 320,025 132,230 Corporate bonds 192,794 89,474 14,627 Preferred stock and trust preferred securities 37,890 32,291 3,232 Total investment securities available-for-sale 1,963,546 1,234,964 553,731 Held-to-Maturity: State and political subdivisions 676,593 622,927 509,471 Trust preferred securities 500 500 500 Total investment securities held-to-maturity 677,093 623,427 509,971 Total investment securities $ 2,640,639 $ 1,858,391 $ 1,063,702 At December 31, 2017, our investment securities portfolio consisted of: Government sponsored agency ("GSA") debt obligations, comprised primarily of fixed-rate instruments backed by Federal Home Loan Banks, Federal Farm Credit Banks and Student LoanMarketingCorporation, totaling $202.9million; state and political subdivisions debt obligations, comprised primarily of general debt obligations of issuers mostly located in the State of Michigan, totaling $1.02 billion; residential mortgage-backed securities ("MBSs"), comprised primarily of fixed-rate instruments backed by a U.S. government agency ("Government National Mortgage Association") or government sponsored enterprises (Federal Home Loan Mortgage Corporation and Federal National MortgageAssociation), totaling $150.1million; collateralizedmortgage obligations ("CMOs"), comprised of approximately 82.0% fixed-rate and 18.0%variable-rate instruments backed by the same U.S. government agency and government sponsored enterprises as the residential MBSs, totaling $1.03 billion; corporate bonds, comprised primarily of debt obligations of large U.S. global financial organizations, totaling $192.8million; and preferred stock and trust preferred securities ("TRUPs"), comprised of preferred stock debt instruments of two large regional/national banks and variable-rate TRUPs from both publicly-traded bank holding companies and small non-public bank holding companies, totaling $38.4 million. Fixed-rate instruments comprised approximately 96.0% of our investment securities portfolio at December 31, 2017. The increase in our investment securities portfolios during the year ended December 31, 2017 is primarily due to management's decision to increase the size of the portfolio, which was funded in part by an increase in deposits and borrowings. We record all investment securities in accordance with ASC Topic 320, Investments-Debt and Equity Securities (ASC 320), under which we are required to assess equity and debt securities that have fair values below their amortized cost basis to determine whether the decline (impairment) is other-than-temporary. An assessment is performed quarterly to determine whether unrealized losses in our investment securities portfolio are temporary or other-than-temporary by considering all reasonably available information. We review factors such as financial statements, credit ratings, news releases and other pertinent information of the underlying issuer or company tomake our determination. In assessingwhether a decline is other-than-temporary, management considers, among other things (i) the length of time and the extent to which the fair value has been less than the amortized cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the potential for impairments in an entire industry or sub- sector and (iv) the potential for impairments in certain economically depressed geographical locations. Our investment securities portfolio had a carrying value of $2.64 billion at December 31, 2017, with gross unrealized losses of $35.2 million at that date. Management believes that the unrealized losses on investment securities were temporary in nature and due primarily to changes in interest rates on the investment securities and market illiquidity, and not as a result of credit- related issues. Accordingly, we believe the unrealized losses in our investment securities portfolio at December 31, 2017 were temporary in nature, and therefore, no impairment loss was recognized in our Consolidated Statement of Income in 2017. However, other-than-temporary impairment ("OTTI") may occur in the future as a result of material declines in the fair value of investment securities resulting frommarket, credit, economic or other conditions.Afurther discussion of the assessment of potential impairment and our process that resulted in the conclusion that the impairment was temporary in nature follows. 48