3. Investment Securities

As of December 31, 2017 and 2016, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government-sponsored enterprises.

Mortgage and asset-backed securities – includes securities backed by notes or receivables secured by either mortgage or prime auto assets with cash flows based on actual or scheduled payments.

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

Debt securities issued by states and political subdivisions – includes general obligation bonds issued by state and local governments.

As of December 31, 2017 and 2016, all of the Company’s investment securities were classified as debt securities and available-for-sale. Amortized cost and fair value of securities as of December 31, 2017 and 2016 were as follows:


	2017								2016
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury securities	$	404,376	$	—	$	(12,121)	$	392,255	$	405,637	$	—	$	(13,164)	$	392,473
Government-sponsored enterprises debt securities		249,712		—		(7,111)		242,601		249,707		16		(7,056)		242,667
Government agency mortgage-backed securities		356,858		—		(5,468)		351,390		190,485		—		(4,822)		185,663
Government-sponsored enterprises mortgage-backed securities		178,702		169		(4,130)		174,741		208,034		385		(4,034)		204,385
Non-government asset-backed securities		—		—		—		—		12,592		—		(9)		12,583
Collateralized mortgage obligations:
Government agency		3,367,173		47		(76,746)		3,290,474		3,409,822		794		(58,794)		3,351,822
Government-sponsored enterprises		779,911		25		(17,218)		762,718		700,338		789		(13,206)		687,921
Debt securities issued by states and political subdivisions		20,543		—		(64)		20,479		—		—		—		—
Total available-for-sale securities	$	5,357,275	$	241	$	(122,858)	$	5,234,658	$	5,176,615	$	1,984	$	(101,085)	$	5,077,514

Proceeds from calls and sales of investment securities were both nil for the year ended December 31, 2017. Proceeds from calls and sales of investment securities totaled $121.2 million and $825.4 million, respectively, for the year ended December 31, 2016. Proceeds from calls and sales of investment securities totaled $25.0 million and $2.5 billion, respectively, for the year ended December 31, 2015. The Company recorded gross realized gains of nil, $27.4 million and $18.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company recorded gross realized losses of nil, $0.1 million and $6.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. The income tax expense related to the Company’s net realized gains on the sale of investment securities was nil, $10.8 million and $4.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $102.3 million, $83.0 million and $73.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Interest income from non-taxable investment securities was $0.1 million for the year ended December 31, 2017. The Company did not own any non-taxable investment securities during the years ended December 31, 2016 and 2015.

The amortized cost and fair value of debt securities issued by the U.S. Treasury, government-sponsored enterprises and states and political subdivisions as of December 31, 2017, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.


	December 31, 2017
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due after one year through five years	$	356,451	$	345,162
Due after five years through ten years		297,637		289,694
Due after ten years		20,543		20,479
		674,631		655,335

Government agency mortgage-backed securities		356,858		351,390
Government-sponsored enterprises mortgage-backed securities		178,702		174,741
Collateralized mortgage obligations:
Government agency		3,367,173		3,290,474
Government-sponsored enterprises		779,911		762,718
Total mortgage-backed securities and collateralized mortgage obligations		4,682,644		4,579,323
Total available-for-sale securities	$	5,357,275	$	5,234,658

At December 31, 2017, pledged securities totaled $3.0 billion, of which $2.8 billion was pledged to secure public deposits and $229.2 million was pledged to secure other financial transactions. At December 31, 2016, pledged securities totaled $2.7 billion, of which $2.5 billion was pledged to secure public deposits and repurchase agreements, and $209.1 million was pledged to secure other financial transactions.

The Company held no securities of any single issuer, other than debt securities issued by the U.S. government, government agency and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of December 31, 2017 and 2016.

The following table presents the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 196 and 158 individual securities in each category have been in a continuous loss position as of December 31, 2017 and 2016, respectively. The unrealized losses on investment securities were attributable to market conditions.


	Time in Continuous Loss as of December 31, 2017
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury securities	$	(994)	$	48,182	$	(11,127)	$	344,073	$	(12,121)	$	392,255
Government-sponsored enterprises debt securities		(642)		59,358		(6,469)		183,243		(7,111)		242,601
Government agency mortgage-backed securities		(976)		200,963		(4,492)		150,427		(5,468)		351,390
Government-sponsored enterprises mortgage-backed securities		(1)		63		(4,129)		168,342		(4,130)		168,405
Collateralized mortgage obligations:
Government agency		(23,236)		1,473,170		(53,510)		1,803,338		(76,746)		3,276,508
Government-sponsored enterprises		(3,203)		327,435		(14,015)		403,321		(17,218)		730,756
Debt securities issued by states and political subdivisions		(64)		10,641		—		—		(64)		10,641
Total available-for-sale securities with unrealized losses	$	(29,116)	$	2,119,812	$	(93,742)	$	3,052,744	$	(122,858)	$	5,172,556


	Time in Continuous Loss as of December 31, 2016
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury securities	$	(13,164)	$	392,473	$	—	$	—	$	(13,164)	$	392,473
Government-sponsored enterprises debt securities		(7,056)		207,651		—		—		(7,056)		207,651
Government agency mortgage-backed securities		(4,822)		185,663		—		—		(4,822)		185,663
Government-sponsored enterprises mortgage-backed securities		(4,034)		195,848		—		—		(4,034)		195,848
Non-government asset-backed securities		(3)		5,202		(6)		7,381		(9)		12,583
Collateralized mortgage obligations:
Government agency		(51,484)		2,847,103		(7,310)		233,706		(58,794)		3,080,809
Government-sponsored enterprises		(1,807)		252,065		(11,399)		279,282		(13,206)		531,347
Total available-for-sale securities with unrealized losses	$	(82,370)	$	4,086,005	$	(18,715)	$	520,369	$	(101,085)	$	4,606,374

Other-Than-Temporary Impairment (“OTTI”)

Unrealized losses for all investment securities are reviewed to determine whether the losses are other than temporary. Investment securities are evaluated for OTTI on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether the decline in fair value below amortized cost is other than temporary.

The term other than temporary is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. The decline in value is not related to any issuer- or industry-specific credit event. At December 31, 2017 and 2016, the Company did not have the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. As the Company has the intent and ability to hold securities in an unrealized loss position, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. If it is probable that the Company will not collect all amounts due according to the contractual terms of an investment security, an OTTI is considered to have occurred. In determining whether a credit loss exists, the Company estimates the present value of future cash flows expected to be collected from the investment security. If the present value of future cash flows is less than the amortized cost basis of the security, an OTTI exists. As of December 31, 2017 and 2016, the Company did not expect any credit losses in its debt securities and no OTTI was recognized on securities during the years ended December 31, 2017 and 2016.

Visa Class B Restricted Shares

In 2008, the Company received 394,000 Visa Class B restricted shares as part of Visa’s initial public offering. Visa Class B restricted shares are not currently convertible to publicly traded Visa Class A common shares, and only transferable in limited circumstances, until the settlement of certain litigation which are indemnified by Visa members, including the Company. As there are existing transfer restrictions and the outcome of the aforementioned litigation is uncertain, these shares were included in the consolidated balance sheets at their historical cost of $0.

During the year ended December 31, 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion ratio to unrestricted Class A common shares. See “Note 17. Derivative Financial Instruments” for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both December 31, 2017 and 2016. These shares continued to be carried at $0 cost basis during each of the respective periods.