Investment Securities

12 Months Ended

Dec. 31, 2019

Investment Securities

Investment Securities

3. Investment Securities

As of December 31, 2019 and 2018, 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-backed securities – includes securities backed by notes or receivables secured by mortgage 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, 2019 and 2018, 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, 2019 and 2018 were as follows:

	2019								2018
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury securities	$	29,832	$	56	$	—	$	29,888	$	389,470	$	—	$	—	$	389,470
Government-sponsored enterprises debt securities		101,697		19		(277)		101,439		248,372		—		(6,778)		241,594
Mortgage-backed securities:
Residential - Government agency		290,131		2,224		(1,146)		291,209		426,710		—		(15,174)		411,536
Residential - Government-sponsored enterprises		395,039		6,126		(1,673)		399,492		156,056		85		(5,294)		150,847
Commercial - Government-sponsored enterprises		101,798		555		(634)		101,719		—		—		—		—
Collateralized mortgage obligations:
Government agency		2,390,143		7,483		(16,348)		2,381,278		2,779,620		—		(97,171)		2,682,449
Government-sponsored enterprises		772,023		2,505		(3,909)		770,619		620,337		—		(17,745)		602,592
Debt securities issued by states and political subdivisions		—		—		—		—		19,854		—		—		19,854
Total available-for-sale securities	$	4,080,663	$	18,968	$	(23,987)	$	4,075,644	$	4,640,419	$	85	$	(142,162)	$	4,498,342

Proceeds from call and sales of investment securities were $63.0 million and $1.0 billion for the year ended December 31, 2019. Proceeds from both calls and sales of investment securities were nil for both the years ended December 31, 2018 and 2017. The Company recorded gross realized gains of $0.5 million and gross realized losses of $3.2 million for the year ended December 31, 2019. The Company recorded no gross realized gains and no gross realized losses for both the years ended December 31, 2018 and 2017. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was $0.7 million for the year ended December 31, 2019. The income tax expense related to the Company’s net realized gains on the sale of investment securities was nil during both the years ended December 31, 2018 and 2017. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $92.5 million, $106.6 million and $102.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Interest income from non-taxable investment securities was nil, $0.5 million and $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The amortized cost and fair value of debt securities issued by the U.S. Treasury and government-sponsored enterprises as of December 31, 2019, 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, 2019
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	29,832	$	29,888
Due after one year through five years		101,697		101,439
Due after five years through ten years		—		—
Due after ten years		—		—
		131,529		131,327
Mortgage-backed securities:
Residential - Government agency		290,131		291,209
Residential - Government-sponsored enterprises		395,039		399,492
Commercial - Government-sponsored enterprises		101,798		101,719
Total mortgage-backed securities		786,968		792,420
Collateralized mortgage obligations:
Government agency		2,390,143		2,381,278
Government-sponsored enterprises		772,023		770,619
Total collateralized mortgage obligations		3,162,166		3,151,897
Total available-for-sale securities	$	4,080,663	$	4,075,644

At December 31, 2019, pledged securities totaled $1.8 billion, of which $1.5 billion was pledged to secure public deposits and $242.3 million was pledged to secure other financial transactions. At December 31, 2018, pledged securities totaled $2.0 billion, of which $1.7 billion was pledged to secure public deposits and $232.7 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 agencies and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of December 31, 2019 and 2018.

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 118 and 154 individual securities in each category have been in a continuous loss position as of December 31, 2019 and 2018, respectively. The unrealized losses on investment securities were attributable to market conditions.

	Time in Continuous Loss as of December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	(277)	$	49,716	$	—	$	—	$	(277)	$	49,716
Mortgage-backed securities:
Residential - Government agency		—		—		(1,146)		109,614		(1,146)		109,614
Residential - Government-sponsored enterprises		(115)		76,481		(1,558)		109,025		(1,673)		185,506
Commercial - Government-sponsored enterprises		(634)		38,062		—		—		(634)		38,062
Collateralized mortgage obligations:
Government agency		(8,049)		969,762		(8,299)		565,764		(16,348)		1,535,526
Government-sponsored enterprises		(583)		180,785		(3,326)		209,752		(3,909)		390,537
Total available-for-sale securities with unrealized losses	$	(9,658)	$	1,314,806	$	(14,329)	$	994,155	$	(23,987)	$	2,308,961

	Time in Continuous Loss as of December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Government-sponsored enterprises debt securities	$	—	$	—	$	(6,778)	$	157,939	$	(6,778)	$	157,939
Mortgage-backed securities:
Residential - Government agency		—		—		(15,174)		373,891		(15,174)		373,891
Residential - Government-sponsored enterprises		(1)		172		(5,293)		125,869		(5,294)		126,041
Collateralized mortgage obligations:
Government agency		—		—		(97,171)		2,475,532		(97,171)		2,475,532
Government-sponsored enterprises		—		—		(17,745)		486,175		(17,745)		486,175
Total available-for-sale securities with unrealized losses	$	(1)	$	172	$	(142,161)	$	3,619,406	$	(142,162)	$	3,619,578

Other-Than-Temporary Impairment

At December 31, 2019, the Company did not have any securities with 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. At December 31, 2018, the Company had the intent to sell 48 securities with an aggregate amortized cost basis of $898.2 million. As a result, the Company recorded an OTTI write-down of $24.1 million for the year ended December 31, 2018. The OTTI write-down represented the entire difference between the amortized cost basis and fair value of the securities as of December 31, 2018. In January 2019, the Company completed its sale of the 48 securities and recorded an additional loss of $2.6 million.

As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of December 31, 2019 and 2018, 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, 2019 and 2018, the Company did not expect any credit losses in its debt securities and no OTTI related to credit losses were recognized on securities during the years ended December 31, 2019 and 2018. As noted above, the only OTTI losses recognized for the year ended December 31, 2018 were due to non-credit related factors.

The following table provides a detail of the OTTI write-downs included in earnings for the year ended December 31, 2018:

	Year Ended
(dollars in thousands)	December 31, 2018
U.S. Treasury securities	$	(13,634)
Government-sponsored enterprises debt securities		(1,344)
Mortgage-backed securities:
Residential - Government agency		(146)
Residential - Government-sponsored enterprises		(763)
Collateralized mortgage obligations:
Government agency		(5,064)
Government-sponsored enterprises		(2,711)
Debt securities issued by states and political subdivisions		(423)
Total OTTI write-downs included in earnings	$	(24,085)

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.

In 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 rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally funded its litigation escrow account, thereby

reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. See “Note 17. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both December 31, 2019 and 2018. These shares continued to be carried at $0 cost basis during each of the respective periods.