Investment Securities

12 Months Ended

Dec. 31, 2020

Investment Securities

Investment Securities

3. Investment Securities

As of December 31, 2020 and 2019, 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.

As of December 31, 2020 and 2019, 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, 2020 and 2019 were as follows:

	2020								2019
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency debt securities	$	170,123	$	1,359	$	(61)	$	171,421	$	29,832	$	56	$	—	$	29,888
Government-sponsored enterprises debt securities		—		—		—		—		101,697		19		(277)		101,439
Mortgage-backed securities:
Residential - Government agency		155,169		5,293		—		160,462		290,131		2,224		(1,146)		291,209
Residential - Government-sponsored enterprises		434,282		13,643		(725)		447,200		395,039		6,126		(1,673)		399,492
Commercial - Government agency		583,232		16,537		(119)		599,650		—		—		—		—
Commercial - Government-sponsored enterprises		931,095		9,045		(7,983)		932,157		101,798		555		(634)		101,719
Collateralized mortgage obligations:
Government agency		1,902,326		32,246		(1,019)		1,933,553		2,390,143		7,483		(16,348)		2,381,278
Government-sponsored enterprises		1,808,804		18,991		(823)		1,826,972		772,023		2,505		(3,909)		770,619
Total available-for-sale securities	$	5,985,031	$	97,114	$	(10,730)	$	6,071,415	$	4,080,663	$	18,968	$	(23,987)	$	4,075,644

Proceeds from call and sales of investment securities were $102.0 million and $543.0 million, respectively, for the year ended December 31, 2020. Proceeds from call and sales of investment securities were $63.0 million and $1.0 billion, respectively, for the year ended December 31, 2019. Proceeds from both calls and sales of investment securities were nil for the year ended December 31, 2018. The Company recorded gross realized gains of $0.6 million and gross realized losses of $0.7 million for the year ended December 31, 2020. 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 the year ended December 31, 2018. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was nil for the year ended December 31, 2020. 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 the year ended December 31, 2018. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $80.9 million, $92.5 million and $106.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Interest income from non-taxable investment securities was $0.9 million, nil and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The amortized cost and fair value of debt securities issued by the U.S. Treasury and government agencies as of December 31, 2020, 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, 2020
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	—	$	—
Due after one year through five years		38,244		38,757
Due after five years through ten years		83,560		84,129
Due after ten years		48,319		48,535
		170,123		171,421
Mortgage-backed securities:
Residential - Government agency		155,169		160,462
Residential - Government-sponsored enterprises		434,282		447,200
Commercial - Government agency		583,232		599,650
Commercial - Government-sponsored enterprises		931,095		932,157
Total mortgage-backed securities		2,103,778		2,139,469
Collateralized mortgage obligations:
Government agency		1,902,326		1,933,553
Government-sponsored enterprises		1,808,804		1,826,972
Total collateralized mortgage obligations		3,711,130		3,760,525
Total available-for-sale securities	$	5,985,031	$	6,071,415

At December 31, 2020, pledged securities totaled $2.4 billion, of which $2.3 billion was pledged to secure public deposits and $186.1 million was pledged to secure other financial transactions. 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.

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, 2020 and 2019.

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 50 and 118 individual securities in each category have been in a continuous loss position as of December 31, 2020 and 2019, respectively. The unrealized losses on investment securities were attributable to market conditions. At December 31, 2020 and 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. As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of December 31, 2020 and 2019, each security with an unrealized loss position in the below tables has been further assessed to determine if a credit loss exists. As of December 31, 2020 and 2019, the Company did not expect any credit losses in its debt securities and no credit losses were recognized on securities during the years ended December 31, 2020 and 2019.

	Time in Continuous Loss as of December 31, 2020
	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 and government agency debt securities	$	(61)	$	38,507	$	—	$	—	$	(61)	$	38,507
Mortgage-backed securities:
Residential - Government-sponsored enterprises		(725)		64,987		—		—		(725)		64,987
Commercial - Government agency		(119)		32,346		—		—		(119)		32,346
Commercial - Government-sponsored enterprises		(7,983)		427,759		—		—		(7,983)		427,759
Collateralized mortgage obligations:
Government agency		(994)		209,124		(25)		6,190		(1,019)		215,314
Government-sponsored enterprises		(823)		296,160		—		—		(823)		296,160
Total available-for-sale securities with unrealized losses	$	(10,705)	$	1,068,883	$	(25)	$	6,190	$	(10,730)	$	1,075,073

	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

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 for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both December 31, 2020 and 2019. These shares continued to be carried at $0 cost basis during each of the respective periods.