Investment Securities

3 Months Ended

Mar. 31, 2022

Investment Securities

Investment Securities

2. Investment Securities

As of March 31, 2022 and December 31, 2021, 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 agencies.

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.

Collateralized loan obligations – includes structured debt securities backed by a pool of loans, consisting of primarily non-investment grade broadly syndicated corporate loans with additional credit enhancement. These are floating rate securities that have an investment grade rating of AA or better.

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

As of March 31, 2022 and December 31, 2021, all of the Company’s investment securities were classified as available-for-sale. Amortized cost and fair value of securities as of March 31, 2022 and December 31, 2021 were as follows:

	March 31, 2022								December 31, 2021
	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	$	213,572	$	—	$	(14,028)	$	199,544	$	196,662	$	125	$	(4,224)	$	192,563
Mortgage-backed securities:
Residential - Government agency		128,080		—		(5,115)		122,965		135,764		1,791		(291)		137,264
Residential - Government-sponsored enterprises		1,450,070		428		(88,153)		1,362,345		1,496,605		6,914		(12,419)		1,491,100
Commercial - Government agency		358,910		53		(25,874)		333,089		392,443		1,741		(6,521)		387,663
Commercial - Government-sponsored enterprises		1,426,831		—		(176,997)		1,249,834		1,415,511		2,646		(48,714)		1,369,443
Collateralized mortgage obligations:
Government agency		2,153,236		59		(143,514)		2,009,781		2,103,187		7,768		(31,432)		2,079,523
Government-sponsored enterprises		2,719,829		3		(210,125)		2,509,707		2,671,131		3,608		(53,695)		2,621,044
Collateralized loan obligations		221,607		25		(748)		220,884		105,245		2		—		105,247
Debt securities issued by states and political subdivisions		61,035		—		(6,800)		54,235		44,185		—		—		44,185
Total available-for-sale securities	$	8,733,170	$	568	$	(671,354)	$	8,062,384	$	8,560,733	$	24,595	$	(157,296)	$	8,428,032

Accrued interest receivable related to available-for-sale investment securities was $15.0 million and $14.1 million as of March 31, 2022 and December 31, 2021, respectively, and is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

Proceeds from calls and sales of investment securities were $1.0 million and nil, respectively, for the three months ended March 31, 2022. Proceeds from calls and sales of investment securities were $0.1 million and nil, respectively, for the three months ended March 31, 2021. The Company recorded gross realized gains of nil and gross realized losses of nil for the three months ended March 31, 2022 and 2021. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was nil during both the three months ended March 31, 2022 and 2021. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $29.2 million and $22.1 million, respectively, for the three months ended March 31, 2022 and 2021. Interest income from non-taxable investment securities was $2.9 million and $1.0 million, respectively, for the three months ended March 31, 2022 and 2021.

The amortized cost and fair value of debt securities issued by the U.S. Treasury, government agencies and states and political subdivisions and collateralized loan obligations as of March 31, 2022, 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.

	March 31, 2022
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	30,148	$	29,944
Due after one year through five years		39,854		38,512
Due after five years through ten years		178,200		172,750
Due after ten years		248,012		233,457
		496,214		474,663
Mortgage-backed securities:
Residential - Government agency		128,080		122,965
Residential - Government-sponsored enterprises		1,450,070		1,362,345
Commercial - Government agency		358,910		333,089
Commercial - Government-sponsored enterprises		1,426,831		1,249,834
Total mortgage-backed securities		3,363,891		3,068,233
Collateralized mortgage obligations:
Government agency		2,153,236		2,009,781
Government-sponsored enterprises		2,719,829		2,509,707
Total collateralized mortgage obligations		4,873,065		4,519,488
Total available-for-sale securities	$	8,733,170	$	8,062,384

At March 31, 2022, pledged securities totaled $2.0 billion, of which $1.8 billion was pledged to secure public deposits and $186.8 million was pledged to secure other financial transactions. At December 31, 2021, pledged securities totaled $2.1 billion, of which $1.9 billion was pledged to secure public deposits and $193.2 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, taken in the aggregate, which were in excess of 10% of stockholders’ equity as of March 31, 2022 or December 31, 2021.

The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 499 and 318 individual securities in each category have been in a continuous loss position as of March 31, 2022 and December 31, 2021, respectively. The unrealized losses on investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

	Time in Continuous Loss as of March 31, 2022
	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	$	(4,314)	$	93,417	$	(9,714)	$	106,127	$	(14,028)	$	199,544
Mortgage-backed securities:
Residential - Government agency		(5,115)		122,965		—		—		(5,115)		122,965
Residential - Government-sponsored enterprises		(75,047)		1,209,850		(13,106)		106,145		(88,153)		1,315,995
Commercial - Government agency		(10,635)		169,320		(15,239)		153,626		(25,874)		322,946
Commercial - Government-sponsored enterprises		(71,323)		562,986		(105,674)		682,848		(176,997)		1,245,834
Collateralized mortgage obligations:
Government agency		(135,357)		1,904,905		(8,157)		73,679		(143,514)		1,978,584
Government-sponsored enterprises		(161,761)		2,012,931		(48,364)		465,051		(210,125)		2,477,982
Collateralized loan obligations:		(748)		79,181		—		—		(748)		79,181
Debt securities issued by states and political subdivisions		(6,800)		54,235		—		—		(6,800)		54,235
Total available-for-sale securities with unrealized losses	$	(471,100)	$	6,209,790	$	(200,254)	$	1,587,476	$	(671,354)	$	7,797,266

	Time in Continuous Loss as of December 31, 2021
	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	$	(3,355)	$	134,468	$	(869)	$	16,642	$	(4,224)	$	151,110
Mortgage-backed securities:
Residential - Government agency		(291)		51,231		—		—		(291)		51,231
Residential - Government-sponsored enterprises		(10,876)		1,230,104		(1,543)		32,415		(12,419)		1,262,519
Commercial - Government agency		(5,239)		186,024		(1,282)		26,063		(6,521)		212,087
Commercial - Government-sponsored enterprises		(22,179)		744,819		(26,535)		397,123		(48,714)		1,141,942
Collateralized mortgage obligations:
Government agency		(31,432)		1,441,848		—		—		(31,432)		1,441,848
Government-sponsored enterprises		(52,551)		2,255,535		(1,144)		24,959		(53,695)		2,280,494
Total available-for-sale securities with unrealized losses	$	(125,923)	$	6,044,029	$	(31,373)	$	497,202	$	(157,296)	$	6,541,231

At March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of March 31, 2022 and December 31, 2021, the Company did not expect any credit losses in its debt securities and no credit losses were recognized on securities during the three months ended March 31, 2022 and for the year ended December 31, 2021.

As of March 31, 2022 and December 31, 2021, the Company’s available-for-sale investment securities were comprised primarily of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises, with under 4% of the available-for-sale investment securities comprised of collateralized loan obligations rated AA or better and obligations issued by local state and political subdivisions rated AA or better. For investment securities issued by the U.S. Government, its agencies and government-sponsored enterprises, management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero, and these securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. For collateralized loan obligations and debt securities issued by local state and political subdivisions, these securities are investment grade and highly rated and carry either sufficient credit enhancement or days cash on hand to support timely payments of principal and interest. As a result, the Company does not expect any future payment defaults and has not recorded an allowance for credit losses for its available-for-sale debt securities as of March 31, 2022 and December 31, 2021.

The Company holds approximately 120,000 Visa Class B restricted shares as of both March 31, 2022 and December 31, 2021. These shares continued to be carried at $0 cost basis as of both March 31, 2022 and December 31, 2021.