Investment Securities

3 Months Ended

Mar. 31, 2023

Investment Securities

Investment Securities

2. Investment Securities

As of March 31, 2023 and December 31, 2022, 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 and 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.

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, 2023 and December 31, 2022, the Company’s investment securities were classified as either available-for-sale or held-to-maturity. Amortized cost and fair value of securities as of March 31, 2023 and December 31, 2022 were as follows:

	March 31, 2023								December 31, 2022
	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	$	130,936	$	—	$	(10,708)	$	120,228	$	163,309	$	—	$	(12,327)	$	150,982
Government-sponsored enterprises debt securities		45,000		—		(675)		44,325		45,000		—		(699)		44,301
Mortgage-backed securities:
Residential - Government agency		65,261		—		(5,964)		59,297		66,792		—		(7,069)		59,723
Residential - Government-sponsored enterprises		1,276,130		—		(143,876)		1,132,254		1,317,718		—		(157,263)		1,160,455
Commercial - Government agency		281,009		—		(45,938)		235,071		282,700		—		(44,847)		237,853
Commercial - Government-sponsored enterprises		126,057		—		(9,290)		116,767		130,612		—		(11,039)		119,573
Commercial - Non-agency		21,964		—		(831)		21,133		21,964		—		(493)		21,471
Collateralized mortgage obligations:
Government agency		715,004		—		(78,402)		636,602		738,524		—		(85,202)		653,322
Government-sponsored enterprises		516,458		—		(65,266)		451,192		533,103		—		(70,971)		462,132
Collateralized loan obligations		249,889		—		(12,478)		237,411		249,877		50		(8,606)		241,321
Total available-for-sale securities	$	3,427,708	$	—	$	(373,428)	$	3,054,280	$	3,549,599	$	50	$	(398,516)	$	3,151,133
Government agency debt securities	$	54,386	$	—	$	(4,694)	$	49,692	$	54,318	$	—	$	(5,674)	$	48,644
Mortgage-backed securities:
Residential - Government agency		45,860		—		(5,716)		40,144		46,302		—		(6,294)		40,008
Residential - Government-sponsored enterprises		104,868		—		(11,607)		93,261		106,534		—		(12,978)		93,556
Commercial - Government agency		30,606		—		(5,544)		25,062		30,544		—		(5,229)		25,315
Commercial - Government-sponsored enterprises		1,147,009		111		(117,007)		1,030,113		1,150,449		—		(138,451)		1,011,998
Collateralized mortgage obligations:
Government agency		1,060,910		—		(104,573)		956,337		1,080,492		—		(122,378)		958,114
Government-sponsored enterprises		1,763,805		—		(181,013)		1,582,792		1,798,178		—		(207,045)		1,591,133
Debt securities issued by states and political subdivisions		53,917		—		(6,840)		47,077		53,822		—		(7,768)		46,054
Total held-to-maturity securities	$	4,261,361	$	111	$	(436,994)	$	3,824,478	$	4,320,639	$	—	$	(505,817)	$	3,814,822

During the year ended December 31, 2022, the Company reclassified at fair value approximately $4.6 billion, in available-for-sale investment securities to the held-to-maturity category. The related total unrealized after-tax losses of approximately $372.4 million remained in accumulated other comprehensive loss to be amortized over the estimated remaining life of the securities as an adjustment of yield, offsetting the related accretion of the discount on the transferred securities. No gains or losses were recognized at the time of reclassification. Management considers the held-to-maturity classification of these investment securities to be appropriate as the Company has the positive intent and ability to hold these securities to maturity. There were no securities transferred from available-for-sale investment securities to the held-to-maturity category during the three months ended March 31, 2023.

Accrued interest receivable related to available-for-sale investment securities was $8.9 million as of both March 31, 2023 and December 31, 2022. Accrued interest receivable related to held-to-maturity investment securities was $7.7 million and $7.5 million as of March 31, 2023 and December 31, 2022, respectively. Accrued interest receivable 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 $0.2 million and nil for the three months ended March 31, 2023, and $1.0 million and nil, respectively, for the three months ended March 31, 2022. The Company recorded gross realized gains of nil and gross realized losses of nil for the three months ended March 31, 2023 and 2022. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was nil for the three months ended March 31, 2023 and 2022. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $34.0 million and $29.2 million, respectively, for the three months ended March 31, 2023 and 2022. Interest income from non-taxable investment securities was $3.6 million and $2.9 million, respectively, for the three months ended March 31, 2023 and 2022.

The amortized cost and fair value of debt securities issued by the U.S. Treasury, government agencies, government-sponsored enterprises and states and political subdivisions, non-agency mortgage-backed securities and collateralized loan obligations as of March 31, 2023, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations issued by government agencies and government-sponsored enterprises 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, 2023
	Amortized		Fair
(dollars in thousands)	Cost		Value
Available-for-sale securities
Due in one year or less	$	44,758	$	44,068
Due after one year through five years		60,529		57,863
Due after five years through ten years		177,638		165,278
Due after ten years		164,864		155,888
		447,789		423,097
Mortgage-backed securities:
Residential - Government agency		65,261		59,297
Residential - Government-sponsored enterprises		1,276,130		1,132,254
Commercial - Government agency		281,009		235,071
Commercial - Government-sponsored enterprises		126,057		116,767
Total mortgage-backed securities		1,748,457		1,543,389
Collateralized mortgage obligations:
Government agency		715,004		636,602
Government-sponsored enterprises		516,458		451,192
Total collateralized mortgage obligations		1,231,462		1,087,794
Total available-for-sale securities	$	3,427,708	$	3,054,280
Held-to-maturity securities
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		10,232		9,141
Due after ten years		98,071		87,628
		108,303		96,769
Mortgage-backed securities:
Residential - Government agency		45,860		40,144
Residential - Government-sponsored enterprises		104,868		93,261
Commercial - Government agency		30,606		25,062
Commercial - Government-sponsored enterprises		1,147,009		1,030,113
Total mortgage-backed securities		1,328,343		1,188,580
Collateralized mortgage obligations:
Government agency		1,060,910		956,337
Government-sponsored enterprises		1,763,805		1,582,792
Total collateralized mortgage obligations		2,824,715		2,539,129
Total held-to-maturity securities	$	4,261,361	$	3,824,478

At March 31, 2023, pledged securities totaled $3.0 billion, of which $2.8 billion was pledged to secure public deposits and $194.4 million was pledged to secure other financial transactions. At December 31, 2022, pledged securities totaled $3.2 billion, of which $3.0 billion was pledged to secure public deposits and $207.8 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, 2023 or December 31, 2022.

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 284 and 275 individual securities in each category have been in a continuous loss position as of March 31, 2023 and December 31, 2022, respectively. The unrealized losses on available-for-sale 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, 2023
	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	$	(505)	$	19,453	$	(10,203)	$	100,775	$	(10,708)	$	120,228
Government-sponsored enterprises debt securities		(675)		44,325		—		—		(675)		44,325
Mortgage-backed securities:
Residential - Government agency		—		—		(5,964)		59,297		(5,964)		59,297
Residential - Government-sponsored enterprises		(7,523)		176,840		(136,353)		955,414		(143,876)		1,132,254
Commercial - Government agency		(90)		4,453		(45,848)		230,618		(45,938)		235,071
Commercial - Government-sponsored enterprises		(1,647)		43,342		(7,643)		73,425		(9,290)		116,767
Commercial - Non-agency		(831)		21,133		—		—		(831)		21,133
Collateralized mortgage obligations:
Government agency		(1,047)		33,970		(77,355)		602,632		(78,402)		636,602
Government-sponsored enterprises		(2,445)		38,871		(62,821)		412,321		(65,266)		451,192
Collateralized loan obligations		(7,764)		155,133		(4,714)		75,278		(12,478)		230,411
Total available-for-sale securities with unrealized losses	$	(22,527)	$	537,520	$	(350,901)	$	2,509,760	$	(373,428)	$	3,047,280

	Time in Continuous Loss as of December 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	$	(2,962)	$	83,870	$	(9,365)	$	67,112	$	(12,327)	$	150,982
Government-sponsored enterprises debt securities		(699)		44,301		—		—		(699)		44,301
Mortgage-backed securities:
Residential - Government agency		(7,069)		59,723		—		—		(7,069)		59,723
Residential - Government-sponsored enterprises		(73,954)		645,338		(83,309)		515,117		(157,263)		1,160,455
Commercial - Government agency		(15,852)		108,842		(28,995)		129,011		(44,847)		237,853
Commercial - Government-sponsored enterprises		(7,348)		94,657		(3,691)		24,916		(11,039)		119,573
Commercial - Non-agency		(493)		21,471		—		—		(493)		21,471
Collateralized mortgage obligations:
Government agency		(74,797)		596,907		(10,405)		56,415		(85,202)		653,322
Government-sponsored enterprises		(21,916)		198,108		(49,055)		264,024		(70,971)		462,132
Collateralized loan obligations:		(8,606)		170,042		—		—		(8,606)		170,042
Total available-for-sale securities with unrealized losses	$	(213,696)	$	2,023,259	$	(184,820)	$	1,056,595	$	(398,516)	$	3,079,854

At March 31, 2023 and December 31, 2022, the Company did not have any available-for-sale securities in an unrealized loss position with the intent to sell and determined it was more likely than not that the Company would not be required to sell these securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining available-for-sale securities in an unrealized loss position as of March 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, the Company did not expect any credit losses in its available-for-sale debt securities and no credit losses were recognized on available-for-sale securities during the three months ended March 31, 2023 and for the year ended December 31, 2022.

As of March 31, 2023 and December 31, 2022, the Company’s investment securities were comprised primarily of debt securities, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises, with under 4% of the 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 and held-to-maturity debt securities as of March 31, 2023 or December 31, 2022.

The Company held approximately 120,000 Visa Class B restricted shares as of both March 31, 2023 and December 31, 2022. These shares continued to be carried at $0 cost basis as of both March 31, 2023 and December 31, 2022.