Investment Securities

12 Months Ended

Dec. 31, 2023

Investment Securities

Investment Securities

3. Investment Securities

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

	2023								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	$	33,169	$	—	$	(666)	$	32,503	$	163,309	$	—	$	(12,327)	$	150,982
Government-sponsored enterprises debt securities		20,000		—		(408)		19,592		45,000		—		(699)		44,301
Mortgage-backed securities:
Residential - Government agency		11,303		—		(1,121)		10,182		66,792		—		(7,069)		59,723
Residential - Government-sponsored enterprises		895,421		—		(112,124)		783,297		1,317,718		—		(157,263)		1,160,455
Commercial - Government agency		268,944		—		(50,270)		218,674		282,700		—		(44,847)		237,853
Commercial - Government-sponsored enterprises		93,459		—		(7,028)		86,431		130,612		—		(11,039)		119,573
Commercial - Non-agency		21,964		—		(281)		21,683		21,964		—		(493)		21,471
Collateralized mortgage obligations:
Government agency		538,718		—		(67,568)		471,150		738,524		—		(85,202)		653,322
Government-sponsored enterprises		425,826		—		(61,856)		363,970		533,103		—		(70,971)		462,132
Collateralized loan obligations		249,871		43		(2,060)		247,854		249,877		50		(8,606)		241,321
Total available-for-sale securities	$	2,558,675	$	43	$	(303,382)	$	2,255,336	$	3,549,599	$	50	$	(398,516)	$	3,151,133
Government agency debt securities	$	52,051	$	—	$	(4,497)	$	47,554	$	54,318	$	—	$	(5,674)	$	48,644
Mortgage-backed securities:
Residential - Government agency		43,885		—		(5,189)		38,696		46,302		—		(6,294)		40,008
Residential - Government-sponsored enterprises		99,379		—		(11,013)		88,366		106,534		—		(12,978)		93,556
Commercial - Government agency		30,795		—		(7,017)		23,778		30,544		—		(5,229)		25,315
Commercial - Government-sponsored enterprises		1,129,738		195		(130,757)		999,176		1,150,449		—		(138,451)		1,011,998
Collateralized mortgage obligations:
Government agency		989,130		—		(109,471)		879,659		1,080,492		—		(122,378)		958,114
Government-sponsored enterprises		1,642,274		—		(193,897)		1,448,377		1,798,178		—		(207,045)		1,591,133
Debt securities issued by states and political subdivisions		54,197		—		(4,947)		49,250		53,822		—		(7,768)		46,054
Total held-to-maturity securities	$	4,041,449	$	195	$	(466,788)	$	3,574,856	$	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 year ended December 31, 2023.

Accrued interest receivable related to available-for-sale investment securities was $7.2 million and $8.9 million as of December 31, 2023 and 2022, respectively. Accrued interest receivable related to held-to-maturity investment securities was $7.0 million and $7.5 million as of December 31, 2023 and 2022, respectively. Accrued interest receivable is recorded separately from the amortized cost basis of investment securities on the Company’s consolidated balance sheets.

Including the 2023 sale of Visa Class B restricted shares described below, proceeds from calls and sales of investment securities were $8.3 million and $551.6 million, respectively, for the year ended December 31, 2023. Proceeds from calls and sales of investment securities were $1.7 million and nil, respectively, for the year ended December 31, 2022. Proceeds from calls and sales of investment securities were $8.6 million and $2.5 million, respectively, for the year ended December 31, 2021. The Company recorded gross realized gains of $40.8 million, nil and $0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company recorded gross realized losses of $40.0 million for the year ended December 31, 2023, and nil for both the years ended December 31, 2022 and 2021. The income tax expense related to the Company’s net realized gains on the sale of investment securities was $0.2 million for the year ended December 31, 2023, and was nil for both the years ended December 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 $134.5 million, $128.7 million and $93.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Interest income from non-taxable investment securities was $13.2 million, $13.8 million and $8.1 million for the years ended December 31, 2023, 2022 and 2021.

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 December 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.

	December 31, 2023
	Amortized		Fair
(dollars in thousands)	Cost		Value
Available-for-sale securities
Due in one year or less	$	25,071	$	24,742
Due after one year through five years		37,373		36,527
Due after five years through ten years		97,695		96,879
Due after ten years		164,865		163,484
		325,004		321,632
Mortgage-backed securities:
Residential - Government agency		11,303		10,182
Residential - Government-sponsored enterprises		895,421		783,297
Commercial - Government agency		268,944		218,674
Commercial - Government-sponsored enterprises		93,459		86,431
Total mortgage-backed securities		1,269,127		1,098,584
Collateralized mortgage obligations:
Government agency		538,718		471,150
Government-sponsored enterprises		425,826		363,970
Total collateralized mortgage obligations		964,544		835,120
Total available-for-sale securities	$	2,558,675	$	2,255,336
Held-to-maturity securities
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		22,082		20,318
Due after ten years		84,166		76,486
		106,248		96,804
Mortgage-backed securities:
Residential - Government agency		43,885		38,696
Residential - Government-sponsored enterprises		99,379		88,366
Commercial - Government agency		30,795		23,778
Commercial - Government-sponsored enterprises		1,129,738		999,176
Total mortgage-backed securities		1,303,797		1,150,016
Collateralized mortgage obligations:
Government agency		989,130		879,659
Government-sponsored enterprises		1,642,274		1,448,377
Total collateralized mortgage obligations		2,631,404		2,328,036
Total held-to-maturity securities	$	4,041,449	$	3,574,856

At December 31, 2023, pledged securities totaled $5.0 billion, of which $2.6 billion was pledged to secure public deposits, $2.3 billion was pledged to secure borrowing capacity and $183.0 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, which were in excess of 10% of stockholders’ equity as of December 31, 2023 and 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 222 and 275 individual securities in each category have been in a continuous loss position as of December 31, 2023 and 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 December 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	$	—	$	—	$	(666)	$	32,503	$	(666)	$	32,503
Government-sponsored enterprises debt securities		—		—		(408)		19,592		(408)		19,592
Mortgage-backed securities:
Residential - Government agency		—		—		(1,121)		10,182		(1,121)		10,182
Residential - Government-sponsored enterprises		—		—		(112,124)		783,297		(112,124)		783,297
Commercial - Government agency		—		—		(50,270)		218,674		(50,270)		218,674
Commercial - Government-sponsored enterprises		—		—		(7,028)		86,431		(7,028)		86,431
Commercial - Non-agency		—		—		(281)		21,683		(281)		21,683
Collateralized mortgage obligations:
Government agency		—		—		(67,568)		471,150		(67,568)		471,150
Government-sponsored enterprises		—		—		(61,856)		363,970		(61,856)		363,970
Collateralized loan obligations		(564)		63,667		(1,496)		163,126		(2,060)		226,793
Total available-for-sale securities with unrealized losses	$	(564)	$	63,667	$	(302,818)	$	2,170,608	$	(303,382)	$	2,234,275

	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 December 31, 2023 and 2022, the Company did not have any available-for-sale 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 available-for-sale securities in an unrealized loss position as of December 31, 2023 and 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 December 31, 2023 and 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 years ended December 31, 2023 and 2022.

As of December 31, 2023 and 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 5% 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 December 31, 2023 and 2022.

During the year ended December 31, 2023, the Company recorded a $40.8 million net realized gain related to the sale of approximately 120,000 Visa Class B restricted shares. The Company did not hold any Visa Class B restricted shares as of December 31, 2023. As of December 31, 2022, the Company held approximately 120,000 Visa Class B restricted shares which were carried at $0 cost basis.