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Investment Securities
 9 Months Ended
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of September 30, 2014 and December 31, 2013 were as follows:

(dollars in thousands)
Amortized Cost

 
Gross
Unrealized Gains

 
Gross
Unrealized Losses

 
Fair Value

September 30, 2014
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
341,116

 
$
6,400

 
$
(106
)
 
$
347,410

Debt Securities Issued by States and Political Subdivisions
711,253

 
21,568

 
(1,695
)
 
731,126

Debt Securities Issued by Corporations
298,333

 
717

 
(5,972
)
 
293,078

Mortgage-Backed Securities:
 

 
 

 
 

 
 

    Residential - Government Agencies
493,031

 
12,351

 
(1,284
)
 
504,098

    Residential - U.S. Government-Sponsored Enterprises
157,672

 
1,449

 
(128
)
 
158,993

    Commercial - Government Agencies
195,589

 
—

 
(9,381
)
 
186,208

Total Mortgage-Backed Securities
846,292

 
13,800

 
(10,793
)
 
849,299

Total
$
2,196,994

 
$
42,485

 
$
(18,566
)
 
$
2,220,913

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
498,619

 
$
1,918

 
$
(2,578
)
 
$
497,959

Debt Securities Issued by States and Political Subdivisions
250,439

 
16,738

 
—

 
267,177

Debt Securities Issued by Corporations
170,487

 
169

 
(3,207
)
 
167,449

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
3,034,148

 
44,125

 
(32,699
)
 
3,045,574

    Residential - U.S. Government-Sponsored Enterprises
284,683

 
1,507

 
(448
)
 
285,742

    Commercial - Government Agencies
319,238

 
69

 
(6,812
)
 
312,495

Total Mortgage-Backed Securities
3,638,069

 
45,701


(39,959
)

3,643,811

Total
$
4,557,614

 
$
64,526

 
$
(45,744
)
 
$
4,576,396

 
 
 
 
 
 
 
 
December 31, 2013
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
390,873

 
$
6,640

 
$
(234
)
 
$
397,279

Debt Securities Issued by States and Political Subdivisions
691,861

 
8,396

 
(13,455
)
 
686,802

Debt Securities Issued by Corporations
280,172

 
1,165

 
(7,836
)
 
273,501

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
641,227

 
13,816

 
(1,849
)
 
653,194

    Residential - U.S. Government-Sponsored Enterprises
21,865

 
1,403

 
—

 
23,268

    Commercial - Government Agencies
219,859

 
—

 
(10,206
)
 
209,653

Total Mortgage-Backed Securities
882,951

 
15,219

 
(12,055
)
 
886,115

Total
$
2,245,857

 
$
31,420

 
$
(33,580
)
 
$
2,243,697

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
433,987

 
$
3,045

 
$
(3,667
)
 
$
433,365

Debt Securities Issued by States and Political Subdivisions
253,039

 
817

 
(133
)
 
253,723

Debt Securities Issued by Corporations
190,181

 
—

 
(5,708
)
 
184,473

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
3,523,343

 
31,786

 
(66,572
)
 
3,488,557

    Residential - U.S. Government-Sponsored Enterprises
21,602

 
1,423

 
—

 
23,025

    Commercial - Government Agencies
322,367

 
—

 
(7,923
)
 
314,444

Total Mortgage-Backed Securities
3,867,312

 
33,209

 
(74,495
)
 
3,826,026

Total
$
4,744,519

 
$
37,071

 
$
(84,003
)
 
$
4,697,587



The table below presents an analysis of the contractual maturities of the Company’s investment securities as of September 30, 2014.  Debt securities issued by government agencies (Small Business Administration securities) and mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.
(dollars in thousands)
Amortized Cost

 
Fair Value

Available-for-Sale:
 

 
 

Due in One Year or Less
$
19,928

 
$
20,091

Due After One Year Through Five Years
287,496

 
292,869

Due After Five Years Through Ten Years
653,258

 
657,028

Due After Ten Years
108,982

 
115,734

 
1,069,664

 
1,085,722

 
 
 
 
Debt Securities Issued by Government Agencies
281,038

 
285,892

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
493,031

 
504,098

    Residential - U.S. Government-Sponsored Enterprises
157,672

 
158,993

    Commercial - Government Agencies
195,589

 
186,208

Total Mortgage-Backed Securities
846,292

 
849,299

Total
$
2,196,994

 
$
2,220,913

 
 
 
 
Held-to-Maturity:
 

 
 

Due in One Year or Less
$
89,643

 
$
91,049

Due After One Year Through Five Years
408,976

 
406,911

Due After Five Years Through Ten Years
198,123

 
204,053

Due After Ten Years
222,803

 
230,572

 
919,545

 
932,585

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
3,034,148

 
3,045,574

    Residential - U.S. Government-Sponsored Enterprises
284,683

 
285,742

    Commercial - Government Agencies
319,238

 
312,495

Total Mortgage-Backed Securities
3,638,069

 
3,643,811

Total
$
4,557,614

 
$
4,576,396



Investment securities with carrying values of $2.7 billion and $2.6 billion as of September 30, 2014 and December 31, 2013, respectively, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.

The table below presents the gains and losses from the sales of investment securities for the three and nine months ended September 30, 2014 and 2013. There were no sales of investment securities for the three and nine months ended September 30, 2013.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in thousands)
2014

 
2013

 
2014

 
2013
Gross Gains on Sales of Investment Securities
$
1,858

 
$
—

 
$
6,097

 
$
—

Gross Losses on Sales of Investment Securities
—

 
—

 
—

 
—

Net Gains on Sales of Investment Securities
$
1,858

 
$
—

 
$
6,097

 
$
—




The Company’s investment securities in an unrealized loss position, segregated by continuous length of impairment, were as follows:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in thousands)
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

September 30, 2014
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
615

 
$
(1
)
 
$
14,066

 
$
(105
)
 
$
14,681

 
$
(106
)
Debt Securities Issued by States
   and Political Subdivisions
37,690

 
(60
)
 
124,512

 
(1,635
)
 
162,202

 
(1,695
)
Debt Securities Issued by Corporations
49,084

 
(916
)
 
203,105

 
(5,056
)
 
252,189

 
(5,972
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 


 


    Residential - Government Agencies
225

 
(1
)
 
13,048

 
(1,283
)
 
13,273

 
(1,284
)
    Residential - U.S. Government-Sponsored Enterprises
89,409

 
(128
)
 
—

 
—

 
89,409

 
(128
)
    Commercial - Government Agencies
—

 
—

 
186,208

 
(9,381
)
 
186,208

 
(9,381
)
Total Mortgage-Backed Securities
89,634

 
(129
)
 
199,256

 
(10,664
)
 
288,890

 
(10,793
)
Total
$
177,023

 
$
(1,106
)
 
$
540,939

 
$
(17,460
)
 
$
717,962

 
$
(18,566
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
163,211

 
$
(786
)
 
$
163,959

 
$
(1,792
)
 
$
327,170

 
$
(2,578
)
Debt Securities Issued by Corporations
52,015

 
(264
)
 
79,589

 
(2,943
)
 
131,604

 
(3,207
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
    Residential - Government Agencies
317,928

 
(2,379
)
 
938,218

 
(30,320
)
 
1,256,146

 
(32,699
)
    Residential - U.S. Government-Sponsored Enterprises
182,312

 
(448
)
 
—

 
—

 
182,312

 
(448
)
    Commercial - Government Agencies
89,680

 
(614
)
 
217,580

 
(6,198
)
 
307,260

 
(6,812
)
Total Mortgage-Backed Securities
589,920

 
(3,441
)
 
1,155,798

 
(36,518
)
 
1,745,718

 
(39,959
)
Total
$
805,146

 
$
(4,491
)
 
$
1,399,346

 
$
(41,253
)
 
$
2,204,492

 
$
(45,744
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
     and Government Agencies
$
26,181

 
$
(225
)
 
$
2,117

 
$
(9
)
 
$
28,298

 
$
(234
)
Debt Securities Issued by States
     and Political Subdivisions
415,718

 
(10,934
)
 
42,607

 
(2,521
)
 
458,325

 
(13,455
)
Debt Securities Issued by Corporations
200,364

 
(7,836
)
 
—

 
—

 
200,364

 
(7,836
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
76,744

 
(781
)
 
10,027

 
(1,068
)
 
86,771

 
(1,849
)
     Commercial - Government Agencies
164,478

 
(7,935
)
 
45,175

 
(2,271
)
 
209,653

 
(10,206
)
Total Mortgage-Backed Securities
241,222

 
(8,716
)
 
55,202

 
(3,339
)
 
296,424

 
(12,055
)
Total
$
883,485

 
$
(27,711
)
 
$
99,926

 
$
(5,869
)
 
$
983,411

 
$
(33,580
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
and Government Agencies
$
271,469

 
$
(3,667
)
 
$
—

 
$
—

 
$
271,469

 
$
(3,667
)
Debt Securities Issued by States
and Political Subdivisions
52,026

 
(133
)
 
—

 
—

 
52,026

 
(133
)
Debt Securities Issued by Corporations
163,736

 
(4,278
)
 
20,736

 
(1,430
)
 
184,472

 
(5,708
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
1,767,086

 
(54,067
)
 
190,939

 
(12,505
)
 
1,958,025

 
(66,572
)
     Commercial - Government Agencies
224,277

 
(4,753
)
 
90,167

 
(3,170
)
 
314,444

 
(7,923
)
Total Mortgage-Backed Securities
1,991,363

 
(58,820
)
 
281,106

 
(15,675
)
 
2,272,469

 
(74,495
)
Total
$
2,478,594

 
$
(66,898
)
 
$
301,842

 
$
(17,105
)
 
$
2,780,436

 
$
(84,003
)


The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2014, which were comprised of 202 securities, represent an other-than-temporary impairment.  Total gross unrealized losses were primarily 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.  As of September 30, 2014 and December 31, 2013, the gross unrealized losses reported for mortgage-backed securities were primarily related to investment securities issued by the Government National Mortgage Association. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.

Interest income from taxable and non-taxable investment securities for the three and nine months ended September 30, 2014 and 2013 were as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollars in thousands)
2014

 
2013

 
2014

 
2013

Taxable
$
31,053

 
$
31,552

 
$
96,796

 
$
92,806

Non-Taxable
5,300

 
4,623

 
15,841

 
13,336

Total Interest Income from Investment Securities
$
36,353

 
$
36,175

 
$
112,637

 
$
106,142



As of September 30, 2014, included in the Company's investment securities portfolio were debt securities issued by political subdivisions within the State of Hawaii of $583.8 million, representing 58% of the total fair value of the Company's municipal debt securities. Of the entire Hawaii municipal bond portfolio, 94% were credit-rated Aa2 or better by Moody's while the remaining Hawaii municipal bonds were credit-rated A2 or better by at least one nationally recognized statistical rating organization. Also, approximately 76% of the Company's Hawaii municipal bond holdings were general obligation issuances. As of September 30, 2014, there were no other holdings of municipal debt securities that were issued by a single state or political subdivision which comprised more than 10% of the total fair value of the Company's municipal debt securities.

As of September 30, 2014, the carrying value of the Company’s Federal Home Loan Bank of Seattle ("FHLB Seattle") and Federal Reserve Bank stock was as follows:
(dollars in thousands)
September 30,
2014

 
December 31,
2013

Federal Home Loan Bank Stock
$
49,775

 
$
58,021

Federal Reserve Bank Stock
19,299

 
19,138

Total
$
69,074

 
$
77,159



These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution.  The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment.  Management considers these non-marketable equity securities to be long-term investments.  Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

In September 2014, the FHLB Seattle and the Federal Home Loan Bank of Des Moines announced that they have entered into a definitive agreement to merge the two Banks. The merger agreement has been unanimously approved by the boards of directors of both Banks. The closing of the merger is subject to certain closing conditions, including approval by the Federal Housing Finance Agency and ratification by the member-owners of both Banks.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which is indemnified by Visa members such as the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account not be sufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank's Class B conversion ratio to unrestricted Class A shares. As of September 30, 2014, the conversion ratio was 0.4121.

During the third quarter of 2014, the Company recorded a $1.9 million net gain on the sale of 23,000 Visa Class B shares. For the first nine months of 2014, the Company recorded a $5.8 million net gain on the sale of 68,500 Visa Class B shares. Concurrent with these sales, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa further reduces the conversion ratio. Based on the existing transfer restriction and the uncertainty of the covered litigation, the remaining 424,214 Class B shares (174,819 Class A equivalents) that the Company owns are carried at a zero cost basis.