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, 2018 and December 31, 2017 were as follows:
| | | | | | | | | | | | | | | | | (dollars in thousands) | Amortized Cost |
| | Gross Unrealized Gains |
| | Gross Unrealized Losses |
| | Fair Value |
| September 30, 2018 | |
| | |
| | |
| | |
| Available-for-Sale: | |
| | |
| | |
| | |
| Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 420,400 |
| | $ | 474 |
| | $ | (2,710 | ) | | $ | 418,164 |
| Debt Securities Issued by States and Political Subdivisions | 574,755 |
| | 4,275 |
| | (2,383 | ) | | 576,647 |
| Debt Securities Issued by Government-Sponsored Enterprises | 55 |
|
| — |
|
| — |
| | 55 |
| Debt Securities Issued by Corporations | 224,997 |
| | 65 |
| | (1,071 | ) | | 223,991 |
| Mortgage-Backed Securities: | |
| | |
| | |
| | |
| Residential - Government Agencies | 198,364 |
| | 1,807 |
| | (1,138 | ) | | 199,033 |
| Residential - U.S. Government-Sponsored Enterprises | 595,632 |
| | 338 |
| | (23,778 | ) | | 572,192 |
| Commercial - Government Agencies | 64,414 |
| | — |
| | (4,809 | ) | | 59,605 |
| Total Mortgage-Backed Securities | 858,410 |
| | 2,145 |
| | (29,725 | ) | | 830,830 |
| Total | $ | 2,078,617 |
| | $ | 6,959 |
| | $ | (35,889 | ) | | $ | 2,049,687 |
| Held-to-Maturity: | |
| | |
| | |
| | |
| Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 422,762 |
| | $ | — |
| | $ | (2,185 | ) | | $ | 420,577 |
| Debt Securities Issued by States and Political Subdivisions | 235,588 |
| | 5,271 |
| | — |
| | 240,859 |
| Debt Securities Issued by Corporations | 101,120 |
| | — |
| | (3,248 | ) | | 97,872 |
| Mortgage-Backed Securities: | | | | | | | |
| Residential - Government Agencies | 1,956,198 |
| | 3,140 |
| | (79,935 | ) | | 1,879,403 |
| Residential - U.S. Government-Sponsored Enterprises | 768,121 |
| | 226 |
| | (31,029 | ) | | 737,318 |
| Commercial - Government Agencies | 180,698 |
| | — |
| | (7,492 | ) | | 173,206 |
| Total Mortgage-Backed Securities | 2,905,017 |
| | 3,366 |
|
| (118,456 | ) |
| 2,789,927 |
| Total | $ | 3,664,487 |
| | $ | 8,637 |
| | $ | (123,889 | ) | | $ | 3,549,235 |
| | | | | | | | | December 31, 2017 | |
| | |
| | |
| | |
| Available-for-Sale: | |
| | |
| | |
| | |
| Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 424,912 |
| | $ | 2,053 |
| | $ | (1,035 | ) | | $ | 425,930 |
| Debt Securities Issued by States and Political Subdivisions | 618,167 |
| | 9,894 |
| | (1,042 | ) | | 627,019 |
| Debt Securities Issued by Corporations | 268,003 |
| | 199 |
| | (2,091 | ) | | 266,111 |
| Mortgage-Backed Securities: | | | | | | | |
| Residential - Government Agencies | 233,268 |
| | 3,129 |
| | (1,037 | ) | | 235,360 |
| Residential - U.S. Government-Sponsored Enterprises | 619,795 |
| | 420 |
| | (10,403 | ) | | 609,812 |
| Commercial - Government Agencies | 71,999 |
| | — |
| | (3,252 | ) | | 68,747 |
| Total Mortgage-Backed Securities | 925,062 |
| | 3,549 |
| | (14,692 | ) | | 913,919 |
| Total | $ | 2,236,144 |
| | $ | 15,695 |
| | $ | (18,860 | ) | | $ | 2,232,979 |
| Held-to-Maturity: | |
| | |
| | |
| | |
| Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 375,074 |
| | $ | 18 |
| | $ | (1,451 | ) | | $ | 373,641 |
| Debt Securities Issued by States and Political Subdivisions | 238,504 |
| | 9,125 |
| | — |
| | 247,629 |
| Debt Securities Issued by Corporations | 119,635 |
| | 123 |
| | (1,591 | ) | | 118,167 |
| Mortgage-Backed Securities: | | | | | | | |
| Residential - Government Agencies | 2,229,985 |
| | 9,975 |
| | (37,047 | ) | | 2,202,913 |
| Residential - U.S. Government-Sponsored Enterprises | 763,312 |
| | 911 |
| | (11,255 | ) | | 752,968 |
| Commercial - Government Agencies | 201,660 |
| | 797 |
| | (3,654 | ) | | 198,803 |
| Total Mortgage-Backed Securities | 3,194,957 |
| | 11,683 |
| | (51,956 | ) | | 3,154,684 |
| Total | $ | 3,928,170 |
| | $ | 20,949 |
| | $ | (54,998 | ) | | $ | 3,894,121 |
|
The table below presents an analysis of the contractual maturities of the Company’s investment securities as of September 30, 2018. 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 | $ | 51,919 |
| | $ | 51,866 |
| Due After One Year Through Five Years | 631,703 |
| | 630,347 |
| Due After Five Years Through Ten Years | 94,253 |
| | 95,875 |
| Due After Ten Years | 22,912 |
| | 23,568 |
| | 800,787 |
| | 801,656 |
| | | | | Debt Securities Issued by Government Agencies | 419,420 |
| | 417,201 |
| Mortgage-Backed Securities: | |
| | |
| Residential - Government Agencies | 198,364 |
| | 199,033 |
| Residential - U.S. Government-Sponsored Enterprises | 595,632 |
| | 572,192 |
| Commercial - Government Agencies | 64,414 |
| | 59,605 |
| Total Mortgage-Backed Securities | 858,410 |
| | 830,830 |
| Total | $ | 2,078,617 |
| | $ | 2,049,687 |
| | | | | Held-to-Maturity: | |
| | |
| Due in One Year or Less | $ | 164,903 |
| | $ | 164,495 |
| Due After One Year Through Five Years | 347,271 |
| | 346,571 |
| Due After Five Years Through Ten Years | 230,227 |
| | 230,391 |
| Due After Ten Years | 17,069 |
| | 17,851 |
| | 759,470 |
| | 759,308 |
| Mortgage-Backed Securities: | |
| | |
| Residential - Government Agencies | 1,956,198 |
| | 1,879,403 |
| Residential - U.S. Government-Sponsored Enterprises | 768,121 |
| | 737,318 |
| Commercial - Government Agencies | 180,698 |
| | 173,206 |
| Total Mortgage-Backed Securities | 2,905,017 |
| | 2,789,927 |
| Total | $ | 3,664,487 |
| | $ | 3,549,235 |
|
Investment securities with carrying values of $2.5 billion and $2.4 billion as of September 30, 2018 and December 31, 2017, 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, 2018 and 2017. | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (dollars in thousands) | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| Gross Gains on Sales of Investment Securities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 12,467 |
| Gross Losses on Sales of Investment Securities | (729 | ) | | (566 | ) | | (3,097 | ) | | (1,420 | ) | Net Gains (Losses) on Sales of Investment Securities | $ | (729 | ) | | $ | (566 | ) | | $ | (3,097 | ) | | $ | 11,047 |
|
The losses during the three months ended September 30, 2018 were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions. The losses during the nine months ended September 30, 2018 were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions combined with a $1.0 million liability recorded in second quarter 2018 related to a change in the Visa Class B conversion ratio.
The Company’s gross unrealized losses and the related fair value of investment securities, aggregated by investment category and length of time in a continuous unrealized loss position, 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, 2018 | |
| | |
| | |
| | |
| | |
| | |
| Available-for-Sale: | | | | | | | | | | | | Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 188,906 |
| | $ | (1,089 | ) | | $ | 168,680 |
| | $ | (1,621 | ) | | $ | 357,586 |
| | $ | (2,710 | ) | Debt Securities Issued by States and Political Subdivisions | 256,816 |
| | (1,894 | ) | | 45,914 |
| | (489 | ) | | 302,730 |
| | (2,383 | ) | Debt Securities Issued by U.S. Government-Sponsored Enterprises | 50 |
| | — |
| | — |
| | — |
| | 50 |
| | — |
| Debt Securities Issued by Corporations | 24,940 |
| | (60 | ) | | 163,986 |
| | (1,011 | ) | | 188,926 |
| | (1,071 | ) | Mortgage-Backed Securities: | | | | | | | | |
|
| |
|
| Residential - Government Agencies | 11,614 |
| | (128 | ) | | 16,470 |
| | (1,010 | ) | | 28,084 |
| | (1,138 | ) | Residential - U.S. Government-Sponsored Enterprises | 133,539 |
| | (3,236 | ) | | 417,167 |
| | (20,542 | ) | | 550,706 |
| | (23,778 | ) | Commercial - Government Agencies | — |
| | — |
| | 59,605 |
| | (4,809 | ) | | 59,605 |
| | (4,809 | ) | Total Mortgage-Backed Securities | 145,153 |
| | (3,364 | ) | | 493,242 |
| | (26,361 | ) | | 638,395 |
| | (29,725 | ) | Total | $ | 615,865 |
| | $ | (6,407 | ) | | $ | 871,822 |
| | $ | (29,482 | ) | | $ | 1,487,687 |
| | $ | (35,889 | ) | Held-to-Maturity: | | | | | | | | | | | | Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 296,511 |
| | $ | (1,116 | ) | | $ | 124,066 |
| | $ | (1,069 | ) | | $ | 420,577 |
| | $ | (2,185 | ) | Debt Securities Issued by Corporations | 38,493 |
| | (839 | ) | | 59,378 |
| | (2,409 | ) | | 97,871 |
| | (3,248 | ) | Mortgage-Backed Securities: | | | | | | | | | | | | Residential - Government Agencies | 444,465 |
| | (11,878 | ) | | 1,238,576 |
| | (68,057 | ) | | 1,683,041 |
| | (79,935 | ) | Residential - U.S. Government-Sponsored Enterprises | 241,918 |
| | (5,869 | ) | | 489,643 |
| | (25,160 | ) | | 731,561 |
| | (31,029 | ) | Commercial - Government Agencies | 98,194 |
| | (1,854 | ) | | 75,013 |
| | (5,638 | ) | | 173,207 |
| | (7,492 | ) | Total Mortgage-Backed Securities | 784,577 |
| | (19,601 | ) | | 1,803,232 |
| | (98,855 | ) | | 2,587,809 |
| | (118,456 | ) | Total | $ | 1,119,581 |
| | $ | (21,556 | ) | | $ | 1,986,676 |
| | $ | (102,333 | ) | | $ | 3,106,257 |
| | $ | (123,889 | ) | | | | | | | | | | | | | December 31, 2017 | |
| | |
| | |
| | |
| | |
| | |
| Available-for-Sale: | | | | | | | | | | | | Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 103,842 |
| | $ | (599 | ) | | $ | 132,071 |
| | $ | (436 | ) | | $ | 235,913 |
| | $ | (1,035 | ) | Debt Securities Issued by States and Political Subdivisions | 172,343 |
| | (1,032 | ) | | 734 |
| | (10 | ) | | 173,077 |
| | (1,042 | ) | Debt Securities Issued by Corporations | 12,985 |
| | (15 | ) | | 192,927 |
| | (2,076 | ) | | 205,912 |
| | (2,091 | ) | Mortgage-Backed Securities: | | | | | | | | | | | | Residential - Government Agencies | 11,035 |
| | (4 | ) | | 10,618 |
| | (1,033 | ) | | 21,653 |
| | (1,037 | ) | Residential - U.S. Government-Sponsored Enterprises | 429,342 |
| | (5,720 | ) | | 150,887 |
| | (4,683 | ) | | 580,229 |
| | (10,403 | ) | Commercial - Government Agencies | — |
| | — |
| | 68,747 |
| | (3,252 | ) | | 68,747 |
| | (3,252 | ) | Total Mortgage-Backed Securities | 440,377 |
| | (5,724 | ) | | 230,252 |
| | (8,968 | ) | | 670,629 |
| | (14,692 | ) | Total | $ | 729,547 |
| | $ | (7,370 | ) | | $ | 555,984 |
| | $ | (11,490 | ) | | $ | 1,285,531 |
| | $ | (18,860 | ) | Held-to-Maturity: | | | | | | | | | | | | Debt Securities Issued by the U.S. Treasury and Government Agencies | $ | 254,283 |
| | $ | (532 | ) | | $ | 89,391 |
| | $ | (919 | ) | | $ | 343,674 |
| | $ | (1,451 | ) | Debt Securities Issued by Corporations | 25,490 |
| | (110 | ) | | 58,869 |
| | (1,481 | ) | | 84,359 |
| | (1,591 | ) | Mortgage-Backed Securities: | | | | | | | | | | | | Residential - Government Agencies | 1,030,472 |
| | (12,262 | ) | | 704,545 |
| | (24,785 | ) | | 1,735,017 |
| | (37,047 | ) | Residential - U.S. Government-Sponsored Enterprises | 293,530 |
| | (3,106 | ) | | 339,232 |
| | (8,149 | ) | | 632,762 |
| | (11,255 | ) | Commercial - Government Agencies | 497 |
| | (5 | ) | | 82,288 |
| | (3,649 | ) | | 82,785 |
| | (3,654 | ) | Total Mortgage-Backed Securities | 1,324,499 |
| | (15,373 | ) | | 1,126,065 |
| | (36,583 | ) | | 2,450,564 |
| | (51,956 | ) | Total | $ | 1,604,272 |
| | $ | (16,015 | ) | | $ | 1,274,325 |
| | $ | (38,983 | ) | | $ | 2,878,597 |
| | $ | (54,998 | ) |
The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2018, which were comprised of 520 individual 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, 2018 and December 31, 2017, the gross unrealized losses reported for mortgage-backed securities were mostly 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 basis, which may be at maturity.
Interest income from taxable and non-taxable investment securities for the three and nine months ended September 30, 2018 and 2017 were as follows: | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (dollars in thousands) | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
| Taxable | $ | 28,855 |
| | $ | 27,441 |
| | $ | 85,931 |
| | $ | 79,949 |
| Non-Taxable | 4,554 |
| | 4,880 |
| | 14,006 |
| | 14,915 |
| Total Interest Income from Investment Securities | $ | 33,409 |
| | $ | 32,321 |
| | $ | 99,937 |
| | $ | 94,864 |
|
As of September 30, 2018, included in the Company’s investment securities portfolio were debt securities issued by political subdivisions within the State of Hawaii of $463.3 million, representing 57% of the total fair value of the Company’s municipal debt securities. Of the entire Hawaii municipal bond portfolio, 96% were credit-rated Aa2 or better by Moody’s while the remaining Hawaii municipal bonds were credit-rated A1 or better by at least one nationally recognized statistical rating organization. Of the Company’s total Hawaii municipal bond holdings, 80% were general obligation issuances. As of September 30, 2018, 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, 2018 and December 31, 2017, the carrying value of the Company’s Federal Home Loan Bank of Des Moines stock and Federal Reserve Bank stock was as follows: | | | | | | | | | (dollars in thousands) | September 30, 2018 |
| | December 31, 2017 |
| Federal Home Loan Bank Stock | $ | 17,000 |
| | $ | 20,000 |
| Federal Reserve Bank Stock | 20,858 |
| | 20,645 |
| Total | $ | 37,858 |
| | $ | 40,645 |
|
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.
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 will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient 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, 2018, the conversion ratio was 1.6298. See Note 12 Derivative Financial Instruments for more information.
The Company occasionally sells these Visa Class B shares to other financial institutions. Concurrent with every sale the Company enters 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 outcome of the Visa litigation mentioned above, the remaining 83,014 Class B shares (135,296 Class A equivalents) that the Company owns as of September 30, 2018 are carried at a zero cost basis.
|