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Investment Securities
 6 Months Ended
Jun. 30, 2019
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 June 30, 2019 and December 31, 2018 were as follows:

(dollars in thousands)
Amortized Cost

 
Gross
Unrealized Gains

 
Gross
Unrealized Losses

 
Fair Value

June 30, 2019
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
336,474

 
$
496

 
$
(1,438
)
 
$
335,532

Debt Securities Issued by States and Political Subdivisions
61,228

 
993

 
(2
)
 
62,219

Debt Securities Issued by U.S. Government-Sponsored Enterprises
192


4


—

 
196

Debt Securities Issued by Corporations
349,653

 
911

 
(752
)
 
349,812

Mortgage-Backed Securities:
 

 
 

 
 

 
 

    Residential - Government Agencies
1,219,120

 
12,519

 
(3,709
)
 
1,227,930

    Residential - U.S. Government-Sponsored Enterprises
500,664

 
4,663

 
(2,270
)
 
503,057

    Commercial - Government Agencies
170,567

 
2,960

 
(2,324
)
 
171,203

Total Mortgage-Backed Securities
1,890,351

 
20,142

 
(8,303
)
 
1,902,190

Total
$
2,637,898

 
$
22,546

 
$
(10,495
)
 
$
2,649,949

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
353,721

 
$
1,752

 
$
(262
)
 
$
355,211

Debt Securities Issued by States and Political Subdivisions
65,421

 
1,405

 
—

 
66,826

Debt Securities Issued by Corporations
16,429

 
—

 
(234
)
 
16,195

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
1,219,447

 
13,744

 
(8,002
)
 
1,225,189

    Residential - U.S. Government-Sponsored Enterprises
1,218,431

 
10,095

 
(3,232
)
 
1,225,294

    Commercial - Government Agencies
86,162

 
215

 
(1,863
)
 
84,514

Total Mortgage-Backed Securities
2,524,040

 
24,054


(13,097
)

2,534,997

Total
$
2,959,611

 
$
27,211

 
$
(13,593
)
 
$
2,973,229

 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
394,485

 
$
493

 
$
(2,577
)
 
$
392,401

Debt Securities Issued by States and Political Subdivisions
559,800

 
5,227

 
(1,031
)
 
563,996

Debt Securities Issued by U.S. Government-Sponsored Enterprises
56

 
—

 
—

 
56

Debt Securities Issued by Corporations
224,997

 
—

 
(1,857
)
 
223,140

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
189,645

 
1,726

 
(929
)
 
190,442

    Residential - U.S. Government-Sponsored Enterprises
589,311

 
1,779

 
(12,563
)
 
578,527

    Commercial - Government Agencies
63,864

 
—

 
(4,484
)
 
59,380

Total Mortgage-Backed Securities
842,820

 
3,505

 
(17,976
)
 
828,349

Total
$
2,022,158

 
$
9,225

 
$
(23,441
)
 
$
2,007,942

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
353,122

 
$
186

 
$
(1,093
)
 
$
352,215

Debt Securities Issued by States and Political Subdivisions
234,602

 
6,150

 
—

 
240,752

Debt Securities Issued by Corporations
97,266

 
—

 
(1,755
)
 
95,511

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
1,861,874

 
3,886

 
(51,773
)
 
1,813,987

    Residential - U.S. Government-Sponsored Enterprises
758,835

 
1,590

 
(20,259
)
 
740,166

    Commercial - Government Agencies
176,393

 
147

 
(5,177
)
 
171,363

Total Mortgage-Backed Securities
2,797,102

 
5,623

 
(77,209
)
 
2,725,516

Total
$
3,482,092

 
$
11,959

 
$
(80,057
)
 
$
3,413,994



As mentioned in Note 1 the FASB issued ASU No. 2019-04 in April 2019. In June 2019, the Company elected to early adopt the amendments to Topic 815, Derivatives and Hedging, which allowed the Company a one-time reclassification of certain prepayable debt securities from held-to-maturity to available-for-sale. On June 10, 2019, prepayable debt securities with a carrying value of $1.0 billion and a net unrealized gain of $3.1 million were transferred from held-to-maturity to available-for-sale. The reclassified securities consisted of mortgage-backed securities issued by U.S. government agencies and government-sponsored enterprises, municipal debt securities, and corporate debt securities.

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2019.  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
$
169,659

 
$
169,782

Due After One Year Through Five Years
107,258

 
107,298

Due After Five Years Through Ten Years
135,099

 
136,099

Due After Ten Years
52

 
52

 
412,068

 
413,231

 
 
 
 
Debt Securities Issued by Government Agencies
335,479

 
334,528

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
1,219,120

 
1,227,930

    Residential - U.S. Government-Sponsored Enterprises
500,664

 
503,057

    Commercial - Government Agencies
170,567

 
171,203

Total Mortgage-Backed Securities
1,890,351

 
1,902,190

Total
$
2,637,898

 
$
2,649,949

 
 
 
 
Held-to-Maturity:
 

 
 

Due in One Year or Less
$
219,851

 
$
220,115

Due After One Year Through Five Years
199,291

 
201,922

Due After Five Years Through Ten Years
16,429

 
16,195

Due After Ten Years
—

 
—

 
435,571

 
438,232

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
1,219,447

 
1,225,189

    Residential - U.S. Government-Sponsored Enterprises
1,218,431

 
1,225,294

    Commercial - Government Agencies
86,162

 
84,514

Total Mortgage-Backed Securities
2,524,040

 
2,534,997

Total
$
2,959,611

 
$
2,973,229



Investment securities with carrying values of $2.5 billion and $2.3 billion as of June 30, 2019 and December 31, 2018, 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 six months ended June 30, 2019 and 2018.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2019

 
2018

 
2019

 
2018

Gross Gains on Sales of Investment Securities
$
5,633

 
$
—

 
$
7,663

 
$
—

Gross Losses on Sales of Investment Securities
(6,409
)
 
(1,702
)
 
(9,274
)
 
(2,368
)
Net Gains (Losses) on Sales of Investment Securities
$
(776
)
 
$
(1,702
)
 
$
(1,611
)
 
$
(2,368
)


The gross gains and losses on sales of investment securities during the three and six months ended June 30, 2019 included sales of municipal debt securities, mortgage-backed securities, and corporate debt securities as part of a portfolio repositioning. In addition, fees paid to the counterparties of our prior Visa Class B share sale transactions which are expensed as incurred also contributed to the losses during the three and six months ended June 30, 2019 and June 30, 2018. In addition, the second quarter of 2018 included a $1.0 million liability recorded 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

June 30, 2019
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
6,597

 
$
(37
)
 
$
192,407

 
$
(1,401
)
 
$
199,004

 
$
(1,438
)
Debt Securities Issued by States
   and Political Subdivisions
—

 
—

 
626

 
(2
)
 
626

 
(2
)
Debt Securities Issued by Corporations
49,952

 
(48
)
 
115,856

 
(704
)
 
165,808

 
(752
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 


 


    Residential - Government Agencies
55,175

 
(160
)
 
221,343

 
(3,549
)
 
276,518

 
(3,709
)
    Residential - U.S. Government-Sponsored Enterprises
35,262

 
(131
)
 
202,939

 
(2,139
)
 
238,201

 
(2,270
)
    Commercial - Government Agencies
—

 
—

 
57,344

 
(2,324
)
 
57,344

 
(2,324
)
Total Mortgage-Backed Securities
90,437

 
(291
)
 
481,626

 
(8,012
)
 
572,063

 
(8,303
)
Total
$
146,986

 
$
(376
)
 
$
790,515

 
$
(10,119
)
 
$
937,501

 
$
(10,495
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
—

 
$
—

 
$
39,813

 
$
(262
)
 
$
39,813

 
$
(262
)
Debt Securities Issued by Corporations
—

 
—

 
16,195

 
(234
)
 
16,195

 
(234
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
    Residential - Government Agencies
341

 
—

 
512,748

 
(8,002
)
 
513,089

 
(8,002
)
    Residential - U.S. Government-Sponsored Enterprises
4,580

 
(13
)
 
305,816

 
(3,219
)
 
310,396

 
(3,232
)
    Commercial - Government Agencies
—

 
—

 
63,189

 
(1,863
)
 
63,189

 
(1,863
)
Total Mortgage-Backed Securities
4,921

 
(13
)
 
881,753

 
(13,084
)
 
886,674

 
(13,097
)
Total
$
4,921

 
$
(13
)
 
$
937,761

 
$
(13,580
)
 
$
942,682

 
$
(13,593
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
     and Government Agencies
$
157,058

 
$
(964
)
 
$
173,763

 
$
(1,613
)
 
$
330,821

 
$
(2,577
)
Debt Securities Issued by States
     and Political Subdivisions
38,138

 
(59
)
 
156,772

 
(972
)
 
194,910

 
(1,031
)
Debt Securities Issued by Corporations
59,770

 
(231
)
 
163,371

 
(1,626
)
 
223,141

 
(1,857
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
6,299

 
(10
)
 
19,011

 
(919
)
 
25,310

 
(929
)
     Residential - U.S. Government-Sponsored Enterprises
—

 
—

 
473,380

 
(12,563
)
 
473,380

 
(12,563
)
     Commercial - Government Agencies
—

 
—

 
59,380

 
(4,484
)
 
59,380

 
(4,484
)
Total Mortgage-Backed Securities
6,299

 
(10
)
 
551,771

 
(17,966
)
 
558,070

 
(17,976
)
Total
$
261,265

 
$
(1,264
)
 
$
1,045,677

 
$
(22,177
)
 
$
1,306,942

 
$
(23,441
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
and Government Agencies
$
99,440

 
$
(237
)
 
$
134,239

 
$
(856
)
 
$
233,679

 
$
(1,093
)
Debt Securities Issued by Corporations
—

 
—

 
95,511

 
(1,755
)
 
95,511

 
(1,755
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
12,974

 
(45
)
 
1,491,747

 
(51,728
)
 
1,504,721

 
(51,773
)
     Residential - U.S. Government-Sponsored Enterprises
—

 
—

 
617,000

 
(20,259
)
 
617,000

 
(20,259
)
     Commercial - Government Agencies
19,217

 
(61
)
 
145,715

 
(5,116
)
 
164,932

 
(5,177
)
Total Mortgage-Backed Securities
32,191

 
(106
)
 
2,254,462

 
(77,103
)
 
2,286,653

 
(77,209
)
Total
$
131,631

 
$
(343
)
 
$
2,484,212

 
$
(79,714
)
 
$
2,615,843

 
$
(80,057
)


The Company does not believe that the investment securities that were in an unrealized loss position as of June 30, 2019, which were comprised of 258 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 June 30, 2019 and December 31, 2018, 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 six months ended June 30, 2019 and 2018 were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2019

 
2018

 
2019

 
2018

Taxable
$
35,336

 
$
28,405

 
$
67,328

 
$
57,076

Non-Taxable
1,885

 
4,686

 
5,246

 
9,452

Total Interest Income from Investment Securities
$
37,221

 
$
33,091

 
$
72,574

 
$
66,528



As of June 30, 2019, included in the Company’s investment securities portfolio were debt securities issued by political subdivisions within the State of Hawaii of $127.8 million, representing 99% of the total fair value of the Company’s municipal debt securities. Of the entire Hawaii municipal bond portfolio, 80% were credit-rated Aa2 or better by Moody’s. Most of 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, 75% were general obligation issuances.

As of June 30, 2019 and December 31, 2018, 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)
June 30,
2019

 
December 31,
2018

Federal Home Loan Bank Stock
$
14,000

 
$
15,000

Federal Reserve Bank Stock
20,970

 
20,858

Total
$
34,970

 
$
35,858



These securities can only be redeemed or sold at their par value and only to the respective issuing 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 June 30, 2019, 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 June 30, 2019 are carried at a zero cost basis.