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Investment Securities
 6 Months Ended
Jun. 30, 2021
Investments Debt And Equity Securities [Abstract]  
Investment Securities

Note 3.  Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of June 30, 2021, and December 31, 2020, were as follows:

 

(dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

203,342

 

 

$

1,996

 

 

$

(141

)

 

$

205,197

 

Debt Securities Issued by States and Political Subdivisions

 

 

23,557

 

 

 

943

 

 

 

(1

)

 

 

24,499

 

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

 

 

950

 

 

 

52

 

 

 

(1

)

 

 

1,001

 

Debt Securities Issued by Corporations

 

 

387,413

 

 

 

5,405

 

 

 

(1,355

)

 

 

391,463

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,538,897

 

 

 

19,600

 

 

 

(13,824

)

 

 

1,544,673

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,170,640

 

 

 

10,660

 

 

 

(26,765

)

 

 

2,154,535

 

Commercial - Government Agencies

 

 

196,861

 

 

 

5,262

 

 

 

(550

)

 

 

201,573

 

Total Mortgage-Backed Securities

 

 

3,906,398

 

 

 

35,522

 

 

 

(41,139

)

 

 

3,900,781

 

Total

 

$

4,521,660

 

 

$

43,918

 

 

$

(42,637

)

 

$

4,522,941

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

131,435

 

 

$

914

 

 

$

(134

)

 

$

132,215

 

Debt Securities Issued by States and Political Subdivisions

 

 

33,424

 

 

 

344

 

 

 

—

 

 

 

33,768

 

Debt Securities Issued by Corporations

 

 

10,541

 

 

 

200

 

 

 

—

 

 

 

10,741

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,536,020

 

 

 

21,817

 

 

 

(15,860

)

 

 

1,541,977

 

Residential - U.S. Government-Sponsored Enterprises

 

 

1,929,372

 

 

 

24,963

 

 

 

(12,448

)

 

 

1,941,887

 

Commercial - Government Agencies

 

 

306,821

 

 

 

1,236

 

 

 

(3,528

)

 

 

304,529

 

Total Mortgage-Backed Securities

 

 

3,772,213

 

 

 

48,016

 

 

 

(31,836

)

 

 

3,788,393

 

Total

 

$

3,947,613

 

 

$

49,474

 

 

$

(31,970

)

 

$

3,965,117

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

174,409

 

 

$

427

 

 

$

(591

)

 

$

174,245

 

Debt Securities Issued by States and Political Subdivisions

 

 

23,540

 

 

 

1,301

 

 

 

(1

)

 

 

24,840

 

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

 

 

985

 

 

 

77

 

 

 

—

 

 

 

1,062

 

Debt Securities Issued by Corporations

 

 

220,717

 

 

 

4,844

 

 

 

(956

)

 

 

224,605

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,561,603

 

 

 

33,657

 

 

 

(445

)

 

 

1,594,815

 

Residential - U.S. Government-Sponsored Enterprises

 

 

1,497,353

 

 

 

21,254

 

 

 

(324

)

 

 

1,518,283

 

Commercial - Government Agencies

 

 

243,029

 

 

 

10,868

 

 

 

(58

)

 

 

253,839

 

Total Mortgage-Backed Securities

 

 

3,301,985

 

 

 

65,779

 

 

 

(827

)

 

 

3,366,937

 

Total

 

$

3,721,636

 

 

$

72,428

 

 

$

(2,375

)

 

$

3,791,689

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

7,500

 

 

$

8

 

 

$

(8

)

 

$

7,500

 

Debt Securities Issued by States and Political Subdivisions

 

 

33,763

 

 

 

741

 

 

 

—

 

 

 

34,504

 

Debt Securities Issued by Corporations

 

 

12,031

 

 

 

251

 

 

 

—

 

 

 

12,282

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

917,459

 

 

 

30,580

 

 

 

(29

)

 

 

948,010

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,099,053

 

 

 

51,735

 

 

 

(291

)

 

 

2,150,497

 

Commercial - Government Agencies

 

 

192,921

 

 

 

3,179

 

 

 

(200

)

 

 

195,900

 

Total Mortgage-Backed Securities

 

 

3,209,433

 

 

 

85,494

 

 

 

(520

)

 

 

3,294,407

 

Total

 

$

3,262,727

 

 

$

86,494

 

 

$

(528

)

 

$

3,348,693

 

 

The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote.  For available-for-sale (“AFS”) debt securities, AIR totaled $8.5 million and $6.6 million as of June 30, 2021, and December 31, 2020, respectively.  For held-to-maturity (“HTM”) debt securities, AIR totaled $7.3 million and $6.8 million as of June 30, 2021, and December 31, 2020, respectively.  AIR is included in the “accrued interest receivable” line item on the Company’s consolidated statements of condition.

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2021.  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

 

$

51,611

 

 

$

51,642

 

Due After One Year Through Five Years

 

 

111,529

 

 

 

114,504

 

Due After Five Years Through Ten Years

 

 

298,653

 

 

 

301,024

 

 

 

 

461,793

 

 

 

467,170

 

Debt Securities Issued by Government Agencies

 

 

153,469

 

 

 

154,990

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,538,897

 

 

 

1,544,673

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,170,640

 

 

 

2,154,535

 

Commercial - Government Agencies

 

 

196,861

 

 

 

201,573

 

Total Mortgage-Backed Securities

 

 

3,906,398

 

 

 

3,900,781

 

Total

 

$

4,521,660

 

 

$

4,522,941

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

Due in One Year or Less

 

 

33,425

 

 

 

33,769

 

Due After One Year Through Five Years

 

 

18,040

 

 

 

18,105

 

Due After Five Year Through Ten Years

 

 

123,935

 

 

 

124,850

 

 

 

 

175,400

 

 

 

176,724

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,536,020

 

 

 

1,541,977

 

Residential - U.S. Government-Sponsored Enterprises

 

 

1,929,372

 

 

 

1,941,887

 

Commercial - Government Agencies

 

 

306,821

 

 

 

304,529

 

Total Mortgage-Backed Securities

 

 

3,772,213

 

 

 

3,788,393

 

Total

 

$

3,947,613

 

 

$

3,965,117

 

 

Investment securities with carrying values of $3.5 billion and $3.6 billion as of June 30, 2021, and December 31, 2020, respectively, were pledged to secure deposits of governmental entities, securities sold under agreements to repurchase, and FRB discount window borrowing.

The table below presents the gains and losses from the sales of investment securities for the three and six months ended June 30, 2021, and June 30, 2020:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Gross Gains on Sales of Investment Securities

 

$

3,675

 

 

$

14,180

 

 

$

3,675

 

 

$

14,257

 

Gross Losses on Sales of Investment Securities

 

 

(1,252

)

 

 

(964

)

 

 

(2,455

)

 

 

(2,011

)

Net Gains on Sales of Investment Securities

 

$

2,423

 

 

$

13,216

 

 

$

1,220

 

 

$

12,246

 

 

The losses on sales of investment securities during the three and six months ended June 30, 2021, and June 30, 2020, were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions, which are expensed as incurred.

The following table summarizes the Company’s AFS debt securities in an unrealized loss position for which an allowance for credit losses was not deemed necessary, aggregated by major security type and length of time in a continuous unrealized loss position:

 

 

 

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, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury

   and Government Agencies

 

$

888

 

 

$

(5

)

 

$

17,724

 

 

$

(136

)

 

$

18,612

 

 

$

(141

)

Debt Securities Issued by States

   and Political Subdivisions

 

 

314

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

314

 

 

 

(1

)

Debt Securities Issued by U.S. Government-

   Sponsored Enterprises

 

 

64

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

64

 

 

 

(1

)

Debt Securities Issued by Corporations

 

 

49,813

 

 

 

(187

)

 

 

88,832

 

 

 

(1,168

)

 

 

138,645

 

 

 

(1,355

)

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

678,445

 

 

 

(13,648

)

 

 

7,980

 

 

 

(176

)

 

 

686,425

 

 

 

(13,824

)

Residential - U.S. Government-Sponsored

   Enterprises

 

 

1,628,682

 

 

 

(26,765

)

 

 

—

 

 

 

—

 

 

 

1,628,682

 

 

 

(26,765

)

Commercial-Government Agencies

 

 

24,130

 

 

 

(550

)

 

 

—

 

 

 

—

 

 

 

24,130

 

 

 

(550

)

Total Mortgage-Backed Securities

 

 

2,331,257

 

 

 

(40,963

)

 

 

7,980

 

 

 

(176

)

 

 

2,339,237

 

 

 

(41,139

)

Total

 

$

2,382,336

 

 

$

(41,157

)

 

$

114,536

 

 

$

(1,480

)

 

$

2,496,872

 

 

$

(42,637

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale: 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury

   and Government Agencies

 

$

21,338

 

 

$

(42

)

 

$

87,070

 

 

$

(549

)

 

$

108,408

 

 

$

(591

)

Debt Securities Issued by States

   and Political Subdivisions

 

 

—

 

 

 

—

 

 

 

26

 

 

 

(1

)

 

 

26

 

 

 

(1

)

Debt Securities Issued by Corporations

 

 

65,000

 

 

 

(853

)

 

 

50,000

 

 

 

(103

)

 

 

115,000

 

 

 

(956

)

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

113,538

 

 

 

(222

)

 

 

28,063

 

 

 

(223

)

 

 

141,601

 

 

 

(445

)

Residential - U.S. Government-Sponsored Enterprises

 

 

94,002

 

 

 

(324

)

 

 

—

 

 

 

—

 

 

 

94,002

 

 

 

(324

)

Commercial - Government Agencies

 

 

25,075

 

 

 

(58

)

 

 

—

 

 

 

—

 

 

 

25,075

 

 

 

(58

)

Total Mortgage-Backed Securities

 

 

232,615

 

 

 

(604

)

 

 

28,063

 

 

 

(223

)

 

 

260,678

 

 

 

(827

)

Total

 

$

318,953

 

 

$

(1,499

)

 

$

165,159

 

 

$

(876

)

 

$

484,112

 

 

$

(2,375

)

1  The fair value and gross unrealized losses as of December 31, 2020, have been updated to properly reflect the length of time they were in a continuous unrealized loss position.

 

The Company does not believe that the AFS debt securities that were in an unrealized loss position as of June 30, 2021, which were comprised of 174 individual securities, represent a credit loss impairment.  The gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased.  As of June 30, 2021, and December 31, 2020, the gross unrealized losses reported for mortgage-backed securities were mostly related to investment securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac.  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.

 

 

Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises.  These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss.  Therefore, an allowance for credit losses for these securities was not deemed necessary as of June 30, 2021.  

Interest income from taxable and non-taxable investment securities for the three and six months ended June 30, 2021, and June 30, 2020, were as follows:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Taxable

 

$

29,765

 

 

$

30,729

 

 

$

58,621

 

 

$

66,122

 

Non-Taxable

 

 

278

 

 

 

570

 

 

 

559

 

 

 

1,140

 

Total Interest Income from Investment Securities

 

$

30,043

 

 

$

31,299

 

 

$

59,180

 

 

$

67,262

 

 

As of June 30, 2021, and December 31, 2020, 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,

2021

 

 

December 31,

2020

 

Federal Home Loan Bank Stock

 

$

10,000

 

 

$

12,000

 

Federal Reserve Bank Stock

 

 

21,479

 

 

 

21,340

 

Total

 

$

31,479

 

 

$

33,340

 

 

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, 2021, the conversion ratio was 1.6228.  See Note 11 Derivative Financial Instruments for more information.

During the second quarter of 2020, the Company sold its remaining 80,214 Visa Class B Shares and recorded a $14.2 million gain on sale.  As a result of this sale, the Company no longer owns any Visa Class B shares.