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Investment Securities
 9 Months Ended
Sep. 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 September 30, 2021, and December 31, 2020, were as follows:

 

(dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

143,409

 

 

$

1,561

 

 

$

(106

)

 

$

144,864

 

Debt Securities Issued by States and Political Subdivisions

 

 

20,231

 

 

 

839

 

 

 

(2

)

 

 

21,068

 

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

 

 

1,509

 

 

 

47

 

 

 

(1

)

 

 

1,555

 

Debt Securities Issued by Corporations

 

 

385,787

 

 

 

3,630

 

 

 

(1,543

)

 

 

387,874

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,410,231

 

 

 

15,435

 

 

 

(8,483

)

 

 

1,417,183

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,223,697

 

 

 

8,395

 

 

 

(32,040

)

 

 

2,200,052

 

Commercial - Government Agencies

 

 

177,721

 

 

 

3,877

 

 

 

(674

)

 

 

180,924

 

Total Mortgage-Backed Securities

 

 

3,811,649

 

 

 

27,707

 

 

 

(41,197

)

 

 

3,798,159

 

Total

 

$

4,362,585

 

 

$

33,784

 

 

$

(42,849

)

 

$

4,353,520

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

131,465

 

 

$

277

 

 

$

(184

)

 

$

131,558

 

Debt Securities Issued by States and Political Subdivisions

 

 

33,254

 

 

 

125

 

 

 

—

 

 

 

33,379

 

Debt Securities Issued by Corporations

 

 

21,133

 

 

 

140

 

 

 

(271

)

 

 

21,002

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,877,804

 

 

 

18,683

 

 

 

(14,525

)

 

 

1,881,962

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,371,155

 

 

 

22,683

 

 

 

(24,397

)

 

 

2,369,441

 

Commercial - Government Agencies

 

 

465,069

 

 

 

900

 

 

 

(7,548

)

 

 

458,421

 

Total Mortgage-Backed Securities

 

 

4,714,028

 

 

 

42,266

 

 

 

(46,470

)

 

 

4,709,824

 

Total

 

$

4,899,880

 

 

$

42,808

 

 

$

(46,925

)

 

$

4,895,763

 

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 $7.9 million and $6.6 million as of September 30, 2021, and December 31, 2020, respectively.  For held-to-maturity (“HTM”) debt securities, AIR totaled $9.0 million and $6.8 million as of September 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 September 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

 

$

26,227

 

 

$

26,290

 

Due After One Year Through Five Years

 

 

111,281

 

 

 

113,889

 

Due After Five Years Through Ten Years

 

 

270,764

 

 

 

271,069

 

 

 

 

408,272

 

 

 

411,248

 

Debt Securities Issued by Government Agencies

 

 

142,664

 

 

 

144,113

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,410,231

 

 

 

1,417,183

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,223,697

 

 

 

2,200,052

 

Commercial - Government Agencies

 

 

177,721

 

 

 

180,924

 

Total Mortgage-Backed Securities

 

 

3,811,649

 

 

 

3,798,159

 

Total

 

$

4,362,585

 

 

$

4,353,520

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

Due in One Year or Less

 

 

33,254

 

 

 

33,379

 

Due After One Year Through Five Years

 

 

17,290

 

 

 

17,285

 

Due After Five Year Through Ten Years

 

 

123,966

 

 

 

124,204

 

Due After Ten Years

 

 

11,342

 

 

 

11,071

 

 

 

 

185,852

 

 

 

185,939

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

1,877,804

 

 

 

1,881,962

 

Residential - U.S. Government-Sponsored Enterprises

 

 

2,371,155

 

 

 

2,369,441

 

Commercial - Government Agencies

 

 

465,069

 

 

 

458,421

 

Total Mortgage-Backed Securities

 

 

4,714,028

 

 

 

4,709,824

 

Total

 

$

4,899,880

 

 

$

4,895,763

 

 

Investment securities with carrying values of $3.5 billion and $3.6 billion as of September 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 nine months ended September 30, 2021, and September 30, 2020:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Gross Gains on Sales of Investment Securities

 

$

110

 

 

$

—

 

 

$

3,785

 

 

$

14,257

 

Gross Losses on Sales of Investment Securities

 

 

(1,369

)

 

 

(1,121

)

 

 

(3,824

)

 

 

(3,132

)

Net Gains (Losses) on Sales of Investment Securities

 

$

(1,259

)

 

$

(1,121

)

 

$

(39

)

 

$

11,125

 

 

Net investment securities losses totaled $1.3 million in the third quarter of 2021 compared to $1.1 million during the same period in 2020.  The net loss in the third quarter of 2021 was primarily due to the fees paid to the counterparties of our prior Visa Class B share sale transactions.  The net losses of $39 thousand in the first nine months of 2021 was primarily due to $3.8 million of the fees paid to the counterparties of our prior Visa Class B shares and was partially offset by the net gain from the sale of mortgage-backed securities, corporate and government debt securities.  The net gain of $11.2 million in the first nine months of 2020 was primarily due to the sale of 80,214 Visa Class B shares.

  

 

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

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury

   and Government Agencies

 

$

1,772

 

 

$

(4

)

 

$

10,458

 

 

$

(102

)

 

$

12,230

 

 

$

(106

)

Debt Securities Issued by States

   and Political Subdivisions

 

 

413

 

 

 

(2

)

 

 

—

 

 

 

—

 

 

 

413

 

 

 

(2

)

Debt Securities Issued by U.S. Government-

   Sponsored Enterprises

 

 

99

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

99

 

 

 

(1

)

Debt Securities Issued by Corporations

 

 

123,230

 

 

 

(734

)

 

 

64,190

 

 

 

(809

)

 

 

187,420

 

 

 

(1,543

)

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies

 

 

804,605

 

 

 

(8,313

)

 

 

7,954

 

 

 

(170

)

 

 

812,559

 

 

 

(8,483

)

Residential - U.S. Government-Sponsored

   Enterprises

 

 

1,756,938

 

 

 

(30,015

)

 

 

43,773

 

 

 

(2,025

)

 

 

1,800,711

 

 

 

(32,040

)

Commercial-Government Agencies

 

 

—

 

 

 

—

 

 

 

23,688

 

 

 

(674

)

 

 

23,688

 

 

 

(674

)

Total Mortgage-Backed Securities

 

 

2,561,543

 

 

 

(38,328

)

 

 

75,415

 

 

 

(2,869

)

 

 

2,636,958

 

 

 

(41,197

)

Total

 

$

2,687,057

 

 

$

(39,069

)

 

$

150,063

 

 

$

(3,780

)

 

$

2,837,120

 

 

$

(42,849

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2021, which were comprised of 213 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 September 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 September 30, 2021.  

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Taxable

 

$

32,889

 

 

$

30,027

 

 

$

91,510

 

 

$

96,150

 

Non-Taxable

 

 

261

 

 

 

498

 

 

 

820

 

 

 

1,637

 

Total Interest Income from Investment Securities

 

$

33,150

 

 

$

30,525

 

 

$

92,330

 

 

$

97,787

 

 

As of September 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)

 

September 30,

2021

 

 

December 31,

2020

 

Federal Home Loan Bank of Des Moines Stock

 

$

10,000

 

 

$

12,000

 

Federal Reserve Bank Stock

 

 

21,574

 

 

 

21,340

 

Total

 

$

31,574

 

 

$

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 September 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.