Investments

3 Months Ended

Mar. 31, 2020

INVESTMENTS

Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes required by the adoption of this standard which includes evaluating held to maturity and available for sale debt securities to determine the need to record a related allowance for credit losses. Prior period information continues to be reported in accordance with previously applicable GAAP. See Note A - Accounting Policies and Basis for Presentation for more detail on our policies and adoption.

The amortized cost and fair value of investment securities at March 31, 2020 and December 31, 2019, were as follows:



	March 31, 2020
(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses		Fair value
Investment securities available for sale
U.S. Treasury	$	204,971	$	811	$	—	$	—	$	205,782
Government agency	762,342		1,005		2,916		—		760,431
Residential mortgage-backed securities	5,832,518		123,114		2,791		—		5,952,841
Commercial mortgage-backed securities	635,565		15,603		603		—		650,565
Corporate bonds	221,068		3,520		5,173		—		219,415
Total investment securities available for sale	$	7,656,464	$	144,053	$	11,483	$	—	$	7,789,034
Investment in marketable equity securities	344,161		4,266		32,926				315,501
Investment securities held to maturity
Residential mortgage-backed securities	720,441		12,538		22		—		732,957
Other	20,221		—		—		—		20,221
Total investment securities held to maturity	740,662		12,538		22		—		753,178
Total investment securities	$	8,741,287	$	160,857	$	44,431	$	—	$	8,857,713

			December 31, 2019
(Dollars in thousands)			Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury			$	409,397	$	602	$	—	$	409,999
Government agency			684,085		928		2,241		682,772
Residential mortgage-backed securities			5,269,060		13,417		15,387		5,267,090
Commercial mortgage-backed securities			373,105		6,974		59		380,020
Corporate bonds			198,278		3,420		132		201,566
State, county and municipal			118,227		—		—		118,227
Total investment securities available for sale			$	7,052,152	$	25,341	$	17,819	$	7,059,674
Investment in marketable equity securities			59,262		23,304		233		82,333
Investment securities held to maturity
Other			30,996		—		—		30,996
Total investment securities held to maturity			30,996		—		—		30,996
Total investment securities			$	7,142,410	$	48,645	$	18,052	$	7,173,003

Investments in residential and commercial mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the United States Small Business Administration. Investments in corporate bonds and marketable equity securities represent positions in securities of other financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions.

BancShares also holds approximately 298,000 shares of Visa Class B common stock. BancShares’ Visa Class B shares are not considered to have a readily determinable fair value and are recorded with no fair value. BancShares held FHLB stock of $51.1 million and $43.0 million and other non-marketable equity securities of $12.9 million and $12.5 million at March 31, 2020 and December 31, 2019, respectively. Both are included in other assets.

As of March 31, 2020 and January 1, 2020, no allowance for credit losses was required for available for sale and held to maturity debt securities. Accrued interest receivable on debt securities at March 31, 2020 was $22.1 million and was excluded from the estimate of credit losses. During the three months ended March 31, 2020, no accrued interest was deemed uncollectible and written off against interest income.

The following table provides the amortized cost and fair value by contractual maturity for investment securities available for sale and held to maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Repayments of mortgage-backed securities and government agency securities are dependent on the repayments of the underlying loan balances. Repayments of certain corporate bonds are subject to call provisions which can be exercised by the issuer at their discretion.



	March 31, 2020				December 31, 2019
(Dollars in thousands)	Cost		Fair value		Cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	204,971	$	205,782	$	406,325	$	406,927
One through five years	32,639		32,446		24,496		24,971
Five through 10 years	184,476		183,469		185,209		187,868
Over 10 years	3,953		3,500		109,872		110,026
Government agency	762,342		760,431		684,085		682,772
Residential mortgage-backed securities	5,832,518		5,952,841		5,269,060		5,267,090
Commercial mortgage-backed securities	635,565		650,565		373,105		380,020
Total investment securities available for sale	$	7,656,464	$	7,789,034	$	7,052,152	$	7,059,674
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	19,472		19,472		30,746		30,746
One through five years	749		749		250		250
Residential mortgage-backed securities	720,441		732,957		—		—
Total investment securities held to maturity	$	740,662	$	753,178	$	30,996	$	30,996

There were gross gains of $20.5 million and gross losses of $679 thousand on sales of investment securities available for sale during the three months ended March 31, 2020. There were no gross gains or losses on sales of investment securities available for sale for the three months ended March 31, 2019.

The following table provides the realized and unrealized gains and losses on marketable equity securities for the three months ended March 31, 2020 and 2019:



	Three months ended March 31
(Dollars in thousands)	2020			2019
Marketable equity securities (losses) gains, net	$	(51,408	)	$	11,328
Less net gains recognized on marketable equity securities sold	323			44
Unrealized (losses) gains recognized on marketable equity securities held	$	(51,731	)	$	11,284

The following table provides information regarding securities with unrealized losses as of March 31, 2020 and December 31, 2019:



	March 31, 2020
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale
Government agency	$	436,066	$	2,542	$	60,920	$	374	$	496,986	$	2,916
Residential mortgage-backed securities	366,901		625		177,167		2,166		544,068		2,791
Commercial mortgage-backed securities	75,480		603		—		—		75,480		603
Corporate bonds	106,822		4,480		8,856		693		115,678		5,173
Total	$	985,269	$	8,250	$	246,943	$	3,233	$	1,232,212	$	11,483
Investment securities held to maturity
Residential mortgage-backed securities	$	70,108	$	22	$	—	$	—	$	70,108	$	22

	December 31, 2019
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale
Government agency	$	347,081	$	1,827	$	63,947	$	414	$	411,028	$	2,241
Residential mortgage-backed securities	2,387,293		14,016		264,257		1,371		2,651,550		15,387
Commercial mortgage-backed securities	35,926		59		—		—		35,926		59
Corporate bonds	7,714		123		4,749		9		12,463		132
Total	$	2,778,014	$	16,025	$	332,953	$	1,794	$	3,110,967	$	17,819

As of March 31, 2020, there were 53 investment securities available for sale that had continuous losses for more than 12 months of which 51 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and two were corporate bonds.

None of the unrealized losses identified as of March 31, 2020 or December 31, 2019 relate to the marketability of the securities or the issuers’ ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, none of the securities were deemed to require an allowance for credit losses. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.

Investment securities having an aggregate carrying value of $4.02 billion at March 31, 2020 and $3.93 billion at December 31, 2019 were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

Bancshares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. Given the consistently strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no further credit monitoring is performed over these portfolios. Should there be downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, Bancshares will reevaluate its determination of zero expected credit losses on held to maturity debt securities.

There were no debt securities held to maturity on nonaccrual status as of March 31, 2020.

A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities past due as of March 31, 2020.