Investments

6 Months Ended

Jun. 30, 2020

INVESTMENTSInformation 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 June 30, 2020 and December 31, 2019, were as follows:


	June 30, 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	$	754,350	$	236	$	—	$	—	$	754,586
Government agency	549,673		292		4,256		—		545,709
Residential mortgage-backed securities	5,671,151		119,935		694		—		5,790,392
Commercial mortgage-backed securities	1,047,601		32,221		—		—		1,079,822
Corporate bonds	449,623		4,387		5,237		—		448,773

Total investment securities available for sale	$	8,472,398	$	157,071	$	10,187	$	—	$	8,619,282
Investment in marketable equity securities	116,322		6,297		8,303				114,316
Investment securities held to maturity
Residential mortgage-backed securities	693,143		16,196		—		—		709,339
Commercial mortgage-backed securities	78,729		251		—				78,980
Other	3,006		—		—		—		3,006
Total investment securities held to maturity	774,878		16,447		—		—		791,325
Total investment securities	$	9,363,598	$	179,815	$	18,490	$	—	$	9,524,923

			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 354,000 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 at $0. BancShares held FHLB stock of $45.4 million and $43.0 million and other non-marketable equity securities of $13.1 million and $12.5 million at June 30, 2020 and December 31, 2019, respectively. These securities are recorded in other assets.

As of June 30, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities. Accrued interest receivable on debt securities at June 30, 2020 was $21.3 million and was excluded from the estimate of credit losses. During the three and six months ended June 30, 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 issuers and borrowers of underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.


	June 30, 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	$	754,350	$	754,586	$	406,325	$	406,927
One through five years	51,589		51,887		24,496		24,971
Five through 10 years	369,075		368,281		185,209		187,868
Over 10 years	28,959		28,605		109,872		110,026
Government agency	549,673		545,709		684,085		682,772
Residential mortgage-backed securities	5,671,151		5,790,392		5,269,060		5,267,090
Commercial mortgage-backed securities	1,047,601		1,079,822		373,105		380,020
Total investment securities available for sale	$	8,472,398	$	8,619,282	$	7,052,152	$	7,059,674
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	2,257		2,257		30,746		30,746
One through five years	749		749		250		250
Residential mortgage-backed securities	693,143		709,339		—		—
Commercial mortgage-backed securities	78,729		78,980		—		—
Total investment securities held to maturity	$	774,878	$	791,325	$	30,996	$	30,996

There were gross gains of $13.8 million on sales of investment securities available for sale during the three months ended June 30, 2020 and no gross losses. There were gross gains of $34.2 million and gross losses of $679 thousand on sales of investment securities available for sale during the six months ended June 30, 2020. There were $5.7 million gross gains on sales of investment securities available for sale for the three and six months ended June 30, 2019 and no gross losses.

The following table provides the realized and unrealized gains and losses on marketable equity securities for the six months ended June 30, 2020 and 2019:


	Three months ended June 30						Six months ended June 30
(Dollars in thousands)	2020		2019		2020		2019
Marketable equity securities gains, net	$	64,570	$	3,144	$	13,162	$	14,472
Less net gains recognized on marketable equity securities sold	36,993		2,271		37,316		2,315
Unrealized gains (losses) recognized on marketable equity securities held	$	27,577	$	873	$	(24,154)	$	12,157

The following table provides information regarding securities with unrealized losses as of June 30, 2020 and December 31, 2019:


	June 30, 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	$	447,983	$	3,709	$	58,806	$	547	$	506,789	$	4,256
Residential mortgage-backed securities	172,628		302		149,170		392		321,798		694

Corporate bonds	112,172		5,120		9,451		117		121,623		5,237

Total	$	732,783	$	9,131	$	217,427	$	1,056	$	950,210	$	10,187







	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 June 30, 2020, there were 47 investment securities available for sale with continuous losses for more than 12 months, of which 45 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 June 30, 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 $4.53 billion at June 30, 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 on 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 June 30, 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 June 30, 2020.