Investments

9 Months Ended

Sep. 30, 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 September 30, 2020 and December 31, 2019, were as follows:


	September 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	$	654,588	$	174	$	—	$	—	$	654,762
Government agency	659,260		642		4,961		—		654,941
Residential mortgage-backed securities	5,968,192		101,788		312		—		6,069,668
Commercial mortgage-backed securities	1,058,640		32,004		434		—		1,090,210
Corporate bonds	543,868		9,132		2,793		—		550,207

Total investment securities available for sale	$	8,884,548	$	143,740	$	8,500	$	—	$	9,019,788
Investment in marketable equity securities	100,408		3,353		10,687				93,074
Investment securities held to maturity
Residential mortgage-backed securities	614,489		12,905		—		—		627,394
Commercial mortgage-backed securities	130,987		650		35				131,602
Other	2,256		—		—		—		2,256
Total investment securities held to maturity	747,732		13,555		35		—		761,252
Total investment securities	$	9,732,688	$	160,648	$	19,222	$	—	$	9,874,114

			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 $13.5 million and $12.5 million at September 30, 2020 and December 31, 2019, respectively. These securities are recorded at cost within other assets.

As of September 30, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities. At September 30, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $23.6 million and $1.7 million, respectively, and were excluded from the estimate of credit losses. During the three and nine months ended September 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.


	September 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	$	655,609	$	655,779	$	406,325	$	406,927
One through five years	71,262		72,446		24,496		24,971
Five through 10 years	456,620		461,847		185,209		187,868
Over 10 years	14,965		14,897		109,872		110,026
Government agency	659,260		654,941		684,085		682,772
Residential mortgage-backed securities	5,968,192		6,069,668		5,269,060		5,267,090
Commercial mortgage-backed securities	1,058,640		1,090,210		373,105		380,020
Total investment securities available for sale	$	8,884,548	$	9,019,788	$	7,052,152	$	7,059,674
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	1,507		1,507		30,746		30,746
One through five years	749		749		250		250
Residential mortgage-backed securities	614,489		627,394		—		—
Commercial mortgage-backed securities	130,987		131,602		—		—
Total investment securities held to maturity	$	747,732	$	761,252	$	30,996	$	30,996

The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three and nine months ended September 30, 2020 and 2019:


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	2020		2019		2020		2019
Gross realized gains on sales of investment securities available for sale	$	21,425	$	1,326	$	55,651	$	7,045
Gross realized losses on sales of investment securities available for sale	—		190		679		190
Net realized gains on sales of investment securities available for sale	$	21,425	$	1,136	$	54,972	$	6,855

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


	Three months ended September 30				Nine months ended September 30
(Dollars in thousands)	2020		2019		2020		2019
Marketable equity securities (losses) gains, net	$	(2,701)	$	(967)	$	10,461	$	13,505
Less net gains recognized on marketable equity securities sold	2,568		714		39,884		3,029
Unrealized gains (losses) recognized on marketable equity securities held	$	(5,269)	$	(1,681)	$	(29,423)	$	10,476

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


	September 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	$	187,167	$	2,570	$	338,169	$	2,391	$	525,336	$	4,961
Residential mortgage-backed securities	161,578		259		23,717		53		185,295		312
Commercial mortgage-backed securities	56,703		434		—		—		56,703		434
Corporate bonds	81,825		2,738		4,744		55		86,569		2,793

Total	$	487,273	$	6,001	$	366,630	$	2,499	$	853,903	$	8,500







	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 September 30, 2020, there were 38 investment securities available for sale with continuous losses for more than 12 months, of which 37 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and one was a corporate bond.

None of the unrealized losses identified as of September 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 $4.48 billion at September 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 September 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 September 30, 2020.