Investments

12 Months Ended

Dec. 31, 2020

INVESTMENTS

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


	December 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	$	499,832	$	101	$	—	$	—	$	499,933
Government agency	706,241		723		5,573		—		701,391
Residential mortgage-backed securities	4,369,130		70,283		1,310		—		4,438,103
Commercial mortgage-backed securities	745,892		25,645		—		—		771,537
Corporate bonds	590,870		14,437		2,028		—		603,279

Total investment securities available for sale	$	6,911,965	$	111,189	$	8,911	$	—	$	7,014,243
Investment in marketable equity securities	84,837		8,654		1,811				91,680
Investment securities held to maturity
Residential mortgage-backed securities	1,877,692		17,689		—		—		1,895,381
Commercial mortgage-backed securities	937,034		3,884		56		—		940,862
Other	2,256		—		—		—		2,256
Total investment securities held to maturity	2,816,982		21,573		56		—		2,838,499
Total investment securities	$	9,813,784	$	141,416	$	10,778	$	—	$	9,944,422

			December 31, 2019
			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			$	7,142,410	$	48,645	$	18,052	$	7,173,003

On November 1, 2020, mortgage-backed securities with an amortized cost of $1.46 billion were transferred from investment securities available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $1.47 billion and a weighted average contractual maturity of 18 years. The unrealized gain on these securities at the date of transfer was $5.9 million, or $4.5 million net of tax, and was reported as a component of AOCI. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.

On November 1, 2019, as part of the adoption of ASU 2019-04, mortgage-backed securities with an amortized cost of $2.08 billion were transferred from investment securities held to maturity to the available for sale portfolio. At the time of the transfer, the securities had a fair value of $2.15 billion. The transfer resulted in a reclassification of unrealized losses of $72.5 million, or $55.8 million net of tax, previously frozen in AOCI as a result of the initial transfer to held to maturity. FCB still has the intent and ability to hold the remainder of the held to maturity portfolio to maturity.

Investments in 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 SBA. 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.

As of December 31, 2020 and January 1, 2020, no ACL was required for available for sale and held to maturity debt securities. At December 31, 2020, accrued interest receivable for available for sale and held to maturity debt securities were $17.6 million and $5.4 million, respectively, and were excluded from the estimate of credit losses. During the year ended December 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. 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. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.


	December 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	$	500,846	$	500,954	$	406,325	$	406,927
One through five years	72,565		73,881		24,496		24,971
Five through 10 years	508,320		519,570		185,209		187,868
Over 10 years	8,971		8,807		109,872		110,026
Government agency	706,241		701,391		684,085		682,772

Residential mortgage-backed securities	4,369,130		4,438,103		5,269,060		5,267,090
Commercial mortgage-backed securities	745,892		771,537		373,105		380,020
Total investment securities available for sale	$	6,911,965	$	7,014,243	$	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	1,877,692		1,895,381		—		—
Commercial mortgage-backed securities	937,034		940,862		—		—
Total investment securities held to maturity	$	2,816,982	$	2,838,499	$	30,996	$	30,996

For each period presented, realized gains on investment securities available for sale included the following:


	Year ended December 31
(Dollars in thousands)	2020		2019		2018
Gross gains on retirement/sales of investment securities available for sale	$	60,932	$	8,993	$	353
Gross losses on sales of investment securities available for sale	(679)		(1,878)		(2)

Realized gains on investment securities available for sale, net	$	60,253	$	7,115	$	351

For each period presented, realized and unrealized gains or losses on marketable equity securities included the following:


	Year ended December 31
(Dollars in thousands)	2020		2019		2018
Marketable equity securities gains (losses), net	$	29,395	$	20,625	$	(7,610)
Less net gains recognized on marketable equity securities sold	44,550		16,344		1,190
Unrealized (losses) gains recognized on marketable equity securities held	$	(15,155)	$	4,281	$	(8,800)

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


	December 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	$	268,622	$	3,197	$	328,777	$	2,376	$	597,399	$	5,573
Residential mortgage-backed securities	433,816		1,241		23,064		69		456,880		1,310

Corporate bonds	57,715		2,028		—		—		57,715		2,028

Total	$	760,153	$	6,466	$	351,841	$	2,445	$	1,111,994	$	8,911





	December 31, 2019
	Less than 12 months				12 months or more				Total
	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 December 31, 2020, there were 39 investment securities available for sale with continuous losses for more than 12 months, all of which are government sponsored, enterprise-issued mortgage-backed securities or government agency securities.

None of the unrealized losses identified as of December 31, 2020 or December 31, 2019 relate to the issuer’s 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 $4.64 billion at December 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 allowance for credit losses has been recorded on these securities. 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 December 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 December 31, 2020.