Investments

6 Months Ended

Jun. 30, 2021

INVESTMENTS

The amortized cost and fair value of investment securities at June 30, 2021 and December 31, 2020, were as follows:


	June 30, 2021
(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale

Government agency	$	824,216	$	4,981	$	3,747	$	825,450
Residential mortgage-backed securities	4,770,205		29,375		14,324		4,785,256
Commercial mortgage-backed securities	1,144,024		12,702		8,196		1,148,530
Corporate bonds	597,300		24,764		217		621,847

Total investment securities available for sale	$	7,335,745	$	71,822	$	26,484	$	7,381,083
Investment in marketable equity securities	84,297		34,415		172		118,540
Investment securities held to maturity
Residential mortgage-backed securities	2,208,496		6,567		12,189		2,202,874
Commercial mortgage-backed securities	1,184,101		525		12,422		1,172,204
Other	2,007		—		—		2,007
Total investment securities held to maturity	3,394,604		7,092		24,611		3,377,085
Total investment securities	$	10,814,646	$	113,329	$	51,267	$	10,876,708

	December 31, 2020
(Dollars in thousands)	Amortized cost(1)		Gross unrealized gains		Gross unrealized 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
(1)Amortized cost includes any recorded ACL.

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 accumulated other comprehensive income. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.

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 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.

BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other shareholders of Visa Class B common stock. As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and are recorded at $0. BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock.

BancShares held FHLB stock of $40.5 million and $45.4 million and other non-marketable equity securities of $11.7 million and $11.6 million at June 30, 2021 and December 31, 2020, respectively. These securities are recorded at cost within other assets.

As of June 30, 2021 and December 31, 2020, no ACL was required for available for sale and held to maturity debt securities. Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At June 30, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $18.0 million and $6.1 million, respectively. At December 31, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $17.6 million and $5.4 million, respectively. During the three and six months ended June 30, 2021 and 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. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.


	June 30, 2021				December 31, 2020
(Dollars in thousands)	Amortized cost		Fair value		Amortized cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	1,213	$	1,219	$	500,846	$	500,954
One through five years	86,917		89,483		72,565		73,881
Five through 10 years	500,186		521,486		508,320		519,570
Over 10 years	8,984		9,659		8,971		8,807
Government agency	824,216		825,450		706,241		701,391
Residential mortgage-backed securities	4,770,205		4,785,256		4,369,130		4,438,103
Commercial mortgage-backed securities	1,144,024		1,148,530		745,892		771,537
Total investment securities available for sale	$	7,335,745	$	7,381,083	$	6,911,965	$	7,014,243
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	1,258		1,258		1,507		1,507
One through five years	749		749		749		749
Residential mortgage-backed securities	2,208,496		2,202,874		1,877,692		1,895,381
Commercial mortgage-backed securities	1,184,101		1,172,204		937,034		940,862
Total investment securities held to maturity	$	3,394,604	$	3,377,085	$	2,816,982	$	2,838,499

The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three and six months ended June 30, 2021 and 2020:


	Three months ended June 30				Six months ended June 30
(Dollars in thousands)	2021		2020		2021		2020
Gross realized gains on sales of investment securities available for sale	$	15,844	$	13,752	$	25,051	$	34,226
Gross realized losses on sales of investment securities available for sale	(14)		—		(14)		(679)
Net realized gains on sales of investment securities available for sale	$	15,830	$	13,752	$	25,037	$	33,547

The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and six months ended June 30, 2021 and 2020:


	Three months ended June 30				Six months ended June 30
(Dollars in thousands)	2021		2020		2021		2020
Marketable equity securities gains, net	$	11,654	$	64,570	$	27,665	$	13,162
Less net gains recognized on marketable equity securities sold	—		36,993		263		37,316
Unrealized gains (losses) recognized on marketable equity securities held	$	11,654	$	27,577	$	27,402	$	(24,154)

The following table provides information regarding securities with unrealized losses as of June 30, 2021 and December 31, 2020:


	June 30, 2021
	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	$	301,934	$	3,040	$	124,577	$	707	$	426,511	$	3,747
Residential mortgage-backed securities	1,849,194		14,305		2,068		19		1,851,262		14,324
Commercial mortgage-backed securities	648,803		8,196		—		—		648,803		8,196
Corporate bonds	2,502		—		14,268		217		16,770		217

Total	$	2,802,433	$	25,541	$	140,913	$	943	$	2,943,346	$	26,484







	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

As of June 30, 2021, there were 39 investment securities available for sale with continuous losses for more than 12 months, of which 36 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and three were corporate bonds.

None of the unrealized losses identified as of June 30, 2021, or December 31, 2020, 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 $5.4 billion at June 30, 2021, and $4.6 billion at December 31, 2020, 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, 2021.

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, 2021.