Investments

3 Months Ended

Mar. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Trading Investments

We periodically sell Private Education Loans through securitization transactions where we are required to retain a five percent vertical risk retention interest (i.e., five percent of each class issued in the securitizations). We classify those vertical risk retention interests related to the transactions as available-for-sale investments, except for the interest in the residual classes, which we classify as trading investments recorded at fair value with changes recorded through earnings.

At December 31, 2022 we had a $5 million investment in a convertible debt security classified as a trading investment. In March 2023, this security, and the related accrued interest, was converted into equity securities classified as investments in non-marketable securities.

At March 31, 2023 and December 31, 2022, we had $51 million and $56 million, respectively, classified as trading investments.

Available-for-Sale Investments

The amortized cost and fair value of securities available for sale are as follows:


As of March 31, 2023 (dollars in thousands)	Amortized Cost		Allowance for credit losses(1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale:
Mortgage-backed securities	$	387,158	$	—	$	62	$	(61,886)	$	325,334
Utah Housing Corporation bonds	3,460		—		—		(294)		3,166
U.S. government-sponsored enterprises and Treasuries	1,758,032		—		—		(92,548)		1,665,484
Other securities	339,099		—		334		(22,355)		317,078
Total	$	2,487,749	$	—	$	396	$	(177,083)	$	2,311,062

As of December 31, 2022 (dollars in thousands	Amortized Cost		Allowance for credit losses(1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale:
Mortgage-backed securities	$	389,067	$	—	$	2	$	(68,705)	$	320,364
Utah Housing Corporation bonds	3,584		—		—		(357)		3,227
U.S. government-sponsored enterprises and Treasuries	1,804,726		—		—		(115,416)		1,689,310
Other securities	356,955		—		33		(27,800)		329,188
Total	$	2,554,332	$	—	$	35	$	(212,278)	$	2,342,089

(1) Represents the amount of impairment that has resulted from credit-related factors and that was recognized in the consolidated balance sheets (as a credit loss expense on available-for-sale securities). The amount excludes unrealized losses related to non-credit factors.

The following table summarizes the amount of gross unrealized losses for our available-for-sale securities and the estimated fair value for securities having gross unrealized loss positions, categorized by length of time the securities have been in an unrealized loss position:


(Dollars in thousands)	Less than 12 months				12 months or more				Total
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
As of March 31, 2023:
Mortgage-backed securities	$	(1,138)	$	22,201	$	(60,748)	$	297,543	$	(61,886)	$	319,744
Utah Housing Corporation bonds	—		—		(294)		3,166		(294)		3,166
U.S. government-sponsored enterprises and Treasuries	(4,463)		193,623		(88,085)		1,471,861		(92,548)		1,665,484
Other securities	(8,451)		156,624		(13,904)		128,538		(22,355)		285,162
Total	$	(14,052)	$	372,448	$	(163,031)	$	1,901,108	$	(177,083)	$	2,273,556

As of December 31, 2022:
Mortgage-backed securities	$	(13,956)	$	99,598	$	(54,749)	$	220,576	$	(68,705)	$	320,174
Utah Housing Corporation bonds	(357)		3,227		—		—		(357)		3,227
U.S. government-sponsored enterprises and Treasuries	(28,128)		689,300		(87,288)		1,000,010		(115,416)		1,689,310
Other securities	(15,852)		232,546		(11,948)		92,883		(27,800)		325,429
Total	$	(58,293)	$	1,024,671	$	(153,985)	$	1,313,469	$	(212,278)	$	2,338,140

At March 31, 2023 and December 31, 2022, 182 of 193 and 191 of 194, respectively, of our available-for-sale securities were in an unrealized loss position.

Impairment

For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through net income. For securities in an unrealized loss position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, as well as any guarantees (e.g., guarantees by the U.S. Government) that may be applicable to the security. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security.

Our investment portfolio contains mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, as well as Utah Housing Corporation bonds. We own these securities to meet our requirements under the Community Reinvestment Act (“CRA”). We also invest in other U.S. government-sponsored enterprise securities issued by the Federal Home Loan Bank, Freddie Mac, and the Federal Farm Credit Bank. Our mortgage-backed securities that were issued under Ginnie Mae programs carry a full faith and credit guarantee from the U.S. Government. The remaining mortgage-backed securities in a net loss position carry a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively. Our Treasury and other U.S. government-sponsored enterprise bonds are rated Aaa by Moody’s Investors Service or AA+ by Standard and Poor’s. The decline in value from December 31, 2022 to March 31, 2023 was driven by the current interest rate environment and is not credit related. We have the intent and ability to hold these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. Based on this qualitative analysis, we have determined that no credit impairment exists.

We periodically sell Private Education Loans through securitization transactions where we are required to retain a five percent vertical risk retention interest. We classify the non-residual vertical risk retention interests as available-for-sale investments. We have the intent and ability to hold each of these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. We expect to receive all contractual cash flows related to these investments and do not consider a credit impairment to exist.

As of March 31, 2023, the amortized cost and fair value of securities, by contractual maturities, are summarized below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.


As of March 31, 2023 Year of Maturity (dollars in thousands)	Amortized Cost		Estimated Fair Value
2023	$	114,993	$	113,061
2024	698,346		670,601
2025	298,066		286,613
2026	548,319		499,306
2027	98,309		95,902
2038	71		73
2039	718		719
2042	2,528		2,227
2043	4,434		4,055
2044	5,412		5,057
2045	5,443		4,940
2046	7,963		7,165
2047	8,386		7,586
2048	2,056		2,001
2049	16,374		14,836
2050	114,601		93,786
2051	161,035		130,855
2052	56,605		50,153
2053	109,892		100,141
2054	83,670		75,428
2055	98,051		94,030
2058	52,477		52,527
Total	$	2,487,749	$	2,311,062

Some of the mortgage-backed securities and a portion of the government securities have been pledged to the Federal Reserve Bank (the “FRB”) as collateral against any advances and accrued interest under the Primary Credit lending program sponsored by the FRB. We had $530 million and $547 million par value of securities pledged to this borrowing facility at March 31, 2023 and December 31, 2022, respectively, as discussed further in Notes to Consolidated Financial Statements, Note 9, “Borrowings” in this Form 10-Q.

Other Investments

Investments in Non-Marketable Securities

We hold investments in non-marketable securities and account for these investments at cost, less impairment, plus or minus observable price changes of identical or similar securities of the same issuer. Changes in market value are recorded through earnings. Because these are non-marketable securities, we use observable price changes of identical or similar securities of the same issuer, or when observable prices are not available, use market data of similar entities, in determining any changes in the value of the securities. In March 2023 our $5 million investment in a convertible debt security, classified as a trading investment, and the related accrued interest were converted into a equity securities and were reclassified to investments in non-marketable securities. As of March 31, 2023, and December 31, 2022, our total investment in these securities was $14 million and $8 million, respectively.

Low Income Housing Tax Credit Investments

We invest in affordable housing projects that qualify for the low-income housing tax credit (“LIHTC”), which is designed to promote private development of low-income housing. These investments generate a return mostly through

realization of federal tax credits and tax benefits from net operating losses on the underlying properties. Total carrying value of the LIHTC investments was $78 million at March 31, 2023 and $80 million at December 31, 2022. We are periodically required to provide additional financial support during the investment period. Our liability for these unfunded commitments was $40 million at March 31, 2023 and $46 million at December 31, 2022.

Related to these investments, we recognized tax credits and other tax benefits through tax expense of less than $1 million at March 31, 2023 and $9 million at December 31, 2022. Tax credits and other tax benefits are recognized as part of our annual effective tax rate used to determine tax expense in a given quarter. Accordingly, the portion of a year’s expected tax benefits recognized in any given quarter may differ from 25 percent.