Investment Securities

6 Months Ended

Jun. 30, 2024

Investment Securities

Investment Securities

2. Investment Securities

As of June 30, 2024 and December 31, 2023, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government agencies and government-sponsored enterprises.

Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

Collateralized loan obligations – includes structured debt securities backed by a pool of loans, consisting of primarily non-investment grade broadly syndicated corporate loans with additional credit enhancement. These are floating rate securities that have an investment grade rating of AA or better.

Debt securities issued by states and political subdivisions – includes general obligation bonds issued by state and local governments.

As of June 30, 2024 and December 31, 2023, the Company’s investment securities were classified as either available-for-sale or held-to-maturity. Amortized cost, gross unrealized holding gains and losses and fair value of available-for-sale and held-to-maturity investment securities as of June 30, 2024 and December 31, 2023 were as follows:

	June 30, 2024								December 31, 2023
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency debt securities	$	13,287	$	—	$	(318)	$	12,969	$	33,169	$	—	$	(666)	$	32,503
Government-sponsored enterprises debt securities		20,000		—		(332)		19,668		20,000		—		(408)		19,592
Mortgage-backed securities:
Residential - Government agency		10,765		—		(1,430)		9,335		11,303		—		(1,121)		10,182
Residential - Government-sponsored enterprises		838,352		—		(117,207)		721,145		895,421		—		(112,124)		783,297
Commercial - Government agency		262,848		—		(54,620)		208,228		268,944		—		(50,270)		218,674
Commercial - Government-sponsored enterprises		89,027		—		(6,535)		82,492		93,459		—		(7,028)		86,431
Commercial - Non-agency		22,000		—		—		22,000		21,964		—		(281)		21,683
Collateralized mortgage obligations:
Government agency		505,180		—		(70,324)		434,856		538,718		—		(67,568)		471,150
Government-sponsored enterprises		400,145		—		(60,910)		339,235		425,826		—		(61,856)		363,970
Collateralized loan obligations		217,400		628		—		218,028		249,871		43		(2,060)		247,854
Total available-for-sale securities	$	2,379,004	$	628	$	(311,676)	$	2,067,956	$	2,558,675	$	43	$	(303,382)	$	2,255,336
Government agency debt securities	$	50,589	$	—	$	(5,284)	$	45,305	$	52,051	$	—	$	(4,497)	$	47,554
Mortgage-backed securities:
Residential - Government agency		42,233		—		(6,530)		35,703		43,885		—		(5,189)		38,696
Residential - Government-sponsored enterprises		96,074		—		(13,792)		82,282		99,379		—		(11,013)		88,366
Commercial - Government agency		30,907		—		(8,184)		22,723		30,795		—		(7,017)		23,778
Commercial - Government-sponsored enterprises		1,120,320		180		(138,949)		981,551		1,129,738		195		(130,757)		999,176
Collateralized mortgage obligations:
Government agency		949,738		—		(123,994)		825,744		989,130		—		(109,471)		879,659
Government-sponsored enterprises		1,572,924		—		(213,245)		1,359,679		1,642,274		—		(193,897)		1,448,377
Debt securities issued by states and political subdivisions		54,390		—		(6,371)		48,019		54,197		—		(4,947)		49,250
Total held-to-maturity securities	$	3,917,175	$	180	$	(516,349)	$	3,401,006	$	4,041,449	$	195	$	(466,788)	$	3,574,856

Accrued interest receivable related to available-for-sale investment securities was $6.4 million and $7.2 million as of June 30, 2024 and December 31, 2023, respectively. Accrued interest receivable related to held-to-maturity investment securities was $6.7 million and $7.0 million as of June 30, 2024 and December 31, 2023, respectively. Accrued interest receivable is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

Proceeds from calls and sales of investment securities were $23.4 million and nil, respectively, for the three months ended June 30, 2024, and $33.8 million and nil, respectively, for the six months ended June 30, 2024. Proceeds from calls and sales of investment securities were $7.5 million and $25.2 million, respectively, for the three months ended June 30, 2023, and $7.7 million and $25.2 million, respectively, for the six months ended June 30, 2023. The Company recorded gross realized gains of nil and gross realized losses of nil for the three and six months ended June 30, 2024 and 2023. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was nil for the three and six months ended June 30, 2024 and 2023. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $28.5 million and $33.3 million, respectively, for the three months ended June 30, 2024 and 2023, and $57.7 million and $67.3 million, respectively, for the six months ended June 30, 2024 and 2023. Interest income from non-taxable investment securities was $3.2 million and $3.1 million, respectively, for the three months ended June 30, 2024 and 2023, and $6.4 million and $6.7 million, respectively, for the six months ended June 30, 2024 and 2023.

The amortized cost and fair value of debt securities issued by the U.S. Treasury, government agencies, government-sponsored enterprises and states and political subdivisions, non-agency mortgage-backed securities and collateralized loan obligations as of June 30, 2024, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations issued by government agencies and government-sponsored enterprises are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

	June 30, 2024
	Amortized		Fair
(dollars in thousands)	Cost		Value
Available-for-sale securities
Due in one year or less	$	33,287	$	32,636
Due after one year through five years		9,275		9,293
Due after five years through ten years		102,374		102,643
Due after ten years		127,751		128,093
		272,687		272,665
Mortgage-backed securities:
Residential - Government agency		10,765		9,335
Residential - Government-sponsored enterprises		838,352		721,145
Commercial - Government agency		262,848		208,228
Commercial - Government-sponsored enterprises		89,027		82,492
Total mortgage-backed securities		1,200,992		1,021,200
Collateralized mortgage obligations:
Government agency		505,180		434,856
Government-sponsored enterprises		400,145		339,235
Total collateralized mortgage obligations		905,325		774,091
Total available-for-sale securities	$	2,379,004	$	2,067,956
Held-to-maturity securities
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		22,182		19,901
Due after ten years		82,797		73,423
		104,979		93,324
Mortgage-backed securities:
Residential - Government agency		42,233		35,703
Residential - Government-sponsored enterprises		96,074		82,282
Commercial - Government agency		30,907		22,723
Commercial - Government-sponsored enterprises		1,120,320		981,551
Total mortgage-backed securities		1,289,534		1,122,259
Collateralized mortgage obligations:
Government agency		949,738		825,744
Government-sponsored enterprises		1,572,924		1,359,679
Total collateralized mortgage obligations		2,522,662		2,185,423
Total held-to-maturity securities	$	3,917,175	$	3,401,006

At June 30, 2024, pledged securities totaled $4.1 billion, of which $2.2 billion was pledged to secure borrowing capacity, $1.8 billion was pledged to secure public deposits and $28.1 million was pledged to secure other financial transactions. At December 31, 2023, pledged securities totaled $5.0 billion, of which $2.6 billion was pledged to secure public deposits, $2.3 billion was pledged to secure borrowing capacity and $183.0 million was pledged to secure other financial transactions.

The Company held no securities of any single issuer, other than debt securities issued by the U.S. government, government agencies and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of June 30, 2024 and December 31, 2023.

The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 189 and 222 individual securities in each category have been in a continuous loss position as of June 30, 2024 and December 31, 2023, respectively. The unrealized losses on available-for-sale investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

	Time in Continuous Loss as of June 30, 2024
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury and government agency debt securities	$	—	$	—	$	(318)	$	12,969	$	(318)	$	12,969
Government-sponsored enterprises debt securities		—		—		(332)		19,668		(332)		19,668
Mortgage-backed securities:
Residential - Government agency		—		—		(1,430)		9,335		(1,430)		9,335
Residential - Government-sponsored enterprises		—		—		(117,207)		721,145		(117,207)		721,145
Commercial - Government agency		—		—		(54,620)		208,228		(54,620)		208,228
Commercial - Government-sponsored enterprises		—		—		(6,535)		82,492		(6,535)		82,492
Commercial - Non-agency		—		22,000		—		—		—		22,000
Collateralized mortgage obligations:
Government agency		—		—		(70,324)		434,856		(70,324)		434,856
Government-sponsored enterprises		—		—		(60,910)		339,235		(60,910)		339,235
Total available-for-sale securities with unrealized losses	$	—	$	22,000	$	(311,676)	$	1,827,928	$	(311,676)	$	1,849,928

	Time in Continuous Loss as of December 31, 2023
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury and government agency debt securities	$	—	$	—	$	(666)	$	32,503	$	(666)	$	32,503
Government-sponsored enterprises debt securities		—		—		(408)		19,592		(408)		19,592
Mortgage-backed securities:
Residential - Government agency		—		—		(1,121)		10,182		(1,121)		10,182
Residential - Government-sponsored enterprises		—		—		(112,124)		783,297		(112,124)		783,297
Commercial - Government agency		—		—		(50,270)		218,674		(50,270)		218,674
Commercial - Government-sponsored enterprises		—		—		(7,028)		86,431		(7,028)		86,431
Commercial - Non-agency		—		—		(281)		21,683		(281)		21,683
Collateralized mortgage obligations:
Government agency		—		—		(67,568)		471,150		(67,568)		471,150
Government-sponsored enterprises		—		—		(61,856)		363,970		(61,856)		363,970
Collateralized loan obligations		(564)		63,667		(1,496)		163,126		(2,060)		226,793
Total available-for-sale securities with unrealized losses	$	(564)	$	63,667	$	(302,818)	$	2,170,608	$	(303,382)	$	2,234,275

At June 30, 2024 and December 31, 2023, the Company did not have any available-for-sale securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining available-for-sale securities in an unrealized loss position as of June 30, 2024 and December 31, 2023, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of June 30, 2024 and December 31, 2023, the Company did not expect any credit losses in its available-for-sale debt securities and no credit losses were recognized on available-for-sale securities during the three and six months ended June 30, 2024 and for the year ended December 31, 2023.

As of June 30, 2024 and December 31, 2023, the Company’s investment securities were comprised primarily of debt securities, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises, with under 5% of the investment securities comprised of collateralized loan obligations rated AA or better and obligations issued by local state and political subdivisions rated AA or better. For investment securities issued by the U.S. Government, its agencies and government-sponsored enterprises, management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero, and these securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. For collateralized loan obligations and debt securities issued by local state and political subdivisions, these securities are investment grade and highly rated and carry either sufficient credit enhancement or days cash on hand to support timely payments of principal and interest. As a result, the Company does not expect any future payment defaults and has not recorded an allowance for credit losses for its available-for-sale and held-to-maturity debt securities as of June 30, 2024 or December 31, 2023.

In the fourth quarter of 2023, the Company recorded a $40.8 million net realized gain related to the sale of approximately 120,000 Visa Class B restricted shares. The Company did not hold any Visa Class B restricted shares as of both June 30, 2024 and December 31, 2023.