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Investment Securities
 6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Investment Securities Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of June 30, 2020, and December 31, 2019, were as follows:

(dollars in thousands)
Amortized Cost

 
Gross
Unrealized Gains

 
Gross
Unrealized Losses

 
Fair Value

June 30, 2020
 
 
 

 
 

 
 

Available-for-Sale:
 
 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
189,337

 
$
163

 
$
(1,551
)
 
$
187,949

Debt Securities Issued by States and Political Subdivisions
54,274

 
1,328

 
—

 
55,602

Debt Securities Issued by U.S. Government-Sponsored Enterprises
936


78


—

 
1,014

Debt Securities Issued by Corporations
223,147

 
3,890

 
(1,657
)
 
225,380

Mortgage-Backed Securities:
 

 
 

 
 

 
 

    Residential - Government Agencies
1,271,399

 
41,364

 
(416
)
 
1,312,347

    Residential - U.S. Government-Sponsored Enterprises
641,094

 
22,206

 
(25
)
 
663,275

    Commercial - Government Agencies
268,052

 
12,859

 
—

 
280,911

Total Mortgage-Backed Securities
2,180,545

 
76,429

 
(441
)
 
2,256,533

Total
$
2,648,239

 
$
81,888

 
$
(3,649
)
 
$
2,726,478

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
144,841

 
$
892

 
$
—

 
$
145,733

Debt Securities Issued by States and Political Subdivisions
54,273

 
1,286

 
—

 
55,559

Debt Securities Issued by Corporations
13,509

 
210

 
—

 
13,719

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
910,231

 
38,360

 
(10
)
 
948,581

    Residential - U.S. Government-Sponsored Enterprises
2,082,380

 
54,263

 
(420
)
 
2,136,223

    Commercial - Government Agencies
71,595

 
2,884

 
—

 
74,479

Total Mortgage-Backed Securities
3,064,206

 
95,507


(430
)

3,159,283

Total
$
3,276,829

 
$
97,895

 
$
(430
)
 
$
3,374,294

 
 
 
 
 
 
 
 
December 31, 2019
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
222,365

 
$
213

 
$
(1,447
)
 
$
221,131

Debt Securities Issued by States and Political Subdivisions
54,480

 
631

 
(14
)
 
55,097

Debt Securities Issued by U.S. Government-Sponsored Enterprises
22,128

 
19

 
—

 
22,147

Debt Securities Issued by Corporations
335,553

 
1,401

 
(633
)
 
336,321

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
1,164,466

 
11,627

 
(3,267
)
 
1,172,826

    Residential - U.S. Government-Sponsored Enterprises
584,272

 
4,363

 
(1,874
)
 
586,761

    Commercial - Government Agencies
224,372

 
2,889

 
(2,541
)
 
224,720

Total Mortgage-Backed Securities
1,973,110

 
18,879

 
(7,682
)
 
1,984,307

Total
$
2,607,636

 
$
21,143

 
$
(9,776
)
 
$
2,619,003

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
274,375

 
$
1,319

 
$
(31
)
 
$
275,663

Debt Securities Issued by States and Political Subdivisions
54,811

 
1,236

 
—

 
56,047

Debt Securities Issued by Corporations
14,975

 
—

 
(138
)
 
14,837

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
1,067,416

 
13,247

 
(5,348
)
 
1,075,315

    Residential - U.S. Government-Sponsored Enterprises
1,546,479

 
13,871

 
(2,478
)
 
1,557,872

    Commercial - Government Agencies
84,238

 
317

 
(1,407
)
 
83,148

Total Mortgage-Backed Securities
2,698,133

 
27,435

 
(9,233
)
 
2,716,335

Total
$
3,042,294

 
$
29,990

 
$
(9,402
)
 
$
3,062,882



The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. For available-for-sale (“AFS”) debt securities, AIR totaled $6.4 million and $7.5 million as of June 30, 2020, and December 31, 2019, respectively. For held-to-maturity (“HTM”) debt securities, AIR totaled $8.1 million as of June 30, 2020, and December 31, 2019. AIR is included in the “accrued interest receivable” line item on the Company’s consolidated statements of condition.

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2020.  Debt securities issued by government agencies (Small Business Administration securities) and mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.
(dollars in thousands)
Amortized Cost

 
Fair Value

Available-for-Sale:
 

 
 

Due in One Year or Less
$
16,418

 
$
16,457

Due After One Year Through Five Years
103,115

 
103,407

Due After Five Years Through Ten Years
159,864

 
163,197

Due After Ten Years
50

 
50

 
279,447

 
283,111

 
 
 
 
Debt Securities Issued by Government Agencies
188,247

 
186,834

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
1,271,399

 
1,312,347

    Residential - U.S. Government-Sponsored Enterprises
641,094

 
663,275

    Commercial - Government Agencies
268,052

 
280,911

Total Mortgage-Backed Securities
2,180,545

 
2,256,533

Total
$
2,648,239

 
$
2,726,478

 
 
 
 
Held-to-Maturity:
 

 
 

Due in One Year or Less
165,017

 
166,085

Due After One Year Through Five Years
47,606

 
48,926

 
212,623

 
215,011

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
910,231

 
948,581

    Residential - U.S. Government-Sponsored Enterprises
2,082,380

 
2,136,223

    Commercial - Government Agencies
71,595

 
74,479

Total Mortgage-Backed Securities
3,064,206

 
3,159,283

Total
$
3,276,829

 
$
3,374,294



Investment securities with carrying values of $3.6 billion and $2.6 billion as of June 30, 2020, and December 31, 2019, respectively, were pledged to secure deposits of governmental entities, securities sold under agreements to repurchase, and FRB discount window borrowing.

The table below presents the gains and losses from the sales of investment securities for the three and six months ended June 30, 2020, and June 30, 2019:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2020

 
2019

 
2020

 
2019

Gross Gains on Sales of Investment Securities
$
14,180

 
$
5,633

 
$
14,257

 
$
7,663

Gross Losses on Sales of Investment Securities
(964
)
 
(6,409
)
 
(2,011
)
 
(9,274
)
Net Gains (Losses) on Sales of Investment Securities
$
13,216

 
$
(776
)
 
$
12,246

 
$
(1,611
)


The losses on sales of investment securities during the three and six months ended June 30, 2020, and June 30, 2019, were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions, which are expensed as incurred. In addition, the gross gains and losses on sales of investment securities during the three and six months ended June 30, 2019, included sales of municipal debt securities, mortgage-backed securities, and corporate debt securities as part of a portfolio repositioning.

The following table summarizes the Company’s AFS debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by major security type and length of time in a continuous unrealized loss position:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in thousands)
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

June 30, 2020
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
92,619

 
$
(1,257
)
 
$
74,224

 
$
(294
)
 
$
166,843

 
$
(1,551
)
Debt Securities Issued by States
   and Political Subdivisions
—

 
—

 
86

 
—

 
86

 
—

Debt Securities Issued by Corporations
75,000

 
(1,009
)
 
90,000

 
(648
)
 
165,000

 
(1,657
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 


 


    Residential - Government Agencies
51,649

 
(416
)
 
8,278

 
—

 
59,927

 
(416
)
    Residential - U.S. Government-Sponsored Enterprises
—

 
—

 
10,491

 
(25
)
 
10,491

 
(25
)
Total Mortgage-Backed Securities
51,649

 
(416
)
 
18,769

 
(25
)
 
70,418

 
(441
)
Total
$
219,268

 
$
(2,682
)
 
$
183,079

 
$
(967
)
 
$
402,347

 
$
(3,649
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
     and Government Agencies
$
65,479

 
$
(188
)
 
$
101,761

 
$
(1,259
)
 
$
167,240

 
$
(1,447
)
Debt Securities Issued by States
     and Political Subdivisions
6,788

 
(14
)
 
440

 
—

 
7,228

 
(14
)
Debt Securities Issued by Corporations
25,892

 
(326
)
 
74,693

 
(307
)
 
100,585

 
(633
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
119,271

 
(526
)
 
170,805

 
(2,741
)
 
290,076

 
(3,267
)
     Residential - U.S. Government-Sponsored Enterprises
187,861

 
(816
)
 
73,720

 
(1,058
)
 
261,581

 
(1,874
)
     Commercial - Government Agencies
59,826

 
(319
)
 
52,965

 
(2,222
)
 
112,791

 
(2,541
)
Total Mortgage-Backed Securities
366,958

 
(1,661
)
 
297,490

 
(6,021
)
 
664,448

 
(7,682
)
Total
$
465,117

 
$
(2,189
)
 
$
474,384

 
$
(7,587
)
 
$
939,501

 
$
(9,776
)


The Company does not believe that the AFS debt securities that were in an unrealized loss position as of June 30, 2020, which were comprised of 81 individual securities, represent a credit loss impairment.  The gross unrealized losses in the Company’s corporate bond portfolio were related to debt securities issued by large multinational banks. The unrealized losses primarily resulted from an increase in credit spreads due to the economic uncertainty related to COVID-19. However, as of June 30, 2020, such credit spreads have tightened significantly from their widest levels experienced in the first quarter of 2020. In addition, such banks have built up substantial capital buffers since the financial crisis of 2008 which mitigates the likelihood of credit losses. As of June 30, 2020, there have been no payment defaults nor do we currently expect any future payment defaults. Furthermore, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

The remainder of the AFS debt securities in an unrealized loss position as of June 30, 2020, consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Total gross unrealized losses were primarily 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.  The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of June 30, 2020.

The Company also carries a limited portfolio of HTM municipal bonds. As of June 30, 2020, the entire portfolio consisted of State of Hawaii bonds carrying a Moody’s rating of Aa1, with a portion of these bonds escrowed to maturity. Utilizing the CECL approach, the Company determined that the expected credit loss on its municipal bond portfolio was de minimis, and therefore, an allowance for credit losses was not recorded as of June 30, 2020.

Interest income from taxable and non-taxable investment securities for the three and six months ended June 30, 2020, and June 30, 2019, were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2020

 
2019

 
2020

 
2019

Taxable
$
30,729

 
$
35,336

 
$
66,122

 
$
67,328

Non-Taxable
570

 
1,885

 
1,140

 
5,246

Total Interest Income from Investment Securities
$
31,299

 
$
37,221

 
$
67,262

 
$
72,574



As of June 30, 2020, and December 31, 2019, the carrying value of the Company’s Federal Home Loan Bank of Des Moines stock and Federal Reserve Bank stock was as follows:
(dollars in thousands)
June 30,
2020

 
December 31,
2019

Federal Home Loan Bank Stock
$
12,000

 
$
13,000

Federal Reserve Bank Stock
21,236

 
21,093

Total
$
33,236

 
$
34,093



These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution.  The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment.  Management considers these non-marketable equity securities to be long-term investments.  Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.
Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of June 30, 2020, the conversion ratio was 1.6228. See Note 12 Derivative Financial Instruments for more information.

The Company occasionally sells these Visa Class B shares to other financial institutions. During the second quarter of 2020, the Company recorded a $14.2 million gain on sale of its remaining 80,214 Visa Class B Shares. As a result of this sale, the Company no longer owns any Visa Class B shares.