Investments

12 Months Ended

Dec. 31, 2021

INVESTMENTS

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


	December 31, 2021
(Dollars in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Investment securities available for sale
U.S. Treasury	$	2,006,788	$	106	$	1,924	$	2,004,970
Government agency	797,725		4,659		3,624		798,760
Residential mortgage-backed securities	4,756,977		8,229		36,793		4,728,413
Commercial mortgage-backed securities	1,071,309		5,364		13,924		1,062,749
Corporate bonds	582,420		26,648		533		608,535

Total investment securities available for sale	9,215,219		45,006		56,798		9,203,427
Investment in marketable equity securities	72,894		24,879		245		97,528
Investment securities held to maturity
Residential mortgage-backed securities	2,322,529		5,690		21,957		2,306,262
Commercial mortgage-backed securities	1,484,916		32		33,568		1,451,380
Other	2,008		—		—		2,008
Total investment securities held to maturity	3,809,453		5,722		55,525		3,759,650
Total investment securities	$	13,097,566	$	75,607	$	112,568	$	13,060,605

	December 31, 2020
	Cost		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

On October 1, 2021, mortgage-backed securities with an amortized cost of $451.7 million 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 $439.0 million and a weighted average remaining contractual maturity of approximately 28 years. The unrealized loss on these securities at the date of transfer was $12.7 million, or $9.7 million net of tax, and was reported as a component of AOCI. This unrealized loss is amortized over the remaining expected life of the securities as an adjustment of yield.

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 remaining contractual maturity of approximately 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.

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 represent positions in debt securities of other financial institutions. Investments in marketable equity securities represent positions in common stock of publicly traded 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 have no carrying value. 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 $9.6 million and $11.6 million at December 31, 2021 and December 31, 2020, respectively. These securities are recorded at cost within other assets.

As of December 31, 2021 and December 31, 2020, no ACL was required for available for sale and held to maturity debt securities. At December 31, 2021, accrued interest receivable for available for sale and held to maturity debt securities were $22.3 million and $6.6 million, respectively, and were excluded from the estimate of credit losses. 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 years ended December 31, 2021 and 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, 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	$	200	$	202	$	500,846	$	500,954
One through five years	2,049,068		2,048,259		72,565		73,881
Five through 10 years	523,290		547,912		508,320		519,570
Over 10 years	16,650		17,132		8,971		8,807
Government agency	797,725		798,760		706,241		701,391

Residential mortgage-backed securities	4,756,977		4,728,413		4,369,130		4,438,103
Commercial mortgage-backed securities	1,071,309		1,062,749		745,892		771,537
Total investment securities available for sale	$	9,215,219	$	9,203,427	$	6,911,965	$	7,014,243
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	$	2,008	$	2,008	$	1,507	$	1,507
One through five years	—		—		749		749
Residential mortgage-backed securities	2,322,529		2,306,262		1,877,692		1,895,381
Commercial mortgage-backed securities	1,484,916		1,451,380		937,034		940,862
Total investment securities held to maturity	$	3,809,453	$	3,759,650	$	2,816,982	$	2,838,499

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


	Year ended December 31
(Dollars in thousands)	2021		2020		2019
Gross gains on retirement/sales of investment securities available for sale	$	33,133	$	60,932	$	8,993
Gross losses on sales of investment securities available for sale	(14)		(679)		(1,878)

Realized gains on investment securities available for sale, net	$	33,119	$	60,253	$	7,115

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


	Year ended December 31
(Dollars in thousands)	2021		2020		2019
Marketable equity securities gains (losses), net	$	34,081	$	29,395	$	20,625
Less net gains recognized on marketable equity securities sold	16,261		44,550		16,344
Unrealized gains (losses) recognized on marketable equity securities held	$	17,820	$	(15,155)	$	4,281

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


	December 31, 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
U.S. Treasury	$	1,810,924	$	1,924	$	—	$	—	$	1,810,924	$	1,924
Government agency	222,401		1,516		189,935		2,108		412,336		3,624
Residential mortgage-backed securities	3,992,305		36,769		1,351		24		3,993,656		36,793
Commercial mortgage-backed securities	647,101		13,924		—		—		647,101		13,924
Corporate bonds	52,331		533		—		—		52,331		533

Total	$	6,725,062	$	54,666	$	191,286	$	2,132	$	6,916,348	$	56,798





	December 31, 2020
	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	$	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

There were 37 and 39 investment securities available for sale with continuous losses for more than 12 months as of December 31, 2021 and December 31, 2020, respectively, 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, 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 $5.74 billion at December 31, 2021 and $4.64 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 allowance for credit losses has been recorded on these securities. In the event there are 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 non-accrual status as of December 31, 2021 or 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, 2021 or December 31, 2020.