Investment Securities

3 Months Ended

Mar. 31, 2022

INVESTMENT SECURITIES

The following tables as of March 31, 2022 include the investment security balances acquired in the CIT Merger, which were recorded at fair value on the acquisition date. The amortized cost and fair value of investment securities at March 31, 2022 and December 31, 2021, were as follows:

Amortized Cost and Fair Value - Debt Securities


	March 31, 2022
dollars in millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Investment securities available for sale
U.S. Treasury	$	2,014	$	—	$	(83)	$	1,931
Government agency	206		1		(1)		206
Residential mortgage-backed securities	5,340		—		(288)		5,052
Commercial mortgage-backed securities	1,584		2		(66)		1,520
Corporate bonds	582		8		(4)		586

Total investment securities available for sale	$	9,726	$	11	$	(442)	$	9,295
Investment in marketable equity securities	$	73	$	27	$	—	$	100
Investment securities held to maturity
U.S. Treasury	$	471	$	—	$	(24)	$	447
Government agency	1,541		—		(78)		1,463
Residential mortgage-backed securities	4,776		—		(315)		4,461
Commercial mortgage-backed securities	2,988		—		(183)		2,805
Supranational securities	294		—		(17)		277
Other	4		—		—		4
Total investment securities held to maturity	$	10,074	$	—	$	(617)	$	9,457
Total investment securities	$	19,873	$	38	$	(1,059)	$	18,852

	December 31, 2021
dollars in millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Investment securities available for sale
U.S. Treasury	$	2,007	$	—	$	(2)	$	2,005
Government agency	221		1		(1)		221
Residential mortgage-backed securities	4,757		8		(36)		4,729
Commercial mortgage-backed securities	1,648		9		(17)		1,640
Corporate bonds	582		27		(1)		608
State, county and municipal	—		—		—		—
Total investment securities available for sale	$	9,215	$	45	$	(57)	$	9,203
Investment in marketable equity securities	$	73	$	25	$	—	$	98
Investment securities held to maturity
Residential mortgage-backed securities	$	2,322	$	6	$	(22)	$	2,306
Commercial mortgage-backed securities	1,485		—		(34)		1,451
Other	2		—		—		2
Total investment securities held to maturity	$	3,809	$	6	$	(56)	$	3,759
Total investment securities	$	13,097	$	76	$	(113)	$	13,060

Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. US Treasury investments represents T-bills and Notes issued by the US Treasury. Investments in government agency securities represent securities issued by the Small Business Association (“SBA”), Federal Home Loan Bank (“FHLB”) and other agencies. Investments in supranational securities represent securities issued by the World Bank. 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 stockholders 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.

As of March 31, 2022 and December 31, 2021, no ACL was required for available for sale or 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 March 31, 2022, accrued interest receivable for available for sale and held to maturity debt securities were $26 million and $16 million, respectively. At December 31, 2021, accrued interest receivable for available for sale and held to maturity debt securities were $22 million and $7 million, respectively. During the three months ended March 31, 2022 and 2021, 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.

Maturities - Debt Securities


	March 31, 2022				December 31, 2021
dollars in millions	Cost		Fair value		Cost		Fair value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	9	$	9	$	—	$	—
After one through five years	2,055		1,972		2,049		2,048
After five through 10 years	515		520		523		548
After 10 years	17		16		17		17

Government agency	206		206		221		221
Residential mortgage-backed securities	5,340		5,052		4,757		4,729
Commercial mortgage-backed securities	1,584		1,520		1,648		1,640
Total investment securities available for sale	$	9,726	$	9,295	$	9,215	$	9,203
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	$	4	$	4	$	2	$	2
After one through five years	873		836		—		—
After five through 10 years	1,433		1,351		—		—


Residential mortgage-backed securities	4,776		4,461		2,322		2,306
Commercial mortgage-backed securities	2,988		2,805		1,485		1,451


Total investment securities held to maturity	$	10,074	$	9,457	$	3,809	$	3,759

The following table presents interest and dividend income on investments and other interest-bearing assets:

Other Interest and Dividend Income


	Three months ended March 31,
dollars in millions	2022		2021
Interest income - taxable debt securities	$	83	$	30

Interest income - interest-bearing cash	5		1

Dividend income - marketable equity securities	1		1
Total other interest and dividend income	$	89	$	32

The following table provides the gross realized gains and losses on the sales of investment securities available for sale:

Realized Gains on Debt Securities Available For Sale


	Three months ended March 31,
dollars in millions	2022		2021
Gross realized gains on sales of investment securities available for sale	$	—	$	9
Gross realized losses on sales of investment securities available for sale	—		—
Net realized gains on sales of investment securities available for sale	$	—	$	9

The following table provides the realized and unrealized gains and losses on marketable equity securities:

Realized and Unrealized Gains on Marketable Equity Securities


	Three months ended March 31,
dollars in millions	2022		2021
Marketable equity securities gains, net	$	3	$	16

Unrealized gains recognized on marketable equity securities held for sale	$	3	$	16

The following table provides information regarding investment securities available for sale with unrealized losses for which an ACL has not been recorded:

Gross Unrealized Losses on Debt Securities Available For Sale


	March 31, 2022
	Less than 12 months				12 months or more				Total
dollars in millions	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale
U.S. Treasury	$	1,931	$	(83)	$	—	$	—	$	1,931	$	(83)
Government agency	21		—		74		(1)		95		(1)
Residential mortgage-backed securities	4,247		(239)		670		(49)		4,917		(288)
Commercial mortgage-backed securities	744		(42)		485		(24)		1,229		(66)
Corporate bonds	187		(4)		—		—		187		(4)
Total	$	7,130	$	(368)	$	1,229	$	(74)	$	8,359	$	(442)

	December 31, 2021
	Less than 12 months				12 months or more				Total
dollars in millions	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale
U.S. Treasury	$	1,811	$	(2)	$	—	$	—	$	1,811	$	(2)
Government agency	17		—		79		(1)		96		(1)
Residential mortgage-backed securities	3,992		(36)		1		—		3,993		(36)
Commercial mortgage-backed securities	852		(15)		111		(2)		963		(17)
Corporate bonds	52		(1)		—		—		52		(1)
Total	$	6,724	$	(54)	$	191	$	(3)	$	6,915	$	(57)

As of March 31, 2022, there were 55 investment securities available for sale with continuous losses for more than 12 months, of which all were government sponsored enterprise-issued mortgage-backed securities or government agency securities.

None of the unrealized losses identified as of March 31, 2022, or December 31, 2021, 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 ACL. 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 $5.9 billion at March 31, 2022, and $5.7 billion at December 31, 2021, 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, US Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and Federal Deposit Insurance Corporation (“FDIC”) guaranteed CDs with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury, the World Bank and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no ACL has been recorded on these securities. In the event there are downgrades to the credit rating of the U.S. Treasury or the World Bank 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.

A security is considered past due once it is 30 days contractually past due under the terms of the agreement. The carrying value was zero for securities past due as of March 31, 2022 and December 31, 2021.

There were no debt securities held to maturity on non-accrual status as of March 31, 2022 and December 31, 2021.

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $39 million and $40 million at March 31, 2022 and December 31, 2021, respectively; these securities are recorded at cost. BancShares held $67 million and $10 million of non-marketable securities without readily determinable fair values measured under the measurement exception at March 31, 2022 and December 31, 2021, respectively. All investments held in qualified affordable housing projects qualify for the proportional amortization method and totaled $533 million and $156 million at March 31, 2022 and December 31, 2021, respectively.