Investment Securities

9 Months Ended

Sep. 30, 2022

INVESTMENT SECURITIES

The following tables as of September 30, 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 September 30, 2022 and December 31, 2021, were as follows:

Amortized Cost and Fair Value - Debt Securities


dollars in millions	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
U.S. Treasury	$	2,047	$	—	$	(147)	$	1,900
Government agency	175		—		(2)		173
Residential mortgage-backed securities	5,450		—		(666)		4,784
Commercial mortgage-backed securities	1,828		—		(155)		1,673
Corporate bonds	583		—		(25)		558

Total investment securities available for sale	$	10,083	$	—	$	(995)	$	9,088
Investment in marketable equity securities	$	73	$	20	$	(1)	$	92
Investment securities held to maturity
U.S. Treasury	$	473	$	—	$	(54)	$	419
Government agency	1,546		—		(196)		1,350
Residential mortgage-backed securities	4,510		—		(765)		3,745
Commercial mortgage-backed securities	2,834		—		(437)		2,397
Supranational securities	295		—		(43)		252
Other	3		—		—		3
Total investment securities held to maturity	$	9,661	$	—	$	(1,495)	$	8,166
Total investment securities	$	19,817	$	20	$	(2,491)	$	17,346

	December 31, 2021
	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

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. U.S. Treasury investments represents T-bills and Notes issued by the U.S. 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 September 30, 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 September 30, 2022, accrued interest receivables for available for sale and held to maturity debt securities were $29 million and $16 million, respectively. At December 31, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $22 million and $7 million, respectively. During the three and nine months ended September 30, 2022 and 2021, there was no accrued interest that 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


dollars in millions	September 30, 2022				December 31, 2021
	Cost		Fair Value		Cost		Fair Value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	48	$	48	$	—	$	—
After one through five years	2,063		1,914		2,049		2,048
After five through 10 years	503		481		523		548
After 10 years	16		15		17		17

Government agency	175		173		221		221
Residential mortgage-backed securities	5,450		4,784		4,757		4,729
Commercial mortgage-backed securities	1,828		1,673		1,648		1,640
Total investment securities available for sale	$	10,083	$	9,088	$	9,215	$	9,203
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	$	53	$	51	$	2	$	2
After one through five years	1,334		1,190		—		—
After five through 10 years	930		783		—		—


Residential mortgage-backed securities	4,510		3,745		2,322		2,306
Commercial mortgage-backed securities	2,834		2,397		1,485		1,451


Total investment securities held to maturity	$	9,661	$	8,166	$	3,809	$	3,759

The following table presents interest and dividend income on investment securities.

Interest and Dividends on Investment Securities


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest income - taxable investment securities	$	89	$	39	$	260	$	104



Dividend income - marketable equity securities	1		1		2		2
Interest on investment securities	$	90	$	40	$	262	$	106

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


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Gross realized gains on sales of investment securities available for sale	$	—	$	8	$	—	$	33
Gross realized losses on sales of investment securities available for sale	—		—		—		—
Net realized gains on sales of investment securities available for sale	$	—	$	8	$	—	$	33

The following table provides the fair value adjustment on marketable equity securities:

Fair Value Adjustment on Marketable Equity Securities


dollars in millions	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021


Fair value adjustment on marketable equity securities, net	$	(2)	$	3	$	(5)	$	31

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


dollars in millions	September 30, 2022
	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
U.S. Treasury	$	1,900	$	(147)	$	—	$	—	$	1,900	$	(147)
Government agency	70		(1)		65		(1)		135		(2)
Residential mortgage-backed securities	2,178		(231)		2,573		(435)		4,751		(666)
Commercial mortgage-backed securities	938		(64)		688		(91)		1,626		(155)
Corporate bonds	493		(23)		44		(2)		537		(25)
Total	$	5,579	$	(466)	$	3,370	$	(529)	$	8,949	$	(995)

	December 31, 2021
	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
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 September 30, 2022, there were 124 investment securities available for sale with continuous unrealized losses for more than 12 months, of which 118 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and the remaining six related to corporate bonds.

None of the unrealized losses identified as of September 30, 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 $3.9 billion at September 30, 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, U.S. 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. There were no securities past due as of September 30, 2022 and December 31, 2021.

There were no debt securities held to maturity on non-accrual status as of September 30, 2022 and December 31, 2021.

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $234 million and $40 million at September 30, 2022 and December 31, 2021, respectively; these securities are recorded at cost. BancShares held $55 million and $1 million of nonmarketable securities without readily determinable fair values measured under the measurement exception at September 30, 2022 and December 31, 2021, respectively. Investments in qualified affordable housing projects that qualify for the proportional amortization method were $558 million and $156 million at September 30, 2022 and December 31, 2021, respectively.