Investment Securities

6 Months Ended

Jun. 30, 2023

INVESTMENT SECURITIES

The following tables include the amortized cost and fair value of investment securities at June 30, 2023 and December 31, 2022.

Amortized Cost and Fair Value - Investment Securities


dollars in millions	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
U.S. Treasury	$	4,763	$	—	$	(129)	$	4,634
Government agency	143		—		(3)		140
Residential mortgage-backed securities	5,443		—		(633)		4,810
Commercial mortgage-backed securities	1,776		—		(199)		1,577
Corporate bonds (1)	538		—		(62)		476
Municipal bonds	260		—		(3)		257

Total investment securities available for sale (1)	$	12,923	$	—	$	(1,029)	$	11,894
Investment in marketable equity securities	$	75	$	10	$	(9)	$	76
Investment securities held to maturity
U.S. Treasury	$	476	$	—	$	(50)	$	426
Government agency	1,502		—		(174)		1,328
Residential mortgage-backed securities	4,406		—		(690)		3,716
Commercial mortgage-backed securities	3,518		—		(595)		2,923

Supranational securities	297		—		(40)		257
Other	2		—		—		2
Total investment securities held to maturity	$	10,201	$	—	$	(1,549)	$	8,652
Total investment securities(1)	$	23,199	$	10	$	(2,587)	$	20,622
(1) Balances presented net of allowance for credit losses of $3 million.
	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
U.S. Treasury	$	2,035	$	—	$	(137)	$	1,898
Government agency	164		—		(2)		162
Residential mortgage-backed securities	5,424		1		(630)		4,795
Commercial mortgage-backed securities	1,774		—		(170)		1,604
Corporate bonds	570		—		(34)		536

Total investment securities available for sale	$	9,967	$	1	$	(973)	$	8,995
Investment in marketable equity securities	$	75	$	21	$	(1)	$	95
Investment securities held to maturity
U.S. Treasury	$	474	$	—	$	(50)	$	424
Government agency	1,548		—		(186)		1,362
Residential mortgage-backed securities	4,605		—		(723)		3,882
Commercial mortgage-backed securities	3,355		—		(484)		2,871

Supranational securities	295		—		(41)		254
Other	2		—		—		2
Total investment securities held to maturity	$	10,279	$	—	$	(1,484)	$	8,795
Total investment securities	$	20,321	$	22	$	(2,458)	$	17,885

Investments in residential and commercial 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 corporate bonds represent positions in debt securities of other financial institutions. Municipal bonds are general obligation bonds that were acquired in the SVBB Acquisition. Investments in supranational securities represent securities issued by the Supranational Entities and Multilateral Development Banks. 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.

Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At June 30, 2023, accrued interest receivables for available for sale and held to maturity debt securities were $35 million and $18 million, respectively. At December 31, 2022, accrued interest receivables for available for sale and held to maturity debt securities were $33 million and $19 million, respectively. During the three and six months ended June 30, 2023 and 2022, 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	June 30, 2023				December 31, 2022
	Cost		Fair Value		Cost		Fair Value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less	$	2,987	$	2,975	$	37	$	37
After one through five years	1,910		1,787		2,068		1,928
After five through 10 years	510		457		483		455
After 10 years	154		148		17		14

Government agency	143		140		164		162
Residential mortgage-backed securities	5,443		4,810		5,424		4,795
Commercial mortgage-backed securities	1,776		1,577		1,774		1,604

Total investment securities available for sale (1)	$	12,923	$	11,894	$	9,967	$	8,995
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less	$	2	$	2	$	51	$	51
After one through five years	1,581		1,426		1,479		1,328
After five through 10 years	694		585		789		663


Residential mortgage-backed securities	4,406		3,716		4,605		3,882
Commercial mortgage-backed securities	3,518		2,923		3,355		2,871



Total investment securities held to maturity	$	10,201	$	8,652	$	10,279	$	8,795

(1) Balances as of June 30, 2023 are presented net of the allowance for credit losses of $3 million.

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

Interest and Dividends on Investment Securities


dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest income - taxable investment securities	$	118	$	89	$	224	$	171
Interest income - nontaxable investment securities	2		—		2		—
Dividend income - marketable equity securities	—		—		1		1
Interest on investment securities	$	120	$	89	$	227	$	172

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

Realized Losses on Debt Securities Available For Sale


dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Gross realized gains on sales of investment securities available for sale	$	—	$	—	$	—	$	—
Gross realized losses on sales of investment securities available for sale	—		—		(14)		—
Net realized losses on sales of investment securities available for sale	$	—	$	—	$	(14)	$	—

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022


Fair value adjustment on marketable equity securities, net	$	(10)	$	(6)	$	(19)	$	(3)

The following table provides information regarding investment securities available for sale with unrealized losses:

Gross Unrealized Losses on Debt Securities Available For Sale


dollars in millions	June 30, 2023
	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	$	2,760	$	(2)	$	1,874	$	(127)	$	4,634	$	(129)
Government agency	51		(1)		89		(2)		140		(3)
Residential mortgage-backed securities	896		(33)		3,854		(600)		4,750		(633)
Commercial mortgage-backed securities	564		(17)		999		(182)		1,563		(199)
Corporate bonds (1)	216		(19)		260		(43)		476		(62)
Municipal bonds	248		(3)		—		—		248		(3)
Total (1)	$	4,735	$	(75)	$	7,076	$	(954)	$	11,811	$	(1,029)

	December 31, 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	$	403	$	(27)	$	1,495	$	(110)	$	1,898	$	(137)
Government agency	65		(1)		62		(1)		127		(2)
Residential mortgage-backed securities	1,698		(165)		3,001		(465)		4,699		(630)
Commercial mortgage-backed securities	836		(53)		752		(117)		1,588		(170)
Corporate bonds	499		(30)		37		(4)		536		(34)
Municipal bonds	—		—		—		—		—		—
Total	$	3,501	$	(276)	$	5,347	$	(697)	$	8,848	$	(973)

(1) Balances as of June 30, 2023 are presented net of the allowance for credit losses of $3 million.

As of June 30, 2023, there were 389 investment securities available for sale with continuous unrealized losses for more than 12 months, of which 345 were government sponsored enterprise-issued mortgage-backed securities, government agency securities, or U.S. treasury securities and the remaining 44 were corporate bonds. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. 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, as of June 30, 2023, no ACL was required. For corporate bonds and municipal bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired, and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that three corporate bonds carry credit-related losses of $3 million as of June 30, 2023, which is reflected in the provision for credit losses as presented in Note 5 — Allowance for Credit Losses.

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, and securities issued by the Supranational Entities and Multilateral Development Banks. Given the consistently strong credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of June 30, 2023, no ACL was required for held to maturity debt securities.

Investment securities having an aggregate carrying value of $4.03 billion at June 30, 2023, and $4.20 billion at December 31, 2022, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

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 June 30, 2023 or December 31, 2022.

There were no debt securities held to maturity on non-accrual status as of June 30, 2023 or December 31, 2022.

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $119 million and $197 million at June 30, 2023 and December 31, 2022, respectively; these securities are recorded at cost. BancShares held $58 million and $58 million of nonmarketable securities without readily determinable fair values, which are measured at cost at June 30, 2023 and December 31, 2022, respectively. Investments in qualified affordable housing projects, all of which are accounted for under the proportional amortization method were $1.81 billion and $598 million at June 30, 2023 and December 31, 2022, respectively.