Securities

6 Months Ended

Jun. 30, 2024

Investments, Debt and Equity Securities [Abstract]

4. SECURITIES

The amortized cost and fair value of investment securities were as follows:


	June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for Sale
Corporate debt securities	$	14,350	$	1,910	$	(180	)	$	16,080
Collateralized mortgage obligations		196,230		32		(2,876	)		193,386
Mortgage-backed securities		110,074		61		(954	)		109,181
Total	$	320,654	$	2,003	$	(4,010	)	$	318,647
Held to Maturity
U.S. Treasury securities and obligations of U.S. Government agencies	$	7,750	$	—	$	(111	)	$	7,639
States and political subdivisions		111,683		218		(3,090	)		108,811
Corporate debt securities		12,000		—		(3,720	)		8,280
Collateralized mortgage obligations		248,114		—		(22,730	)		225,384
Mortgage-backed securities		11,003,945		719		(1,362,412	)		9,642,252
Total	$	11,383,492	$	937	$	(1,392,063	)	$	9,992,366


	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for Sale
Corporate debt securities	$	20,698	$	1,827	$	(738	)	$	21,787
Collateralized mortgage obligations		321,881		967		(2,804	)		320,044
Mortgage-backed securities		97,779		96		(1,118	)		96,757
Total	$	440,358	$	2,890	$	(4,660	)	$	438,588
Held to Maturity
U.S. Treasury securities and obligations of U.S. Government agencies	$	7,631	$	—	$	(52	)	$	7,579
States and political subdivisions		116,497		1,864		(2,306	)		116,055
Corporate debt securities		12,000		—		(4,200	)		7,800
Collateralized mortgage obligations		263,250		—		(20,864	)		242,386
Mortgage-backed securities		11,965,930		2,131		(1,357,283	)		10,610,778
Total	$	12,365,308	$	3,995	$	(1,384,705	)	$	10,984,598

The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under FASB ASC 326, “Financial Instruments – Credit Losses.”

Available for sale securities. For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairment loss (“credit loss”) and the noncredit portion of the impairment loss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.

As of June 30, 2024, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2024, management believes that there is no potential for credit losses on available for sale securities.

Held to maturity securities. The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae and Freddie Mac issued securities are fully guaranteed by those respective United States government-sponsored agencies and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of June 30, 2024, the Company’s municipal securities represent 1.0% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at

which time the Company will receive full value for the securities. Accordingly, as of June 30, 2024, management believes that there is no potential for material credit losses on held to maturity securities.

Securities with unrealized losses, segregated by length of time, that have been in a continuous loss position were as follows:


	June 30, 2024
	Less than 12 Months					12 Months or More					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
Available for Sale
Corporate debt securities	$	—	$	—		$	5,420	$	(180	)	$	5,420	$	(180	)
Collateralized mortgage obligations		30,132		(323	)		145,045		(2,553	)		175,177		(2,876	)
Mortgage-backed securities		14,206		(19	)		91,896		(935	)		106,102		(954	)
Total	$	44,338	$	(342	)	$	242,361	$	(3,668	)	$	286,699	$	(4,010	)
Held to Maturity
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	—		$	7,639	$	(111	)	$	7,639	$	(111	)
States and political subdivisions		22,688		(143	)		60,267		(2,947	)		82,955		(3,090	)
Corporate debt securities		—		—			8,280		(3,720	)		8,280		(3,720	)
Collateralized mortgage obligations		26,765		(359	)		198,619		(22,371	)		225,384		(22,730	)
Mortgage-backed securities		88,246		(1,413	)		9,423,661		(1,360,999	)		9,511,907		(1,362,412	)
Total	$	137,699	$	(1,915	)	$	9,698,466	$	(1,390,148	)	$	9,836,165	$	(1,392,063	)


	December 31, 2023
	Less than 12 Months					12 Months or More					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
Available for Sale
Corporate debt securities	$	7,300	$	(738	)	$	—	$	—		$	7,300	$	(738	)
Collateralized mortgage obligations		54,611		(729	)		114,758		(2,075	)		169,369		(2,804	)
Mortgage-backed securities		1,154		(13	)		92,211		(1,105	)		93,365		(1,118	)
Total	$	63,065	$	(1,480	)	$	206,969	$	(3,180	)	$	270,034	$	(4,660	)
Held to Maturity
U.S. Treasury securities and obligations of U.S. Government agencies	$	7,580	$	(52	)	$	—	$	—		$	7,580	$	(52	)
States and political subdivisions		23,085		(79	)		41,039		(2,227	)		64,124		(2,306	)
Corporate debt securities		—		—			7,800		(4,200	)		7,800		(4,200	)
Collateralized mortgage obligations		50,147		(470	)		192,205		(20,394	)		242,352		(20,864	)
Mortgage-backed securities		52,853		(807	)		10,354,514		(1,356,476	)		10,407,367		(1,357,283	)
Total	$	133,665	$	(1,408	)	$	10,595,558	$	(1,383,297	)	$	10,729,223	$	(1,384,705	)

At June 30, 2024 and December 31, 2023, there were 1,100 securities and 941 securities, respectively, in an unrealized loss position for 12 months or more.

The table below summarizes the amortized cost and fair value of investment securities at June 30, 2024, by contractual maturity. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations at any time with or without call or prepayment penalties.


	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	28,227	$	28,302	$	—	$	—
Due after one year through five years		46,253		45,684		—		—
Due after five years through ten years		45,117		40,099		14,350		16,080
Due after ten years		11,836		10,645		—		—
Subtotal		131,433		124,730		14,350		16,080
Mortgage-backed securities and collateralized mortgage obligations		11,252,059		9,867,636		306,304		302,567
Total	$	11,383,492	$	9,992,366	$	320,654	$	318,647

At June 30, 2024 and December 31, 2023, the Company did not own securities of any one issuer (other than the U.S. government and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity at such respective dates.

Securities with an amortized cost of $10.42 billion and $11.34 billion and a fair value of $9.12 billion and $10.09 billion at June 30, 2024 and December 31, 2023, respectively, were pledged to collateralize public deposits and for other purposes required or permitted by law.

The Company recorded a $9.7 million and $9.4 million net loss on the sale of investment securities for the three and six months ended June 30, 2024, respectively. The Company recorded no gain or loss on the sale of investment securities for the three and six months ended June 30, 2023. As of June 30, 2024, the Company did not own any non-agency collateralized mortgage obligations.

Visa Class B-1 Stock Exchange. During the second quarter of 2024, the Company tendered all of its shares of Visa, Inc. (“Visa”) Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock, pursuant to the terms and subject to the conditions of the public offering of Visa to exchange its Class B-1 common stock for a combination of shares of its Class B-2 common stock and Class C common stock, which expired on May 3, 2024. The Company recorded a gain of $20.6 million during the second quarter of 2024 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. In the exchange, the Company received 48,492 shares of Class B-2 stock, recorded at zero cost basis, and 19,245 shares of Class C common stock and subsequently sold 6,415 shares of Class C stock. The Company intends to sell all remaining shares of Class C stock as permitted by the exchange agreement.