Investments

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Trading Investments

In March 2020, we sold approximately $1.7 billion of Private Education Loans through securitization transactions where we were required to retain a 5 percent vertical risk retention interest (i.e., 5 percent of each class issued in the securitizations). We classified those vertical risk retention interests related to the transactions as available-for-sale investments, except for the interest in the residual classes, which we classified as trading investments recorded at fair value with changes recorded through earnings. At June 30, 2020, we had $14 million classified as trading investments.

Available-for-Sale Investments

The amortized cost and fair value of securities available for sale are as follows:


	June 30, 2020
	Amortized Cost		Allowance for credit losses⁽¹⁾		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale:
Mortgage-backed securities	$	312,549	$	—	$	5,832	$	(378)	$	318,003
Utah Housing Corporation bonds	15,931		—		224		—		16,155
U.S. government-sponsored enterprises and Treasuries	1,608,837		—		4,073		(6)		1,612,904
Other securities	75,704		—		—		(1,818)		73,886
Total	$	2,013,021	$	—	$	10,129	$	(2,202)	$	2,020,948

	December 31, 2019
	Amortized Cost		Allowance for credit losses⁽¹⁾		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale:
Mortgage-backed securities	$	215,888	$	—	$	1,895	$	(658)	$	217,125
Utah Housing Corporation bonds	19,474		—		145		(83)		19,536
U.S. government-sponsored enterprises	250,394		—		635		(21)		251,008
Total	$	485,756	$	—	$	2,675	$	(762)	$	487,669

___________

⁽¹⁾ Represents the amount of impairment that has resulted from credit related factors, and that was recognized in the consolidated balance sheets (as a credit loss expense on available-for-sale securities). The amount excludes unrealized losses related to non-credit factors.

The following table summarizes the amount of gross unrealized losses for our available-for-sale securities and the estimated fair value for securities having gross unrealized loss positions, categorized by length of time the securities have been in an unrealized loss position:


	Less than 12 months						12 months or more						Total
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
As of June 30, 2020:
Mortgage-backed securities	$	(378)	$	123,612	$	—	$	—	$	(378)	$	123,612
Utah Housing Corporation bonds	—		—		—		—		—		—
U.S. government-sponsored enterprises and Treasuries	(6)		174,867		—		—		(6)		174,867
Other securities	(1,818)		73,886		—		—		(1,818)		73,886
Total	$	(2,202)	$	372,365	$	—	$	—	$	(2,202)	$	372,365

As of December 31, 2019:
Mortgage-backed securities	$	(218)	$	25,624	$	(440)	$	42,448	$	(658)	$	68,072
Utah Housing Corporation bonds	—		—		(83)		11,097		(83)		11,097
U.S. government-sponsored enterprises	(21)		14,977		—		—		(21)		14,977
Total	$	(239)	$	40,601	$	(523)	$	53,545	$	(762)	$	94,146

For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For securities in an unrealized loss position that do not meet these criteria, we evaluate whether the decline in fair value has resulted from credit loss or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, as well as any guarantees (e.g., guarantees by the U.S. Government) that may be applicable to the security. If this assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as an allowance for losses on the security.

Our investment portfolio contains mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, with amortized costs of $44 million, $173 million, and $96 million, respectively, at June 30, 2020. We own these securities to meet our requirements under the Community Reinvestment Act (“CRA”). As of June 30, 2020, 9 of the separate mortgage-backed securities in our investment portfolio had unrealized losses. Approximately 33 percent of our mortgage-backed securities were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remaining securities in our portfolio carry a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively. We have the ability and the intent to hold each of these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. As of December 31, 2019, 33 of the 107 separate mortgage-backed securities in our investment portfolio had unrealized losses, and 18 of the 33 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remainder carried a principal and interest guarantee by Fannie Mae or Freddie Mac, respectively.

We also invest in Utah Housing Corporation bonds for the purpose of complying with the CRA. As of June 30, 2020, none of the three separate bonds was in a net loss position. These bonds are rated Aa3 by Moody’s Investors Service, and the majority of the underlying assets are insured by the Federal Housing Administration or the Department of Veterans Affairs. Based on this qualitative analysis, we have determined that no credit impairment exists.

We also invest in U.S. government-sponsored enterprise securities issued by the Federal Home Loan Bank, Freddie Mac, and the Federal Farm Credit Bank. As of June 30, 2020, 2 of the 32 securities had unrealized losses. We have the intent and ability to hold each of these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. These bonds are rated AA+ by Moody’s Investors Service. Based on this qualitative analysis, we have determined that no credit impairment exists.

In March 2020, we sold approximately $1.7 billion of Private Education Loans through a securitization transaction where we were required to retain a 5 percent vertical risk retention interest. We classify the non-residual vertical retention interests as available-for-sale investments. As of June 30, 2020, 10 out of 10 of these investments had unrealized losses. We have the intent and ability to hold each of these bonds for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security. We expect to receive all contractual cash flows related to these investments and do not consider a credit impairment to exist.

As of June 30, 2020, the amortized cost and fair value of securities, by contractual maturities, are summarized below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.


Year of Maturity	Amortized Cost		Estimated Fair Value
2020	$	416,977	$	417,051
2021	354,463		356,542
2022	814,700		816,138
2023	22,696		23,173
2038	173		196
2039	2,301		2,530
2042	6,922		7,016
2043	10,804		11,342
2044	14,552		15,093
2045	13,909		14,358
2046	22,838		23,480
2047	34,843		35,351
2048	8,824		9,190
2049	67,357		69,867
2050	145,958		145,735
2054	75,704		73,886
Total	$	2,013,021	$	2,020,948

Some mortgage-backed and U.S. government securities have been pledged to the Federal Reserve Bank (the “FRB”) as collateral against any advances and accrued interest under the Primary Credit lending program sponsored by the FRB. We had $557 million and $252 million par value of securities pledged to this borrowing facility at June 30, 2020 and December 31, 2019, respectively, as discussed further in Note 6, “Borrowings.”

Other Investments

Investments in Non-Marketable Securities

We hold investments in non-marketable securities and account for these investments at cost, less impairment, plus or minus observable price changes of identical or similar securities of the same issuer. In the third quarter of 2019, we funded an additional investment in an issuer whose equity securities we purchased in the past. We used the valuation associated with the more recent securities investment to adjust the valuation of our previous investments and, as a result, recorded a gain of $8 million on our earlier equity securities investments. As of June 30, 2020 and December 31, 2019, our total investment in the securities of this issuer was $26 million and $26 million, respectively.

Low Income Housing Tax Credit Investments

We invest in affordable housing projects that qualify for the low income housing tax credit (“LIHTC”), which is designed to promote private development of low income housing. These investments generate a return mostly through realization of federal tax credits. Total carrying value of the LIHTC investments was $56 million at June 30, 2020 and $58 million at December 31, 2019. We are periodically required to provide additional financial support during the investment period. Our liability for these unfunded commitments was $23 million at June 30, 2020 and $29 million at December 31, 2019.

Related to these investments, we recognized tax credits and other tax benefits through tax expense of $1 million at June 30, 2020 and $6 million at December 31, 2019. Tax credits and other tax benefits are recognized as part of our annual effective tax rate used to determine tax expense in a given quarter. Accordingly, the portion of a year’s expected tax benefits recognized in any given quarter may differ from 25 percent.