INVESTMENT SECURITIES

Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.



	March 31, 2014
			Recognized in OCI ¹						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	567,935	$	—	$	—	$	567,935	$	14,429	$	1,707	$	580,657
Asset-backed securities:
Trust preferred securities – banks and insurance	79,351		—		41,107		38,244		17,603		1,225		54,622
Other debt securities	100		—		—		100		—		—		100
	647,386		—		41,107		606,279		32,032		2,932		635,379
Available-for-sale
U.S. Treasury securities	1,471		75		—		1,546						1,546
U.S. Government agencies and corporations:
Agency securities	561,153		2,595		5,997		557,751						557,751
Agency guaranteed mortgage-backed securities	301,020		10,662		844		310,838						310,838
Small Business Administration loan-backed securities	1,366,783		19,964		4,868		1,381,879						1,381,879
Municipal securities	150,897		1,213		704		151,406						151,406
Asset-backed securities:
Trust preferred securities – banks and insurance	934,353		13,578		188,520		759,411						759,411
Auction rate securities	6,508		87		35		6,560						6,560
Other	1,462		290		—		1,752						1,752
	3,323,647		48,464		200,968		3,171,143						3,171,143
Mutual funds and other	257,643		180		5,761		252,062						252,062
	3,581,290		48,644		206,729		3,423,205						3,423,205
Total	$	4,228,676	$	48,644	$	247,836	$	4,029,484					$	4,058,584


¹	Other comprehensive income



	December 31, 2013
			Recognized in OCI						Not recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Carrying value		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	551,055	$	—	$	—	$	551,055	$	11,295	$	4,616	$	557,734
Asset-backed securities:
Trust preferred securities – banks and insurance	79,419		—		41,593		37,826		15,195		1,308		51,713
Other debt securities	100		—		—		100		—		—		100
	630,574		—		41,593		588,981		26,490		5,924		609,547
Available-for-sale
U.S. Treasury securities	1,442		104		—		1,546						1,546
U.S. Government agencies and corporations:
Agency securities	517,905		1,920		901		518,924						518,924
Agency guaranteed mortgage-backed securities	308,687		9,926		1,237		317,376						317,376
Small Business Administration loan-backed securities	1,202,901		21,129		2,771		1,221,259						1,221,259
Municipal securities	65,425		1,329		490		66,264						66,264
Asset-backed securities:
Trust preferred securities – banks and insurance	1,508,224		13,439		282,843		1,238,820						1,238,820
Trust preferred securities – real estate investment trusts	22,996		—		—		22,996						22,996
Auction rate securities	6,507		118		26		6,599						6,599
Other	27,540		359		—		27,899						27,899
	3,661,627		48,324		288,268		3,421,683						3,421,683
Mutual funds and other	287,603		21		7,421		280,203						280,203
	3,949,230		48,345		295,689		3,701,886						3,701,886
Total	$	4,579,804	$	48,345	$	337,282	$	4,290,867					$	4,311,433

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of March 31, 2014 by expected maturity distribution for collateralized debt obligations (“CDOs”) and by contractual maturity for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Held-to-maturity				Available-for-sale
(In thousands)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Due in one year or less	$	77,395	$	56,283	$	510,870	$	497,041
Due after one year through five years	195,088		161,077		1,212,400		1,205,205
Due after five years through ten years	135,308		138,806		709,151		697,454
Due after ten years	239,595		279,213		891,226		771,443
	$	647,386	$	635,379	$	3,323,647	$	3,171,143

The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

	March 31, 2014
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	1,414	$	43,060	$	293	$	5,721	$	1,707	$	48,781
Asset-backed securities:
Trust preferred securities – banks and insurance	56		71		42,276		54,551		42,332		54,622
	1,470		43,131		42,569		60,272		44,039		103,403
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	5,936		326,547		61		5,803		5,997		332,350
Agency guaranteed mortgage-backed securities	792		48,560		52		3,054		844		51,614
Small Business Administration loan-backed securities	3,537		347,883		1,331		37,832		4,868		385,715
Municipal securities	57		7,127		647		2,824		704		9,951
Asset-backed securities:
Trust preferred securities – banks and insurance	1,280		52,845		187,240		624,501		188,520		677,346
Auction rate securities	11		1,603		24		889		35		2,492
	11,613		784,565		189,355		674,903		200,968		1,459,468
Mutual funds and other	—		—		5,761		124,331		5,761		124,331
	11,613		784,565		195,116		799,234		206,729		1,583,799
Total	$	13,083	$	827,696	$	237,685	$	859,506	$	250,768	$	1,687,202



	December 31, 2013
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value


Held-to-maturity
Municipal securities	$	4,025	$	70,400	$	591	$	9,103	$	4,616	$	79,503
Asset-backed securities:
Trust preferred securities – banks and insurance	—		—		42,901		51,319		42,901		51,319
	4,025		70,400		43,492		60,422		47,517		130,822
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	828		47,862		73		5,874		901		53,736
Agency guaranteed mortgage-backed securities	1,231		64,533		6		935		1,237		65,468
Small Business Administration loan-backed securities	1,709		187,680		1,062		39,256		2,771		226,936
Municipal securities	73		8,834		417		3,179		490		12,013
Asset-backed securities:
Trust preferred securities – banks and insurance	2,539		51,911		280,304		847,990		282,843		899,901
Auction rate securities	5		1,609		21		892		26		2,501
	6,385		362,429		281,883		898,126		288,268		1,260,555
Mutual funds and other	943		24,057		6,478		103,614		7,421		127,671
	7,328		386,486		288,361		1,001,740		295,689		1,388,226
Total	$	11,353	$	456,886	$	331,853	$	1,062,162	$	343,206	$	1,519,048

At March 31, 2014 and December 31, 2013, respectively, 126 and 157 held-to-maturity (“HTM”) and 334 and 317 available -for-sale (“AFS”) investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

Ongoing Policy

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date (the vast majority of the investment portfolio are debt securities). Under these circumstances, OTTI is considered to have occurred if (1) we intend to sell the security; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Noncredit-related OTTI in securities we intend to sell is recognized in earnings as is any credit-related OTTI in securities, regardless of our intent. Noncredit-related OTTI on AFS securities not expected to be sold is recognized in OCI. The amount of noncredit-related OTTI in a security is quantified as the difference in a security’s amortized cost after adjustment for credit impairment, and its lower fair value. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted using the effective interest rate method to the credit-adjusted expected cash flow amounts of the securities over future periods.

Effect of Volcker Rule and Interim Final Rule

On December 10, 2013, the final Volcker Rule (“VR”) was published pursuant to the Dodd-Frank Act. The VR significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. On January 14, 2014, the VR’s application to certain CDO securities was revised by an Interim Final Rule (“IFR”) related primarily to bank trust preferred CDO securities.

Certain of the Company’s CDO securities backed primarily by insurance trust preferred securities, real estate investment trust (“REIT”) securities, and asset-backed securities (“ABS”) became disallowed to be held effective July 21, 2015 under the VR and the IFR. This regulatory change resulted in the Company no longer being able to hold these securities to maturity. Further, to reduce the risk profile of the portfolio, we determined as of December 31, 2013, an intent to sell certain disallowed as well as other allowed CDO securities.

During the first quarter of 2014, we recorded a total of $993 million par amount of sales and paydowns of CDO securities. Total sales proceeds were $607 million and, together with approximately $5 million of gains on paydowns, resulted in net gains of $31 million. Sales made reflected price improvement during the first quarter of 2014.

The sales included those announced on February 12, 2014 of $631 million par amount of CDO securities resulting in pretax gains of $65 million. These securities had been identified for sale as of December 31, 2013 and their amortized cost was adjusted to fair value as of that date.

Late in the first quarter, we sold an additional $301 million par amount of primarily insurance CDOs. These sales resulted in net realized pretax losses of $39 million. Unrealized losses on these securities were approximately $65 million at December 31, 2013. Their amortized cost was not adjusted to fair value at December 31, 2013 because the Company did not, at that date, intend to sell these securities.

OTTI Conclusions

Our 2013 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for the security type that has significant gross unrealized losses at March 31, 2014:

OTTI – Asset-Backed Securities

Trust preferred securities – banks and insurance – These CDO securities are interests in variable rate pools of trust preferred securities issued by trusts related to bank holding companies and insurance companies (“collateral issuers”). They are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). The more junior securities were purchased generally at par, while the senior securities were purchased from Lockhart Funding LLC (“Lockhart”), a previously consolidated qualifying special-purpose entity securities conduit, at their carrying values (generally par) and then adjusted to their lower fair values. The primary drivers that have given rise to the unrealized losses on CDOs with bank and insurance collateral are listed below:

Market yield requirements for bank CDO securities remain elevated. The financial crisis and economic downturn resulted in significant utilization of both the unique five-year deferral option, which each collateral issuer maintains during the life of the CDO, and the payment in kind (“PIK”) feature described subsequently. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains substantially higher than the contractual interest rates. CDO tranches backed by bank trust preferred securities continue to be characterized by uncertainty surrounding collateral behavior, specifically including, but not limited to, prepayments; the future number, size and timing of bank failures; holding company bankruptcies; and allowed deferrals and subsequent resumption of payment or default due to nonpayment of contractual interest.

Structural features of the collateral make these CDO tranches difficult for market participants to model. The first feature unique to bank CDOs is the interest deferral feature previously noted. Throughout the crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals are likely to either transition to default or, alternatively, come current prior to the five-year deadline is extremely difficult for market participants to assess.

A second structural feature that is difficult to model is the PIK feature, which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid capitalized or deferred. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured.

The ratings from one NRSRO remain below-investment-grade for even some of the most senior tranches that originally were rated AAA or the equivalent. Ratings on a number of CDO tranches vary significantly among rating agencies. The presence of a below-investment-grade rating by even a single rating agency will severely limit the pool of buyers, which causes greater illiquidity and therefore most likely a higher implicit discount rate/lower price with regard to that CDO tranche.

Our ongoing review of these securities determined that OTTI should be recorded for the three months ended March 31, 2014.

The following is a tabular rollforward of the total amount of credit-related OTTI:



(In thousands)	Three Months Ended March 31, 2014									Three Months Ended March 31, 2013
(In thousands)	HTM			AFS			Total			HTM			AFS			Total
Balance of credit-related OTTI at beginning of period	$	(9,052	)	$	(176,833	)	$	(185,885	)	$	(13,549	)	$	(394,494	)	$	(408,043	)
Additions recognized in earnings during the period:
Credit-related OTTI on securities not previously impaired	—			—			—			(403		)	—			(403		)
Additional credit-related OTTI on securities previously impaired	(27		)	—			(27		)	—			(9,714		)	(9,714		)
Subtotal of amounts recognized in earnings	(27		)	—			(27		)	(403		)	(9,714		)	(10,117		)
Reductions for securities sold or paid off during the period	—			12,919			12,919			—			—			—
Balance of credit-related OTTI at end of period	$	(9,079	)	$	(163,914	)	$	(172,993	)	$	(13,952	)	$	(404,208	)	$	(418,160	)

To determine the credit component of OTTI for all security types, we utilize projected cash flows. These cash flows are credit adjusted using, among other things, assumptions for default probability and loss severity. Certain other unobservable inputs such as prepayment rate assumptions are also utilized. In addition, certain internal and external models may be utilized. See Note 10 for further discussion. To determine the credit-related portion of OTTI in accordance with applicable accounting guidance, we use the security specific effective interest rate when estimating the present value of cash flows.

For those securities with credit-related OTTI recognized in the statement of income, the amounts of pretax noncredit-related OTTI recognized in OCI were as follows:



(In thousands)	Three Months Ended March 31,
(In thousands)	2014		2013

HTM	$	—	$	16,114
AFS	—		5,262
	$	—	$	21,376

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:



	Three Months Ended
	March 31, 2014					March 31, 2013
(In thousands)	Gross gains		Gross losses			Gross gains		Gross losses
(In thousands)	Gross gains		Gross losses			Gross gains		Gross losses
Investment securities:
Held-to-maturity	$	—	$	27		$	24	$	403
Available-for-sale	72,561		41,647			3,276		9,715
Other noninterest-bearing investments:
Nonmarketable equity securities	912		—			2,857		25
	73,473		41,674			6,157		10,143
Net gains (losses)			$	31,799				$	(3,986	)

Statement of income information:
Net impairment losses on investment securities			$	(27	)			$	(10,117	)
Equity securities gains, net			912					2,832
Fixed income securities gains, net			30,914					3,299
Net gains (losses)			$	31,799				$	(3,986	)

Interest income by security type was as follows:



	Three Months Ended
	March 31, 2014						March 31, 2013
(In thousands)	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
(In thousands)	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	3,828	$	2,836	$	6,664	$	5,073	$	2,901	$	7,974
Available-for-sale	20,424		524		20,948		17,173		539		17,712
Trading	482		—		482		190		—		190
	$	24,734	$	3,360	$	28,094	$	22,436	$	3,440	$	25,876

Securities with a carrying value of $1.5 billion at March 31, 2014 and December 31, 2013 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.