Investment Securities

Investment securities, at fair value, consisted of the following at December 31, 2016 and 2015.



(In thousands)	2016		2015
Available for sale:
U.S. government and federal agency obligations	$	920,904	$	727,076
Government-sponsored enterprise obligations	449,998		793,023
State and municipal obligations	1,778,214		1,741,957
Agency mortgage-backed securities	2,685,931		2,618,281
Non-agency mortgage-backed securities	1,055,639		879,963
Asset-backed securities	2,381,301		2,644,381
Other debt securities	325,953		331,320
Equity securities	51,263		41,003
Total available for sale	9,649,203		9,777,004
Trading	22,225		11,890
Non-marketable	99,558		112,786
Total investment securities	$	9,770,986	$	9,901,680

Most of the Company’s investment securities are classified as available for sale, and this portfolio is discussed in more detail below. Securities which are classified as non-marketable include Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock held for borrowing and regulatory purposes, which totaled $46.9 million and $46.8 million at December 31, 2016 and 2015, respectively. Investment in Federal Reserve Bank stock is based on the capital structure of the investing bank, and investment in FHLB stock is mainly tied to the level of borrowings from the FHLB. These holdings are carried at cost. Non-marketable securities also include private equity investments, which amounted to $52.3 million and $65.6 million at December 31, 2016 and 2015, respectively. In the absence of readily ascertainable market values, these securities are carried at estimated fair value.

A summary of the available for sale investment securities by maturity groupings as of December 31, 2016 is shown in the following table. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security at December 31, 2016. Yields on tax exempt securities have not been adjusted for tax exempt status. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities which have no guarantee, but are collateralized by residential and commercial mortgages. Also included are certain other asset-backed securities, primarily collateralized by credit cards, automobiles and commercial loans. The Company does not have exposure to subprime-originated mortgage-backed or collateralized debt obligation instruments, and does not hold any trust preferred securities.



(Dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
U.S. government and federal agency obligations:
Within 1 year	$	59,407	$	59,989	1.89*%
After 1 but within 5 years	501,141		506,131		1.33*
After 5 but within 10 years	286,939		287,396		1.29*
After 10 years	72,417		67,388		(.10)*
Total U.S. government and federal agency obligations	919,904		920,904		1.24*
Government-sponsored enterprise obligations:
Within 1 year	6,990		7,003		1.13
After 1 but within 5 years	419,174		418,662		1.53
After 5 but within 10 years	14,989		15,032		2.30
After 10 years	9,295		9,301		2.25
Total government-sponsored enterprise obligations	450,448		449,998		1.56
State and municipal obligations:
Within 1 year	195,581		197,041		2.64
After 1 but within 5 years	592,883		597,391		2.29
After 5 but within 10 years	923,792		919,725		2.40
After 10 years	66,428		64,057		2.84
Total state and municipal obligations	1,778,684		1,778,214		2.40
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,674,964		2,685,931		2.53
Non-agency mortgage-backed securities	1,054,446		1,055,639		2.40
Asset-backed securities	2,389,176		2,381,301		1.57
Total mortgage and asset-backed securities	6,118,586		6,122,871		2.14
Other debt securities:
Within 1 year	8,998		9,015
After 1 but within 5 years	100,557		100,601
After 5 but within 10 years	205,887		205,200
After 10 years	11,588		11,137
Total other debt securities	327,030		325,953
Equity securities	5,678		51,263
Total available for sale investment securities	$	9,600,330	$	9,649,203

* Rate does not reflect inflation adjustment on inflation-protected securities

Investments in U.S. government securities include U.S. Treasury inflation-protected securities, which totaled $461.9 million, at fair value, at December 31, 2016. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal. Included in state and municipal obligations are $16.7 million, at fair value, of auction rate securities, which were purchased from bank customers in 2008. Interest on these bonds is currently being paid at the maximum failed auction rates. Equity securities are primarily comprised of investments in common stock held by the Parent, which totaled $48.5 million, at fair value, at December 31, 2016.

For securities classified as available for sale, the following table shows the unrealized gains and losses (pre-tax) in accumulated other comprehensive income, by security type.



(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2016
U.S. government and federal agency obligations	$	919,904	$	7,312	$	(6,312	)	$	920,904
Government-sponsored enterprise obligations	450,448		1,126		(1,576		)	449,998
State and municipal obligations	1,778,684		12,223		(12,693		)	1,778,214
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,674,964		31,610		(20,643		)	2,685,931
Non-agency mortgage-backed securities	1,054,446		7,686		(6,493		)	1,055,639
Asset-backed securities	2,389,176		3,338		(11,213		)	2,381,301
Total mortgage and asset-backed securities	6,118,586		42,634		(38,349		)	6,122,871
Other debt securities	327,030		935		(2,012		)	325,953
Equity securities	5,678		45,585		—			51,263
Total	$	9,600,330	$	109,815	$	(60,942	)	$	9,649,203
December 31, 2015
U.S. government and federal agency obligations	$	729,846	$	5,051	$	(7,821	)	$	727,076
Government-sponsored enterprise obligations	794,912		2,657		(4,546		)	793,023
State and municipal obligations	1,706,635		37,061		(1,739		)	1,741,957
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,579,031		47,856		(8,606		)	2,618,281
Non-agency mortgage-backed securities	879,186		8,596		(7,819		)	879,963
Asset-backed securities	2,660,201		1,287		(17,107		)	2,644,381
Total mortgage and asset-backed securities	6,118,418		57,739		(33,532		)	6,142,625
Other debt securities	335,925		377		(4,982		)	331,320
Equity securities	5,678		35,325		—			41,003
Total	$	9,691,414	$	138,210	$	(52,620	)	$	9,777,004

The Company’s impairment policy requires a review of all securities for which fair value is less than amortized cost. Special emphasis and analysis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price for an extended period of time, or have been identified based on management’s judgment. These securities are placed on a watch list, and for all such securities, detailed cash flow models are prepared which use inputs specific to each security. Inputs to these models include factors such as cash flow received, contractual payments required, and various other information related to the underlying collateral (including current delinquencies), collateral loss severity rates (including loan to values), expected delinquency rates, credit support from other tranches, and prepayment speeds. Stress tests are performed at varying levels of delinquency rates, prepayment speeds and loss severities in order to gauge probable ranges of credit loss. At December 31, 2016, the fair value of securities on this watch list was $79.6 million compared to $95.8 million at December 31, 2015.

As of December 31, 2016, the Company had recorded OTTI on certain non-agency mortgage-backed securities, part of the watch list mentioned above, which had an aggregate fair value of $31.2 million. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $14.1 million. The Company does not intend to sell these securities and believes it is not likely that it will be required to sell the securities before the recovery of their amortized cost.

The credit-related portion of the loss on these securities was based on the cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities. Significant inputs to the cash flow models used to calculate the credit losses on these securities included the following:



Significant Inputs	Range
Prepayment CPR	4%	-	25%
Projected cumulative default	17%	-	51%
Credit support	0%	-	34%
Loss severity	17%	-	63%

The following table presents a rollforward of the cumulative OTTI credit losses recognized in earnings on all available for sale debt securities.



(In thousands)	2016			2015			2014
Cumulative OTTI credit losses at January 1	$	14,129		$	13,734		$	12,499
Credit losses on debt securities for which impairment was not previously recognized	—			76			—
Credit losses on debt securities for which impairment was previously recognized	270			407			1,365
Increase in expected cash flows that are recognized over remaining life of security	(319		)	(88		)	(130		)
Cumulative OTTI credit losses at December 31	$	14,080		$	14,129		$	13,734

Securities with unrealized losses recorded in accumulated other comprehensive income are shown in the table below, along with the length of the impairment period.



	Less than 12 months				12 months or longer				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2016
U.S. government and federal agency obligations	$	349,538	$	2,823	$	32,208	$	3,489	$	381,746	$	6,312
Government-sponsored enterprise obligations	190,441		1,576		—		—		190,441		1,576
State and municipal obligations	700,779		12,164		15,195		529		715,974		12,693
Mortgage and asset-backed securities:
Agency mortgage-backed securities	1,147,416		20,638		2,150		5		1,149,566		20,643
Non-agency mortgage-backed securities	688,131		6,373		34,946		120		723,077		6,493
Asset-backed securities	780,209		5,277		358,778		5,936		1,138,987		11,213
Total mortgage and asset-backed securities	2,615,756		32,288		395,874		6,061		3,011,630		38,349
Other debt securities	179,639		1,986		975		26		180,614		2,012
Total	$	4,036,153	$	50,837	$	444,252	$	10,105	$	4,480,405	$	60,942
December 31, 2015
U.S. government and federal agency obligations	$	491,998	$	3,098	$	31,012	$	4,723	$	523,010	$	7,821
Government-sponsored enterprise obligations	157,830		1,975		110,250		2,571		268,080		4,546
State and municipal obligations	66,998		544		31,120		1,195		98,118		1,739
Mortgage and asset-backed securities:
Agency mortgage-backed securities	530,035		2,989		291,902		5,617		821,937		8,606
Non-agency mortgage-backed securities	653,603		7,059		54,536		760		708,139		7,819
Asset-backed securities	2,207,922		12,492		223,311		4,615		2,431,233		17,107
Total mortgage and asset-backed securities	3,391,560		22,540		569,749		10,992		3,961,309		33,532
Other debt securities	244,452		3,687		25,218		1,295		269,670		4,982
Total	$	4,352,838	$	31,844	$	767,349	$	20,776	$	5,120,187	$	52,620

The total available for sale portfolio consisted of approximately 2,000 individual securities at December 31, 2016. The portfolio included 771 securities, having an aggregate fair value of $4.5 billion, that were in a loss position at December 31, 2016, compared to 466 securities, with a fair value of $5.1 billion, at December 31, 2015. The total amount of unrealized loss on these securities was $60.9 million at December 31, 2016, an increase of $8.3 million compared to the loss at December 31, 2015. The rise in unrealized losses resulted largely from the Federal Reserve Board's benchmark interest rate increase in December 2016. At December 31, 2016, the fair value of securities in an unrealized loss position for 12 months or longer totaled $444.3 million, or 4.6% of the total portfolio value.

The Company’s holdings of state and municipal obligations included gross unrealized losses of $12.7 million at December 31, 2016, of which $600 thousand related to auction rate securities. The state and municipal portfolio totaled $1.8 billion at fair value, or 18.4% of total available for sale securities. The portfolio is diversified in order to reduce risk, and the Company has processes and procedures in place to monitor its state and municipal holdings, identify signs of financial distress and, if necessary, exit its positions in a timely manner.

The credit ratings (Moody’s rating or equivalent) at December 31, 2016 in the state and municipal bond portfolio (excluding auction rate securities) are shown in the following table. The average credit quality of the portfolio is Aa2 as rated by Moody’s.



	% of Portfolio
Aaa	6.2	%
Aa	79.5
A	13.8
Not rated	.5
	100.0	%

The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings.



(In thousands)	2016			2015			2014
Proceeds from sales of available for sale securities	$	2,049		$	675,870		$	30,998
Proceeds from sales of non-marketable securities	22,331			13,161			33,444
Total proceeds	$	24,380		$	689,031		$	64,442
Available for sale:
Gains realized on sales	$	109		$	2,925		$	—
Losses realized on sales	—			—			(5,197		)
Gain realized on donation	—			—			1,570
Other-than-temporary impairment recognized on debt securities	(270		)	(483		)	(1,365		)
Non-marketable:
Gains realized on sales	4,349			2,516			1,629
Losses realized on sales	(502		)	(40		)	(134		)
Fair value adjustments, net	(3,739		)	1,402			17,621
Investment securities gains (losses), net	$	(53	)	$	6,320		$	14,124

Investment securities with a fair value of $4.4 billion and $4.1 billion were pledged at December 31, 2016 and 2015, respectively, to secure public deposits, securities sold under repurchase agreements, trust funds, and borrowings at the Federal Reserve Bank. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $568.6 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeds 10% of stockholders’ equity.