Investment Securities

Investment securities, at fair value, consisted of the following at December 31, 2017 and 2016.



(In thousands)	2017		2016
Available for sale:
U.S. government and federal agency obligations	$	917,147	$	920,904
Government-sponsored enterprise obligations	406,363		449,998
State and municipal obligations	1,611,366		1,778,214
Agency mortgage-backed securities	3,040,913		2,685,931
Non-agency mortgage-backed securities	905,793		1,055,639
Asset-backed securities	1,492,800		2,381,301
Other debt securities	351,060		325,953
Equity securities	48,838		51,263
Total available for sale	8,774,280		9,649,203
Trading	18,269		22,225
Non-marketable	100,758		99,558
Total investment securities	$	8,893,307	$	9,770,986

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 $43.3 million and $46.9 million at December 31, 2017 and 2016, 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 $57.2 million and $52.3 million at December 31, 2017 and 2016, 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, 2017 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, 2017. 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	$	57,983	$	58,347	1.71
After 1 but within 5 years	641,114		639,192		1.45
After 5 but within 10 years	149,589		149,927		.43
After 10 years	68,808		69,681		.59
Total U.S. government and federal agency obligations	917,494		917,147		1.24
Government-sponsored enterprise obligations:
Within 1 year	215,763		215,434		1.35
After 1 but within 5 years	121,575		121,199		1.93
After 5 but within 10 years	34,983		34,870		2.71
After 10 years	35,945		34,860		3.00
Total government-sponsored enterprise obligations	408,266		406,363		1.79
State and municipal obligations:
Within 1 year	164,756		165,638		2.65
After 1 but within 5 years	665,351		670,953		2.21
After 5 but within 10 years	709,248		721,181		2.46
After 10 years	53,352		53,594		3.01
Total state and municipal obligations	1,592,707		1,611,366		2.39
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,046,701		3,040,913		2.62
Non-agency mortgage-backed securities	903,920		905,793		2.54
Asset-backed securities	1,495,380		1,492,800		2.03
Total mortgage and asset-backed securities	5,446,001		5,439,506		2.45
Other debt securities:
Within 1 year	10,390		10,389
After 1 but within 5 years	247,181		247,626
After 5 but within 10 years	93,417		93,045
Total other debt securities	350,988		351,060
Equity securities	4,411		48,838
Total available for sale investment securities	$	8,719,867	$	8,774,280

* 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 $442.1 million, at fair value, at December 31, 2017. 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 $17.0 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 $45.9 million, at fair value, at December 31, 2017.

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, 2017
U.S. government and federal agency obligations	$	917,494	$	4,096	$	(4,443	)	$	917,147
Government-sponsored enterprise obligations	408,266		26		(1,929		)	406,363
State and municipal obligations	1,592,707		21,413		(2,754		)	1,611,366
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,046,701		17,956		(23,744		)	3,040,913
Non-agency mortgage-backed securities	903,920		6,710		(4,837		)	905,793
Asset-backed securities	1,495,380		2,657		(5,237		)	1,492,800
Total mortgage and asset-backed securities	5,446,001		27,323		(33,818		)	5,439,506
Other debt securities	350,988		1,250		(1,178		)	351,060
Equity securities	4,411		44,427		—			48,838
Total	$	8,719,867	$	98,535	$	(44,122	)	$	8,774,280
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

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, 2017, the fair value of securities on this watch list was $68.0 million compared to $79.6 million at December 31, 2016.

As of December 31, 2017, 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 $26.2 million. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $14.2 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	0%	-	25%
Projected cumulative default	14%	-	50%
Credit support	0%	-	54%
Loss severity	15%	-	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)	2017			2016			2015
Cumulative OTTI credit losses at January 1	$	14,080		$	14,129		$	13,734
Credit losses on debt securities for which impairment was not previously recognized	111			—			76
Credit losses on debt securities for which impairment was previously recognized	274			270			407
Increase in expected cash flows that are recognized over remaining life of security	(266		)	(319		)	(88		)
Cumulative OTTI credit losses at December 31	$	14,199		$	14,080		$	14,129

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, 2017
U.S. government and federal agency obligations	$	618,617	$	4,443	$	—	$	—	$	618,617	$	4,443
Government-sponsored enterprise obligations	286,393		1,712		49,766		217		336,159		1,929
State and municipal obligations	282,843		1,752		49,339		1,002		332,182		2,754
Mortgage and asset-backed securities:
Agency mortgage-backed securities	1,320,689		9,433		619,300		14,311		1,939,989		23,744
Non-agency mortgage-backed securities	577,017		2,966		153,813		1,871		730,830		4,837
Asset-backed securities	786,048		3,168		264,295		2,069		1,050,343		5,237
Total mortgage and asset-backed securities	2,683,754		15,567		1,037,408		18,251		3,721,162		33,818
Other debt securities	144,090		727		20,202		451		164,292		1,178
Total	$	4,015,697	$	24,201	$	1,156,715	$	19,921	$	5,172,412	$	44,122
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

The total available for sale portfolio consisted of approximately 2,000 individual securities at December 31, 2017. The portfolio included 635 securities, having an aggregate fair value of $5.2 billion, that were in a loss position at December 31, 2017, compared to 771 securities, with a fair value of $4.5 billion, at December 31, 2016. The total amount of unrealized loss on these securities was $44.1 million at December 31, 2017, a decrease of $16.8 million compared to the loss at December 31, 2016. At December 31, 2017, the fair value of securities in an unrealized loss position for 12 months or longer totaled $1.2 billion, or 13.2% of the total portfolio value.

The Company’s holdings of state and municipal obligations included gross unrealized losses of $2.8 million at December 31, 2017. The state and municipal portfolio totaled $1.6 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, 2017 in the state and municipal bond portfolio are shown in the following table. The average credit quality of the portfolio is Aa2 as rated by Moody’s.



	% of Portfolio
Aaa	6.0	%
Aa	76.9
A	16.4
Not rated	.7
	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)	2017			2016			2015
Proceeds from sales of available for sale securities	$	790,152		$	2,049		$	675,870
Proceeds from sales of non-marketable securities	2,228			22,331			13,161
Total proceeds	$	792,380		$	24,380		$	689,031
Available for sale:
Gains realized on sales	$	10,656		$	109		$	2,925
Losses realized on sales	(10,297		)	—			—
Losses realized on called bonds	(254		)	—			—
Gain realized on donation	31,074			—			—
Other-than-temporary impairment recognized on debt securities	(385		)	(270		)	(483		)
Non-marketable:
Gains realized on sales	970			4,349			2,516
Losses realized on sales	(880		)	(502		)	(40		)
Fair value adjustments, net	(5,833		)	(3,739		)	1,402
Investment securities gains (losses), net	$	25,051		$	(53	)	$	6,320

Investment securities with a fair value of $3.8 billion and $4.4 billion were pledged at December 31, 2017 and 2016, 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 $662.5 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.