Investment Securities

6 Months Ended

Jun. 30, 2019

Investment securities consisted of the following at June 30, 2019 and December 31, 2018.



(In thousands)	June 30, 2019		December 31, 2018
Available for sale debt securities	$	8,682,303	$	8,538,041
Trading debt securities	36,508		27,059
Equity securities:
Readily determinable fair value	2,847		2,585
No readily determinable fair value	1,897		1,824
Other:
Federal Reserve Bank stock	33,627		33,498
Federal Home Loan Bank stock	10,000		10,000
Private equity investments	86,411		85,659
Total investment securities	$	8,853,593	$	8,698,666

The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. The Company did not record any impairment or other adjustments to the carrying amount of these investments during the period.

Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, and investments in portfolio concerns held by the Company's private equity subsidiaries. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB

stock is tied to the level of borrowings from the FHLB. These holdings are carried at cost. The private equity investments, in the absence of readily ascertainable market values, are carried at estimated fair value.

The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of June 30, 2019 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.



(In thousands)	Amortized Cost		Fair Value
U.S. government and federal agency obligations:
Within 1 year	$	57,062	$	56,474
After 1 but within 5 years	515,684		531,338
After 5 but within 10 years	252,084		258,127
Total U.S. government and federal agency obligations	824,830		845,939
Government-sponsored enterprise obligations:
Within 1 year	36,444		36,326
After 1 but within 5 years	85,157		85,247
After 5 but within 10 years	34,986		35,061
After 10 years	42,934		43,503
Total government-sponsored enterprise obligations	199,521		200,137
State and municipal obligations:
Within 1 year	80,688		80,910
After 1 but within 5 years	651,274		667,864
After 5 but within 10 years	416,248		435,736
After 10 years	51,619		52,946
Total state and municipal obligations	1,199,829		1,237,456
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,680,963		3,729,632
Non-agency mortgage-backed securities	996,413		1,010,667
Asset-backed securities	1,316,766		1,326,178
Total mortgage and asset-backed securities	5,994,142		6,066,477
Other debt securities:
Within 1 year	27,495		27,458
After 1 but within 5 years	246,153		249,059
After 5 but within 10 years	54,620		55,777
Total other debt securities	328,268		332,294
Total available for sale debt securities	$	8,546,590	$	8,682,303

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $456.9 million, at fair value, at June 30, 2019. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. Included in state and municipal obligations are $11.6 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.

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



(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2019
U.S. government and federal agency obligations	$	824,830	$	21,762	$	(653	)	$	845,939
Government-sponsored enterprise obligations	199,521		737		(121		)	200,137
State and municipal obligations	1,199,829		37,686		(59		)	1,237,456
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,680,963		53,318		(4,649		)	3,729,632
Non-agency mortgage-backed securities	996,413		16,171		(1,917		)	1,010,667
Asset-backed securities	1,316,766		11,912		(2,500		)	1,326,178
Total mortgage and asset-backed securities	5,994,142		81,401		(9,066		)	6,066,477
Other debt securities	328,268		4,073		(47		)	332,294
Total	$	8,546,590	$	145,659	$	(9,946	)	$	8,682,303
December 31, 2018
U.S. government and federal agency obligations	$	914,486	$	4,545	$	(11,379	)	$	907,652
Government-sponsored enterprise obligations	199,470		55		(3,747		)	195,778
State and municipal obligations	1,322,785		10,284		(5,030		)	1,328,039
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,253,433		9,820		(48,268		)	3,214,985
Non-agency mortgage-backed securities	1,053,854		6,641		(12,779		)	1,047,716
Asset-backed securities	1,518,976		3,849		(11,211		)	1,511,614
Total mortgage and asset-backed securities	5,826,263		20,310		(72,258		)	5,774,315
Other debt securities	339,595		72		(7,410		)	332,257
Total	$	8,602,599	$	35,266	$	(99,824	)	$	8,538,041

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 who have been identified based on management’s judgment. These securities are placed on a watch list, and for all such securities, cash flow analyses are prepared. For more complex analyses, 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 June 30, 2019, the fair value of securities on this watch list was $50.6 million compared to $57.7 million at December 31, 2018.

As of June 30, 2019, the Company had recorded other-than-temporary impairment (OTTI) on certain non-agency mortgage-backed securities with a current par value of $19.5 million. These securities, which are part of the watch list mentioned above, had an aggregate fair value of $15.2 million at June 30, 2019. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $13.6 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 at June 30, 2019 included the following:



Significant Inputs	Range
Prepayment CPR	0%	-	25%
Projected cumulative default	6%	-	51%
Credit support	0%	-	19%
Loss severity	10%	-	63%

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



	For the Six Months Ended June 30
(In thousands)	2019			2018
Cumulative OTTI credit losses at January 1	$	14,092		$	14,199
Credit losses on debt securities for which impairment was not previously recognized	48			58
Credit losses on debt securities for which impairment was previously recognized	15			10
Increase in expected cash flows that are recognized over remaining life of security	(564		)	(104		)
Cumulative OTTI credit losses at June 30	$	13,591		$	14,163

Debt securities with unrealized losses recorded in AOCI 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
June 30, 2019
U.S. government and federal agency obligations	$	3,568	$	23	$	89,497	$	630	$	93,065	$	653
Government-sponsored enterprise obligations	14,899		3		36,326		118		51,225		121
State and municipal obligations	6,815		14		23,389		45		30,204		59
Mortgage and asset-backed securities:
Agency mortgage-backed securities	101,403		116		603,083		4,533		704,486		4,649
Non-agency mortgage-backed securities	25,463		67		440,616		1,850		466,079		1,917
Asset-backed securities	274,765		1,617		270,243		883		545,008		2,500
Total mortgage and asset-backed securities	401,631		1,800		1,313,942		7,266		1,715,573		9,066
Other debt securities	4,998		1		27,947		46		32,945		47
Total	$	431,911	$	1,841	$	1,491,101	$	8,105	$	1,923,012	$	9,946
December 31, 2018
U.S. government and federal agency obligations	$	317,699	$	6,515	$	116,728	$	4,864	$	434,427	$	11,379
Government-sponsored enterprise obligations	—		—		188,846		3,747		188,846		3,747
State and municipal obligations	157,838		704		257,051		4,326		414,889		5,030
Mortgage and asset-backed securities:
Agency mortgage-backed securities	330,933		1,502		1,927,268		46,766		2,258,201		48,268
Non-agency mortgage-backed securities	207,506		1,085		657,685		11,694		865,191		12,779
Asset-backed securities	147,997		728		813,427		10,483		961,424		11,211
Total mortgage and asset-backed securities	686,436		3,315		3,398,380		68,943		4,084,816		72,258
Other debt securities	51,836		564		260,682		6,846		312,518		7,410
Total	$	1,213,809	$	11,098	$	4,221,687	$	88,726	$	5,435,496	$	99,824

The available for sale debt portfolio included $1.9 billion of securities that were in a loss position at June 30, 2019, compared to $5.4 billion at December 31, 2018. The total amount of unrealized loss on these securities was $9.9 million at June 30, 2019, a decrease of $89.9 million compared to the loss at December 31, 2018. This decrease in losses was mainly due to a declining interest rate environment at June 30, 2019.

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



	For the Six Months Ended June 30
(In thousands)	2019			2018
Proceeds from sales of securities:
Available for sale debt securities	$	368,219		$	152,541
Equity securities	—			39,981
Other	7,243			—
Total proceeds	$	375,462		$	192,522

Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales	$	2,249		$	423
Losses realized on sales	(1,559		)	—
Other-than-temporary impairment recognized on debt securities	(63		)	(68		)
Equity securities:
Gains realized on sales	—			102
Losses realized on sales	—			(8,917		)
Fair value adjustments, net	262			2,699
Other:
Gains realized on sales	1,094			—
Fair value adjustments, net	(3,018		)	8,096
Total investment securities gains (losses), net	$	(1,035	)	$	2,335

Net gains and losses on investment securities for the six months ended June 30, 2019 included losses in fair value of $3.0 million on private equity investments, gains of $262 thousand on equity securities, and net gains of $690 thousand and $1.1 million realized on sales of available for sale and private equity securities, respectively.

At June 30, 2019, securities totaling $4.7 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $205.3 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 exceeded 10% of stockholders’ equity.