Investment Securities

9 Months Ended

Sep. 30, 2019

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



(In thousands)	September 30, 2019		December 31, 2018
Available for sale debt securities	$	8,660,419	$	8,538,041
Trading debt securities	35,918		27,059
Equity securities:
Readily determinable fair value	2,902		2,585
No readily determinable fair value	1,284		1,824
Other:
Federal Reserve Bank stock	33,770		33,498
Federal Home Loan Bank stock	20,000		10,000
Private equity investments	93,441		85,659
Total investment securities	$	8,847,734	$	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 September 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	$	57,175	$	56,726
After 1 but within 5 years	516,924		533,605
After 5 but within 10 years	252,452		259,546
Total U.S. government and federal agency obligations	826,551		849,877
Government-sponsored enterprise obligations:
Within 1 year	51,562		51,551
After 1 but within 5 years	55,049		55,162
After 5 but within 10 years	34,987		35,032
After 10 years	26,085		27,072
Total government-sponsored enterprise obligations	167,683		168,817
State and municipal obligations:
Within 1 year	57,870		58,039
After 1 but within 5 years	709,484		728,639
After 5 but within 10 years	354,519		374,236
After 10 years	41,538		42,581
Total state and municipal obligations	1,163,411		1,203,495
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,791,709		3,858,575
Non-agency mortgage-backed securities	921,080		936,577
Asset-backed securities	1,288,360		1,298,835
Total mortgage and asset-backed securities	6,001,149		6,093,987
Other debt securities:
Within 1 year	43,894		43,965
After 1 but within 5 years	239,692		243,606
After 5 but within 10 years	54,613		56,672
Total other debt securities	338,199		344,243
Total available for sale debt securities	$	8,496,993	$	8,660,419

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $458.6 million, at fair value, at September 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 $9.9 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
September 30, 2019
U.S. government and federal agency obligations	$	826,551	$	23,878	$	(552	)	$	849,877
Government-sponsored enterprise obligations	167,683		1,172		(38		)	168,817
State and municipal obligations	1,163,411		40,097		(13		)	1,203,495
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,791,709		69,002		(2,136		)	3,858,575
Non-agency mortgage-backed securities	921,080		16,528		(1,031		)	936,577
Asset-backed securities	1,288,360		13,238		(2,763		)	1,298,835
Total mortgage and asset-backed securities	6,001,149		98,768		(5,930		)	6,093,987
Other debt securities	338,199		6,052		(8		)	344,243
Total	$	8,496,993	$	169,967	$	(6,541	)	$	8,660,419
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 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 cash flow analyses are prepared on an individual security basis. Inputs to these models include factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral (including current delinquencies). 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 September 30, 2019, the fair value of securities on this watch list was $47.9 million compared to $57.7 million at December 31, 2018.

As of September 30, 2019, the Company had recorded other-than-temporary impairment (OTTI) on certain non-agency mortgage-backed securities with a current par value of $18.4 million. These securities, which are part of the watch list mentioned above, had an aggregate fair value of $14.0 million at September 30, 2019. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $13.4 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 September 30, 2019 included the following:



Significant Inputs	Range
Prepayment CPR	0%	-	25%
Projected cumulative default	6%	-	52%
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 Nine Months Ended September 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	85			10
Increase in expected cash flows that are recognized over remaining life of security	(831		)	(138		)
Cumulative OTTI credit losses at September 30	$	13,394		$	14,129

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
September 30, 2019
U.S. government and federal agency obligations	$	90,662	$	126	$	52,930	$	426	$	143,592	$	552
Government-sponsored enterprise obligations	—		—		36,409		38		36,409		38
State and municipal obligations	15,726		9		1,551		4		17,277		13
Mortgage and asset-backed securities:
Agency mortgage-backed securities	343,820		1,271		182,805		865		526,625		2,136
Non-agency mortgage-backed securities	38,085		103		311,040		928		349,125		1,031
Asset-backed securities	369,537		1,979		140,726		784		510,263		2,763
Total mortgage and asset-backed securities	751,442		3,353		634,571		2,577		1,386,013		5,930
Other debt securities	—		—		8,492		8		8,492		8
Total	$	857,830	$	3,488	$	733,953	$	3,053	$	1,591,783	$	6,541
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 $1.6 billion of securities that were in a loss position at September 30, 2019, compared to $5.4 billion at December 31, 2018. The total amount of unrealized loss on these securities was $6.5 million at September 30, 2019, a decrease of $93.3 million compared to the loss at December 31, 2018. This decrease in losses was mainly due to a declining interest rate environment at September 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 Nine Months Ended September 30
(In thousands)	2019			2018
Proceeds from sales of securities:
Available for sale debt securities	$	368,939		$	153,066
Equity securities	3,459			39,981
Other	7,243			—
Total proceeds	$	379,641		$	193,047

Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales	$	2,287		$	430
Losses realized on sales	(1,559		)	—
Other-than-temporary impairment recognized on debt securities	(133		)	(68		)
Equity securities:
Gains realized on sales	2,865			102
Losses realized on sales	—			(8,917		)
Fair value adjustments, net	318			2,723
Other:
Gains realized on sales	1,094			—
Fair value adjustments, net	(998		)	12,371
Total investment securities gains, net	$	3,874		$	6,641

Net gains and losses on investment securities for the nine months ended September 30, 2019 included net gains of $728 thousand, $2.9 million and $1.1 million realized on sales of available for sale, equity and private equity securities, respectively, as well as net losses in fair value of $1.0 million on private equity investments.

At September 30, 2019, securities totaling $3.9 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 $205.6 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 exceeded 10% of stockholders’ equity.