Investment Securities

6 Months Ended

Jun. 30, 2022

Investment securities consisted of the following at June 30, 2022 and December 31, 2021.


(In thousands)	June 30, 2022		December 31, 2021
Available for sale debt securities	$	13,700,308	$	14,450,027
Trading debt securities	34,195		46,235
Equity securities:
Readily determinable fair value	6,130		7,153
No readily determinable fair value	2,416		2,049
Other:
Federal Reserve Bank stock	34,621		34,379
Federal Home Loan Bank stock	10,163		10,428
Equity method investments	1,434		1,834
Private equity investments	161,771		147,406
Total investment securities (1)	$	13,951,038	$	14,699,511

(1)Accrued interest receivable totaled $41.5 million and $39.5 million at June 30, 2022 and December 31, 2021, respectively, and was included within other assets on the consolidated balance sheets.

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. This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the six months ended June 30, 2022, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. 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 asset size of the borrowing bank and the level of borrowings from the FHLB. These holdings are carried at cost. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's consolidated statements of income. The Company's private equity investments 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 other comprehensive income (OCI). A summary of the available for sale debt securities by maturity groupings as of June 30, 2022 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), 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	$	207,783	$	208,605
After 1 but within 5 years	731,507		718,407
After 5 but within 10 years	186,246		182,116

Total U.S. government and federal agency obligations	1,125,536		1,109,128
Government-sponsored enterprise obligations:


After 5 but within 10 years	5,000		4,922
After 10 years	50,758		42,186
Total government-sponsored enterprise obligations	55,758		47,108
State and municipal obligations:
Within 1 year	190,263		190,534
After 1 but within 5 years	731,959		719,545
After 5 but within 10 years	879,897		787,103
After 10 years	299,193		255,616
Total state and municipal obligations	2,101,312		1,952,798
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,464,292		4,923,683
Non-agency mortgage-backed securities	1,480,969		1,329,114
Asset-backed securities	3,959,409		3,794,487
Total mortgage and asset-backed securities	10,904,670		10,047,284
Other debt securities:
Within 1 year	64,757		64,704
After 1 but within 5 years	250,670		238,482
After 5 but within 10 years	271,406		232,905
After 10 years	9,260		7,899
Total other debt securities	596,093		543,990
Total available for sale debt securities	$	14,783,369	$	13,700,308

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $383.7 million, at fair value, at June 30, 2022. 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.

Allowance for credit losses on available for sale debt securities

The Company’s model for establishing its allowance for credit losses uses 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. Securities for which fair value is less than amortized cost are reviewed for impairment. 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, 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. Credit impairment is determined using input 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. At June 30, 2022, the fair value of securities on this watch list was $106.4 million compared to $13.4 million at December 31, 2021.

Significant inputs to the cash flow model used at June 30, 2022 to quantify credit losses were primarily credit support agreements, as the securities on the Company's watch list at June 30, 2022 were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of June 30, 2022, the Company did not identify any securities for which a credit loss exists, and for the six months ended June 30, 2022 and 2021, the Company did not recognize a credit loss expense on any available for sale debt securities.

The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at June 30, 2022 and December 31, 2021. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. Additionally, management does not intend to sell the securities, and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery.


	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, 2022
U.S. government and federal agency obligations	$	609,636	$	20,883	$	—	$	—	$	609,636	$	20,883
Government-sponsored enterprise obligations	32,362		3,577		14,746		5,073		47,108		8,650
State and municipal obligations	1,239,029		127,348		137,304		24,739		1,376,333		152,087
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,727,959		351,355		1,162,478		190,021		4,890,437		541,376
Non-agency mortgage-backed securities	1,295,069		148,483		26,541		3,469		1,321,610		151,952
Asset-backed securities	3,416,797		152,152		247,462		12,906		3,664,259		165,058
Total mortgage and asset-backed securities	8,439,825		651,990		1,436,481		206,396		9,876,306		858,386
Other debt securities	390,367		28,962		141,592		23,154		531,959		52,116
Total	$	10,711,219	$	832,760	$	1,730,123	$	259,362	$	12,441,342	$	1,092,122
December 31, 2021
U.S. government and federal agency obligations	$	296,492	$	2,241	$	—	$	—	$	296,492	$	2,241
Government-sponsored enterprise obligations	—		—		18,899		919		18,899		919
State and municipal obligations	876,691		15,874		32,684		1,049		909,375		16,923
Mortgage and asset-backed securities:
Agency mortgage-backed securities	3,333,691		59,044		265,835		8,720		3,599,526		67,764
Non-agency mortgage-backed securities	1,285,611		17,222		1,948		19		1,287,559		17,241
Asset-backed securities	2,518,935		19,201		87,893		525		2,606,828		19,726
Total mortgage and asset-backed securities	7,138,237		95,467		355,676		9,264		7,493,913		104,731
Other debt securities	270,409		5,098		58,574		3,017		328,983		8,115
Total	$	8,581,829	$	118,680	$	465,833	$	14,249	$	9,047,662	$	132,929

The entire available for sale debt portfolio included $12.4 billion of securities that were in a loss position at June 30, 2022, compared to $9.0 billion at December 31, 2021. The total amount of unrealized loss on these securities was $1.1 billion at June 30, 2022, an increase of $959.2 million compared to the unrealized loss at December 31, 2021. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at June 30, 2022 and December 31, 2021, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
June 30, 2022
U.S. government and federal agency obligations	$	1,125,536	$	4,475	$	(20,883)	$	—	$	1,109,128
Government-sponsored enterprise obligations	55,758		—		(8,650)		—		47,108
State and municipal obligations	2,101,312		3,573		(152,087)		—		1,952,798
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,464,292		767		(541,376)		—		4,923,683
Non-agency mortgage-backed securities	1,480,969		97		(151,952)		—		1,329,114
Asset-backed securities	3,959,409		136		(165,058)		—		3,794,487
Total mortgage and asset-backed securities	10,904,670		1,000		(858,386)		—		10,047,284
Other debt securities	596,093		13		(52,116)		—		543,990
Total	$	14,783,369	$	9,061	$	(1,092,122)	$	—	$	13,700,308
December 31, 2021
U.S. government and federal agency obligations	$	1,035,477	$	47,484	$	(2,241)	$	—	$	1,080,720
Government-sponsored enterprise obligations	50,773		1,901		(919)		—		51,755
State and municipal obligations	2,072,210		41,540		(16,923)		—		2,096,827
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,698,088		52,676		(67,764)		—		5,683,000
Non-agency mortgage-backed securities	1,383,037		681		(17,241)		—		1,366,477
Asset-backed securities	3,546,024		12,921		(19,726)		—		3,539,219
Total mortgage and asset-backed securities	10,627,149		66,278		(104,731)		—		10,588,696
Other debt securities	633,524		6,620		(8,115)		—		632,029
Total	$	14,419,133	$	163,823	$	(132,929)	$	—	$	14,450,027

The following table presents 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)	2022		2021
Proceeds from sales of securities:
Available for sale debt securities	$	51,948	$	—

Other investments	3,805		10,060
Total proceeds	$	55,753	$	10,060

Investment securities gains (losses), net:
Available for sale debt securities:


Losses realized on sales	$	(9,582)	$	—

Equity securities:



Fair value adjustments, net	(1,023)		15
Other:
Gains realized on sales	27		1,611
Losses realized on sales	(4,313)		—
Fair value adjustments, net	23,083		25,031
Total investment securities gains, net	$	8,192	$	26,657

Net gains on investment securities for the six months ended June 30, 2022 were mainly comprised of losses of $9.6 million on sales of available for sale securities, net losses of $4.3 million on sales of private equity investments, and net losses in fair value of $1.0 million on equity investments, offset by net gains in fair value of $23.1 million on private equity investments, due to fair value adjustments.

At June 30, 2022, securities totaling $5.3 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, compared to $6.4 billion at December 31, 2021. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $209.9 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.