Investment Securities

6 Months Ended

Jun. 30, 2023

Investment securities consisted of the following at June 30, 2023 and December 31, 2022.


(In thousands)	June 30, 2023		December 31, 2022
Available for sale debt securities	$	10,414,625	$	12,238,316
Trading debt securities	29,412		43,523
Equity securities:
Readily determinable fair value	5,520		6,210
No readily determinable fair value	6,746		6,094
Other:
Federal Reserve Bank stock	34,985		34,795
Federal Home Loan Bank stock	50,328		10,678
Equity method investments	—		1,434
Private equity investments	172,732		178,127
Total investment securities (1)	$	10,714,348	$	12,519,177

(1)Accrued interest receivable totaled $29.8 million and $38.8 million at June 30, 2023 and December 31, 2022, 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, 2023, 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 accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of June 30, 2023 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	$	464,203	$	455,044
After 1 but within 5 years	344,689		327,450
After 5 but within 10 years	176,092		163,321

Total U.S. government and federal agency obligations	984,984		945,815
Government-sponsored enterprise obligations:


After 5 but within 10 years	4,955		4,418
After 10 years	50,726		39,618
Total government-sponsored enterprise obligations	55,681		44,036
State and municipal obligations:
Within 1 year	77,600		76,353
After 1 but within 5 years	346,058		318,691
After 5 but within 10 years	826,895		704,751
After 10 years	151,057		127,942
Total state and municipal obligations	1,401,610		1,227,737
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,849,215		4,065,406
Non-agency mortgage-backed securities	1,378,516		1,174,790
Asset-backed securities	2,646,850		2,499,675
Total mortgage and asset-backed securities	8,874,581		7,739,871
Other debt securities:
Within 1 year	35,141		34,128
After 1 but within 5 years	221,479		204,297
After 5 but within 10 years	244,000		205,179
After 10 years	16,260		13,562
Total other debt securities	516,880		457,166
Total available for sale debt securities	$	11,833,736	$	10,414,625

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $395.4 million, at fair value, at June 30, 2023. Interest earned on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U). 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

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 which 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. Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities. The model uses 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. Securities not analyzed using the cash flow model are analyzed by reviewing risk ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

At June 30, 2023, the fair value of securities on this watch list was $1.6 billion compared to $1.3 billion at December 31, 2022. The majority of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At June 30, 2023, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of June 30, 2023, the Company did not identify any securities for which a credit loss exists, and for the six months ended June 30, 2023 and 2022, 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, 2023 and December 31, 2022. 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. At June 30, 2023, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of these securities at a loss.


	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, 2023
U.S. government and federal agency obligations	$	355,274	$	15,192	$	590,541	$	23,977	$	945,815	$	39,169
Government-sponsored enterprise obligations	—		—		44,036		11,645		44,036		11,645
State and municipal obligations	82,322		1,999		1,140,008		171,874		1,222,330		173,873
Mortgage and asset-backed securities:
Agency mortgage-backed securities	50,830		2,159		4,000,228		781,734		4,051,058		783,893
Non-agency mortgage-backed securities	1,106		9		1,168,007		203,789		1,169,113		203,798
Asset-backed securities	23,848		652		2,457,632		146,649		2,481,480		147,301
Total mortgage and asset-backed securities	75,784		2,820		7,625,867		1,132,172		7,701,651		1,134,992
Other debt securities	874		126		456,292		59,588		457,166		59,714
Total	$	514,254	$	20,137	$	9,856,744	$	1,399,256	$	10,370,998	$	1,419,393
December 31, 2022
U.S. government and federal agency obligations	$	605,840	$	17,490	$	380,573	$	25,940	$	986,413	$	43,430
Government-sponsored enterprise obligations	25,068		4,650		18,040		7,971		43,108		12,621
State and municipal obligations	814,799		26,708		875,329		171,385		1,690,128		198,093
Mortgage and asset-backed securities:
Agency mortgage-backed securities	1,323,938		125,330		2,966,851		654,327		4,290,789		779,657
Non-agency mortgage-backed securities	135,984		16,736		1,069,222		195,218		1,205,206		211,954
Asset-backed securities	1,331,055		50,056		2,006,188		140,424		3,337,243		190,480
Total mortgage and asset-backed securities	2,790,977		192,122		6,042,261		989,969		8,833,238		1,182,091
Other debt securities	166,040		9,690		308,818		54,707		474,858		64,397
Total	$	4,402,724	$	250,660	$	7,625,021	$	1,249,972	$	12,027,745	$	1,500,632

The entire available for sale debt portfolio included $10.4 billion of securities that were in a loss position at June 30, 2023, compared to $12.0 billion at December 31, 2022. The total amount of unrealized loss on these securities was $1.4 billion at June 30, 2023, a decrease of $81.2 million compared to the unrealized loss at December 31, 2022. 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, 2023 and December 31, 2022, 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, 2023
U.S. government and federal agency obligations	$	984,984	$	—	$	(39,169)	$	—	$	945,815
Government-sponsored enterprise obligations	55,681		—		(11,645)		—		44,036
State and municipal obligations	1,401,610		—		(173,873)		—		1,227,737
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,849,215		84		(783,893)		—		4,065,406
Non-agency mortgage-backed securities	1,378,516		72		(203,798)		—		1,174,790
Asset-backed securities	2,646,850		126		(147,301)		—		2,499,675
Total mortgage and asset-backed securities	8,874,581		282		(1,134,992)		—		7,739,871
Other debt securities	516,880		—		(59,714)		—		457,166
Total	$	11,833,736	$	282	$	(1,419,393)	$	—	$	10,414,625
December 31, 2022
U.S. government and federal agency obligations	$	1,078,807	$	29	$	(43,430)	$	—	$	1,035,406
Government-sponsored enterprise obligations	55,729		—		(12,621)		—		43,108
State and municipal obligations	1,965,028		174		(198,093)		—		1,767,109
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,087,893		191		(779,657)		—		4,308,427
Non-agency mortgage-backed securities	1,423,469		92		(211,954)		—		1,211,607
Asset-backed securities	3,588,025		256		(190,480)		—		3,397,801
Total mortgage and asset-backed securities	10,099,387		539		(1,182,091)		—		8,917,835
Other debt securities	539,255		—		(64,397)		—		474,858
Total	$	13,738,206	$	742	$	(1,500,632)	$	—	$	12,238,316

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)	2023		2022
Proceeds from sales of securities:
Available for sale debt securities	$	1,101,782	$	51,948

Other investments	28,754		3,805
Total proceeds	$	1,130,536	$	55,753

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

Gains realized on sales	$	143	$	—
Losses realized on sales	(8,587)		(9,582)

Equity securities:



Fair value adjustments, net	(690)		(1,023)
Other:
Gains realized on sales	879		27
Losses realized on sales	—		(4,313)
Fair value adjustments, net	11,341		23,083
Total investment securities gains (losses), net	$	3,086	$	8,192

Net losses on investment securities for the six months ended June 30, 2023 were mainly comprised of net losses of $8.4 million on sales of available for sale securities, and net losses in fair value of $690 thousand on equity investments, offset by net gains in private equity securities due to sales and fair value adjustments of $879 thousand and $11.3 million, respectively.

At June 30, 2023, securities totaling $8.1 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 $4.7 billion at December 31, 2022. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $206.4 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 the U.S. Treasury and various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.