INVESTMENTS

Investment Securities

Investment securities are summarized below. Note 10 discusses the process to estimate fair value for investment securities.



	September 30, 2016
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	715,279	$	11,220	$	8,677	$	717,822
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,834,034		23,104		687		1,856,451
Agency guaranteed mortgage-backed securities	5,438,880		42,437		7,028		5,474,289
Small Business Administration loan-backed securities	2,192,844		9,674		16,105		2,186,413
Municipal securities	768,875		10,575		1,205		778,245
Other debt securities	25,380		135		2,546		22,969
	10,260,013		85,925		27,571		10,318,367
Money market mutual funds and other	39,607		109		—		39,716
	10,299,620		86,034		27,571		10,358,083
Total	$	11,014,899	$	97,254	$	36,248	$	11,075,905



	December 31, 2015
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	545,648	$	11,218	$	4,778	$	552,088
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,231,740		4,313		2,658		1,233,395
Agency guaranteed mortgage-backed securities	3,964,593		7,919		36,037		3,936,475
Small Business Administration loan-backed securities	1,932,817		12,602		14,445		1,930,974
Municipal securities	417,374		2,177		856		418,695
Other debt securities	25,454		152		2,665		22,941
	7,571,978		27,163		56,661		7,542,480
Money market mutual funds and other	100,612		61		37		100,636
	7,672,590		27,224		56,698		7,643,116
Total	$	8,218,238	$	38,442	$	61,476	$	8,195,204

CDO Sales and Paydowns

During the second quarter of 2015, we sold the remaining portfolio of our collateralized debt obligation (“CDO”) securities, or $574 million at amortized cost, and realized net losses of approximately $137 million. During the first quarter of 2015, we reclassified all of the remaining held-to-maturity (“HTM”) CDO securities, or approximately $79 million at amortized cost, to Available-for-Sale (“AFS”) securities. The reclassification resulted from increased risk weights for these securities under the new Basel III capital rules, and was made in accordance with applicable accounting guidance that allows for such reclassifications when increased risk weights of debt securities must be used for regulatory risk-based capital purposes. No gain or loss was recognized in the statement of income at the time of reclassification.

Maturities

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of September 30, 2016 by expected timing of principal payments. Actual principal payments may differ from contractual or expected principal payments because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Held-to-maturity				Available-for-sale
(In thousands)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Principal return in one year or less	$	71,532	$	71,842	$	1,379,980	$	1,388,748
Principal return after one year through five years	266,665		269,636		4,161,930		4,184,444
Principal return after five years through ten years	219,770		223,701		3,010,430		3,034,823
Principal return after ten years	157,312		152,643		1,707,673		1,710,352
	$	715,279	$	717,822	$	10,260,013	$	10,318,367

The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:



	September 30, 2016
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	7,911	$	261,162	$	766	$	11,845	$	8,677	$	273,007
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	215		230,565		472		122,379		687		352,944
Agency guaranteed mortgage-backed securities	2,646		695,513		4,382		358,066		7,028		1,053,579
Small Business Administration loan-backed securities	3,256		510,834		12,849		678,139		16,105		1,188,973
Municipal securities	907		180,804		298		12,585		1,205		193,389
Other	—		—		2,546		12,457		2,546		12,457
	7,024		1,617,716		20,547		1,183,626		27,571		2,801,342
Mutual funds and other	—		—		—		—		—		—
	7,024		1,617,716		20,547		1,183,626		27,571		2,801,342
Total	$	14,935	$	1,878,878	$	21,313	$	1,195,471	$	36,248	$	3,074,349



	December 31, 2015
	Less than 12 months				12 months or more				Total
(In thousands)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	4,521	$	122,197	$	257	$	13,812	$	4,778	$	136,009
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	2,176		559,196		482		131,615		2,658		690,811
Agency guaranteed mortgage-backed securities	34,583		3,639,824		1,454		65,071		36,037		3,704,895
Small Business Administration loan-backed securities	5,348		567,365		9,097		535,376		14,445		1,102,741
Municipal securities	735		102,901		121		5,733		856		108,634
Other	—		—		2,665		12,337		2,665		12,337
	42,842		4,869,286		13,819		750,132		56,661		5,619,418
Mutual funds and other	37		35,488		—		—		37		35,488
	42,879		4,904,774		13,819		750,132		56,698		5,654,906
Total	$	47,400	$	5,026,971	$	14,076	$	763,944	$	61,476	$	5,790,915

At September 30, 2016 and December 31, 2015, respectively, 215 and 187 HTM and 814 and 709 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

Ongoing Policy

We review investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date (the majority of the investment portfolio are debt securities). Under these circumstances, OTTI is considered to have occurred if (1) we have formed a documented intent to sell identified securities or initiated such sales; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Noncredit-related OTTI in securities we intend to sell is recognized in earnings as is any credit-related OTTI in securities, regardless of our intent. Noncredit-related OTTI on AFS securities not expected to be sold is recognized in other comprehensive income (“OCI”). The amount of noncredit-related OTTI in a security is quantified as the difference in a security’s amortized cost after adjustment for credit impairment, and its lower fair value. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

OTTI Conclusions

Our 2015 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation by each security type that has significant gross unrealized losses at September 30, 2016:

Small Business Administration (“SBA”) Loan-Backed Securities: These securities were generally purchased at premiums with maturities from 5 to 25 years and have principal cash flows guaranteed by the SBA. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At September 30, 2016, we did not have an intent to sell identified SBA securities with unrealized losses or initiate such sales, and we believe it is not likely that we would be required to sell such securities before recovery of their amortized cost basis. Therefore, we did not record OTTI for these securities during the third quarter of 2016.

The following is a tabular rollforward of the total amount of credit-related OTTI in 2015. We did not record any credit-related OTTI in the three and nine months ended 2016.



(In thousands)	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
(In thousands)	HTM		AFS		Total		HTM			AFS			Total

Balance of credit-related OTTI at beginning of period	$	—	$	—	$	—	$	(9,079	)	$	(95,472	)	$	(104,551	)
Reductions for securities sold or paid off during the period	—		—		—		—			104,551			104,551
Reclassification of securities from HTM to AFS	—		—		—		9,079			(9,079		)	—
Balance of credit-related OTTI at end of period	$	—	$	—	$	—	$	—		$	—		$	—

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:



	Three Months Ended									Nine Months Ended
	September 30, 2016				September 30, 2015					September 30, 2016				September 30, 2015
(In thousands)	Gross gains		Gross losses		Gross gains		Gross losses			Gross gains		Gross losses		Gross gains		Gross losses
(In thousands)	Gross gains		Gross losses		Gross gains		Gross losses			Gross gains		Gross losses		Gross gains		Gross losses
Investment securities:
Held-to-maturity	$	12	$	—	$	—	$	—		$	12	$	—	$	1	$	—
Available-for-sale	29		2		6		59			89		9		8,366		147,572
Other noninterest-bearing investments	8,803		362		14,267		10,637			14,701		4,101		23,870		11,571
	8,844		364		14,273		10,696			14,802		4,110		32,237		159,143
Net gains (losses)			$	8,480			$	3,577				$	10,692			$	(126,906	)
Statement of income information:
Equity securities gains, net			$	8,441			$	3,630				$	10,600			$	11,822
Fixed income securities gains (losses), net			39				(53		)			92				(138,728		)
Net gains (losses)			$	8,480			$	3,577				$	10,692			$	(126,906	)

Interest income by security type is as follows:



(In thousands)	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	2,572	$	3,318	$	5,890	$	7,748	$	9,202	$	16,950
Available-for-sale	39,784		2,987		42,771		117,968		7,523		125,491
Trading	676		—		676		1,905		—		1,905
	$	43,032	$	6,305	$	49,337	$	127,621	$	16,725	$	144,346



(In thousands)	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	3,031	$	2,629	$	5,660	$	9,716	$	8,265	$	17,981
Available-for-sale	23,427		699		24,126		64,832		2,047		66,879
Trading	445		—		445		1,653		—		1,653
	$	26,903	$	3,328	$	30,231	$	76,201	$	10,312	$	86,513

Investment securities with a carrying value of $1.5 billion at September 30, 2016 and $2.3 billion at December 31, 2015 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.

Private Equity Investments

Effect of Volcker Rule

The Volcker Rule, as published pursuant to the Dodd-Frank Act in December 2013 and amended in January 2014, significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. The Company’s private equity investments (“PEIs”) consist of Small Business Investment Companies (“SBICs”) and non-SBICs. Following the sales of its CDO securities, the only prohibited investments under the Volcker Rule requiring divestiture by the Company were certain of its PEIs. Of the recorded PEIs of $143 million at September 30, 2016, approximately $7 million remain prohibited by the Volcker Rule.

As of September 30, 2016 we have sold a total of $18 million of PEIs during 2016 and 2015 as follows: $9 million during 2016 and $9 million during 2015. All of these sales were related to prohibited PEIs and resulted in insignificant amounts of realized gains or losses. We will dispose of the remaining $7 million of prohibited PEIs before the required deadline, which has been extended to July 21, 2017. See other discussions in Notes 10 and 11.

As discussed in Note 11, we have $18 million at September 30, 2016 of unfunded commitments for PEIs, of which approximately $1 million relate to prohibited PEIs. Until we dispose of the prohibited PEIs, we expect to fund these commitments if and as the capital calls are made, as allowed under the Volcker Rule.