INVESTMENTS

Investment Securities

Securities are classified as HTM, AFS or trading. HTM securities, which management has the intent and ability to hold until maturity, are carried at amortized cost. AFS securities are carried at fair value and unrealized gains and losses are reported as net increases or decreases to accumulated other comprehensive income (“AOCI”). Trading securities are carried at fair value with gains and losses recognized in current period earnings. The purchase premiums and discounts for both HTM and AFS securities are amortized and accreted at a constant effective yield to the contractual maturity date and no assumption is made concerning prepayments. As principal prepayments occur, the portion of the unamortized premium or discount associated with the principal reduction is recognized as interest income in the period the principal is reduced. Note 20 discusses the process to estimate fair value for investment securities.



	December 31, 2016
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	867,904	$	5,975	$	23,406	$	850,473
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,845,825		2,338		9,188		1,838,975
Agency guaranteed mortgage-backed securities	7,985,630		6,596		109,392		7,882,834
Small Business Administration loan-backed securities	2,297,935		8,439		18,507		2,287,867
Municipal securities	1,181,560		969		28,319		1,154,210
Other debt securities	25,359		103		1,570		23,892
	13,336,309		18,445		166,976		13,187,778
Money market mutual funds and other	184,407		9		—		184,416
	13,520,716		18,454		166,976		13,372,194
Total	$	14,388,620	$	24,429	$	190,382	$	14,222,667



	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

Collateralized Debt Obligation Securities - 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 CDO securities, or approximately $79 million at amortized cost, to 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 December 31, 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

Due in one year or less	$	181,416	$	181,686	$	1,548,685	$	1,532,345
Due after one year through five years	276,753		276,470		4,971,404		4,920,537
Due after five years through ten years	198,667		195,541		4,305,373		4,251,664
Due after ten years	211,068		196,776		2,510,847		2,483,232
	$	867,904	$	850,473	$	13,336,309	$	13,187,778

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



	December 31, 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	$	15,754	$	467,056	$	7,652	$	61,389	$	23,406	$	528,445
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	8,682		949,608		506		127,249		9,188		1,076,857
Agency guaranteed mortgage-backed securities	102,524		6,649,246		6,868		326,417		109,392		6,975,663
Small Business Administration loan-backed securities	2,490		527,472		16,017		840,535		18,507		1,368,007
Municipal securities	28,077		991,973		242		9,103		28,319		1,001,076
Other	—		—		1,570		13,433		1,570		13,433
	141,773		9,118,299		25,203		1,316,737		166,976		10,435,036
Mutual funds and other	—		—		—		—		—		—
	141,773		9,118,299		25,203		1,316,737		166,976		10,435,036
Total	$	157,527	$	9,585,355	$	32,855	$	1,378,126	$	190,382	$	10,963,481



	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 December 31, 2016 and 2015, respectively, 642 and 187 HTM and 2,398 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 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 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.

Our OTTI evaluation process takes into consideration current market conditions; fair value in relationship to cost; extent and nature of change in fair value; severity and duration of the impairment; recent events specific to the issuer or industry; our assessment of the creditworthiness of the issuer, including external credit ratings, changes, recent downgrades, and trends; the cash flow priority position of the instrument that we hold in the case of structured securities; volatility of earnings and trends; current analysts’ evaluations; all available information relevant to the collectability of debt securities; and other key measures. In addition, for AFS securities with fair values below amortized cost, we must determine if we intend to sell the securities or if it is more likely than not that we will be required to sell the securities before recovery of their amortized cost basis. For HTM securities, we must determine we have the ability to hold the securities to maturity. We consider any other relevant factors before concluding our evaluation for the existence of OTTI in our securities portfolio.

OTTI Conclusions

The following summarizes the conclusions from our OTTI evaluation for those security types that had significant gross unrealized losses at December 31, 2016:

Agency Guaranteed Mortgage-Backed Securities: These pass-through securities are comprised largely of fixed and floating-rate residential mortgage-backed securities issued by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation. They were generally purchased at premiums with maturity dates from 10 to 15 years for fixed-rate securities and 30 years for floating-rate securities. These securities benefit from certain guarantee provisions or, in the case of GNMA, direct U.S. government guarantees. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At December 31, 2016, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is not more likely than not 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 2016.

Small Business Administration 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 small business administration (“SBA”). Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At December 31, 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 more likely than not 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 2016.

Municipal Securities: These securities were fixed or variable-rate securities purchased at premiums or at par and with maturities from 1 to 30 years. Unrealized losses may relate to changes in interest rates subsequent to purchase and/or may be attributable to credit. Securities with significant credit deterioration and fair value declines are subject to further assessment for impairment including analysis of the creditworthiness of the issuer. We take into account all available information relevant to the collectability of municipal security, including the extent and nature of change in fair value; recent events specific to the issuer; current analysts’ evaluations; and other key measures. At December 31, 2016, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is not more likely than not 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 2016.

The following is a tabular rollforward of the total amount of credit-related OTTI, including amounts recognized in earnings:

(In thousands)	2016						2015
(In thousands)	HTM		AFS		Total		HTM			AFS			Total

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


¹	Relates to securities not previously impaired.


²	Relates to additional impairment on securities previously impaired.

To determine the credit component of OTTI for all security types, we utilize projected cash flows. These cash flows are credit adjusted using, among other things, assumptions for default probability and loss severity. Certain other unobservable inputs such as prepayment rate assumptions are also utilized. In addition, certain internal models may be utilized. See Note 20 for further discussion. To determine the credit-related portion of OTTI in accordance with applicable accounting guidance, we use the security specific effective interest rate when estimating the present value of cash flows.

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

	2016				2015					2014
(In thousands)	Gross gains		Gross losses		Gross gains		Gross losses			Gross gains		Gross losses
Investment securities:
Held-to-maturity	$	12	$	—	$	1	$	—		$	18	$	27
Available-for-sale	120		30		8,443		147,656			92,525		83,815
Other noninterest-bearing investments	21,176		14,008		25,045		12,693			23,706		8,544
	21,308		14,038		33,489		160,349			116,249		92,386
Net gains (losses)			$	7,270			$	(126,860	)			$	23,863
Statement of income information:
Net impairment losses on investment securities			$	—			$	—				$	(27	)
Equity securities gains, net			7,168				11,875					13,471
Fixed income securities gains (losses), net			102				(138,735		)			10,419
Net gains (losses)			$	7,270			$	(126,860	)			$	23,863

Interest income by security type is as follows:



(In thousands)	2016						2015						2014
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	10,306	$	12,628	$	22,934	$	12,777	$	10,892	$	23,669	$	14,770	$	11,264	$	26,034
Available-for-sale	166,281		11,582		177,863		94,877		3,326		98,203		71,365		2,558		73,923
Trading	3,123		—		3,123		2,214		—		2,214		1,979		—		1,979
	$	179,710	$	24,210	$	203,920	$	109,868	$	14,218	$	124,086	$	88,114	$	13,822	$	101,936

Investment securities with a carrying value of approximately $1.4 billion and $2.3 billion at December 31, 2016 and 2015, respectively, 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 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 $139 million at December 31, 2016, approximately $6 million remain prohibited by the Volcker Rule.

As of December 31, 2016, we have sold a total of $19 million of PEIs during 2016 and 2015, including $10 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 $6 million of prohibited PEIs before the required deadline. The Federal Reserve Board (“FRB”) announced in December 2016 that it would allow banks to apply for an additional five-year extension to comply with the Dodd-Frank Act requirement for these investments. The Company applied for an extension for the vast majority of its remaining portfolio of PEIs. See other discussion in Notes 17.

As discussed in Note 17, we have $26 million at December 31, 2016 of unfunded commitments for PEIs, of which approximately $4 million relate to prohibited PEIs. Until we dispose of the prohibited PEIs, we expect to fund these commitments if and as capital calls are made, as allowed under the Volcker Rule.