Investment Securities

Investment securities, at fair value, consisted of the following at December 31, 2014 and 2013.



(In thousands)	2014		2013
Available for sale:
U.S. government and federal agency obligations	$	501,407	$	505,696
Government-sponsored enterprise obligations	963,127		741,766
State and municipal obligations	1,813,201		1,619,171
Agency mortgage-backed securities	2,593,708		2,772,338
Non-agency mortgage-backed securities	382,744		246,983
Asset-backed securities	3,091,993		2,844,071
Other debt securities	139,161		141,757
Equity securities	38,219		43,898
Total available for sale	9,523,560		8,915,680
Trading	15,357		19,993
Non-marketable	106,875		107,324
Total investment securities	$	9,645,792	$	9,042,997

Most of the Company’s investment securities are classified as available for sale, and this portfolio is discussed in more detail below. Securities which are classified as non-marketable include Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock held for borrowing and regulatory purposes, which totaled $46.6 million and $46.5 million at December 31, 2014 and December 31, 2013, respectively. Investment in Federal Reserve Bank stock is based on the capital structure of the investing bank, and investment in FHLB stock is mainly tied to the level of borrowings from the FHLB. These holdings are carried at cost. Non-marketable securities also include private equity investments, which amounted to $60.2 million and $60.7 million at December 31, 2014 and December 31, 2013, respectively. In the absence of readily ascertainable market values, these securities are carried at estimated fair value.

A summary of the available for sale investment securities by maturity groupings as of December 31, 2014 is shown in the following table. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security at December 31, 2014. Yields on tax exempt securities have not been adjusted for tax exempt status. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities which have no guarantee, but are collateralized by residential mortgages. Also included are certain other asset-backed securities, primarily collateralized by credit cards, automobiles and commercial loans. The Company does not have exposure to subprime-originated mortgage-backed or collateralized debt obligation instruments, and does not hold any trust preferred securities.



(Dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield
U.S. government and federal agency obligations:
Within 1 year	$	104,791	$	104,782	1.56*%
After 1 but within 5 years	198,166		204,838		1.57*
After 5 but within 10 years	141,179		142,575		.64*
After 10 years	53,200		49,212		.01*
Total U.S. government and federal agency obligations	497,336		501,407		1.14*
Government-sponsored enterprise obligations:
Within 1 year	53,022		53,567		1.82
After 1 but within 5 years	425,884		426,591		1.54
After 5 but within 10 years	423,873		417,331		2.03
After 10 years	65,795		65,638		2.22
Total government-sponsored enterprise obligations	968,574		963,127		1.82
State and municipal obligations:
Within 1 year	178,463		180,247		2.87
After 1 but within 5 years	688,284		708,764		2.47
After 5 but within 10 years	808,478		813,479		2.23
After 10 years	113,990		110,711		1.61
Total state and municipal obligations	1,789,215		1,813,201		2.35
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,523,377		2,593,708		2.69
Non-agency mortgage-backed securities	372,911		382,744		3.05
Asset-backed securities	3,090,174		3,091,993		.87
Total mortgage and asset-backed securities	5,986,462		6,068,445		1.77
Other debt securities:
Within 1 year	11,248		11,249
After 1 but within 5 years	50,091		50,344
After 5 but within 10 years	79,445		77,568
Total other debt securities	140,784		139,161
Equity securities	3,931		38,219
Total available for sale investment securities	$	9,386,302	$	9,523,560

* Rate does not reflect inflation adjustment on inflation-protected securities

Investments in U.S. government securities are comprised mainly of U.S. Treasury inflation-protected securities, which totaled $501.3 million, at fair value, at December 31, 2014. 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. Included in state and municipal obligations are $95.1 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. Equity securities are primarily comprised of investments in common stock held by the Parent, which totaled $37.4 million, at fair value, at December 31, 2014.

For securities classified as available for sale, the following table shows the unrealized gains and losses (pre-tax) in accumulated other comprehensive income, by security type.



(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2014
U.S. government and federal agency obligations	$	497,336	$	9,095	$	(5,024	)	$	501,407
Government-sponsored enterprise obligations	968,574		2,593		(8,040		)	963,127
State and municipal obligations	1,789,215		32,340		(8,354		)	1,813,201
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,523,377		75,923		(5,592		)	2,593,708
Non-agency mortgage-backed securities	372,911		11,061		(1,228		)	382,744
Asset-backed securities	3,090,174		6,922		(5,103		)	3,091,993
Total mortgage and asset-backed securities	5,986,462		93,906		(11,923		)	6,068,445
Other debt securities	140,784		420		(2,043		)	139,161
Equity securities	3,931		34,288		—			38,219
Total	$	9,386,302	$	172,642	$	(35,384	)	$	9,523,560
December 31, 2013
U.S. government and federal agency obligations	$	498,226	$	20,614	$	(13,144	)	$	505,696
Government-sponsored enterprise obligations	766,802		2,245		(27,281		)	741,766
State and municipal obligations	1,624,195		28,321		(33,345		)	1,619,171
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,743,803		54,659		(26,124		)	2,772,338
Non-agency mortgage-backed securities	236,595		12,008		(1,620		)	246,983
Asset-backed securities	2,847,368		6,872		(10,169		)	2,844,071
Total mortgage and asset-backed securities	5,827,766		73,539		(37,913		)	5,863,392
Other debt securities	147,581		671		(6,495		)	141,757
Equity securities	9,970		33,928		—			43,898
Total	$	8,874,540	$	159,318	$	(118,178	)	$	8,915,680

The Company’s impairment policy requires a review of all securities for which fair value is less than amortized cost. Special emphasis and analysis is placed on securities whose credit rating has fallen below A3 (Moody's) or A- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price for an extended period of time, or have been identified based on management’s judgment. These securities are placed on a watch list, and for all such securities, detailed cash flow models are prepared which use inputs specific to each security. Inputs to these models include factors such as cash flow received, contractual payments required, and various other information related to the underlying collateral (including current delinquencies), collateral loss severity rates (including loan to values), expected delinquency rates, credit support from other tranches, and prepayment speeds. 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 December 31, 2014, the fair value of securities on this watch list was $123.9 million compared to $188.8 million at December 31, 2013.

As of December 31, 2014, the Company had recorded OTTI on certain non-agency mortgage-backed securities, part of the watch list mentioned above, which had an aggregate fair value of $54.6 million. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $13.7 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 included the following:



Significant Inputs	Range
Prepayment CPR	2%	-	25%
Projected cumulative default	20%	-	58%
Credit support	0%	-	18%
Loss severity	23%	-	77%

The following table presents a rollforward of the cumulative OTTI credit losses recognized in earnings on all available for sale debt securities.



(In thousands)	2014			2013			2012
Cumulative OTTI credit losses at January 1	$	12,499		$	11,306		$	9,931
Credit losses on debt securities for which impairment was previously recognized	1,365			1,284			1,490
Increase in expected cash flows that are recognized over remaining life of security	(130		)	(91		)	(115		)
Cumulative OTTI credit losses at December 31	$	13,734		$	12,499		$	11,306

Securities with unrealized losses recorded in accumulated other comprehensive income 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
December 31, 2014
U.S. government and federal agency obligations	$	90,261	$	818	$	32,077	$	4,206	$	122,338	$	5,024
Government-sponsored enterprise obligations	224,808		922		224,779		7,118		449,587		8,040
State and municipal obligations	172,980		646		215,702		7,708		388,682		8,354
Mortgage and asset-backed securities:
Agency mortgage-backed securities	55,128		429		381,617		5,163		436,745		5,592
Non-agency mortgage-backed securities	141,655		609		43,659		619		185,314		1,228
Asset-backed securities	1,424,457		2,009		159,098		3,094		1,583,555		5,103
Total mortgage and asset-backed securities	1,621,240		3,047		584,374		8,876		2,205,614		11,923
Other debt securities	16,434		55		80,203		1,988		96,637		2,043
Total	$	2,125,723	$	5,488	$	1,137,135	$	29,896	$	3,262,858	$	35,384
December 31, 2013
U.S. government and federal agency obligations	$	96,172	$	243	$	59,677	$	12,901	$	155,849	$	13,144
Government-sponsored enterprise obligations	487,317		18,155		93,654		9,126		580,971		27,281
State and municipal obligations	478,818		15,520		178,150		17,825		656,968		33,345
Mortgage and asset-backed securities:
Agency mortgage-backed securities	717,778		26,124		—		—		717,778		26,124
Non-agency mortgage-backed securities	53,454		918		22,289		702		75,743		1,620
Asset-backed securities	1,088,556		9,072		58,398		1,097		1,146,954		10,169
Total mortgage and asset-backed securities	1,859,788		36,114		80,687		1,799		1,940,475		37,913
Other debt securities	90,028		5,604		9,034		891		99,062		6,495
Total	$	3,012,123	$	75,636	$	421,202	$	42,542	$	3,433,325	$	118,178

The total available for sale portfolio consisted of approximately 1,900 individual securities at December 31, 2014. The portfolio included 363 securities, having an aggregate fair value of $3.3 billion, that were in a loss position at December 31, 2014, compared to 507 securities, with a fair value of $3.4 billion, at December 31, 2013. The total amount of unrealized loss on these securities decreased $82.8 million to $35.4 million. At December 31, 2014, the fair value of securities in an unrealized loss position for 12 months or longer totaled $1.1 billion, or 11.9% of the total portfolio value, and did not include any securities identified as other-than-temporarily impaired.

The Company’s holdings of state and municipal obligations included gross unrealized losses of $8.4 million at December 31, 2014. Of these losses, $5.6 million related to auction rate securities and $2.7 million related to other state and municipal obligations. This portfolio, excluding auction rate securities, totaled $1.7 billion at fair value, or 18.0% of total available for sale securities. The Company has processes and procedures in place to monitor its state and municipal holdings, identify signs of financial distress and, if necessary, exit its positions in a timely manner. The portfolio is diversified in order to reduce risk, and information about the top five largest holdings, by state and economic sector, is shown in the following table.



	% of Portfolio		Average Life (in years)	Average Rating (Moody’s)
At December 31, 2014
Texas	11.0	%	4.7	Aa2
Florida	9.3		4.1	Aa3
New York	7.3		6.5	Aa2
Ohio	6.0		5.1	Aa2
Washington	5.7		5.3	Aa2
General obligation	35.2	%	4.9	Aa2
Lease	15.6		4.8	Aa2
Housing	12.9		3.9	Aa1
Transportation	12.5		4.7	A1
Limited tax	9.1		6.1	Aa2

The credit ratings (Moody’s rating or equivalent) at December 31, 2014 in the state and municipal bond portfolio (excluding auction rate securities) are shown in the following table. The average credit quality of the portfolio is Aa2 as rated by Moody’s.



	% of Portfolio
Aaa	9.3	%
Aa	74.6
A	15.4
Not rated	.7
	100.0	%

The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings.



(In thousands)	2014			2013			2012
Proceeds from sales of available for sale securities	$	30,998		$	7,076		$	5,231
Proceeds from sales of non-marketable securities	33,444			9,223			11,644
Total proceeds	$	64,442		$	16,299		$	16,875
Available for sale:
Gains realized on sales	$	—		$	126		$	358
Losses realized on sales	(5,197		)	—			—
Gain realized on donation	1,570			1,375			—
Other-than-temporary impairment recognized on debt securities	(1,365		)	(1,284		)	(1,490		)
Non-marketable:
Gains realized on sales	1,629			1,808			1,655
Losses realized on sales	(134		)	(2,979		)	(200		)
Fair value adjustments, net	17,621			(3,471		)	4,505
Investment securities gains (losses), net	$	14,124		$	(4,425	)	$	4,828

Investment securities with a fair value of $4.7 billion and $3.9 billion were pledged at December 31, 2014 and 2013, respectively, to secure public deposits, securities sold under repurchase agreements, trust funds, and borrowings at the Federal Reserve Bank. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $467.1 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 exceeds 10% of stockholders’ equity.