Investment Securities

9 Months Ended

Sep. 30, 2022

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


(In thousands)	September 30, 2022		December 31, 2021
Available for sale debt securities	$	12,632,510	$	14,450,027
Trading debt securities	39,222		46,235
Equity securities:
Readily determinable fair value	6,106		7,153
No readily determinable fair value	2,848		2,049
Other:
Federal Reserve Bank stock	34,707		34,379
Federal Home Loan Bank stock	10,260		10,428
Equity method investments	1,434		1,834
Private equity investments	176,341		147,406
Total investment securities (1)	$	12,903,428	$	14,699,511

(1)Accrued interest receivable totaled $39.6 million and $39.5 million at September 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 nine months ended September 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 accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of September 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	$	159,019	$	158,319
After 1 but within 5 years	735,831		705,287
After 5 but within 10 years	190,134		172,719

Total U.S. government and federal agency obligations	1,084,984		1,036,325
Government-sponsored enterprise obligations:


After 5 but within 10 years	4,987		4,545
After 10 years	50,750		38,630
Total government-sponsored enterprise obligations	55,737		43,175
State and municipal obligations:
Within 1 year	197,465		196,380
After 1 but within 5 years	666,078		636,464
After 5 but within 10 years	936,136		787,205
After 10 years	221,305		183,204
Total state and municipal obligations	2,020,984		1,803,253
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,230,550		4,445,519
Non-agency mortgage-backed securities	1,449,021		1,235,584
Asset-backed securities	3,755,855		3,558,287
Total mortgage and asset-backed securities	10,435,426		9,239,390
Other debt securities:
Within 1 year	50,783		50,639
After 1 but within 5 years	272,029		249,688
After 5 but within 10 years	247,121		202,706
After 10 years	9,260		7,334
Total other debt securities	579,193		510,367
Total available for sale debt securities	$	14,176,324	$	12,632,510

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $368.7 million, at fair value, at September 30, 2022. Interest paid 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 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. 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 September 30, 2022, the fair value of securities on this watch list was $1.3 billion compared to $13.4 million at December 31, 2021. 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 September 30, 2022, 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 September 30, 2022, the Company did not identify any securities for which a credit loss exists,

and for the nine months ended September 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 September 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
September 30, 2022
U.S. government and federal agency obligations	$	695,272	$	33,081	$	283,593	$	15,579	$	978,865	$	48,660
Government-sponsored enterprise obligations	29,954		5,964		13,221		6,598		43,175		12,562
State and municipal obligations	1,101,122		72,473		673,390		145,337		1,774,512		217,810
Mortgage and asset-backed securities:
Agency mortgage-backed securities	1,970,947		241,074		2,450,227		544,264		4,421,174		785,338
Non-agency mortgage-backed securities	417,434		63,282		811,318		150,299		1,228,752		213,581
Asset-backed securities	2,145,330		92,243		1,381,680		105,368		3,527,010		197,611
Total mortgage and asset-backed securities	4,533,711		396,599		4,643,225		799,931		9,176,936		1,196,530
Other debt securities	297,155		25,979		210,212		42,847		507,367		68,826
Total	$	6,657,214	$	534,096	$	5,823,641	$	1,010,292	$	12,480,855	$	1,544,388
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 $12.5 billion of securities that were in a loss position at September 30, 2022, compared to $9.0 billion at December 31, 2021. The total amount of unrealized loss on these securities was $1.5 billion at September 30, 2022, an increase of $1.4 billion 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 September 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
September 30, 2022
U.S. government and federal agency obligations	$	1,084,984	$	1	$	(48,660)	$	—	$	1,036,325
Government-sponsored enterprise obligations	55,737		—		(12,562)		—		43,175
State and municipal obligations	2,020,984		79		(217,810)		—		1,803,253
Mortgage and asset-backed securities:
Agency mortgage-backed securities	5,230,550		307		(785,338)		—		4,445,519
Non-agency mortgage-backed securities	1,449,021		144		(213,581)		—		1,235,584
Asset-backed securities	3,755,855		43		(197,611)		—		3,558,287
Total mortgage and asset-backed securities	10,435,426		494		(1,196,530)		—		9,239,390
Other debt securities	579,193		—		(68,826)		—		510,367
Total	$	14,176,324	$	574	$	(1,544,388)	$	—	$	12,632,510
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 Nine Months Ended September 30
(In thousands)	2022		2021
Proceeds from sales of securities:
Available for sale debt securities	$	85,023	$	—

Other investments	3,907		10,060
Total proceeds	$	88,930	$	10,060

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


Losses realized on sales	$	(20,274)	$	—

Equity securities:



Fair value adjustments, net	(1,048)		152
Other:
Gains realized on sales	104		1,611
Losses realized on sales	(4,313)		—
Fair value adjustments, net	37,133		38,002
Total investment securities gains, net	$	11,602	$	39,765

Net gains on investment securities for the nine months ended September 30, 2022 were mainly comprised of losses of $20.3 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 $37.1 million on private equity investments, due to fair value adjustments.

At September 30, 2022, securities totaling $4.8 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 $208.3 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.