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 of our 2016 Annual Report on Form 10-K discusses the process to estimate fair value for investment securities.



	June 30, 2017
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	775	$	8	$	9	$	774
Available-for-sale
U.S. Treasury securities	25		—		—		25
U.S. Government agencies and corporations:
Agency securities	1,828		5		6		1,827
Agency guaranteed mortgage-backed securities	9,772		27		78		9,721
Small Business Administration loan-backed securities	2,361		20		10		2,371
Municipal securities	1,306		15		4		1,317
Other debt securities	25		—		—		25
	15,317		67		98		15,286
Money market mutual funds and other	55		—		—		55
	15,372		67		98		15,341
Total	$	16,147	$	75	$	107	$	16,115



	December 31, 2016
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	868	$	5	$	23	$	850
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,846		2		9		1,839
Agency guaranteed mortgage-backed securities	7,986		7		110		7,883
Small Business Administration loan-backed securities	2,298		8		18		2,288
Municipal securities	1,182		1		29		1,154
Other debt securities	25		—		1		24
	13,337		18		167		13,188
Money market mutual funds and other	184		—		—		184
	13,521		18		167		13,372
Total	$	14,389	$	23	$	190	$	14,222

Maturities

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of June 30, 2017 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.



	June 30, 2017
	Held-to-maturity				Available-for-sale
(In millions)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Principal return in one year or less	$	108	$	108	$	1,990	$	1,983
Principal return after one year through five years	276		278		5,771		5,752
Principal return after five years through ten years	207		210		4,787		4,784
Principal return after ten years	184		178		2,769		2,767
	$	775	$	774	$	15,317	$	15,286

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:



	June 30, 2017
	Less than 12 months				12 months or more				Total
(In millions)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	3	$	241	$	6	$	132	$	9	$	373
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	5		928		1		122		6		1,050
Agency guaranteed mortgage-backed securities	71		5,693		7		391		78		6,084
Small Business Administration loan-backed securities	1		132		9		786		10		918
Municipal securities	4		466		—		15		4		481
Other	—		—		—		14		—		14
	81		7,219		17		1,328		98		8,547
Total	$	84	$	7,460	$	23	$	1,460	$	107	$	8,920



	December 31, 2016
	Less than 12 months				12 months or more				Total
(In millions)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	15	$	467	$	8	$	61	$	23	$	528
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	9		950		—		127		9		1,077
Agency guaranteed mortgage-backed securities	102		6,649		7		326		109		6,975
Small Business Administration loan-backed securities	3		527		16		841		19		1,368
Municipal securities	28		992		—		9		28		1,001
Other	—		—		2		14		2		14
	142		9,118		25		1,317		167		10,435
Total	$	157	$	9,585	$	33	$	1,378	$	190	$	10,963

At June 30, 2017 and December 31, 2016, respectively, 336 and 642 HTM and 1,529 and 2,398 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”). For additional information on our policy and evaluation process relating to OTTI, see Note 5 of our 2016 Annual Report on Form 10-K.

OTTI Conclusions

The following summarizes the conclusions from our OTTI evaluation by each security type that has significant gross unrealized losses at June 30, 2017:

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 June 30, 2017, 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, these securities did not have any OTTI recognized during the second quarter of 2017.

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 SBA. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At June 30, 2017, 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 that we would be required to sell such securities before recovery of their amortized cost basis. Therefore, these securities did not have any OTTI recognized during the second quarter of 2017.

The following summarizes gains and losses, including OTTI, of which there was none, that were recognized in the statement of income:



	Three Months Ended						Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
(In millions)	Gross gains	Gross losses		Gross gains	Gross losses		Gross gains	Gross losses		Gross gains	Gross losses

Investment securities:
Other noninterest-bearing investments	4	2		3	—		14	7		6	4
Net gains ¹		$	2		$	3		$	7		$	2

¹Net gains were recognized in securities gains, net in the statement of income.

Interest income by security type is as follows:



(In millions)	Three Months Ended June 30, 2017						Six Months Ended June 30, 2017
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	2	$	3	$	5	$	5	$	7	$	12
Available-for-sale	71		7		78		137		12		149
Trading	1		—		1		1		—		1
	$	74	$	10	$	84	$	143	$	19	$	162



(In millions)	Three Months Ended June 30, 2016						Six Months Ended June 30, 2016
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	3	$	3	$	6	$	5	$	6	$	11
Available-for-sale	38		3		41		78		5		83
Trading	1		—		1		1		—		1
	$	42	$	6	$	48	$	84	$	11	$	95

Investment securities with a carrying value of $2.2 billion at June 30, 2017 and $1.4 billion at December 31, 2016 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 Company’s PEIs are subject to the provisions of the Dodd-Frank Act. The Volcker Rule of the Dodd-Frank Act prohibits banks and bank holding companies from holding PEIs, except for SBIC funds and certain other permitted exclusions, beyond a required deadline. The Federal Reserve Board announced in December 2016 that it would allow banks to apply for an additional five-year extension beyond the July 21, 2017 deadline to comply with the Dodd-Frank Act requirement for these investments. The Company applied for and was granted an extension for its eligible PEIs. All positions in the remaining portfolio of PEIs are subject to the extended deadline or other applicable exclusions.

Of the recorded PEIs of $140 million at June 30, 2017, approximately $4 million remain prohibited by the Volcker Rule. At June 30, 2017, we have $27 million of unfunded commitments for PEIs, of which approximately $4 million relate to prohibited PEIs. We currently do not believe that this divestiture requirement will ultimately have a material impact on our financial statements. See other discussions related to private equity investments in Note 3.