Investment Securities

12 Months Ended

Dec. 31, 2019

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 for callable debt securities classified as HTM or AFS are amortized at a constant effective yield to the

earliest call date. The purchase premiums and discounts for all other 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 in interest income in the period the principal is reduced. Note 3 discusses the process to estimate fair value for investment securities.


	December 31, 2019
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	592	$	5	$	—	$	597
Available-for-sale
U.S. Treasury securities	25		—		—		25
U.S. Government agencies and corporations:
Agency securities	1,301		5		4		1,302
Agency guaranteed mortgage-backed securities	9,518		83		42		9,559
Small Business Administration loan-backed securities	1,535		1		41		1,495
Municipal securities	1,282		37		—		1,319
Other debt securities	25		—		—		25


Total available-for-sale	13,686		126		87		13,725
Total investment securities	$	14,278	$	131	$	87	$	14,322


	December 31, 2018
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	774	$	4	$	11	$	767
Available-for-sale
U.S. Treasury securities	40		—		—		40
U.S. Government agencies and corporations:
Agency securities	1,394		—		19		1,375
Agency guaranteed mortgage-backed securities	10,236		18		240		10,014
Small Business Administration loan-backed securities	2,042		1		47		1,996
Municipal securities	1,303		4		16		1,291
Other debt securities	25		—		4		21


Total available-for-sale	15,040		23		326		14,737
Total investment securities	$	15,814	$	27	$	337	$	15,504

Maturities

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of December 31, 2019 by contractual maturity 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 millions)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Due in one year or less	$	101	$	102	$	122	$	122
Due after one year through five years	215		216		718		726
Due after five years through ten years	156		159		2,434		2,450
Due after ten years	120		120		10,412		10,427
Total	$	592	$	597	$	13,686	$	13,725

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, 2019
	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	$	—	$	73	$	—	$	45	$	—	$	118




Available-for-sale
U.S. Government agencies and corporations:
Agency securities	2		222		2		359		4		581
Agency guaranteed mortgage-backed securities	4		1,173		38		3,215		42		4,388
Small Business Administration loan-backed securities	1		172		40		1,215		41		1,387
Municipal securities	—		50		—		5		—		55
Other	—		—		—		—		—		—







Total available-for-sale	7		1,617		80		4,794		87		6,411
Total	$	7	$	1,690	$	80	$	4,839	$	87	$	6,529


	December 31, 2018
	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	$	1	$	86	$	10	$	438	$	11	$	524




Available-for-sale
U.S. Government agencies and corporations:
Agency securities	2		245		17		913		19		1,158
Agency guaranteed mortgage-backed securities	16		1,081		224		6,661		240		7,742
Small Business Administration loan-backed securities	19		1,180		28		711		47		1,891
Municipal securities	2		266		14		641		16		907
Other	—		—		4		11		4		11







Total available-for-sale	39		2,772		287		8,937		326		11,709
Total	$	40	$	2,858	$	297	$	9,375	$	337	$	12,233

At December 31, 2019 and 2018, respectively, 146 and 606 HTM and 849 and 2,588 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. When we do not expect to recover the entire amortized cost basis of a security then the decline in fair value is considered to be other-than-temporary. OTTI is considered to have occurred for debt securities in unrealized loss positions if we have formed a documented intent to sell identified securities or initiated such sales or it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis. In these scenarios the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the securities. For debt securities in an unrealized loss position that we have the intent and ability to hold, the expected cash flows to be received from the securities are evaluated to determine if a credit loss exists. In the event of a credit loss, only the amount of the impairment associated with the credit loss is recognized in income. Unrealized losses relating to factors other than credit losses are recorded 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.

Other-Than-Temporary Impairment Conclusions

The Bank did not recognize any OTTI on its investment securities portfolio during 2019 or 2018. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At December 31, 2019, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is more likely than not we would be required to sell such securities before recovery of their amortized cost basis.

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 3 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.

Securities gains and losses recognized in income

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


	2019						2018						2017
(In millions)	Gross gains		Gross losses		Gross gains		Gross losses		Gross gains		Gross losses



Other noninterest-bearing investments	$	20	$	17	$	17	$	16	$	22	$	8

Net gains			$	3			$	1			$	14

Interest income by security type is as follows:


(In millions)	2019															2018												2017
			Taxable			Nontaxable			Total			Taxable			Nontaxable			Total			Taxable			Nontaxable			Total
Investment securities:
Held-to-maturity	$	9		$	13		$	22		$	10		$	14		$	24		$	10		$	13		$	23
Available-for-sale	308			25			333			295			26			321			277			24			301
Trading	1			6			7			1			4			5			—			2			2
Total	$	318		$	44		$	362		$	306		$	44		$	350		$	287		$	39		$	326

Investment securities with a carrying value of approximately $2.0 billion and $2.6 billion at December 31, 2019 and 2018, 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.