SECURITIES

The following table presents the major components of securities at amortized cost and fair value:



	September 30, 2016									December 31, 2015
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
U.S. Treasury and other		$15		$—		$—			$15		$16		$—		$—			$16
State and political subdivisions	8		—		—			8		9		—		—			9
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	18,606		362		(12		)	18,956		17,234		153		(67		)	17,320
Other/non-agency	456		2		(29		)	429		555		4		(37		)	522
Total mortgage-backed securities	19,062		364		(41		)	19,385		17,789		157		(104		)	17,842
Total debt securities available for sale	19,085		364		(41		)	19,408		17,814		157		(104		)	17,867
Marketable equity securities	5		—		—			5		5		—		—			5
Other equity securities	12		—		—			12		12		—		—			12
Total equity securities available for sale	17		—		—			17		17		—		—			17
Total securities available for sale		$19,102		$364		($41	)		$19,425		$17,831		$157		($104	)		$17,884
Securities Held to Maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities		$4,279		$102		($1	)		$4,380		$4,105		$27		($11	)		$4,121
Other/non-agency	1,010		41		—			1,051		1,153		23		—			1,176
Total securities held to maturity		$5,289		$143		($1	)		$5,431		$5,258		$50		($11	)		$5,297
Other Investment Securities, at Fair Value
Money market mutual fund		$108		$—		$—			$108		$65		$—		$—			$65
Other investments	5		—		—			5		5		—		—			5
Total other investment securities, at fair value		$113		$—		$—			$113		$70		$—		$—			$70
Other Investment Securities, at Cost
Federal Reserve Bank stock		$463		$—		$—			$463		$468		$—		$—			$468
Federal Home Loan Bank stock	414		—		—			414		395		—		—			395
Total other investment securities, at cost		$877		$—		$—			$877		$863		$—		$—			$863

The Company has reviewed its securities portfolio for other-than-temporary impairments. The following table presents the net securities impairment losses recognized in earnings:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2016			2015			2016			2015
Other-than-temporary impairment:
Total other-than-temporary impairment losses		$2			($14	)		($40	)		($46	)
Portions of loss recognized in other comprehensive income (before taxes)	(5		)	12			29			41
Net securities impairment losses recognized in earnings		($3	)		($2	)		($11	)		($5	)

The following tables present securities whose fair values are below carrying values, segregated by those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:



	September 30, 2016
	Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	17		$645		($2	)	29		$704		($11	)	46		$1,349		($13	)
Other/non-agency	4	9		—			20	317		(29		)	24	326		(29		)
Total mortgage-backed securities	21	654		(2		)	49	1,021		(40		)	70	1,675		(42		)
Total	21		$654		($2	)	49		$1,021		($40	)	70		$1,675		($42	)



	December 31, 2015
	Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
State and political subdivisions	1		$9		$—		—		$—		$—		1		$9		$—
U.S. Treasury and other	1	15		—			—	—		—			1	15		—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	162	7,423		(51		)	36	819		(27		)	198	8,242		(78		)
Other/non-agency	2	9		—			20	361		(37		)	22	370		(37		)
Total mortgage-backed securities	164	7,432		(51		)	56	1,180		(64		)	220	8,612		(115		)
Total	166		$7,456		($51	)	56		$1,180		($64	)	222		$8,636		($115	)

For each debt security identified with an unrealized loss, the Company reviews the expected cash flows to determine if the impairment in value is temporary or other-than-temporary. If the Company determines that the present value of the debt security’s expected cash flows is less than its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of impairment loss recognized in current period earnings is dependent on the Company’s intent to sell (or not sell) the debt security.

If the Company intends to sell the impaired debt security, the impairment loss recognized in current period earnings equals the difference between the debt security’s fair value and its amortized cost. If the Company does not intend to sell the impaired debt security, and it is not more likely than not that the Company will be required to sell the impaired security, the credit-related impairment loss is recognized in current period earnings and equals the difference between the amortized cost of the debt security and the present value of the expected future cash flows.

In addition to these cash flow projections, several other characteristics of each debt security are reviewed when determining whether a credit loss exists and the period over which the debt security is expected to recover. These characteristics include: (1) the type of investment, (2) various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), (3) the length and severity of impairment, and (4) the public credit rating of the instrument.

The Company estimates the portion of loss attributable to credit using a collateral loss model and an integrated cash flow engine. The model calculates prepayment, default, and loss severity assumptions using collateral performance data. These assumptions are used to produce cash flows that generate loss projections. These loss projections are reviewed on a quarterly basis by a cross-functional governance committee to determine whether security impairments are other-than-temporary.

The following table presents the cumulative credit-related losses recognized in earnings on debt securities held by the Company:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2016			2015			2016			2015
Cumulative balance at beginning of period		$73			$62			$66			$62
Credit impairments recognized in earnings on securities that have been previously impaired	3			2			11			5
Reductions due to increases in cash flow expectations on impaired securities	(1		)	(1		)	(2		)	(4		)
Cumulative balance at end of period		$75			$63			$75			$63

Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2016 and 2015 were $75 million and $63 million, respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of September 30, 2016 and 2015.

For the three months ended September 30, 2016 and 2015, the Company recognized credit related other-than-temporary-impairment losses in earnings of $3 million and $2 million respectively, related to non-agency MBS in the AFS portfolio.

For the nine months ended September 30, 2016 and 2015, the Company recognized credit related other-than-temporary impairment losses in earnings of $11 million and $5 million, respectively. Other-than-temporary impairment losses for the nine months ended September 30, 2016 reflect a $5 million increase from September 30, 2015 related to a one-time adjustment tied to a new model implementation. This adjustment was the result of the Company migrating in June 2016 from a proprietary internal process to a vendor-based model to estimate other-than-temporary impairment. There were no credit impaired debt securities sold during the three and nine months ended September 30, 2016 and 2015. Reductions in credit losses due to increases in cash flow expectations were $1 million for the three months ended September 30, 2016 and 2015, and $2 million and $4 million for the nine months ended September 30, 2016 and 2015, respectively, and were presented in interest income from investment securities on the Consolidated Statements of Operations. The Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases.

The Company has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of the current reporting date. The unrealized losses on these debt securities reflect the reduced liquidity in the MBS market and increased risk spreads due to the uncertainty of the U.S. macroeconomic environment. Therefore, the Company has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases. Additionally, $29 million and $41 million of pre-tax non-credit related losses were deferred in OCI for the nine months ended September 30, 2016 and 2015, respectively.

The amortized cost and fair value of debt securities by contractual maturity are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.



	September 30, 2016
	Distribution of Maturities
(in millions)	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized Cost:
Debt securities available for sale
U.S. Treasury and other		$15		$—		$—		$—		$15
State and political subdivisions	—		—		—		8		8
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	10		32		1,546		17,018		18,606
Other/non-agency	—		40		3		413		456
Total debt securities available for sale	25		72		1,549		17,439		19,085
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		4,279		4,279
Other/non-agency	—		—		—		1,010		1,010
Total debt securities held to maturity	—		—		—		5,289		5,289
Total amortized cost of debt securities		$25		$72		$1,549		$22,728		$24,374

Fair Value:
Debt securities available for sale
U.S. Treasury and other		$15		$—		$—		$—		$15
State and political subdivisions	—		—		—		8		8
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	10		33		1,585		17,328		18,956
Other/non-agency	—		41		3		385		429
Total debt securities available for sale	25		74		1,588		17,721		19,408
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		4,380		4,380
Other/non-agency	—		—		—		1,051		1,051
Total debt securities held to maturity	—		—		—		5,431		5,431
Total fair value of debt securities		$25		$74		$1,588		$23,152		$24,839

Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $146 million and $154 million for the three months ended September 30, 2016 and 2015, respectively, and was $432 million and $468 million for the nine months ended September 30, 2016 and 2015, respectively.

Realized gains and losses on securities are presented below:



	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2016		2015			2016		2015
Gains on sale of debt securities		$—		$7			$13		$29
Losses on sale of debt securities	—		(7		)	—		(12		)
Debt securities gains, net		$—		$—			$13		$17
Equity securities gains		$—		$—			$—		$3

In advance of the Volcker Rule effective date, during the three months ended September 30, 2015, the Company sold a $73 million mortgage-backed security that was classified as HTM that would have been prohibited under the Volcker Rule beginning in July 2017. Upon completion of the sale, the Company recognized a $2 million gain.

The amortized cost and fair value of securities pledged are presented below:



	September 30, 2016				December 31, 2015
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Pledged against repurchase agreements		$795		$808		$805		$808
Pledged against FHLB borrowed funds	1,018		1,060		1,163		1,186
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	3,247		3,329		3,579		3,610

The Company regularly enters into security repurchase agreements with unrelated counterparties. Repurchase agreements are financial transactions that involve the transfer of a security from one party to another and a subsequent transfer of the same (or “substantially the same”) security back to the original party. The Company’s repurchase agreements are typically short-term transactions, but they may be extended to longer terms to maturity. Such transactions are accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. When permitted by GAAP, the Company offsets short-term receivables associated with its reverse repurchase agreements against short-term payables associated with its repurchase agreements.

The impact of this offsetting on the Consolidated Balance Sheets is presented in the following table:



	September 30, 2016						December 31, 2015
(in millions)	Gross Assets (Liabilities)		Gross Assets (Liabilities) Offset		Net Amounts of Assets (Liabilities)		Gross Assets (Liabilities)			Gross Assets (Liabilities) Offset			Net Amounts of Assets (Liabilities)
Securities purchased under agreements to resell		$—		$—		$—		$500			($500	)		$—
Securities sold under agreements to repurchase	—		—		—		(500		)	500			—

Note: The Company also offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 11 “Derivatives.”

There were $16 million and $21 million in securitizations of mortgage loans retained in the investment portfolio for the three and nine months ended September 30, 2016 and none in 2015. These securitizations included a substantive guarantee by a third party. In 2016, the guarantors were Fannie Mae and Ginnie Mae. These securitizations were accounted for as a sale of the transferred loans and as a purchase of securities. The securities received from the guarantors are classified as AFS.