SECURITIES

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



	September 30, 2017									December 31, 2016
(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		$12		$—		$—			$12		$30		$—		$—			$30
State and political subdivisions	7		—		—			7		8		—		—			8
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	19,735		76		(183		)	19,628		19,231		78		(264		)	19,045
Other/non-agency	337		6		(8		)	335		427		2		(28		)	401
Total mortgage-backed securities	20,072		82		(191		)	19,963		19,658		80		(292		)	19,446
Total debt securities available for sale	20,091		82		(191		)	19,982		19,696		80		(292		)	19,484
Marketable equity securities	—		—		—			—		5		—		—			5
Other equity securities	—		—		—			—		12		—		—			12
Total equity securities available for sale	—		—		—			—		17		—		—			17
Total securities available for sale		$20,091		$82		($191	)		$19,982		$19,713		$80		($292	)		$19,501
Securities Held to Maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities		$3,966		$18		($28	)		$3,956		$4,126		$12		($44	)		$4,094
Other/non-agency	857		26		—			883		945		19		—			964
Total securities held to maturity		$4,823		$44		($28	)		$4,839		$5,071		$31		($44	)		$5,058
Other Investment Securities, at Fair Value
Money market mutual fund		$160		$—		$—			$160		$91		$—		$—			$91
Other investments	5		—		—			5		5		—		—			5
Total other investment securities, at fair value		$165		$—		$—			$165		$96		$—		$—			$96
Other Investment Securities, at Cost
Federal Reserve Bank stock		$463		$—		$—			$463		$463		$—		$—			$463
Federal Home Loan Bank stock	302		—		—			302		479		—		—			479
Other equity securities	7		—		—			7		—		—		—			—
Total other investment securities, at cost		$772		$—		$—			$772		$942		$—		$—			$942

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, 2017
	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	—		$—		$—		—		$—		$—		—		$—		$—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	298	13,113		(193		)	30	545		(18		)	328	13,658		(211		)
Other/non-agency	—	—		—			11	121		(8		)	11	121		(8		)
Total mortgage-backed securities	298	13,113		(193		)	41	666		(26		)	339	13,779		(219		)
Total	298		$13,113		($193	)	41		$666		($26	)	339		$13,779		($219	)



	December 31, 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
State and political subdivisions	1		$8		$—		—		$—		$—		1		$8		$—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	323	15,387		(292		)	25	461		(16		)	348	15,848		(308		)
Other/non-agency	4	8		—			20	302		(28		)	24	310		(28		)
Total mortgage-backed securities	327	15,395		(292		)	45	763		(44		)	372	16,158		(336		)
Total	328		$15,403		($292	)	45		$763		($44	)	373		$16,166		($336	)

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 has determined 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 that is 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, or if it is more likely than not it will be required to sell the security before recovery, the impairment loss recognized in current period earnings equals the difference between the amortized cost basis and the fair value of the security. 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 other-than-temporary impairment write-down is separated into an amount representing the credit loss which is recognized in current period earnings and the amount related to all other factors, which is recognized in OCI.

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 the type of investment, various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), the length and severity of impairment, and 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)	2017		2016			2017			2016
Cumulative balance at beginning of period		$79		$73			$75			$66
Credit impairments recognized in earnings on securities that have been previously impaired	1		3			6			11
Reductions due to increases in cash flow expectations on impaired securities⁽¹⁾	—		(1		)	(1		)	(2		)
Cumulative balance at end of period		$80		$75			$80			$75

⁽¹⁾Reported in interest income from investment securities on the Consolidated Statements of Operations.

Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2017 and 2016 were $80 million and $75 million, respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of September 30, 2017 and 2016.

For the three months ended September 30, 2017 and 2016, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million and $3 million, respectively.

For the nine months ended September 30, 2017 and 2016, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $6 million and $11 million, respectively. Other-than-temporary impairment losses for the nine months ended September 30, 2016 included the $5 million impact of a one-time adjustment from a new model implementation. This adjustment is 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, 2017 and 2016. The Company does not currently have the intent to sell these impaired 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 September 30, 2017. The unrealized losses on these debt securities reflect non-credit-related factors such as changing interest rates and market liquidity. 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.

The amortized cost and fair value of debt securities by contractual maturity as of September 30, 2017 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, 2017
	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		$12		$—		$—		$—		$12
State and political subdivisions	—		—		—		7		7
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	1		169		1,149		18,416		19,735
Other/non-agency	—		25		—		312		337
Total debt securities available for sale	13		194		1,149		18,735		20,091
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,966		3,966
Other/non-agency	—		—		—		857		857
Total debt securities held to maturity	—		—		—		4,823		4,823
Total amortized cost of debt securities		$13		$194		$1,149		$23,558		$24,914

Fair Value:
Debt securities available for sale
U.S. Treasury and other		$12		$—		$—		$—		$12
State and political subdivisions	—		—		—		7		7
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	1		169		1,166		18,292		19,628
Other/non-agency	—		25		—		310		335
Total debt securities available for sale	13		194		1,166		18,609		19,982
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,956		3,956
Other/non-agency	—		—		—		883		883
Total debt securities held to maturity	—		—		—		4,839		4,839
Total fair value of debt securities		$13		$194		$1,166		$23,448		$24,821

Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $155 million and $146 million for the three months ended September 30, 2017 and 2016, respectively, and was $469 million and $432 million for the nine months ended September 30, 2017 and 2016, respectively.

Realized gains and losses on securities are presented below:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2017		2016		2017		2016
Gains on sale of debt securities		$2		$—		$9		$13
Losses on sale of debt securities	—		—		—		—
Debt securities gains, net		$2		$—		$9		$13
Equity securities gains		$—		$—		$1		$—

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



	September 30, 2017				December 31, 2016
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Pledged against repurchase agreements		$459		$454		$631		$620
Pledged against FHLB borrowed funds	864		890		953		972
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	2,866		2,858		3,575		3,563

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 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 Company recognized no offsetting of short-term receivables or payables as of September 30, 2017 or December 31, 2016. The Company offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 10 “Derivatives.”

There were $38 million and $82 million in securitizations of mortgage loans retained in the investment portfolio for the three and nine months ended September 30, 2017, respectively, and $16 million and $21 million for the three and nine months ended September 30, 2016, respectively. These securitizations include a substantive guarantee by a third party. In 2017 the guarantors were Fannie Mae, Freddie Mac, and Ginnie Mae. 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.