SECURITIES

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

NOTE 2 - SECURITIES

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



	June 30, 2019									December 31, 2018
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and other		$90		$—		$—			$90		$24		$—		$—			$24
State and political subdivisions	5		—		—			5		5		—		—			5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	20,688		163		(143		)	20,708		20,211		28		(605		)	19,634
Other/non-agency	871		28		(4		)	895		236		3		(7		)	232
Total mortgage-backed securities, at fair value	21,559		191		(147		)	21,603		20,447		31		(612		)	19,866
Total debt securities available for sale, at fair value		$21,654		$191		($147	)		$21,698		$20,476		$31		($612	)		$19,895
Federal agencies and U.S. government sponsored entities		$3,447		$18		($24	)		$3,441		$3,425		$—		($132	)		$3,293
Other/non-agency	—		—		—			—		740		8		—			748
Total mortgage-backed securities, at cost	3,447		18		(24		)	3,441		4,165		8		(132		)	4,041
Total debt securities held to maturity		$3,447		$18		($24	)		$3,441		$4,165		$8		($132	)		$4,041
Money market mutual fund investments		$47		$—		$—			$47		$181		$—		$—			$181
Total equity securities, at fair value		$47		$—		$—			$47		$181		$—		$—			$181
Federal Reserve Bank stock		$577		$—		$—			$577		$463		$—		$—			$463
Federal Home Loan Bank stock	121		—		—			121		364		—		—			364
Other equity securities	8		—		—			8		7		—		—			7
Total equity securities, at cost		$706		$—		$—			$706		$834		$—		$—			$834

The amortized cost and fair value of debt securities by contractual maturity as of June 30, 2019 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.



	June 30, 2019
	Distribution of Maturities
(in millions)	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized cost:
U.S. Treasury and other		$90		$—		$—		$—		$90
State and political subdivisions	—		—		—		5		5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		221		1,717		18,750		20,688
Other/non-agency	5		2		—		864		871
Total debt securities available for sale	95		223		1,717		19,619		21,654
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,447		3,447
Total debt securities held to maturity	—		—		—		3,447		3,447
Total amortized cost of debt securities		$95		$223		$1,717		$23,066		$25,101

Fair value:
U.S. Treasury and other		$90		$—		$—		$—		$90
State and political subdivisions	—		—		—		5		5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		219		1,735		18,754		20,708
Other/non-agency	5		3		—		887		895
Total debt securities available for sale	95		222		1,735		19,646		21,698
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,441		3,441
Total debt securities held to maturity	—		—		—		3,441		3,441
Total fair value of debt securities		$95		$222		$1,735		$23,087		$25,139

Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $164 million and $165 million for the three months ended June 30, 2019 and 2018, respectively, and was $330 million and $333 million for the six months ended June 30, 2019 and 2018, respectively.

Realized gains and losses on securities are presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
Gains on sale of debt securities⁽¹⁾		$8		$2		$16		$10
Losses on sale of debt securities	—		—		—		—
Debt securities gains, net		$8		$2		$16		$10

⁽¹⁾ For the three and six months ended June 30, 2019, $4 million of gains on sale of debt securities were recognized in mortgage banking fees in the Consolidated Statement of Operations as they related to AFS securities held as economic hedges of the value of the MSR portfolio recognized using the amortization method.

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



	June 30, 2019				December 31, 2018
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Pledged against repurchase agreements		$291		$293		$344		$338
Pledged against FHLB borrowed funds	—		—		745		752
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	3,632		3,613		3,592		3,460

Citizens regularly enters into security repurchase agreements with unrelated counterparties, which 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 in nature and are accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. Citizens recognized no offsetting of short-term receivables or payables as of June 30, 2019 or December 31, 2018. Citizens offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 9 "Derivatives."

Securitizations of mortgage loans retained in the investment portfolio were $13 million and $29 million for the three months ended June 30, 2019 and 2018, respectively, and $44 million and $55 million for the six months ended June 30, 2019 and 2018, respectively. These securitizations include a substantive guarantee by a third party. In 2019 the guarantors were FNMA, FHLMC, and GNMA. In 2018 the guarantors were FNMA and GNMA. The debt securities received from the guarantors are classified as AFS.

The following tables present mortgage-backed debt securities whose fair values are below carrying values, separated by the duration the securities have been in a continuous unrealized loss position:



	June 30, 2019
	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
Federal agencies and U.S. government sponsored entities	19		$882		($1	)	349		$11,307		($166	)	368		$12,189		($167	)
Other/non-agency	—	—		—			7	41		(4		)	7	41		(4		)
Total	19		$882		($1	)	356		$11,348		($170	)	375		$12,230		($171	)



	December 31, 2018
	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
Federal agencies and U.S. government sponsored entities	166		$4,881		($89	)	429		$15,124		($648	)	595		$20,005		($737	)
Other/non-agency	10	139		(1		)	11	72		(6		)	21	211		(7		)
Total	176		$5,020		($90	)	440		$15,196		($654	)	616		$20,216		($744	)

Citizens 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 recovery of their amortized cost bases. Citizens 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 June 30, 2019. The unrealized losses on these debt securities reflect non-credit-related factors such as changing interest rates and market liquidity. Therefore, Citizens has determined that these debt securities are not other-than-temporarily impaired. Any subsequent increases in the valuation of impaired debt securities will not impact their recorded cost bases.

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



	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2019			2018		2019			2018
Cumulative balance at beginning of period		$78			$80		$81			$80
Credit impairments recognized in earnings on debt securities that have been previously impaired	—			1		1			2
Reductions due to increases in cash flow expectations on impaired debt securities⁽¹⁾	—			—		—			(1		)
Reductions for securities sold or matured during the period	(21		)	—		(25		)	—
Cumulative balance at end of period		$57			$81		$57			$81

⁽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 June 30, 2019 and June 30, 2018 were $57 million and $81 million respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of June 30, 2019 and 2018. For the three months ended June 30, 2019, the Company did not incur any non-agency MBS credit-related other-than-temporary impairment losses in earnings. For the three months ended June 30, 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million. For the six months ended June 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million and $2 million, respectively.