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SECURITIES
 9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
SECURITIES
NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:
 
September 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

$120


$—


$—


$120

 

$24


$—


$—


$24

State and political subdivisions
5

—

—

5

 
5

—

—

5

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
20,434

166

(80
)
20,520

 
20,211

28

(605
)
19,634

Other/non-agency
827

34

(4
)
857

 
236

3

(7
)
232

Total mortgage-backed securities, at fair value
21,261

200

(84
)
21,377

 
20,447

31

(612
)
19,866

Total debt securities available for sale, at fair value

$21,386


$200


($84
)

$21,502

 

$20,476


$31


($612
)

$19,895

Federal agencies and U.S. government sponsored entities

$3,319


$48


($5
)

$3,362

 

$3,425


$—


($132
)

$3,293

Other/non-agency
—

—

—

—

 
740

8

—

748

Total mortgage-backed securities, at cost
3,319

48

(5
)
3,362

 
4,165

8

(132
)
4,041

Total debt securities held to maturity

$3,319


$48


($5
)

$3,362

 

$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
149

—

—

149

 
364

—

—

364

Other equity securities
8

—

—

8

 
7

—

—

7

Total equity securities, at cost

$734


$—


$—


$734

 

$834


$—


$—


$834



The amortized cost and fair value of debt securities by contractual maturity as of September 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.
 
September 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

$120


$—


$—


$—


$120

State and political subdivisions
—

—

—

5

5

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

193

1,683

18,558

20,434

Other/non-agency
4

2

—

821

827

Total debt securities available for sale
124

195

1,683

19,384

21,386

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

3,319

3,319

Total debt securities held to maturity
—

—

—

3,319

3,319

Total amortized cost of debt securities

$124


$195


$1,683


$22,703


$24,705

 
 
 
 
 
 
Fair value:
 
 
 
 
 
U.S. Treasury and other

$120


$—


$—


$—


$120

State and political subdivisions
—

—

—

5

5

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

193

1,707

18,620

20,520

Other/non-agency
4

2

—

851

857

Total debt securities available for sale
124

195

1,707

19,476

21,502

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

3,362

3,362

Total debt securities held to maturity
—

—

—

3,362

3,362

Total fair value of debt securities

$124


$195


$1,707


$22,838


$24,864



Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $153 million and $167 million for the three months ended September 30, 2019 and 2018, respectively, and was $483 million and $500 million for the nine months ended September 30, 2019 and 2018, respectively.
Realized gains and losses on securities are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2019

 
2018

 
2019

 
2018

Gains on sale of debt securities(1)

$5

 

$3

 

$21

 

$13

Losses on sale of debt securities
—

 
—

 
—

 
—

Debt securities gains, net

$5

 

$3

 

$21

 

$13


(1) For the three and nine months ended September 30, 2019, $2 million and $6 million of gains on sale of debt securities were recognized in mortgage banking fees in the Consolidated Statement of Operations, respectively, 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:
 
September 30, 2019
 
December 31, 2018
(in millions)
Amortized Cost
Fair Value
 
Amortized Cost
Fair Value
Pledged against repurchase agreements

$265


$268

 

$344


$338

Pledged against FHLB borrowed funds
670

701

 
745

752

Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law
3,281

3,282

 
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 September 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.
Securitizations of mortgage loans retained in the investment portfolio were $28 million and $32 million for the three months ended September 30, 2019 and 2018, respectively, and $72 million and $87 million for the nine months ended September 30, 2019 and 2018, respectively. These securitizations include a substantive guarantee by a third party. In 2019 and 2018 the guarantors were FNMA, FHLMC, 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:
 
September 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
156


$3,180


($16
)
 
175


$4,907


($69
)
 
331


$8,087


($85
)
Other/non-agency
—

—

—

 
5

32

(4
)
 
5

32

(4
)
Total
156


$3,180


($16
)
 
180


$4,939


($73
)
 
336


$8,119


($89
)

 
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 September 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 September 30,
 
Nine Months Ended September 30,
(in millions)
2019

 
2018

 
2019

 
2018

Cumulative balance at beginning of period

$57

 

$81

 

$81

 

$80

Credit impairments recognized in earnings on debt securities that have been previously impaired
1

 
1

 
2

 
3

Reductions due to increases in cash flow expectations on impaired debt securities(1)
—

 
(1
)
 
—

 
(2
)
Reductions for securities sold or matured during the period
(1
)
 
—

 
(26
)
 
—

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 September 30, 2019 and September 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 September 30, 2019 and 2018. For the three months ended September 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million. For the nine months ended September 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $2 million and $3 million, respectively.