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Investment Securities
 9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
NOTE 3—INVESTMENT SECURITIES
Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”); and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96% of our total investment securities portfolio as of both September 30, 2019 and December 31, 2018.
We classify investment securities as either available for sale or held to maturity. As of both September 30, 2019 and December 31, 2018, we had investment securities available for sale of $46.2 billion and as of September 30, 2019 and December 31, 2018, we had investment securities held to maturity of $33.9 billion and $36.8 billion, respectively.
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, 2019 and December 31, 2018.
Table 3.1: Investment Securities Available for Sale
 
 
September 30, 2019
(Dollars in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Investment securities available for sale:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
4,173

 
$
3

 
$
(21
)
 
$
4,155

RMBS:
 
 
 
 
 
 
 
 
Agency
 
33,727

 
239

 
(253
)
 
33,713

Non-agency
 
1,313

 
300

 
(1
)
 
1,612

Total RMBS
 
35,040

 
539

 
(254
)
 
35,325

Agency CMBS
 
5,368

 
48

 
(20
)
 
5,396

Other securities(1)
 
1,291

 
2

 
(1
)
 
1,292

Total investment securities available for sale
 
$
45,872

 
$
592

 
$
(296
)
 
$
46,168

 
 
December 31, 2018
(Dollars in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Investment securities available for sale:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
6,146

 
$
15

 
$
(17
)
 
$
6,144

RMBS:
 
 
 
 
 
 
 
 
Agency
 
32,710

 
62

 
(869
)
 
31,903

Non-agency
 
1,440

 
304

 
(2
)
 
1,742

Total RMBS
 
34,150

 
366

 
(871
)
 
33,645

Agency CMBS
 
4,806

 
11

 
(78
)
 
4,739

Other securities(1)
 
1,626

 
2

 
(6
)
 
1,622

Total investment securities available for sale
 
$
46,728

 
$
394

 
$
(972
)
 
$
46,150

__________
(1) 
Includes primarily supranational bonds, foreign government bonds and other asset-backed securities.
The table below presents the amortized cost, carrying value, gross unrealized gains and losses, and fair value of securities held to maturity as of September 30, 2019 and December 31, 2018.
Table 3.2: Investment Securities Held to Maturity
 
 
September 30, 2019
(Dollars in millions)
 
Amortized
Cost
 
Unrealized Losses Recorded in AOCI
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency RMBS
 
$
30,322

 
$
(213
)
 
$
30,109

 
$
1,194

 
$
(14
)
 
$
31,289

Agency CMBS
 
3,797

 
(12
)
 
3,785

 
191

 
(1
)
 
3,975

Total investment securities held to maturity
 
$
34,119

 
$
(225
)
 
$
33,894

 
$
1,385

 
$
(15
)
 
$
35,264

 
 
December 31, 2018
(Dollars in millions)
 
Amortized
Cost
 
Unrealized Losses Recorded in AOCI
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency RMBS
 
$
33,299

 
$
(238
)
 
$
33,061

 
$
293

 
$
(377
)
 
$
32,977

Agency CMBS
 
3,723

 
(13
)
 
3,710

 
21

 
(89
)
 
3,642

Total investment securities held to maturity
 
$
37,022

 
$
(251
)
 
$
36,771

 
$
314

 
$
(466
)
 
$
36,619


Investment Securities in a Gross Unrealized Loss Position
The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2019 and December 31, 2018.
Table 3.3: Securities in a Gross Unrealized Loss Position
 
 
September 30, 2019
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in millions)
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
3,603

 
$
(21
)
 
$
0

 
$
0

 
$
3,603

 
$
(21
)
RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
5,205

 
(21
)
 
11,155

 
(232
)
 
16,360

 
(253
)
Non-agency
 
28

 
(1
)
 
3

 
0

 
31

 
(1
)
Total RMBS
 
5,233

 
(22
)
 
11,158

 
(232
)
 
16,391

 
(254
)
Agency CMBS
 
1,162

 
(5
)
 
1,528

 
(15
)
 
2,690

 
(20
)
Other securities
 
463

 
(1
)
 
176

 
0

 
639

 
(1
)
Total investment securities available for sale in a gross unrealized loss position
 
$
10,461

 
$
(49
)
 
$
12,862

 
$
(247
)
 
$
23,323

 
$
(296
)
 
 
December 31, 2018
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in millions)
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
2,543

 
$
(3
)
 
$
1,076

 
$
(14
)
 
$
3,619

 
$
(17
)
RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
7,863

 
(260
)
 
18,118

 
(609
)
 
25,981

 
(869
)
Non-agency
 
89

 
(2
)
 
10

 
0

 
99

 
(2
)
Total RMBS
 
7,952

 
(262
)
 
18,128

 
(609
)
 
26,080

 
(871
)
Agency CMBS
 
2,004

 
(31
)
 
1,540

 
(47
)
 
3,544

 
(78
)
Other securities
 
244

 
(1
)
 
678

 
(5
)
 
922

 
(6
)
Total investment securities available for sale in a gross unrealized loss position
 
$
12,743

 
$
(297
)
 
$
21,422

 
$
(675
)
 
$
34,165

 
$
(972
)

As of September 30, 2019, the amortized cost of approximately 700 securities available for sale exceeded their fair value by $296 million, of which $247 million related to securities that had been in a loss position for 12 months or longer. As of September 30, 2019, the carrying value of approximately 70 securities classified as held to maturity exceeded their fair value by $15 million.
Maturities and Yields of Investment Securities
The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment securities as of September 30, 2019. Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.
Table 3.4: Contractual Maturities and Weighted-Average Yields of Securities
 
 
September 30, 2019
(Dollars in millions)
 
Due in
1 Year or Less
 
Due > 1 Year
through
5 Years
 
Due > 5 Years
through
10 Years
 
Due > 10 Years
 
Total
Fair value of securities available for sale:
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
0

 
$
1,483

 
$
2,672

 
$
0

 
$
4,155

RMBS(1):
 
 
 
 
 
 
 
 
 
 
Agency
 
1

 
28

 
731

 
32,953

 
33,713

Non-agency
 
0

 
0

 
0

 
1,612

 
1,612

Total RMBS
 
1

 
28

 
731

 
34,565

 
35,325

Agency CMBS(1)
 
11

 
1,833

 
2,298

 
1,254

 
5,396

Other securities
 
459

 
533

 
300

 
0

 
1,292

Total securities available for sale
 
$
471

 
$
3,877

 
$
6,001

 
$
35,819

 
$
46,168

Amortized cost of securities available for sale
 
$
471

 
$
3,877

 
$
5,992

 
$
35,532

 
$
45,872

Weighted-average yield for securities available for sale
 
1.51
%
 
2.45
%
 
2.65
%
 
3.09
%
 
2.96
%
Carrying value of securities held to maturity:
Agency RMBS(1)
 
$
0

 
$
0

 
$
85

 
$
30,024

 
$
30,109

Agency CMBS(1)
 
0

 
59

 
829

 
2,897

 
3,785

Total securities held to maturity
 
$
0

 
$
59

 
$
914

 
$
32,921

 
$
33,894

Fair value of securities held to maturity
 
$
0

 
$
62

 
$
974

 
$
34,228

 
$
35,264

Weighted-average yield for securities held to maturity
 
N/A

 
3.65
%
 
3.12
%
 
3.24
%
 
3.24
%
__________
(1) 
As of September 30, 2019, the weighted-average expected maturities of RMBS and Agency CMBS are 5.0 years and 5.4 years, respectively.
Other-Than-Temporary Impairment
We evaluate all securities in an unrealized loss position at least quarterly, and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment (“OTTI”) assessment is based on a discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment, as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected market and macro-economic conditions.
If we intend to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, the entire difference between the amortized cost basis of the security and its fair value is recognized in earnings. As of September 30, 2019, we had sold all securities previously designated with the intent to sell, and did not intend to sell, nor believe that we will be required to sell, any other security in an unrealized loss position prior to the recovery of its amortized cost basis.
For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit-related impairment recorded in AOCI. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows, discounted at the security’s effective yield.
Realized Gains and Losses on Securities and OTTI Recognized in Earnings
The following table presents the gross realized gains or losses and proceeds from the sale of securities available for sale for the three and nine months ended September 30, 2019 and 2018. We did not sell any investment securities that were classified as held to maturity.
Table 3.5: Realized Gains and Losses on Securities and OTTI Recognized in Earnings
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
 
2019
 
2018
 
2019
 
2018
Realized gains (losses):
 
 
 
 
 
 
 
 
Gross realized gains
 
$
5

 
$
4

 
$
44

 
$
12

Gross realized losses
 
0

 
0

 
0

 
(1
)
Net realized gains (losses)
 
5

 
4

 
44

 
11

OTTI recognized in earnings:
 
 
 
 
 
 
 
 
Intent-to-sell OTTI
 
0

 
(200
)
 
0

 
(200
)
Total OTTI recognized in earnings
 
0

 
(200
)
 
0

 
(200
)
Net securities gains (losses)
 
$
5

 
$
(196
)
 
$
44

 
$
(189
)
Total proceeds from sales
 
$
243

 
$
2,454

 
$
4,226

 
$
3,512

The cumulative credit loss component of the OTTI losses that have been recognized in our consolidated statements of income related to the securities that we do not intend to sell was $137 million and $140 million as of September 30, 2019 and December 31, 2018, respectively.
Securities Pledged and Received
We pledged securities available for sale and held to maturity totaling $14.8 billion and $16.3 billion as of September 30, 2019 and December 31, 2018, respectively. These securities are pledged to primarily secure Federal Home Loan Banks (“FHLB”) advances and Public Funds deposits, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $1 million as of both September 30, 2019 and December 31, 2018, related to our derivative transactions.
Purchased Credit-Impaired Debt Securities
The table below presents the outstanding balance and carrying value of the purchased credit-impaired debt securities as of September 30, 2019 and December 31, 2018.
Table 3.6: Outstanding Balance and Carrying Value of Purchased Credit-Impaired Debt Securities
(Dollars in millions)
 
September 30, 2019
 
December 31, 2018
Outstanding balance
 
$
1,586

 
$
1,784

Carrying value
 
1,435

 
1,537

Changes in Accretable Yield of Purchased Credit-Impaired Debt Securities
The following table presents changes in the accretable yield related to the purchased credit-impaired debt securities for the three and nine months ended September 30, 2019 and 2018.
Table 3.7: Changes in the Accretable Yield of Purchased Credit-Impaired Debt Securities
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
 
2019
 
2018
 
2019
 
2018
Accretable yield, beginning of period
 
$
591

 
$
768

 
$
698

 
$
826

Accretion recognized in earnings
 
(41
)
 
(37
)
 
(128
)
 
(115
)
Reduction due to payoffs, disposals, transfers and other
 
(1
)
 
0

 
(4
)
 
(3
)
Net reclassifications (to) from nonaccretable difference
 
(16
)
 
42

 
(33
)
 
65

Accretable yield, end of period
 
$
533

 
$
773

 
$
533

 
$
773