Investment Securities

Investment securities held by us are classified as either trading, AFS, or HTM at the time of purchase and reassessed periodically, based on management’s intent.

Generally, trading assets are debt and equity securities purchased in connection with our trading activities and, as such, are expected to be sold in the near term. Our trading activities typically involve active and frequent buying and selling with the objective of generating profits on short-term movements. AFS investment securities are those securities that we intend to hold for an indefinite period of time. AFS investment securities include securities utilized as part of our asset-and-liability management activities that may be sold in response to changes in interest rates, prepayment risk, liquidity needs or other factors. HTM securities are debt securities that management has the intent and the ability to hold to maturity.

Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are recorded in trading services revenue in our consolidated statement of income. Debt and marketable equity securities classified as AFS are carried at fair value, and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS investment securities are computed using the specific identification method and are recorded in gains (losses) related to investment securities, net, in our consolidated statement of income. HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts.

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of the dates indicated:



	June 30, 2016								December 31, 2015
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
(In millions)			Gains		Losses						Gains		Losses
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	6,301	$	32	$	1	$	6,332	$	5,717	$	6	$	5	$	5,718
Mortgage-backed securities	18,788		298		11		19,075		18,168		131		134		18,165
Asset-backed securities:
Student loans⁽¹⁾	7,162		8		216		6,954		7,358		16		198		7,176
Credit cards	1,392		15		27		1,380		1,378		—		37		1,341
Sub-prime	396		1		28		369		448		2		31		419
Other⁽²⁾	1,684		27		1		1,710		1,724		43		3		1,764
Total asset-backed securities	10,634		51		272		10,413		10,908		61		269		10,700
Non-U.S. debt securities:
Mortgage-backed securities	7,254		42		28		7,268		7,010		72		11		7,071
Asset-backed securities	2,675		2		9		2,668		3,272		2		7		3,267
Government securities	5,385		20		—		5,405		4,348		7		—		4,355
Other⁽³⁾	5,341		37		4		5,374		4,817		29		12		4,834
Total non-U.S. debt securities	20,655		101		41		20,715		19,447		110		30		19,527
State and political subdivisions	10,065		563		25		10,603		9,402		371		27		9,746
Collateralized mortgage obligations	2,681		66		6		2,741		2,993		16		22		2,987
Other U.S. debt securities	2,357		42		9		2,390		2,611		31		18		2,624
U.S. equity securities	34		10		3		41		33		9		3		39
Non-U.S. equity securities	3		—		—		3		3		—		—		3
U.S. money-market mutual funds	405		—		—		405		542		—		—		542
Non-U.S. money-market mutual funds	17		—		—		17		19		—		—		19
Total	$	71,940	$	1,163	$	368	$	72,735	$	69,843	$	735	$	508	$	70,070
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	21,577	$	446	$	1	$	22,022	$	20,878	$	2	$	217	$	20,663
Mortgage-backed securities	1,521		14		—		1,535		610		2		8		604
Asset-backed securities:
Student loans⁽¹⁾	1,489		—		51		1,438		1,592		—		47		1,545
Credit cards	897		1		—		898		897		—		1		896
Other	138		1		—		139		366		2		1		367
Total asset-backed securities	2,524		2		51		2,475		2,855		2		49		2,808
Non-U.S. debt securities:
Mortgage-backed securities	1,900		96		31		1,965		2,202		109		26		2,285
Asset-backed securities	870		—		4		866		1,415		4		3		1,416
Government securities	309		3		—		312		239		—		1		238
Other	191		3		—		194		65		—		—		65
Total non-U.S. debt securities	3,270		102		35		3,337		3,921		113		30		4,004
State and political subdivisions	—		—		—		—		1		—		—		1
Collateralized mortgage obligations	1,494		51		19		1,526		1,687		60		29		1,718
Total	$	30,386	$	615	$	106	$	30,895	$	29,952	$	179	$	333	$	29,798

⁽¹⁾ Primarily composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.

⁽²⁾As of June 30, 2016 and December 31, 2015, the fair value of other ABS was primarily composed of $1.71 billion and $1.76 billion, respectively, of collateralized loan obligations.

⁽³⁾As of June 30, 2016 and December 31, 2015, the fair value of other non-U.S. debt securities was primarily composed of $3.40 billion and $3.18 billion, respectively, of covered bonds and $970 million and $613 million, as of June 30, 2016 and December 31, 2015, respectively, of corporate bonds.

Aggregate investment securities with carrying values of $34.10 billion and $34.18 billion as of June 30, 2016 and December 31, 2015, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

The following tables present the aggregate fair values of investment securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:



	Less than 12 months				12 months or longer				Total
June 30, 2016	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	84	$	—	$	129	$	1	$	213	$	1
Mortgage-backed securities	828		2		1,189		9		2,017		11
Asset-backed securities:
Student loans	2,210		39		4,049		177		6,259		216
Credit cards	—		—		558		27		558		27
Sub-prime	1		—		349		28		350		28
Other	399		1		25		—		424		1
Total asset-backed securities	2,610		40		4,981		232		7,591		272
Non-U.S. debt securities:
Mortgage-backed securities	2,825		17		757		11		3,582		28
Asset-backed securities	1,276		7		233		2		1,509		9
Government securities	486		—		—		—		486		—
Other	1,003		2		572		2		1,575		4
Total non-U.S. debt securities	5,590		26		1,562		15		7,152		41
State and political subdivisions	102		—		612		25		714		25
Collateralized mortgage obligations	128		1		282		5		410		6
Other U.S. debt securities	51		—		166		9		217		9
U.S. equity securities	—		—		5		3		5		3
Non-U.S. equity securities	1		—		—		—		1		—
Total	$	9,394	$	69	$	8,926	$	299	$	18,320	$	368
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	2	$	—	$	91	$	1	$	93	$	1
Asset-backed securities:
Student loans	809		27		631		24		1,440		51
Credit cards	218		—		—		—		218		—
Other	6		—		50		—		56		—
Total asset-backed securities	1,033		27		681		24		1,714		51
Non-U.S. mortgage-backed securities:
Mortgage-backed securities	189		7		515		24		704		31
Asset-backed securities	421		4		51		—		472		4
Government securities	197		—		—		—		197		—
Total non-U.S. debt securities	807		11		566		24		1,373		35
Collateralized mortgage obligations	728		10		200		9		928		19
Total	$	2,570	$	48	$	1,538	$	58	$	4,108	$	106



	Less than 12 months				12 months or longer				Total
December 31, 2015	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	3,123	$	4	$	121	$	1	$	3,244	$	5
Mortgage-backed securities	5,729		48		3,166		86		8,895		134
Asset-backed securities:
Student loans	2,841		54		3,217		144		6,058		198
Credit cards	838		7		490		30		1,328		37
Sub-prime	7		—		387		31		394		31
Other	720		3		43		—		763		3
Total asset-backed securities	4,406		64		4,137		205		8,543		269
Non-U.S. debt securities:
Mortgage-backed securities	1,457		7		437		4		1,894		11
Asset-backed securities	2,190		7		22		—		2,212		7
Government securities	1,691		—		—		—		1,691		—
Other	1,548		5		527		7		2,075		12
Total non-U.S. debt securities	6,886		19		986		11		7,872		30
State and political subdivisions	206		1		658		26		864		27
Collateralized mortgage obligations	1,511		14		217		8		1,728		22
Other U.S. debt securities	475		9		178		9		653		18
U.S. equity securities	—		—		5		3		5		3
Total	$	22,336	$	159	$	9,468	$	349	$	31,804	$	508
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	16,370	$	120	$	3,005	$	97	$	19,375	$	217
Mortgage-backed securities	560		8		—		—		560		8
Asset-backed securities:
Student loans	896		25		615		22		1,511		47
Credit cards	636		1		—		—		636		1
Other	102		—		31		1		133		1
Total asset-backed securities	1,634		26		646		23		2,280		49
Non-U.S. debt securities:
Mortgage-backed securities	338		2		524		24		862		26
Asset-backed securities	1,015		3		69		—		1,084		3
Government securities	128		1		—		—		128		1
Other	—		—		43		—		43		—
Total non-U.S. debt securities	1,481		6		636		24		2,117		30
Collateralized mortgage obligations	634		9		537		20		1,171		29
Total	$	20,679	$	169	$	4,824	$	164	$	25,503	$	333

The following table presents contractual maturities of debt investment securities by carrying amount as of June 30, 2016:



	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years			Total
(In millions)	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years			Total
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	4,508	$	1,154	$	252	$	418		$	6,332
Mortgage-backed securities	103		2,145		4,288		12,539			19,075
Asset-backed securities:
Student loans	426		3,782		1,354		1,392			6,954
Credit cards	4		261		1,115		—			1,380
Sub-prime	3		2		2		362			369
Other	2		158		1,401		149			1,710
Total asset-backed securities	435		4,203		3,872		1,903			10,413
Non-U.S. debt securities:
Mortgage-backed securities	876		4,091		709		1,592			7,268
Asset-backed securities	125		2,196		218		129			2,668
Government securities	3,907		1,354		144		—			5,405
Other	1,794		3,064		517		(1		)	5,374
Total non-U.S. debt securities	6,702		10,705		1,588		1,720			20,715
State and political subdivisions	428		2,314		5,630		2,231			10,603
Collateralized mortgage obligations	108		46		515		2,072			2,741
Other U.S. debt securities	806		1,149		390		45			2,390
Total	$	13,090	$	21,716	$	16,535	$	20,928		$	72,269
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	12,728	$	8,771	$	78		$	21,577
Mortgage-backed securities	—		10		171		1,340			1,521
Asset-backed securities:
Student loans	91		99		229		1,070			1,489
Credit cards	39		823		35		—			897
Other	30		55		51		2			138
Total asset-backed securities	160		977		315		1,072			2,524
Non-U.S. debt securities:
Mortgage-backed securities	323		470		79		1,028			1,900
Asset-backed securities	197		673		—		—			870
Government securities	197		112		—		—			309
Other	74		117		—		—			191
Total non-U.S. debt securities	791		1,372		79		1,028			3,270
Collateralized mortgage obligations	72		66		300		1,056			1,494
Total	$	1,023	$	15,153	$	9,636	$	4,574		$	30,386

The maturities of asset-backed securities, mortgage-backed securities, and collateralized mortgage obligations are based on expected principal payments.

The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated.



	Six Months Ended June 30,
(In millions)	2016			2015
Balance, beginning of period	$	92		$	115
Additions:
Losses for which OTTI was previously recognized	1			1
Deductions:
Previously recognized losses related to securities sold or matured	(2		)	(15		)
Balance, end of period	$	91		$	101

Interest revenue related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The level rate of return considers any nonrefundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly.

For debt securities acquired for which we consider it probable as of the date of acquisition that we will be unable to collect all contractually required principal, interest and other payments, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other-than-temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.

For certain debt securities acquired which are considered to be beneficial interests in securitized financial assets, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other-than-temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.