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:



	March 31, 2017								December 31, 2016
	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	$	3,149	$	3	$	1	$	3,151	$	4,265	$	7	$	9	$	4,263
Mortgage-backed securities	11,379		71		102		11,348		13,340		76		159		13,257
Asset-backed securities:
Student loans⁽¹⁾	5,702		26		37		5,691		5,659		12		75		5,596
Credit cards	1,323		1		22		1,302		1,377		—		26		1,351
Sub-prime	264		2		14		252		289		1		18		272
Other⁽²⁾	863		8		—		871		895		10		—		905
Total asset-backed securities	8,152		37		73		8,116		8,220		23		119		8,124
Non-U.S. debt securities:
Mortgage-backed securities	6,550		38		5		6,583		6,506		35		6		6,535
Asset-backed securities	2,806		6		1		2,811		2,513		4		1		2,516
Government securities	5,810		7		13		5,804		5,834		8		6		5,836
Other⁽³⁾	5,776		31		5		5,802		5,587		31		5		5,613
Total non-U.S. debt securities	20,942		82		24		21,000		20,440		78		18		20,500
State and political subdivisions	9,640		252		70		9,822		10,233		201		112		10,322
Collateralized mortgage obligations	2,480		15		34		2,461		2,610		18		35		2,593
Other U.S. debt securities	2,435		16		25		2,426		2,481		18		30		2,469
U.S. equity securities	39		7		2		44		39		6		3		42
Non-U.S. equity securities	2		—		—		2		3		—		—		3
U.S. money-market mutual funds	424		—		—		424		409		—		—		409
Non-U.S. money-market mutual funds	16		—		—		16		16		—		—		16
Total	$	58,658	$	483	$	331	$	58,810	$	62,056	$	427	$	485	$	61,998
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	17,504	$	18	$	44	$	17,478	$	17,527	$	17	$	58	$	17,486
Mortgage-backed securities	11,254		26		229		11,051		10,334		20		221		10,133
Asset-backed securities:
Student loans⁽¹⁾	2,812		13		20		2,805		2,883		5		30		2,858
Credit cards	858		3		—		861		897		2		—		899
Other	15		—		—		15		35		—		—		35
Total asset-backed securities	3,685		16		20		3,681		3,815		7		30		3,792
Non-U.S. debt securities:
Mortgage-backed securities	1,131		76		12		1,195		1,150		70		15		1,205
Asset-backed securities	437		1		—		438		531		—		—		531
Government securities	340		2		—		342		286		3		—		289
Other	117		2		—		119		113		1		—		114
Total non-U.S. debt securities	2,025		81		12		2,094		2,080		74		15		2,139
Collateralized mortgage obligations	1,361		39		10		1,390		1,413		42		11		1,444
Total	$	35,829	$	180	$	315	$	35,694	$	35,169	$	160	$	335	$	34,994

⁽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 March 31, 2017 and December 31, 2016, the fair value of other ABS was primarily composed of $871 million and $905 million, respectively, of collateralized loan obligations.

⁽³⁾As of March 31, 2017 and December 31, 2016, the fair value of other non-U.S. debt securities was primarily composed of $3,742 million and $3,769 million, respectively, of covered bonds and $1,054 million and $988 million, as of March 31, 2017 and December 31, 2016, respectively, of corporate bonds.

Aggregate investment securities with carrying values of approximately $48 billion and $46 billion as of March 31, 2017 and December 31, 2016, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

In the first quarter of 2017, we sold $2.7 billion of AFS, primarily Agency MBS and U.S. Treasury securities in our investment portfolio, in response to the current interest rate environment resulting in a pre-tax loss of $40 million.

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
March 31, 2017	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	663	$	—	$	178	$	1	$	841	$	1
Mortgage-backed securities	5,653		93		525		9		6,178		102
Asset-backed securities:
Student loans	136		—		3,107		37		3,243		37
Credit cards	—		—		497		22		497		22
Sub-prime	—		—		233		14		233		14
Total asset-backed securities	136		—		3,837		73		3,973		73
Non-U.S. debt securities:
Mortgage-backed securities	542		1		780		4		1,322		5
Asset-backed securities	75		—		135		1		210		1
Government securities	2,695		13		—		—		2,695		13
Other	633		5		111		—		744		5
Total non-U.S. debt securities	3,945		19		1,026		5		4,971		24
State and political subdivisions	2,294		69		52		1		2,346		70
Collateralized mortgage obligations	1,100		30		177		4		1,277		34
Other U.S. debt securities	888		19		158		6		1,046		25
U.S. equity securities	—		—		6		2		6		2
Total	$	14,679	$	230	$	5,959	$	101	$	20,638	$	331
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	7,977	$	43	$	83	$	1	$	8,060	$	44
Mortgage-backed securities	7,240		229		—		—		7,240		229
Asset-backed securities:
Student loans	557		6		1,016		14		1,573		20
Total asset-backed securities	557		6		1,016		14		1,573		20
Non-U.S. debt securities:
Mortgage-backed securities	13		—		323		12		336		12
Total non-U.S. debt securities	13		—		323		12		336		12
Collateralized mortgage obligations	452		3		190		7		642		10
Total	$	16,239	$	281	$	1,612	$	34	$	17,851	$	315



	Less than 12 months				12 months or longer				Total
December 31, 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	$	651	$	8	$	180	$	1	$	831	$	9
Mortgage-backed securities	7,072		131		1,114		28		8,186		159
Asset-backed securities:
Student loans	54		—		3,745		75		3,799		75
Credit cards	795		1		494		25		1,289		26
Sub-prime	1		—		252		18		253		18
Other	75		—		—		—		75		—
Total asset-backed securities	925		1		4,491		118		5,416		119
Non-U.S. debt securities:
Mortgage-backed securities	442		1		893		5		1,335		6
Asset-backed securities	253		—		276		1		529		1
Government securities	1,314		6		—		—		1,314		6
Other	670		4		218		1		888		5
Total non-U.S. debt securities	2,679		11		1,387		7		4,066		18
State and political subdivisions	3,390		102		304		10		3,694		112
Collateralized mortgage obligations	1,259		31		162		4		1,421		35
Other U.S. debt securities	944		24		157		6		1,101		30
U.S. equity securities	8		—		5		3		13		3
Total	$	16,928	$	308	$	7,800	$	177	$	24,728	$	485
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	8,891	$	57	$	86	$	1	$	8,977	$	58
Mortgage-backed securities	6,838		221		—		—		6,838		221
Asset-backed securities:
Student loans	705		9		1,235		21		1,940		30
Credit cards	33		—		—		—		33		—
Other	18		—		9		—		27		—
Total asset-backed securities	756		9		1,244		21		2,000		30
Non-U.S. debt securities:
Mortgage-backed securities	54		2		330		13		384		15
Asset-backed securities	28		—		35		—		63		—
Government securities	180		—		—		—		180		—
Total non-U.S. debt securities	262		2		365		13		627		15
Collateralized mortgage obligations	537		4		204		7		741		11
Total	$	17,284	$	293	$	1,899	$	42	$	19,183	$	335

The following table presents contractual maturities of debt investment securities by carrying amount as of March 31, 2017. The maturities of certain asset-backed securities, mortgage-backed securities, and collateralized mortgage obligations are based on expected principal payments. Actual maturities may differ from these expected maturities since certain borrowers have the right to prepay obligations with or without prepayment penalties.



	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	$	2,731	$	11	$	44	$	365	$	3,151
Mortgage-backed securities	224		1,433		3,235		6,456		11,348
Asset-backed securities:
Student loans	580		3,038		807		1,266		5,691
Credit cards	—		1,005		297		—		1,302
Sub-prime	1		2		2		247		252
Other	—		62		809		—		871
Total asset-backed securities	581		4,107		1,915		1,513		8,116
Non-U.S. debt securities:
Mortgage-backed securities	1,213		3,643		831		896		6,583
Asset-backed securities	260		2,281		268		2		2,811
Government securities	4,079		999		726		—		5,804
Other	1,837		3,465		500		—		5,802
Total non-U.S. debt securities	7,389		10,388		2,325		898		21,000
State and political subdivisions	492		2,379		5,161		1,790		9,822
Collateralized mortgage obligations	—		64		828		1,569		2,461
Other U.S. debt securities	406		1,033		978		9		2,426
Total	$	11,823	$	19,415	$	14,486	$	12,600	$	58,324
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	400	$	16,319	$	716	$	69	$	17,504
Mortgage-backed securities	—		180		1,724		9,350		11,254
Asset-backed securities:
Student loans	348		231		293		1,940		2,812
Credit cards	124		734		—		—		858
Other	1		12		—		2		15
Total asset-backed securities	473		977		293		1,942		3,685
Non-U.S. debt securities:
Mortgage-backed securities	249		232		55		595		1,131
Asset-backed securities	168		269		—		—		437
Government securities	232		108		—		—		340
Other	74		43		—		—		117
Total non-U.S. debt securities	723		652		55		595		2,025
Collateralized mortgage obligations	45		18		482		816		1,361
Total	$	1,641	$	18,146	$	3,270	$	12,772	$	35,829

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



	Three Months Ended March 31,
(In millions)	2017		2016
Balance, beginning of period	$	66	$	92
Deductions:
Previously recognized losses related to securities sold or matured	—		(1		)
Balance, end of period	$	66	$	91

Interest income 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 non-refundable 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 income 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 income 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.