Investment Securities

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

As described in Note 1, upon adoption of ASU 2016-01 we reclassified approximately $397 million of money market funds and $46 million of equity securities to other assets, where they are held at fair value with changes to fair value recorded through our consolidated statement of income.

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. AFS securities 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, fair value and associated unrealized gains and losses of AFS and HTM investment securities as of the dates indicated:



	March 31, 2018								December 31, 2017
	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	$	88	$	1	$	—	$	89	$	222	$	2	$	1	$	223
Mortgage-backed securities	10,521		13		244		10,290		10,975		26		129		10,872
Total U.S. Treasury and federal agencies	10,609		14		244		10,379		11,197		28		130		11,095
Asset-backed securities:
Student loans⁽¹⁾	1,719		26		2		1,743		3,325		37		4		3,358
Credit cards	1,461		1		31		1,431		1,565		2		25		1,542
CLOs	821		5		—		826		1,440		7		—		1,447
Total asset-backed securities	4,001		32		33		4,000		6,330		46		29		6,347
Non-U.S. debt securities:
Mortgage-backed securities	2,940		13		1		2,952		6,664		36		5		6,695
Asset-backed securities	1,630		3		—		1,633		2,942		5		—		2,947
Government securities	10,876		31		32		10,875		10,754		16		49		10,721
Other⁽²⁾	4,525		21		15		4,531		6,076		38		6		6,108
Total non-U.S. debt securities	19,971		68		48		19,991		26,436		95		60		26,471
State and political subdivisions⁽³⁾	7,197		154		44		7,307		8,929		245		23		9,151
Collateralized mortgage obligations	352		—		5		347		1,060		3		9		1,054
Other U.S. debt securities	2,309		6		35		2,280		2,563		12		15		2,560
U.S. equity securities⁽⁴⁾	—		—		—		—		40		8		2		46
U.S. money-market mutual funds⁽⁴⁾	—		—		—		—		397		—		—		397
Total	$	44,439	$	274	$	409	$	44,304	$	56,952	$	437	$	268	$	57,121
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	16,903	$	—	$	259	$	16,644	$	17,028	$	—	$	143	$	16,885
Mortgage-backed securities	17,879		1		571		17,309		16,651		22		225		16,448
Total U.S. Treasury and federal agencies	34,782		1		830		33,953		33,679		22		368		33,333
Asset-backed securities:
Student loans⁽¹⁾	2,973		38		9		3,002		3,047		32		9		3,070
Credit cards	709		1		—		710		798		2		—		800
Other	1		—		—		1		1		—		—		1
Total asset-backed securities	3,683		39		9		3,713		3,846		34		9		3,871
Non-U.S. debt securities:
Mortgage-backed securities	791		87		5		873		939		82		6		1,015
Asset-backed securities	259		1		—		260		263		1		—		264
Government securities	411		2		—		413		474		2		—		476
Other	49		—		—		49		48		—		—		48
Total non-U.S. debt securities	1,510		90		5		1,595		1,724		85		6		1,803
Collateralized mortgage obligations	1,183		46		7		1,222		1,209		45		6		1,248
Total	$	41,158	$	176	$	851	$	40,483	$	40,458	$	186	$	389	$	40,255

⁽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, 2018 and December 31, 2017, the fair value of other non-U.S. debt securities was primarily composed of $2,193 million and $3,537 million, respectively, of covered bonds and $1,738 million and $1,885 million, respectively, of corporate bonds.

⁽³⁾ As of March 31, 2018 and December 31, 2017, the fair value of State and Political subdivisions includes securities in trusts of $1,213 million and $1,247 million, respectively. Additional information about these trusts is provided in Note 11 to the consolidated financial statements in this Form 10-Q.

⁽⁴⁾ During the first quarter of 2018, we adopted ASU 2016-01. For additional information see Note 1.

Aggregate investment securities with carrying values of approximately $38 billion and $48 billion as of March 31, 2018 and December 31, 2017, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

In the three months ended March 31, 2018, we sold approximately $12 billion of AFS, primarily asset-backed securities, municipal bonds and covered bonds, resulting in a pre-tax loss of approximately $1 million.

The following tables present the aggregate fair values of AFS and HTM 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, 2018	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	$	8	$	—	$	18	$	—	$	26	$	—
Mortgage-backed securities	5,595		108		3,140		136		8,735		244
Total U.S. Treasury and federal agencies	5,603		108		3,158		136		8,761		244
Asset-backed securities:
Student loans	315		—		251		2		566		2
Credit cards	1,280		31		—		—		1,280		31
CLOs	20		—		—		—		20		—
Total asset-backed securities	1,615		31		251		2		1,866		33
Non-U.S. debt securities:
Mortgage-backed securities	379		1		161		—		540		1
Asset-backed securities	130		—		33		—		163		—
Government securities	6,392		31		69		1		6,461		32
Other	931		12		260		3		1,191		15
Total non-U.S. debt securities	7,832		44		523		4		8,355		48
State and political subdivisions	1,306		22		546		22		1,852		44
Collateralized mortgage obligations	237		3		75		2		312		5
Other U.S. debt securities	1,357		27		292		8		1,649		35
Total	$	17,950	$	235	$	4,845	$	174	$	22,795	$	409
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	13,137	$	216	$	3,507	$	43	$	16,644	$	259
Mortgage-backed securities	11,370		252		5,820		319		17,190		571
Total U.S. Treasury and federal agencies	24,507		468		9,327		362		33,834		830
Asset-backed securities:
Student loans	131		1		572		8		703		9
Other	—		—		1		—		1		—
Total asset-backed securities	131		1		573		8		704		9
Non-U.S. debt securities:
Mortgage-backed securities	26		—		222		5		248		5
Asset-backed securities	—		—		13		—		13		—
Government securities	242		—		—		—		242		—
Total non-U.S. debt securities	268		—		235		5		503		5
Collateralized mortgage obligations	6		—		264		7		270		7
Total	$	24,912	$	469	$	10,399	$	382	$	35,311	$	851



	Less than 12 months				12 months or longer				Total
December 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	$	—	$	—	$	67	$	1	$	67	$	1
Mortgage-backed securities	5,161		31		3,341		98		8,502		129
Total U.S. Treasury and federal agencies	5,161		31		3,408		99		8,569		130
Asset-backed securities:
Student loans	—		—		769		4		769		4
Credit cards	1,289		25		—		—		1,289		25
Total asset-backed securities	1,289		25		769		4		2,058		29
Non-U.S. debt securities:
Mortgage-backed securities	1,059		4		469		1		1,528		5
Government securities	7,629		48		68		1		7,697		49
Other	816		4		289		2		1,105		6
Total non-U.S. debt securities	9,504		56		826		4		10,330		60
State and political subdivisions	734		6		901		17		1,635		23
Collateralized mortgage obligations	399		5		136		4		535		9
Other U.S. debt securities	1,007		8		345		7		1,352		15
U.S. equity securities	—		—		6		2		6		2
Total	$	18,094	$	131	$	6,391	$	137	$	24,485	$	268
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	14,439	$	109	$	2,447	$	34	$	16,886	$	143
Mortgage-backed securities	6,785		38		5,988		187		12,773		225
Total U.S. Treasury and federal agencies	21,224		147		8,435		221		29,659		368
Asset-backed securities:
Student loans	440		3		423		6		863		9
Total asset-backed securities	440		3		423		6		863		9
Non-U.S. debt securities:
Mortgage-backed securities	—		—		239		6		239		6
Total non-U.S. debt securities	—		—		239		6		239		6
Collateralized mortgage obligations	—		—		276		6		276		6
Total	$	21,664	$	150	$	9,373	$	239	$	31,037	$	389

The following table presents contractual maturities of debt investment securities by carrying amount as of March 31, 2018. The maturities of certain ABS, MBS, and CMOs 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.



March 31, 2018	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	$	11	$	—	$	—	$	78	$	89
Mortgage-backed securities	112		647		2,899		6,632		10,290
Total U.S. Treasury and federal agencies	123		647		2,899		6,710		10,379
Asset-backed securities:
Student loans	216		395		374		758		1,743
Credit cards	—		1,280		151		—		1,431
CLOs	—		406		400		20		826
Total asset-backed securities	216		2,081		925		778		4,000
Non-U.S. debt securities:
Mortgage-backed securities	302		2,054		194		402		2,952
Asset-backed securities	172		1,103		233		125		1,633
Government securities	2,296		3,115		4,556		908		10,875
Other	992		2,783		718		38		4,531
Total non-U.S. debt securities	3,762		9,055		5,701		1,473		19,991
State and political subdivisions	443		2,063		3,569		1,232		7,307
Collateralized mortgage obligations	2		22		—		323		347
Other U.S. debt securities	268		1,154		857		1		2,280
Total	$	4,814	$	15,022	$	13,951	$	10,517	$	44,304
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	2,939	$	13,898	$	13	$	53	$	16,903
Mortgage-backed securities	—		219		1,470		16,190		17,879
Total U.S. Treasury and federal agencies	2,939		14,117		1,483		16,243		34,782
Asset-backed securities:
Student loans	25		262		249		2,437		2,973
Credit cards	173		536		—		—		709
Other	—		—		—		1		1
Total asset-backed securities	198		798		249		2,438		3,683
Non-U.S. debt securities:
Mortgage-backed securities	63		172		42		514		791
Asset-backed securities	13		246		—		—		259
Government securities	287		124		—		—		411
Other	—		49		—		—		49
Total non-U.S. debt securities	363		591		42		514		1,510
Collateralized mortgage obligations	4		138		343		698		1,183
Total	$	3,504	$	15,644	$	2,117	$	19,893	$	41,158

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)	2018		2017
Balance, beginning of period	$	64	$	66
Additions:
Losses for which OTTI was previously recognized	1		—
Balance, end of period	$	65	$	66

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 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 OTTI. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.