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:



	June 30, 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	$	11	$	—	$	—	$	11	$	222	$	2	$	1	$	223
Mortgage-backed securities	16,158		22		287		15,893		10,975		26		129		10,872
Total U.S. Treasury and federal agencies	16,169		22		287		15,904		11,197		28		130		11,095
Asset-backed securities:
Student loans⁽¹⁾	1,546		22		1		1,567		3,325		37		4		3,358
Credit cards	639		1		23		617		1,565		2		25		1,542
CLOs	848		4		1		851		1,440		7		—		1,447
Total asset-backed securities	3,033		27		25		3,035		6,330		46		29		6,347
Non-U.S. debt securities:
Mortgage-backed securities	2,609		8		2		2,615		6,664		36		5		6,695
Asset-backed securities	1,655		2		—		1,657		2,942		5		—		2,947
Government securities	13,089		31		48		13,072		10,754		16		49		10,721
Other⁽²⁾	4,449		19		16		4,452		6,076		38		6		6,108
Total non-U.S. debt securities	21,802		60		66		21,796		26,436		95		60		26,471
State and political subdivisions⁽³⁾	4,127		114		13		4,228		8,929		245		23		9,151
Collateralized mortgage obligations	325		—		6		319		1,060		3		9		1,054
Other U.S. debt securities	2,104		5		43		2,066		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	$	47,560	$	228	$	440	$	47,348	$	56,952	$	437	$	268	$	57,121
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	15,992	$	—	$	292	$	15,700	$	17,028	$	—	$	143	$	16,885
Mortgage-backed securities	17,443		1		652		16,792		16,651		22		225		16,448
Total U.S. Treasury and federal agencies	33,435		1		944		32,492		33,679		22		368		33,333
Asset-backed securities:
Student loans⁽¹⁾	2,892		44		8		2,928		3,047		32		9		3,070
Credit cards	710		1		—		711		798		2		—		800
Other	1		—		—		1		1		—		—		1
Total asset-backed securities	3,603		45		8		3,640		3,846		34		9		3,871
Non-U.S. debt securities:
Mortgage-backed securities	727		82		5		804		939		82		6		1,015
Asset-backed securities	231		—		—		231		263		1		—		264
Government securities	404		2		—		406		474		2		—		476
Other	47		—		—		47		48		—		—		48
Total non-U.S. debt securities	1,409		84		5		1,488		1,724		85		6		1,803
Collateralized mortgage obligations	1,147		45		7		1,185		1,209		45		6		1,248
Total	$	39,594	$	175	$	964	$	38,805	$	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 June 30, 2018 and December 31, 2017, the fair value of other non-U.S. debt securities was primarily composed of $1,959 million and $3,537 million, respectively, of covered bonds and $1,735 million and $1,885 million, respectively, of corporate bonds.

⁽³⁾ As of June 30, 2018 and December 31, 2017, the fair value of State and Political subdivisions includes securities in trusts of $1,207 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 $33 billion and $48 billion as of June 30, 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 six months ended June 30, 2018, we sold approximately $16 billion of AFS, primarily asset-backed securities, municipal bonds and covered bonds, resulting in a net pre-tax gain of approximately $8 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
June 30, 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:
Mortgage-backed securities	$	7,776	$	136	$	3,030	$	151	$	10,806	$	287
Total U.S. Treasury and federal agencies	7,776		136		3,030		151		10,806		287
Asset-backed securities:
Student loans	309		1		192		—		501		1
Credit cards	491		23		—		—		491		23
CLOs	326		1		—		—		326		1
Total asset-backed securities	1,126		25		192		—		1,318		25
Non-U.S. debt securities:
Mortgage-backed securities	756		2		63		—		819		2
Government securities	6,216		48		—		—		6,216		48
Other	1,254		15		56		1		1,310		16
Total non-U.S. debt securities	8,226		65		119		1		8,345		66
State and political subdivisions	563		7		233		6		796		13
Collateralized mortgage obligations	232		4		70		2		302		6
Other U.S. debt securities	1,382		36		113		7		1,495		43
Total	$	19,305	$	273	$	3,757	$	167	$	23,062	$	440
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	12,528	$	246	$	3,172	$	46	$	15,700	$	292
Mortgage-backed securities	11,090		320		5,606		332		16,696		652
Total U.S. Treasury and federal agencies	23,618		566		8,778		378		32,396		944
Asset-backed securities:
Student loans	99		1		559		7		658		8
Total asset-backed securities	99		1		559		7		658		8
Non-U.S. debt securities:
Mortgage-backed securities	93		1		133		4		226		5
Total non-U.S. debt securities	93		1		133		4		226		5
Collateralized mortgage obligations	2		—		238		7		240		7
Total	$	23,812	$	568	$	9,708	$	396	$	33,520	$	964



	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 June 30, 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.



June 30, 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	$	—	$	—	$	—	$	11
Mortgage-backed securities	105		621		2,708		12,459		15,893
Total U.S. Treasury and federal agencies	116		621		2,708		12,459		15,904
Asset-backed securities:
Student loans	56		366		457		688		1,567
Credit cards	—		491		126		—		617
CLOs	100		589		142		20		851
Total asset-backed securities	156		1,446		725		708		3,035
Non-U.S. debt securities:
Mortgage-backed securities	223		1,807		195		390		2,615
Asset-backed securities	155		712		650		140		1,657
Government securities	2,279		4,422		6,103		268		13,072
Other	1,232		2,478		705		37		4,452
Total non-U.S. debt securities	3,889		9,419		7,653		835		21,796
State and political subdivisions	406		1,284		1,786		752		4,228
Collateralized mortgage obligations	—		16		—		303		319
Other U.S. debt securities	76		1,281		709		—		2,066
Total	$	4,643	$	14,067	$	13,581	$	15,057	$	47,348
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	3,205	$	12,725	$	13	$	49	$	15,992
Mortgage-backed securities	10		185		1,467		15,781		17,443
Total U.S. Treasury and federal agencies	3,215		12,910		1,480		15,830		33,435
Asset-backed securities:
Student loans	32		276		226		2,358		2,892
Credit cards	173		537		—		—		710
Other	—		—		—		1		1
Total asset-backed securities	205		813		226		2,359		3,603
Non-U.S. debt securities:
Mortgage-backed securities	94		140		21		472		727
Asset-backed securities	—		231		—		—		231
Government securities	287		117		—		—		404
Other	47		—		—		—		47
Total non-U.S. debt securities	428		488		21		472		1,409
Collateralized mortgage obligations	5		418		49		675		1,147
Total	$	3,853	$	14,629	$	1,776	$	19,336	$	39,594

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)	2018		2017
Balance, beginning of period	$	64	$	66
Additions:
Losses for which OTTI was previously recognized	1		—
Deductions:
Previously recognized losses related to securities sold or matured	—		(2		)
Balance, end of period	$	65	$	64

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.