Investment Securities

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investment Securities

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. For additional information on our accounting for investment securities, refer to page 40 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in the 2018 Annual Financial Statements.

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:

	September 30, 2019								December 31, 2018
	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	$	2,035	$	11	$	7	$	2,039	$	1,035	$	4	$	—	$	1,039
Mortgage-backed securities	22,076		321		18		22,379		16,112		37		181		15,968
Total U.S. Treasury and federal agencies	24,111		332		25		24,418		17,147		41		181		17,007
Asset-backed securities:
Student loans(1)	469		2		—		471		538		4		1		541
Credit cards	90		—		—		90		609		—		26		583
Collateralized loan obligations	1,448		—		2		1,446		594		1		2		593
Total asset-backed securities	2,007		2		2		2,007		1,741		5		29		1,717
Non-U.S. debt securities:
Mortgage-backed securities	1,916		3		2		1,917		1,687		—		5		1,682
Asset-backed securities	1,829		3		1		1,831		1,580		—		6		1,574
Government securities	12,996		194		1		13,189		12,816		22		45		12,793
Other(2)	6,891		108		1		6,998		6,600		18		16		6,602
Total non-U.S. debt securities	23,632		308		5		23,935		22,683		40		72		22,651
State and political subdivisions(3)	1,765		56		2		1,819		1,905		20		7		1,918
Collateralized mortgage obligations	112		1		—		113		200		—		3		197
Other U.S. debt securities	2,432		34		1		2,465		1,683		1		26		1,658
Total	$	54,059	$	733	$	35	$	54,757	$	45,359	$	107	$	318	$	45,148
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	11,781	$	20	$	11	$	11,790	$	14,794	$	—	$	199	$	14,595
Mortgage-backed securities	21,966		324		29		22,261		21,647		24		518		21,153
Total U.S. Treasury and federal agencies	33,747		344		40		34,051		36,441		24		717		35,748
Asset-backed securities:
Student loans(1)	3,881		22		21		3,882		3,191		35		10		3,216
Credit cards	—		—		—		—		193		—		—		193
Other	—		—		—		—		1		—		—		1
Total asset-backed securities	3,881		22		21		3,882		3,385		35		10		3,410
Non-U.S. debt securities:
Mortgage-backed securities	471		80		7		544		638		77		9		706
Asset-backed securities	—		—		—		—		223		—		—		223
Government securities	294		1		—		295		358		1		—		359
Other	—		—		—		—		46		—		—		46
Total non-U.S. debt securities	765		81		7		839		1,265		78		9		1,334
Collateralized mortgage obligations	726		38		1		763		823		38		2		859
Total	$	39,119	$	485	$	69	$	39,535	$	41,914	$	175	$	738	$	41,351

⁽¹⁾ Primarily comprised 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 September 30, 2019 and December 31, 2018, the fair value of other non-U.S. debt securities included $4.29 billion and $3.20 billion, respectively, primarily of supranational bonds, $1.52 billion and $1.33 billion, respectively, of corporate bonds and $0.73 billion and $1.30 billion, respectively, of covered bonds.

⁽³⁾ As of September 30, 2019 and December 31, 2018, the fair value of state and political subdivisions includes securities in trusts of $0.99 billion and $1.05 billion, respectively. Additional information about these trusts is provided in Note 11.

Aggregate investment securities with carrying values of approximately $45.68 billion and $38.87 billion as of September 30, 2019 and December 31, 2018, 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 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:

	As of September 30, 2019
	Less than 12 months				12 months or longer				Total
(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	$	622	$	7	$	—	$	—	$	622	$	7
Mortgage-backed securities	2,465		4		1,727		14		4,192		18
Total U.S. Treasury and federal agencies	3,087		11		1,727		14		4,814		25
Asset-backed securities:
Student loans	65		—		154		—		219		—
Credit cards	90		—		—		—		90		—
Collateralized loan obligations	643		1		276		1		919		2
Total asset-backed securities	798		1		430		1		1,228		2
Non-U.S. debt securities:
Mortgage-backed securities	245		1		288		1		533		2
Asset-backed securities	279		1		217		—		496		1
Government securities	3,075		1		—		—		3,075		1
Other	1,289		1		190		—		1,479		1
Total non-U.S. debt securities	4,888		4		695		1		5,583		5
State and political subdivisions	199		2		—		—		199		2
Collateralized mortgage obligations	—		—		6		—		6		—
Other U.S. debt securities	171		—		56		1		227		1
Total	$	9,143	$	18	$	2,914	$	17	$	12,057	$	35
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	253	$	—	$	5,645	$	11	$	5,898	$	11
Mortgage-backed securities	3,780		14		1,731		15		5,511		29
Total U.S. Treasury and federal agencies	4,033		14		7,376		26		11,409		40
Asset-backed securities:
Student loans	1,504		10		530		11		2,034		21
Total asset-backed securities	1,504		10		530		11		2,034		21
Non-U.S. debt securities:
Mortgage-backed securities	13		1		145		6		158		7
Total non-U.S. debt securities	13		1		145		6		158		7
Collateralized mortgage obligations	94		—		28		1		122		1
Total	$	5,644	$	25	$	8,079	$	44	$	13,723	$	69

	As of December 31, 2018
	Less than 12 months				12 months or longer				Total
(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	$	5,058	$	21	$	5,089	$	160	$	10,147	$	181
Total U.S. Treasury and federal agencies	5,058		21		5,089		160		10,147		181
Asset-backed securities:
Student loans	106		—		218		1		324		1
Credit cards	90		—		493		26		583		26
Collateralized loan obligations	548		2		—		—		548		2
Total asset-backed securities	744		2		711		27		1,455		29
Non-U.S. debt securities:
Mortgage-backed securities	1,407		4		118		1		1,525		5
Asset-backed securities	1,479		6		—		—		1,479		6
Government securities	5,478		45		—		—		5,478		45
Other	2,167		12		226		4		2,393		16
Total non-U.S. debt securities	10,531		67		344		5		10,875		72
State and political subdivisions	365		3		244		4		609		7
Collateralized mortgage obligations	181		3		14		—		195		3
Other U.S. debt securities	861		14		484		12		1,345		26
Total	$	17,740	$	110	$	6,886	$	208	$	24,626	$	318
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	2,192	$	45	$	12,403	$	154	$	14,595	$	199
Mortgage-backed securities	6,502		103		10,648		415		17,150		518
Total U.S. Treasury and federal agencies	8,694		148		23,051		569		31,745		717
Asset-backed securities:
Student loans	481		4		536		6		1,017		10
Total asset-backed securities	481		4		536		6		1,017		10
Non-U.S. debt securities:
Mortgage-backed securities	184		2		119		7		303		9
Total non-U.S. debt securities	184		2		119		7		303		9
Collateralized mortgage obligations	102		1		51		1		153		2
Total	$	9,461	$	155	$	23,757	$	583	$	33,218	$	738

The following table presents contractual maturities of debt investment securities by carrying amount as of September 30, 2019. The maturities of certain ABS, MBS 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.

	As of September 30, 2019
(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	$	236	$	809	$	994	$	—	$	2,039
Mortgage-backed securities	122		974		3,085		18,198		22,379
Total U.S. Treasury and federal agencies	358		1,783		4,079		18,198		24,418
Asset-backed securities:
Student loans	28		265		119		59		471
Credit cards	—		—		90		—		90
Collateralized loan obligations	30		548		751		117		1,446
Total asset-backed securities	58		813		960		176		2,007
Non-U.S. debt securities:
Mortgage-backed securities	336		569		202		810		1,917
Asset-backed securities	473		718		445		195		1,831
Government securities	5,231		6,609		1,349		—		13,189
Other	647		5,889		441		21		6,998
Total non-U.S. debt securities	6,687		13,785		2,437		1,026		23,935
State and political subdivisions	146		784		490		399		1,819
Collateralized mortgage obligations	—		—		—		113		113
Other U.S. debt securities	576		1,746		143		—		2,465
Total	$	7,825	$	18,911	$	8,109	$	19,912	$	54,757
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,316	$	7,427	$	7	$	31	$	11,781
Mortgage-backed securities	38		214		1,991		19,723		21,966
Total U.S. Treasury and federal agencies	4,354		7,641		1,998		19,754		33,747
Asset-backed securities:
Student loans	47		265		324		3,245		3,881
Total asset-backed securities	47		265		324		3,245		3,881
Non-U.S. debt securities:
Mortgage-backed securities	96		34		4		337		471
Government securities	184		110		—		—		294
Total non-U.S. debt securities	280		144		4		337		765
Collateralized mortgage obligations	—		303		13		410		726
Total	$	4,681	$	8,353	$	2,339	$	23,746	$	39,119

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, adjusted as prepayments occur, 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.

Impairment

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

	Nine Months Ended September 30,
(In millions)	2019			2018
Balance, beginning of period	$	78		$	77
Additions(1):
Other-than-temporary-impairment recognized	1			2
Realized losses on securities sold or matured	(2		)	—
Balance, end of period	$	77		$	79

⁽¹⁾ Additions represent securities with a first time credit impairment realized or when a subsequent credit impairment has occurred.

We conduct periodic reviews of individual securities to assess whether OTTI exists. For additional information about the review of securities for impairment, refer to pages 45 to 47 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in the 2018 Annual Financial Statements.

We recorded approximately $1 million and $2 million of OTTI in the nine months ended September 30, 2019 and 2018, respectively, which resulted from adverse changes in the timing of expected future cash flows from the securities.

After a review of the investment portfolio, taking into consideration current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the collateral underlying MBS and ABS and other relevant factors, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $104 million related to 487 securities as of September 30, 2019 to be temporary, and not the result of any material changes in the credit characteristics of the securities.