Investment Securities

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

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 135 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2019 Form 10-K.

Trading account assets are carried at fair value. Both realized and unrealized gains and losses on trading account assets are recorded in foreign exchange trading services revenue in our consolidated statement of income. AFS securities are carried at fair value, with any allowance for credit losses recorded through the consolidated statement of income and after-tax net unrealized non-credit related gains and losses recorded in AOCI. Gains or losses related 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.

We participated in the Federal Reserve's MMLF program in the first quarter of 2020 and purchased $27 billion of investment securities under that program.

HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts, with any allowance for credit losses recorded through the consolidated statement of income. As of March 31, 2020, we recognized an allowance for credit losses on HTM investment securities of $4 million all related to MMLF program assets.

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, 2020								December 31, 2019
	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	$	4,983	$	167	$	—	$	5,150	$	3,506	$	9	$	28	$	3,487
Mortgage-backed securities	17,842		547		25		18,364		17,599		264		25		17,838
Total U.S. Treasury and federal agencies	22,825		714		25		23,514		21,105		273		53		21,325
Asset-backed securities:
Student loans⁽¹⁾	466		—		12		454		532		1		2		531
Credit cards	90		—		5		85		90		—		1		89
Collateralized loan obligations	1,931		—		90		1,841		1,822		1		3		1,820
Total asset-backed securities	2,487		—		107		2,380		2,444		2		6		2,440
Non-U.S. debt securities:
Mortgage-backed securities	1,710		—		18		1,692		1,978		3		1		1,980
Asset-backed securities	1,907		—		52		1,855		2,179		2		2		2,179
Government securities	12,952		121		18		13,055		12,243		131		1		12,373
Other⁽²⁾	8,761		59		46		8,774		8,595		73		10		8,658
Total non-U.S. debt securities	25,330		180		134		25,376		24,995		209		14		25,190
State and political subdivisions⁽³⁾	1,724		48		7		1,765		1,725		59		1		1,783
Collateralized mortgage obligations	96		—		—		96		104		—		—		104
Other U.S. debt securities	2,737		9		34		2,712		2,941		32		—		2,973
Total	$	55,199	$	951	$	307	$	55,843	$	53,314	$	575	$	74	$	53,815

Held-to-maturity:

U.S. Treasury and federal agencies:
Direct obligations	$	9,268	$	171	$	—	$	9,439	$	10,311	$	24	$	3	$	10,332
Mortgage-backed securities	26,613		970		7		27,576		26,297		316		44		26,569
Total U.S. Treasury and federal agencies	35,881		1,141		7		37,015		36,608		340		47		36,901
Asset-backed securities:
Student loans⁽¹⁾	4,055		1		148		3,908		3,783		10		41		3,752
Total asset-backed securities	4,055		1		148		3,908		3,783		10		41		3,752
Non-U.S. debt securities:
Mortgage-backed securities	335		56		14		377		366		82		6		442
Government securities	279		1		—		280		328		—		—		328
Total non-U.S. debt securities	614		57		14		657		694		82		6		770
Collateralized mortgage obligations	600		28		7		621		697		38		1		734
Total⁽⁴⁾	41,150		1,227		176		42,201		41,782		470		95		42,157
HTM securities purchased under the MMLF program⁽⁵⁾	26,812		9		13		26,808		—		—		—		—
Total held-to-maturity securities	$	67,962	$	1,236	$	189	$	69,009	$	41,782	$	470	$	95	$	42,157

⁽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 March 31, 2020 and December 31, 2019, the fair value of other non-U.S. debt securities included $6.00 billion and $5.50 billion, respectively, primarily of supranational and non-U.S. agency bonds, $1.71 billion and $1.78 billion, respectively, of corporate bonds and $0.47 billion and $0.68 billion, respectively, of covered bonds.

⁽³⁾ As of March 31, 2020 and December 31, 2019, the fair value of state and political subdivisions includes securities in trusts of $0.93 billion and $0.94 billion respectively. Additional information about these trusts is provided in Note 12.

⁽⁴⁾ An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the period ended March 31, 2020.

⁽⁵⁾ As of March 31, 2020, we recognized an allowance for credit losses of $4 million on HTM investment securities under the MMLF program.

Aggregate investment securities with carrying values of approximately $55.89 billion and $49.48 billion as of March 31, 2020 and December 31, 2019, 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 March 31, 2020
	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	$	2,135	$	23	$	200	$	2	$	2,335	$	25
Total U.S. Treasury and federal agencies	2,135		23		200		2		2,335		25
Asset-backed securities:
Student loans	344		11		99		1		443		12
Credit cards	85		5		—		—		85		5
Collateralized loan obligations	1,466		76		292		14		1,758		90
Total asset-backed securities	1,895		92		391		15		2,286		107
Non-U.S. debt securities:
Mortgage-backed securities	1,431		15		203		3		1,634		18
Asset-backed securities	1,741		46		98		6		1,839		52
Government securities	1,044		18		—		—		1,044		18
Other	3,367		45		293		1		3,660		46
Total non-U.S. debt securities	7,583		124		594		10		8,177		134
State and political subdivisions	579		6		22		1		601		7
Collateralized mortgage obligations	—		—		2		—		2		—
Other U.S. debt securities	2,012		34		—		—		2,012		34
Total	$	14,204	$	279	$	1,209	$	28	$	15,413	$	307

Held-to-maturity:

U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	31	$	—	$	31	$	—
Mortgage-backed securities	955		6		25		1		980		7
Total U.S. Treasury and federal agencies	955		6		56		1		1,011		7
Asset-backed securities:
Student loans	2,739		96		1,043		52		3,782		148
Total asset-backed securities	2,739		96		1,043		52		3,782		148
Non-U.S. debt securities:
Mortgage-backed securities	35		—		122		14		157		14
Total non-U.S. debt securities	35		—		122		14		157		14
Collateralized mortgage obligations	39		4		20		3		59		7
Total	3,768		106		1,241		70		5,009		176
HTM securities purchased under the MMLF program	11,080		13		—		—		11,080		13
Total held-to-maturity securities	$	14,848	$	119	$	1,241	$	70	$	16,089	$	189



	As of December 31, 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	$	1,430	$	28	$	—	$	—	$	1,430	$	28
Mortgage-backed securities	2,499		7		1,665		18		4,164		25
Total U.S. Treasury and federal agencies	3,929		35		1,665		18		5,594		53
Asset-backed securities:
Student loans	271		1		127		1		398		2
Credit cards	89		1		—		—		89		1
Collateralized loan obligations	862		2		278		1		1,140		3
Total asset-backed securities	1,222		4		405		2		1,627		6
Non-U.S. debt securities:
Mortgage-backed securities	228		—		220		1		448		1
Asset-backed securities	672		1		109		1		781		2
Government securities	3,246		1		—		—		3,246		1
Other	2,736		9		187		1		2,923		10
Total non-U.S. debt securities	6,882		11		516		3		7,398		14
State and political subdivisions	163		—		22		1		185		1
Collateralized mortgage obligations	13		—		4		—		17		—
Other U.S. debt securities	219		—		14		—		233		—
Total	$	12,428	$	50	$	2,626	$	24	$	15,054	$	74
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	604	$	—	$	2,262	$	3	$	2,866	$	3
Mortgage-backed securities	6,056		31		1,606		13		7,662		44
Total U.S. Treasury and federal agencies	6,660		31		3,868		16		10,528		47
Asset-backed securities:
Student loans	2,003		22		778		19		2,781		41
Total asset-backed securities	2,003		22		778		19		2,781		41
Non-U.S. debt securities:
Mortgage-backed securities	—		—		138		6		138		6
Total non-U.S. debt securities	—		—		138		6		138		6
Collateralized mortgage obligations	13		—		110		1		123		1
Total	$	8,676	$	53	$	4,894	$	42	$	13,570	$	95

The following table presents the amortized cost and the fair value of contractual maturities of debt investment securities as of March 31, 2020. 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 March 31, 2020
(In millions)	Under 1 Year				1 to 5 Years				6 to 10 Years				Over 10 Years				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,060	$	1,075	$	1,873	$	1,907	$	2,050	$	2,168	$	—	$	—	$	4,983	$	5,150
Mortgage-backed securities	111		116		882		900		2,825		2,831		14,024		14,517		17,842		18,364
Total U.S. Treasury and federal agencies	1,171		1,191		2,755		2,807		4,875		4,999		14,024		14,517		22,825		23,514
Asset-backed securities:
Student loans	57		57		217		216		17		16		175		165		466		454
Credit cards	—		—		—		—		90		85		—		—		90		85
Collateralized loan obligations	—		—		923		888		891		843		117		110		1,931		1,841
Total asset-backed securities	57		57		1,140		1,104		998		944		292		275		2,487		2,380
Non-U.S. debt securities:
Mortgage-backed securities	303		301		548		541		143		141		716		709		1,710		1,692
Asset-backed securities	292		280		913		897		362		349		340		329		1,907		1,855
Government securities	4,920		4,927		7,270		7,375		402		406		360		347		12,952		13,055
Other	699		699		6,692		6,712		1,297		1,290		73		73		8,761		8,774
Total non-U.S. debt securities	6,214		6,207		15,423		15,525		2,204		2,186		1,489		1,458		25,330		25,376
State and political subdivisions	232		232		648		648		531		559		313		326		1,724		1,765
Collateralized mortgage obligations	—		—		—		—		—		—		96		96		96		96
Other U.S. debt securities	793		790		1,847		1,826		97		96		—		—		2,737		2,712
Total	$	8,467	$	8,477	$	21,813	$	21,910	$	8,705	$	8,784	$	16,214	$	16,672	$	55,199	$	55,843

Held-to-maturity:

U.S. Treasury and federal agencies:
Direct obligations	3,609		3,633		5,628		5,775		5		5		26		26		$	9,268	$	9,439
Mortgage-backed securities	6		6		438		451		3,098		3,238		23,071		23,881		26,613		27,576
Total U.S. Treasury and federal agencies	3,615		3,639		6,066		6,226		3,103		3,243		23,097		23,907		35,881		37,015
Asset-backed securities:
Student loans	105		96		201		196		516		494		3,233		3,122		4,055		3,908
Total asset-backed securities	105		96		201		196		516		494		3,233		3,122		4,055		3,908
Non-U.S. debt securities:
Mortgage-backed securities	11		11		26		26		4		3		294		337		335		377
Government securities	279		280		—		—		—		—		—		—		279		280
Total non-U.S. debt securities	290		291		26		26		4		3		294		337		614		657
Collateralized mortgage obligations	2		2		279		283		13		12		306		324		600		621
Total	4,012		4,028		6,572		6,731		3,636		3,752		26,930		27,690		41,150		42,201
Held-to-maturity under money market mutual fund liquidity facility	26,812		26,808		—		—		—		—		—		—		26,812		26,808
Total held-to-maturity securities	$	30,824	$	30,836	$	6,572	$	6,731	$	3,636	$	3,752	$	26,930	$	27,690	$	67,962	$	69,009

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.

We conduct periodic reviews of individual securities to assess whether an allowance for credit losses is required. HTM securities are evaluated for expected credit loss utilizing a probability of default methodology, or discounted cash flows assessed against the amortized cost of the investment security excluding accrued interest. Refer to note 5 for additional information. An AFS security is impaired when the current fair value of an individual security is below its amortized cost basis. An allowance for credit losses on impaired AFS securities is recorded when the present value of expected future cash flows of the investment security is less than its amortized cost basis, limited to the amount by which the security’s amortized cost basis exceeds the fair value. Investment securities will be written down to fair value through the consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value.

For additional information about the review of securities under previous other-than-temporary impairment guidance, refer to pages 140 to 141 in Note 3 to the consolidated financial statements included under Item 8. Financial Statements and Supplementary Data, in our 2019 Form 10-K.

We recorded an allowance for credit losses of approximately $4 million on our HTM securities under the new CECL guidance as of March 31, 2020. We recorded approximately $1 million of other-than-temporary-impairment (OTTI) in the first quarter of 2019, which resulted from adverse changes in the timing of expected future cash flows from non-U.S. mortgage- and asset backed securities.

Our review of impaired AFS investment securities generally includes:


•	the identification and evaluation of securities that have indications of potential impairment, such as issuer-specific concerns, including deteriorating financial condition or bankruptcy;


•	the analysis of expected future cash flows of securities, based on quantitative and qualitative factors;


•	the analysis of the collectability of those future cash flows, including information about past events, current conditions, and reasonable and supportable forecasts;


•	the analysis of the underlying collateral for MBS and ABS;


•	the analysis of individual impaired securities, including the anticipated recovery period and the magnitude of the overall price decline;


•	evaluation of factors or triggers that could cause individual securities to be deemed impaired and those that would not support impairment; and


•	documentation of the results of these analyses.

Substantially all of our investment securities portfolio is composed of debt securities. A critical component of our assessment of impairment of these debt securities is the identification of credit-impaired securities for which management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.

Debt securities that are not deemed to be credit-impaired are subject to additional management analysis to assess whether management intends to sell, or, more likely than not, would be required to sell, the security before the expected recovery of its amortized cost basis.

With respect to certain classes of debt securities, primarily U.S. Treasuries and agency securities (mainly issued by U.S. Government entities and agencies, as well as G7 sovereigns), the bank considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to technically default. Therefore, for those securities, the bank does not record expected credit losses.

Please refer to Note 5 for additional discussion of the credit quality indicators and the factors utilized when assessing the HTM and AFS investment securities for impairment.

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 $496 million related to 1,024 securities as of March 31, 2020 to not be the result of any material changes in the credit characteristics of the securities.