Investment Securities

6 Months Ended

Jun. 30, 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.

Starting in the first quarter of 2020, we supported our client's liquidity needs through the MMLF program, purchasing a total of $29 billion of investment securities under that program, $11 billion of which remain outstanding as of June 30, 2020.

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 June 30, 2020, we recognized an allowance for credit losses on all HTM investment securities of $4 million.

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, 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	$	5,631	$	173	$	—	$	5,804	$	3,506	$	9	$	28	$	3,487
Mortgage-backed securities	16,118		564		6		16,676		17,599		264		25		17,838
Total U.S. Treasury and federal agencies	21,749		737		6		22,480		21,105		273		53		21,325
Asset-backed securities:
Student loans⁽¹⁾	409		2		7		404		532		1		2		531
Credit cards	90		—		—		90		90		—		1		89
Collateralized loan obligations	1,949		—		30		1,919		1,822		1		3		1,820
Total asset-backed securities	2,448		2		37		2,413		2,444		2		6		2,440
Non-U.S. debt securities:
Mortgage-backed securities	1,714		—		8		1,706		1,978		3		1		1,980
Asset-backed securities	1,906		—		15		1,891		2,179		2		2		2,179
Government securities	12,964		162		7		13,119		12,243		131		1		12,373
Other⁽²⁾	9,935		135		8		10,062		8,595		73		10		8,658
Total non-U.S. debt securities	26,519		297		38		26,778		24,995		209		14		25,190
State and political subdivisions⁽³⁾	1,654		73		4		1,723		1,725		59		1		1,783
Collateralized mortgage obligations	89		1		—		90		104		—		—		104
Other U.S. debt securities	2,685		63		1		2,747		2,941		32		—		2,973
Total	$	55,144	$	1,173	$	86	$	56,231	$	53,314	$	575	$	74	$	53,815

Held-to-maturity:

U.S. Treasury and federal agencies:
Direct obligations	$	8,179	$	138	$	—	$	8,317	$	10,311	$	24	$	3	$	10,332
Mortgage-backed securities	28,204		1,079		7		29,276		26,297		316		44		26,569
Total U.S. Treasury and federal agencies	36,383		1,217		7		37,593		36,608		340		47		36,901
Asset-backed securities:
Student loans⁽¹⁾	4,148		8		104		4,052		3,783		10		41		3,752
Total asset-backed securities	4,148		8		104		4,052		3,783		10		41		3,752
Non-U.S. debt securities:
Mortgage-backed securities	339		60		7		392		366		82		6		442
Government securities	393		—		—		393		328		—		—		328
Total non-U.S. debt securities	732		60		7		785		694		82		6		770
Collateralized mortgage obligations	585		28		6		607		697		38		1		734
Total⁽⁴⁾	41,848		1,313		124		43,037		41,782		470		95		42,157
HTM securities purchased under the MMLF program⁽⁵⁾	11,261		33		—		11,294		—		—		—		—
Total held-to-maturity securities	$	53,109	$	1,346	$	124	$	54,331	$	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 June 30, 2020 and December 31, 2019, the fair value of other non-U.S. debt securities included $6.65 billion and $5.50 billion, respectively, primarily of supranational and non-U.S. agency bonds, $1.77 billion and $1.78 billion, respectively, of corporate bonds and $0.48 billion and $0.68 billion, respectively, of covered bonds.

⁽³⁾ As of June 30, 2020 and December 31, 2019, the fair value of state and political subdivisions includes securities in trusts of $0.87 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 June 30, 2020.

⁽⁵⁾ As of June 30, 2020, we recognized an allowance for credit losses of $4 million on HTM investment securities.

Aggregate investment securities with carrying values of approximately $52.73 billion and $49.48 billion as of June 30, 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 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 June 30, 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:
Direct obligations	$	350	$	—	$	—	$	—	$	350	$	—
Mortgage-backed securities	1,001		5		124		1		1,125		6
Total U.S. Treasury and federal agencies	1,351		5		124		1		1,475		6
Asset-backed securities:
Student loans	268		7		71		—		339		7
Credit cards	—		—		—		—		—		—
Collateralized loan obligations	1,586		25		283		5		1,869		30
Total asset-backed securities	1,854		32		354		5		2,208		37
Non-U.S. debt securities:
Mortgage-backed securities	1,246		6		206		2		1,452		8
Asset-backed securities	1,483		13		105		2		1,588		15
Government securities	1,145		7		—		—		1,145		7
Other	856		7		747		1		1,603		8
Total non-U.S. debt securities	4,730		33		1,058		5		5,788		38
State and political subdivisions	344		3		22		1		366		4
Other U.S. debt securities	212		1		—		—		212		1
Total	$	8,491	$	74	$	1,558	$	12	$	10,049	$	86



	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

The following table presents the amortized cost and the fair value of contractual maturities of debt investment securities as of June 30, 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 June 30, 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	$	1,560	$	1,569	$	2,022	$	2,057	$	2,049	$	2,178	$	—	$	—	$	5,631	$	5,804
Mortgage-backed securities	199		206		706		726		2,639		2,672		12,574		13,072		16,118		16,676
Total U.S. Treasury and federal agencies	1,759		1,775		2,728		2,783		4,688		4,850		12,574		13,072		21,749		22,480
Asset-backed securities:
Student loans	163		164		127		126		2		2		117		112		409		404
Credit cards	—		—		—		—		90		90		—		—		90		90
Collateralized loan obligations	31		29		978		964		823		811		117		115		1,949		1,919
Total asset-backed securities	194		193		1,105		1,090		915		903		234		227		2,448		2,413
Non-U.S. debt securities:
Mortgage-backed securities	252		251		550		546		130		129		782		780		1,714		1,706
Asset-backed securities	272		270		984		977		318		315		332		329		1,906		1,891
Government securities	4,690		4,694		7,339		7,488		689		693		246		244		12,964		13,119
Other	1,446		1,452		6,968		7,068		1,431		1,451		90		91		9,935		10,062
Total non-U.S. debt securities	6,660		6,667		15,841		16,079		2,568		2,588		1,450		1,444		26,519		26,778
State and political subdivisions	169		169		669		683		526		564		290		307		1,654		1,723
Collateralized mortgage obligations	—		—		—		—		—		—		89		90		89		90
Other U.S. debt securities	695		700		1,887		1,938		103		109		—		—		2,685		2,747
Total	$	9,477	$	9,504	$	22,230	$	22,573	$	8,800	$	9,014	$	14,637	$	15,140	$	55,144	$	56,231

Held-to-maturity:

U.S. Treasury and federal agencies:
Direct obligations	$	3,310	$	3,332	$	4,840	$	4,956	$	5	$	5	$	24	$	24	$	8,179	$	8,317
Mortgage-backed securities	61		63		545		557		3,716		3,898		23,882		24,758		28,204		29,276
Total U.S. Treasury and federal agencies	3,371		3,395		5,385		5,513		3,721		3,903		23,906		24,782		36,383		37,593
Asset-backed securities:
Student loans	359		343		200		193		539		523		3,050		2,993		4,148		4,052
Total asset-backed securities	359		343		200		193		539		523		3,050		2,993		4,148		4,052
Non-U.S. debt securities:
Mortgage-backed securities	117		112		27		27		3		3		192		250		339		392
Government securities	393		393		—		—		—		—		—		—		393		393
Total non-U.S. debt securities	510		505		27		27		3		3		192		250		732		785
Collateralized mortgage obligations	149		157		274		273		5		5		157		172		585		607
Total	4,389		4,400		5,886		6,006		4,268		4,434		27,305		28,197		41,848		43,037
Held-to-maturity under money market mutual fund liquidity facility	11,261		11,294		—		—		—		—		—		—		11,261		11,294
Total held-to-maturity securities	$	15,650	$	15,694	$	5,886	$	6,006	$	4,268	$	4,434	$	27,305	$	28,197	$	53,109	$	54,331

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.

As discussed in Note 1, we adopted ASC 326 on January 1, 2020. 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. 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.

We monitor the credit quality of the HTM and AFS investment securities through the use of credit ratings on a quarterly basis. As of June 30, 2020, 99% of our HTM and AFS investment portfolio is publicly rated investment grade.

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 June 30, 2020.

In the second quarter of 2020, we recorded no provision or charge offs on HTM securities. In the six months ended June 30, 2020, we recorded a $4 million provision and no charge offs on HTM securities.

We recorded approximately $1 million of other-than-temporary-impairment in the six months ended June 30, 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), we consider 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, we do not record expected credit losses.

We have elected to not record an allowance on accrued interest for HTM and AFS securities. Accrued Interest on these securities is reversed against interest income when payment on a security is delinquent for greater than 90 days from the date of payment.

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 $210 million related to 632 securities as of June 30, 2020 to not be the result of any material changes in the credit characteristics of the securities.