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Investment Securities
 9 Months Ended
Sep. 30, 2020
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 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, $4.8 billion of which remain outstanding as of September 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 September 30, 2020, we recognized an allowance for credit losses on all HTM investment securities of $3 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:
 September 30, 2020December 31, 2019
 Amortized
Cost		Gross
Unrealized		Fair
Value		Amortized
Cost		Gross
Unrealized		Fair
Value
(In millions)GainsLossesGainsLosses
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations$7,128 $165 $— $7,293 $3,506 $9 $28 $3,487 
Mortgage-backed securities17,754 464 7 18,211 17,599 264 25 17,838 
Total U.S. Treasury and federal agencies24,882 629 7 25,504 21,105 273 53 21,325 
Asset-backed securities:
Student loans(1)
356 3 2 357 532 1 2 531 
Credit cards90 — — 90 90 — 1 89 
Collateralized loan obligations2,553 1 16 2,538 1,822 1 3 1,820 
Total asset-backed securities2,999 4 18 2,985 2,444 2 6 2,440 
Non-U.S. debt securities:
Mortgage-backed securities1,865 2 4 1,863 1,978 3 1 1,980 
Asset-backed securities2,037 1 7 2,031 2,179 2 2 2,179 
Government securities12,670 180 1 12,849 12,243 131 1 12,373 
Other(2)
11,162 153 5 11,310 8,595 73 10 8,658 
Total non-U.S. debt securities27,734 336 17 28,053 24,995 209 14 25,190 
State and political subdivisions(3)
1,620 76 2 1,694 1,725 59 1 1,783 
Collateralized mortgage obligations83 1 — 84 104 — — 104 
Other U.S. debt securities3,395 67 2 3,460 2,941 32 — 2,973 
Total(4)
$60,713 $1,113 $46 $61,780 $53,314 $575 $74 $53,815 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$6,668 $110 $— $6,778 $10,311 $24 $3 $10,332 
Mortgage-backed securities33,096 1,001 43 34,054 26,297 316 44 26,569 
Total U.S. Treasury and federal agencies39,764 1,111 43 40,832 36,608 340 47 36,901 
Asset-backed securities:
Student loans(1)
4,323 16 53 4,286 3,783 10 41 3,752 
Total asset-backed securities4,323 16 53 4,286 3,783 10 41 3,752 
Non-U.S. debt securities:
Mortgage-backed securities321 63 6 378 366 82 6 442 
Government securities419 — — 419 328 — — 328 
Total non-U.S. debt securities740 63 6 797 694 82 6 770 
Collateralized mortgage obligations569 29 3 595 697 38 1 734 
Total(4)
45,396 1,219 105 46,510 41,782 470 95 42,157 
HTM securities purchased under the MMLF program4,825 16 — 4,841 — — — — 
Total held-to-maturity securities(4)(5)
$50,221 $1,235 $105 $51,351 $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 September 30, 2020 and December 31, 2019, the fair value of other non-U.S. debt securities included $7.25 billion and $5.50 billion, respectively, primarily of supranational and non-U.S. agency bonds, $2.01 billion and $1.78 billion, respectively, of corporate bonds and $0.45 billion and $0.68 billion, respectively, of covered bonds.
(3) As of September 30, 2020 and December 31, 2019, the fair value of state and political subdivisions includes securities in trusts of $0.85 billion and $0.94 billion respectively. Additional information about these trusts is provided in Note 11.
(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 September 30, 2020.
(5) As of September 30, 2020, we recognized an allowance for credit losses of $3 million on all HTM investment securities.
Aggregate investment securities with carrying values of approximately $62.86 billion and $49.48 billion as of September 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 September 30, 2020
Less than 12 months12 months or longerTotal
(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$3,295 $6 $98 $1 $3,393 $7 
Total U.S. Treasury and federal agencies3,295 6 98 1 3,393 7 
Asset-backed securities:
Student loans215 2 47 — 262 2 
Collateralized loan obligations1,471 12 339 4 1,810 16 
Total asset-backed securities1,686 14 386 4 2,072 18 
Non-U.S. debt securities:
Mortgage-backed securities900 3 280 1 1,180 4 
Asset-backed securities1,389 6 111 1 1,500 7 
Government securities279 1 — — 279 1 
Other1,255 5 291 — 1,546 5 
Total non-U.S. debt securities3,823 15 682 2 4,505 17 
State and political subdivisions140 1 77 1 217 2 
Other U.S. debt securities661 2 — — 661 2 
Total$9,605 $38 $1,243 $8 $10,848 $46 
As of December 31, 2019
Less than 12 months12 months or longerTotal
(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 securities2,499 7 1,665 18 4,164 25 
Total U.S. Treasury and federal agencies3,929 35 1,665 18 5,594 53 
Asset-backed securities:
Student loans271 1 127 1 398 2 
Credit cards89 1 — — 89 1 
Collateralized loan obligations862 2 278 1 1,140 3 
Total asset-backed securities1,222 4 405 2 1,627 6 
Non-U.S. debt securities:
Mortgage-backed securities228 — 220 1 448 1 
Asset-backed securities672 1 109 1 781 2 
Government securities3,246 1 — — 3,246 1 
Other2,736 9 187 1 2,923 10 
Total non-U.S. debt securities6,882 11 516 3 7,398 14 
State and political subdivisions163 — 22 1 185 1 
Collateralized mortgage obligations 13 — 4 — 17 — 
Other U.S. debt securities219 — 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 September 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 September 30, 2020
(In millions)Under 1 Year1 to 5 Years6 to 10 YearsOver 10 YearsTotal
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$1,885 $1,889 $3,196 $3,228 $2,048 $2,176 $— $— $7,129 $7,293 
Mortgage-backed securities162 169 700 720 2,951 2,984 13,941 14,337 17,754 18,210 
Total U.S. Treasury and federal agencies2,047 2,058 3,896 3,948 4,999 5,160 13,941 14,337 24,883 25,503 
Asset-backed securities:
Student loans133 137 109 108 1 1 113 112 356 358 
Credit cards— — — — 90 90 — — 90 90 
Collateralized loan obligations81 80 1,005 998 773 767 694 693 2,553 2,538 
Total asset-backed securities214 217 1,114 1,106 864 858 807 805 2,999 2,986 
Non-U.S. debt securities:
Mortgage-backed securities166 165 599 599 126 126 974 973 1,865 1,863 
Asset-backed securities327 326 1,059 1,055 271 271 380 379 2,037 2,031 
Government securities3,757 3,759 7,751 7,913 880 894 282 284 12,670 12,850 
Other1,371 1,376 8,083 8,196 1,586 1,611 122 126 11,162 11,309 
Total non-U.S. debt securities5,621 5,626 17,492 17,763 2,863 2,902 1,758 1,762 27,734 28,053 
State and political subdivisions218 218 641 660 511 552 250 264 1,620 1,694 
Collateralized mortgage obligations — — — — — — 83 84 83 84 
Other U.S. debt securities489 493 2,795 2,849 111 118 — — 3,395 3,460 
Total$8,589 $8,612 $25,938 $26,326 $9,348 $9,590 $16,839 $17,252 $60,714 $61,780 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$3,644 $3,684 $2,996 $3,067 $4 $4 $24 $24 $6,668 $6,779 
Mortgage-backed securities64 66 493 506 4,681 4,854 27,858 28,629 33,096 34,055 
Total U.S. Treasury and federal agencies3,708 3,750 3,489 3,573 4,685 4,858 27,882 28,653 39,764 40,834 
Asset-backed securities:
Student loans362 351 180 175 598 588 3,183 3,170 4,323 4,284 
Total asset-backed securities362 351 180 175 598 588 3,183 3,170 4,323 4,284 
Non-U.S. debt securities:
Mortgage-backed securities100 96 26 26 3 3 192 253 321 378 
Government securities419 419 — — — — — — 419 419 
Total non-U.S. debt securities519 515 26 26 3 3 192 253 740 797 
Collateralized mortgage obligations 143 153 269 269 4 4 153 169 569 595 
Total4,732 4,769 3,964 4,043 5,290 5,453 31,410 32,245 45,396 46,510 
Held-to-maturity under money market mutual fund liquidity facility4,825 4,841 — — — — — — 4,825 4,841 
Total held-to-maturity securities$9,557 $9,610 $3,964 $4,043 $5,290 $5,453 $31,410 $32,245 $50,221 $51,351 
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.
Allowance for Credit Losses on Debt Securities and Impairment of AFS Securities
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 using a variety of methods, including both external and internal credit ratings . As of September 30, 2020, 99% of our HTM and AFS investment portfolio is publicly rated investment grade.
Our allowance for credit losses on our HTM securities is approximately $3 million as of September 30, 2020.
In the third quarter of 2020, we recorded no provision or charge-offs on HTM securities. In the nine months ended September 30, 2020, we recorded a $3 million provision and no charge-offs on HTM securities.
We recorded approximately $1 million of other-than-temporary-impairment in the nine months ended September 30, 2019, which resulted from adverse changes in the timing of expected future cash flows from non-U.S. mortgage- and asset backed securities.
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.
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 $151 million related to 610 securities as of September 30, 2020 to not be the result of any material changes in the credit characteristics of the securities.