XML 110 R12.htm IDEA: XBRL DOCUMENT v3.20.4
Investment Securities
 12 Months Ended
Dec. 31, 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.
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.
Starting in the first quarter of 2020, we supported our clients' liquidity needs through the MMLF program, purchasing a total of $29 billion of investment securities under that program, $3.3 billion of which remain outstanding as of December 31, 2020.
Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading 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 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, with any allowance for credit losses recorded through the consolidated statement of income. As of December 31, 2020, we recognized an allowance for credit losses on HTM investment securities of $3 million.
Prior to adoption of ASC 326 in 2020, AFS securities were carried at fair value, and after-tax net unrealized gains and losses were recorded in AOCI. HTM investment securities were 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:
 December 31, 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$6,453 $123 $1 $6,575 $3,506 $9 $28 $3,487 
Mortgage-backed securities13,891 421 7 14,305 17,599 264 25 17,838 
Total U.S. Treasury and federal agencies20,344 544 8 20,880 21,105 273 53 21,325 
Asset-backed securities:
Student loans(1)
313 2 1 314 532 1 2 531 
Credit cards90 — — 90 90 — 1 89 
Collateralized loan obligations2,969 3 6 2,966 1,822 1 3 1,820 
Total asset-backed securities3,372 5 7 3,370 2,444 2 6 2,440 
Non-U.S. debt securities:
Mortgage-backed securities1,994 4 2 1,996 1,978 3 1 1,980 
Asset-backed securities2,294 1 4 2,291 2,179 2 2 2,179 
Government securities12,337 202 — 12,539 12,243 131 1 12,373 
Other(2)
12,729 177 3 12,903 8,595 73 10 8,658 
Total non-U.S. debt securities29,354 384 9 29,729 24,995 209 14 25,190 
State and political subdivisions(3)
1,470 80 2 1,548 1,725 59 1 1,783 
Collateralized mortgage obligations
76 2 — 78 104 — — 104 
Other U.S. debt securities3,371 72 — 3,443 2,941 32 — 2,973 
Total(4)
$57,987 $1,087 $26 $59,048 $53,314 $575 $74 $53,815 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$6,057 $83 $— $6,140 $10,311 $24 $3 $10,332 
Mortgage-backed securities36,883 955 67 37,771 26,297 316 44 26,569 
Total U.S. Treasury and federal agencies42,940 1,038 67 43,911 36,608 340 47 36,901 
Asset-backed securities:
Student loans(1)
4,774 33 25 4,782 3,783 10 41 3,752 
Total asset-backed securities4,774 33 25 4,782 3,783 10 41 3,752 
Non-U.S. debt securities:
Mortgage-backed securities303 68 4 367 366 82 6 442 
Government securities342 — — 342 328 — — 328 
Total non-U.S. debt securities645 68 4 709 694 82 6 770 
Collateralized mortgage obligations572 30 1 601 697 38 1 734 
Total(4)
48,931 1,169 97 50,003 41,782 470 95 42,157 
HTM securities purchased under the MMLF program3,300 4 — 3,304 — — — — 
Total held-to-maturity securities(4)(5)
$52,231 $1,173 $97 $53,307 $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 December 31, 2020 and December 31, 2019, the fair value of other non-U.S. debt securities included $9.55 billion and $5.50 billion, respectively, primarily of supranational and non-U.S. agency bonds, $1.88 billion and $1.78 billion, respectively, of corporate bonds and $0.47 billion and $0.68 billion, respectively, of covered bonds.
(3) As of December 31, 2020 and December 31, 2019, the fair value of state and political subdivisions includes securities in trusts of $0.70 billion and $0.94 billion, respectively. Additional information about these trusts is provided in Note 14.
(4) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the year ended December 31, 2020.
(5) As of December 31, 2020, we recognized an allowance for credit losses of $3 million on all HTM securities.
Aggregate investment securities with carrying values of approximately $70.57 billion and $49.48 billion as of December 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.
In 2020, 2019 and 2018, $8.60 billion, $3.98 billion and $2.13 million, respectively, of agency MBS, previously classified as AFS, were transferred to HTM. These transfers reflect our intent to hold these securities until their maturity. These securities were transferred at fair value, which included a net unrealized gain of $120 million and $49 million as of December 31, 2020 and 2019, respectively, and a net unrealized loss of $53 million as of December 31, 2018, within accumulated other comprehensive loss which will be accreted into interest income over the remaining life of the transferred security (ranging from approximately 3 to 37 years).
In 2018, $1.22 billion of HTM securities, primarily consisting of MBS and CMBS, were transferred to AFS at book value and sold at a pre-tax loss of approximately $36 million, due to our election to make a one-time transfer of securities relating to the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
In 2020, 2019 and 2018, we sold approximately $2.65 billion, $5.64 billion and $26.37 billion, respectively, of AFS securities, primarily ABS and municipal bonds, resulting in a pre-tax gain of approximately $4 million in 2020, a pre-tax loss less than $1 million in 2019 and a pre-tax gain of $9 million in 2018.
The following table presents 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 December 31, 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:
Direct obligations$1,636 $1 $— $— $1,636 $1 
Mortgage-backed securities1,394 7 63 — 1,457 7 
Total U.S. Treasury and federal agencies3,030 8 63 — 3,093 8 
Asset-backed securities:
Student loans31 — 197 1 228 1 
Collateralized loan obligations1,498 4 369 2 1,867 6 
Total asset-backed securities1,529 4 566 3 2,095 7 
Non-U.S. debt securities:
Mortgage-backed securities600 1 120 1 720 2 
Asset-backed securities1,015 3 446 1 1,461 4 
Government securities489 — — — 489 — 
Other715 3 80 — 795 3 
Total non-U.S. debt securities2,819 7 646 2 3,465 9 
State and political subdivisions95 — 76 2 171 2 
Other U.S. debt securities17 — — — 17 — 
Total$7,490 $19 $1,351 $7 $8,841 $26 
The following table presents 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 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 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$604 $— $2,262 $3 $2,866 $3 
   Mortgage-backed securities6,056 31 1,606 13 7,662 44 
Total U.S. Treasury and federal agencies6,660 31 3,868 16 10,528 47 
Asset-backed securities:
Student loans2,003 22 778 19 2,781 41 
Credit cards— — — — — — 
Other— — — — — — 
Total asset-backed securities2,003 22 778 19 2,781 41 
Non-U.S. debt securities:
Mortgage-backed securities— — 138 6 138 6 
Asset-backed securities— — — — — — 
Government securities— — — — — — 
Other— — — 
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 December 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 December 31, 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$1,648 $1,661 $2,758 $2,771 $2,047 $2,143 $— $— $6,453 $6,575 
Mortgage-backed securities121 127 603 619 2,800 2,828 10,367 10,731 13,891 14,305 
Total U.S. Treasury and federal agencies1,769 1,788 3,361 3,390 4,847 4,971 10,367 10,731 20,344 20,880 
Asset-backed securities:
Student loans113 115 90 90 — — 110 109 313 314 
Credit cards— — — — 90 90 — — 90 90 
Collateralized loan obligations76 76 1,080 1,077 838 838 975 975 2,969 2,966 
Total asset-backed securities189 191 1,170 1,167 928 928 1,085 1,084 3,372 3,370 
Non-U.S. debt securities:
Mortgage-backed securities260 260 527 527 116 116 1,091 1,093 1,994 1,996 
Asset-backed securities337 337 1,250 1,247 272 272 435 435 2,294 2,291 
Government securities3,149 3,151 7,976 8,151 919 939 293 298 12,337 12,539 
Other1,323 1,329 9,520 9,652 1,718 1,752 168 170 12,729 12,903 
Total non-U.S. debt securities5,069 5,077 19,273 19,577 3,025 3,079 1,987 1,996 29,354 29,729 
State and political subdivisions136 136 605 626 514 559 215 227 1,470 1,548 
Collateralized mortgage obligations — — — — — — 76 78 76 78 
Other U.S. debt securities449 452 2,833 2,896 89 95 — — 3,371 3,443 
Total$7,612 $7,644 $27,242 $27,656 $9,403 $9,632 $13,730 $14,116 $57,987 $59,048 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$3,480 $3,512 $2,555 $2,607 $— $— $22 $21 $6,057 $6,140 
Mortgage-backed securities204 211 423 430 5,036 5,174 31,220 31,956 36,883 37,771 
Total U.S. Treasury and federal agencies3,684 3,723 2,978 3,037 5,036 5,174 31,242 31,977 42,940 43,911 
Asset-backed securities:
Student loans350 343 155 152 667 665 3,602 3,622 4,774 4,782 
Total asset-backed securities350 343 155 152 667 665 3,602 3,622 4,774 4,782 
Non-U.S. debt securities:
Mortgage-backed securities87 84 23 23 — — 193 260 303 367 
Government securities342 342 — — — — — — 342 342 
Total non-U.S. debt securities429 426 23 23 — — 193 260 645 709 
Collateralized mortgage obligations 139 150 265 266 21 21 147 164 572 601 
Total4,602 4,642 3,421 3,478 5,724 5,860 35,184 36,023 48,931 50,003 
Held-to-maturity under money market mutual fund liquidity facility3,300 3,304 — — — — — — 3,300 3,304 
Total held-to-maturity securities$7,902 $7,946 $3,421 $3,478 $5,724 $5,860 $35,184 $36,023 $52,231 $53,307 
The following tables present gross realized gains and losses from sales of AFS investment securities, and the components of net impairment losses included in net gains and losses related to investment securities for the periods indicated, recognized under previous accounting guidance prior to the adoption of ASC 326:
Years Ended December 31,
(In millions)20192018
Gross realized gains from sales of AFS investment securities$31 $205 
Gross realized losses from sales of AFS investment securities(32)(196)
Net impairment losses:
Gross losses from OTTI— (3)
Net impairment losses
— (3)
Gains (losses) related to investment securities, net(1)6 
Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with adverse changes in timing of expected future cash flows— (3)
Net impairment losses$— $(3)
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 using a variety of methods, including both external and internal credit ratings. As
of December 31, 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 December 31, 2020 and we recorded a $3 million provision and no charge-offs on HTM securities in 2020.
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 Group of Seven 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. 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 then-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 $123 million related to 503 securities as of December 31, 2020 to not be the result of any material changes in the credit characteristics of the securities.
Prior to the adoption of ASC 326 on January 1, 2020, we assessed our AFS and HTM securities for impairment under an OTTI model. Under this model impairment of AFS and HTM debt securities was recorded in our consolidated statement of income when management intended to sell (or may be required to sell) the securities before they recovered in value, or when management expected the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss). The review of impaired securities under the OTTI model was consistent with the considerations noted for AFS securities under ASC 326. Where impairment was indicated based on our review, the following factors were also considered in determining whether impairment was other than temporary:
•certain macroeconomic drivers;
•certain industry-specific drivers;
•the length of time the security has been impaired;
•the severity of the impairment;
•the cause of the impairment and the financial condition and near-term prospects of the issuer;
•activity in the market with respect to the issuer's securities, which may indicate adverse credit conditions; and
•our intention not to sell, and the likelihood that we will not be required to sell, the security for a period of time sufficient to allow for its recovery in value.
Substantially all of our investment securities portfolio is composed of debt securities. A critical
component of our assessment of OTTI of these debt securities was the identification of credit-impaired securities for which management did not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. Debt securities that were not deemed to be credit-impaired were subject to additional management analysis to assess whether management intended to sell, or, more likely than not, would be required to sell, the security before the expected recovery of its amortized cost basis.
We recorded less than $1 million and $3 million of OTTI, included in other income, in the years ended December 31, 2019 and 2018, respectively, which resulted from adverse changes in the timing of expected future cash flows from non-U.S. mortgage- and asset backed securities.
The following table presents a roll-forward with respect to net impairment losses that had been recognized in income for the periods indicated:
Years Ended December 31,
(In millions)20192018
Balance, beginning of period $78 $77 
Additions(1):
Other-than-temporary-impairment recognized— 3 
Deductions(2):
Realized losses on securities sold or matured(8)(2)
Balance, end of period$70 $78 
1) Additions represent securities with a first time credit impairment realized or when a subsequent credit impairment has occurred.
(2) Deductions represent impairments on securities that have been sold or matured, are required to be sold, or for which management intends to sell.
After a review of the investment portfolio, taking into consideration then-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 considered the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $123 million and $169 million related to 503 and 622 securities as of December 31, 2020 and December 31, 2019, respectively, to be temporary, and not the result of any material changes in the credit characteristics of the securities.