Investment Securities

6 Months Ended

Jun. 30, 2022

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 144 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2021 Form 10-K.

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.

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, 2022								December 31, 2021
	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	$	9,720	$	12	$	321	$	9,411	$	18,111	$	24	$	196	$	17,939
Mortgage-backed securities	10,409		1		139		10,271		18,154		148		94		18,208
Total U.S. Treasury and federal agencies	20,129		13		460		19,682		36,265		172		290		36,147
Non-U.S. debt securities:
Mortgage-backed securities	1,972		5		18		1,959		1,986		12		3		1,995
Asset-backed securities(1)	1,901		—		25		1,876		2,087		2		2		2,087
Non-U.S. sovereign, supranational and non-U.S. agency	15,300		1		374		14,927		23,533		114		100		23,547
Other(2)	2,358		—		154		2,204		3,113		17		32		3,098
Total non-U.S. debt securities	21,531		6		571		20,966		30,719		145		137		30,727
Asset-backed securities:
Student loans(3)	152		—		2		150		209		2		—		211
Collateralized loan obligations(4)	2,378		—		43		2,334		2,155		2		2		2,155
Non-agency CMBS and RMBS(5)	200		—		5		195		52		—		—		52
Other	90		—		1		89		90		1		—		91
Total asset-backed securities	2,820		—		51		2,768		2,506		5		2		2,509
State and political subdivisions	1,042		2		10		1,034		1,216		59		3		1,272
Other U.S. debt securities(6)	1,074		—		70		1,004		2,734		23		13		2,744
Total available-for-sale securities(7)(9)	$	46,596	$	21	$	1,162	$	45,454	$	73,440	$	404	$	445	$	73,399
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	11,424	$	—	$	75	$	11,349	$	2,170	$	10	$	—	$	2,180
Mortgage-backed securities	41,660		2		3,854		37,808		33,481		362		578		33,265
Total U.S. Treasury and federal agencies	53,084		2		3,929		49,157		35,651		372		578		35,445
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency	6,443		5		133		6,315		1,564		—		9		1,555
Total non-U.S. debt securities	6,443		5		133		6,315		1,564		—		9		1,555
Asset-backed securities:
Student loans(3)	4,468		1		124		4,345		4,908		48		14		4,942
Non-agency CMBS and RMBS(8)	266		20		—		286		307		22		—		329
Total asset-backed securities	4,734		21		124		4,631		5,215		70		14		5,271
Total held-to-maturity securities(7)	$	64,261	$	28	$	4,186	$	60,103	$	42,430	$	442	$	601	$	42,271

(1) As of June 30, 2022 and December 31, 2021, the fair value includes non-U.S. collateralized loan obligations of $0.85 billion and $0.83 billion, respectively.

(2) As of June 30, 2022 and December 31, 2021, the fair value includes non-U.S. corporate bonds of $1.10 billion and $1.53 billion, respectively.

(3) 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.

(4) Excludes collateralized loan obligations in loan form. Refer to Note 4 for additional information.

(5) Consists entirely of non-agency CMBS as of both June 30, 2022 and December 31, 2021.

(6) As of June 30, 2022 and December 31, 2021, the fair value of U.S. corporate bonds was $1.00 billion and $2.44 billion, respectively.

(7) 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, 2022.

(8) As of June 30, 2022 and December 31, 2021, the total amortized cost included $256 million and $292 million, respectively, of non-agency CMBS and $11 million and $14 million of non-agency RMBS, respectively.

(9) As of both June 30, 2022 and December 31, 2021, total amortized cost included an allowance for credit losses on AFS investment securities of $2 million.

Aggregate investment securities with carrying values of approximately $74.57 billion and $80.81 billion as of June 30, 2022 and December 31, 2021, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

In the second quarter of 2022, $21.23 billion of investment securities 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 loss of $1.29 billion. Upon transfer of a debt security from AFS to HTM, the amortized cost is reset to fair value. Any net unrealized gain or loss at the date of transfer will remain in AOCI and be amortized into net interest income over the remaining life of the security. The amortization of amounts retained in AOCI will offset the effect on net interest income of the amortization of the premium or discount resulting from transferring securities at fair value.

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, 2022
	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	$	6,778	$	283	$	2,062	$	38	$	8,840	$	321
Mortgage-backed securities	9,768		119		278		20		10,046		139
Total U.S. Treasury and federal agencies	16,546		402		2,340		58		18,886		460
Non-U.S. debt securities:
Mortgage-backed securities	1,783		18		41		—		1,824		18
Asset-backed securities	1,637		23		166		2		1,803		25
Non-U.S. sovereign, supranational and non-U.S. agency	12,529		301		1,454		73		13,983		374
Other	1,423		87		637		67		2,060		154
Total non-U.S. debt securities	17,372		429		2,298		142		19,670		571
Asset-backed securities:
Student loans	102		2		16		—		118		2
Collateralized loan obligations	1,902		36		433		7		2,335		43
Non-agency CMBS and RMBS	195		5		—		—		195		5
Other	89		1		—		—		89		1
Total asset-backed securities	2,288		44		449		7		2,737		51
State and political subdivisions	667		6		43		4		710		10
Other U.S. debt securities	763		48		238		22		1,001		70
Total	$	37,636	$	929	$	5,368	$	233	$	43,004	$	1,162

	As of December 31, 2021
	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	$	14,749	$	194	$	1,624	$	2	$	16,373	$	196
Mortgage-backed securities	10,417		80		369		14		10,786		94
Total U.S. Treasury and federal agencies	25,166		274		1,993		16		27,159		290
Non-U.S. debt securities:
Mortgage-backed securities	577		3		30		—		607		3
Asset-backed securities	1,021		2		127		—		1,148		2
Non-U.S. sovereign, supranational and non-U.S. agency	10,406		97		63		3		10,469		100
Other	1,570		31		19		1		1,589		32
Total non-U.S. debt securities	13,574		133		239		4		13,813		137
Asset-backed securities:
Collateralized loan obligations	1,268		2		—		—		1,268		2
Total asset-backed securities	1,268		2		—		—		1,268		2
State and political subdivisions	10		—		45		3		55		3
Other U.S. debt securities	1,214		13		—		—		1,214		13
Total	$	41,232	$	422	$	2,277	$	23	$	43,509	$	445

The following table presents the amortized cost and the fair value of contractual maturities of debt investment securities as of June 30, 2022. 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, 2022
(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	$	2,049	$	2,039	$	7,112	$	6,800	$	559	$	572	$	—	$	—	$	9,720	$	9,411
Mortgage-backed securities	56		56		549		548		7,862		7,793		1,942		1,874		10,409		10,271
Total U.S. Treasury and federal agencies	2,105		2,095		7,661		7,348		8,421		8,365		1,942		1,874		20,129		19,682
Non-U.S. debt securities:
Mortgage-backed securities	174		174		388		386		28		27		1,382		1,372		1,972		1,959
Asset-backed securities	265		260		810		801		459		453		367		362		1,901		1,876
Non-U.S. sovereign, supranational and non-U.S. agency	3,345		3,335		9,142		8,800		2,813		2,792		—		—		15,300		14,927
Other	267		266		1,940		1,812		122		103		29		23		2,358		2,204
Total non-U.S. debt securities	4,051		4,035		12,280		11,799		3,422		3,375		1,778		1,757		21,531		20,966
Asset-backed securities:
Student loans	64		65		—		—		—		—		88		85		152		150
Collateralized loan obligations	108		106		485		477		1,197		1,177		588		574		2,378		2,334
Non-agency CMBS and RMBS	—		—		—		—		—		—		200		195		200		195
Other	—		—		90		89		—		—		—		—		90		89
Total asset-backed securities	172		171		575		566		1,197		1,177		876		854		2,820		2,768
State and political subdivisions	175		175		404		401		407		406		56		52		1,042		1,034
Other U.S. debt securities	62		61		997		928		15		15		—		—		1,074		1,004
Total	$	6,565	$	6,537	$	21,917	$	21,042	$	13,462	$	13,338	$	4,652	$	4,537	$	46,596	$	45,454
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	400	$	400	$	10,985	$	10,911	$	24	$	23	$	15	$	15	$	11,424	$	11,349
Mortgage-backed securities	157		151		556		540		4,706		4,141		36,241		32,976		41,660		37,808
Total U.S. Treasury and federal agencies	557		551		11,541		11,451		4,730		4,164		36,256		32,991		53,084		49,157
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency	546		543		5,303		5,186		594		586		—		—		6,443		6,315
Total non-U.S. debt securities	546		543		5,303		5,186		594		586		—		—		6,443		6,315
Asset-backed securities:
Student loans	332		319		13		13		960		941		3,163		3,072		4,468		4,345
Non-agency CMBS and RMBS	181		188		11		12		—		—		74		86		266		286
Total asset-backed securities	513		507		24		25		960		941		3,237		3,158		4,734		4,631
Total	$	1,616	$	1,601	$	16,868	$	16,662	$	6,284	$	5,691	$	39,493	$	36,149	$	64,261	$	60,103

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

We conduct quarterly reviews of HTM and AFS securities on a collective (pool) basis when similar risk characteristics exist to determine whether an allowance for credit losses should be recognized. We review individual AFS securities periodically to assess if additional impairment is required. For additional information about the Current Expected Credit Loss methodology and the review of investment securities for expected credit losses or impairment, refer to pages 148 to 149 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2021 Form 10-K.

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 June 30, 2022, 99% of our HTM and AFS investment portfolio is publicly rated investment grade.

We had no allowance for credit losses on our HTM securities as of June 30, 2022 and December 31, 2021.

Our allowance for credit losses on our AFS securities was approximately $2 million as of both June 30, 2022 and December 31, 2021. In the second quarter of 2022, we recorded no provision for credit losses and no charge-offs on AFS securities.

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 considered the resulting gross pre-tax unrealized losses of $5.35 billion related to 2,050 securities as of June 30, 2022 to be primarily related to changes in interest rates, and not the result of any material changes in the credit characteristics of the securities.