Investment Securities

9 Months Ended

Sep. 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:

	September 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	$	8,150	$	13	$	307	$	7,856	$	18,111	$	24	$	196	$	17,939
Mortgage-backed securities	9,618		—		215		9,403		18,154		148		94		18,208
Total U.S. Treasury and federal agencies	17,768		13		522		17,259		36,265		172		290		36,147
Non-U.S. debt securities:
Mortgage-backed securities	1,680		—		18		1,662		1,986		12		3		1,995
Asset-backed securities(1)	1,671		—		31		1,640		2,087		2		2		2,087
Non-U.S. sovereign, supranational and non-U.S. agency	14,142		2		470		13,674		23,533		114		100		23,547
Other(2)	2,262		—		178		2,084		3,113		17		32		3,098
Total non-U.S. debt securities	19,755		2		697		19,060		30,719		145		137		30,727
Asset-backed securities:
Student loans(3)	134		—		1		133		209		2		—		211
Collateralized loan obligations(4)	2,371		—		54		2,317		2,155		2		2		2,155
Non-agency CMBS and RMBS(5)	220		—		5		215		52		—		—		52
Other	90		—		2		88		90		1		—		91
Total asset-backed securities	2,815		—		62		2,753		2,506		5		2		2,509
State and political subdivisions	952		—		28		924		1,216		59		3		1,272
Other U.S. debt securities(6)	1,073		—		83		990		2,734		23		13		2,744
Total available-for-sale securities(7)(9)	$	42,363	$	15	$	1,392	$	40,986	$	73,440	$	404	$	445	$	73,399
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	11,637	$	—	$	353	$	11,284	$	2,170	$	10	$	—	$	2,180
Mortgage-backed securities	42,967		—		6,207		36,760		33,481		362		578		33,265
Total U.S. Treasury and federal agencies	54,604		—		6,560		48,044		35,651		372		578		35,445
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency	6,141		—		268		5,873		1,564		—		9		1,555
Total non-U.S. debt securities	6,141		—		268		5,873		1,564		—		9		1,555
Asset-backed securities:
Student loans(3)	4,238		1		104		4,135		4,908		48		14		4,942
Non-agency CMBS and RMBS(8)	249		19		—		268		307		22		—		329
Total asset-backed securities	4,487		20		104		4,403		5,215		70		14		5,271
Total held-to-maturity securities(7)	$	65,232	$	20	$	6,932	$	58,320	$	42,430	$	442	$	601	$	42,271

(1) As of September 30, 2022 and December 31, 2021, the fair value includes non-U.S. collateralized loan obligations of $0.78 billion and $0.83 billion, respectively.

(2) As of September 30, 2022 and December 31, 2021, the fair value includes non-U.S. corporate bonds of $1.11 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 September 30, 2022 and December 31, 2021.

(6) As of September 30, 2022 and December 31, 2021, the fair value of U.S. corporate bonds was $0.99 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 September 30, 2022.

(8) As of September 30, 2022 and December 31, 2021, the total amortized cost included $239 million and $292 million, respectively, of non-agency CMBS and $10 million and $14 million of non-agency RMBS, respectively.

(9) As of both September 30, 2022 and December 31, 2021, total amortized cost included an allowance for credit losses on AFS investment securities of $1 million.

Aggregate investment securities with carrying values of approximately $83.71 billion and $80.81 billion as of September 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 September 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	$	1,995	$	38	$	5,206	$	269	$	7,201	$	307
Mortgage-backed securities	8,949		180		346		35		9,295		215
Total U.S. Treasury and federal agencies	10,944		218		5,552		304		16,496		522
Non-U.S. debt securities:
Mortgage-backed securities	1,343		14		235		4		1,578		18
Asset-backed securities	1,361		25		245		6		1,606		31
Non-U.S. sovereign, supranational and non-U.S. agency	9,820		271		3,042		199		12,862		470
Other	970		51		1,023		127		1,993		178
Total non-U.S. debt securities	13,494		361		4,545		336		18,039		697
Asset-backed securities:
Student loans	84		1		6		—		90		1
Collateralized loan obligations	1,728		40		591		14		2,319		54
Non-agency CMBS and RMBS	215		5		—		—		215		5
Other	88		2		—		—		88		2
Total asset-backed securities	2,115		48		597		14		2,712		62
State and political subdivisions	860		23		42		5		902		28
Other U.S. debt securities	559		36		431		47		990		83
Total	$	27,972	$	686	$	11,167	$	706	$	39,139	$	1,392

	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 September 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 September 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	$	1,919	$	1,883	$	5,703	$	5,433	$	528	$	540	$	—	$	—	$	8,150	$	7,856
Mortgage-backed securities	53		52		502		498		7,239		7,111		1,824		1,742		9,618		9,403
Total U.S. Treasury and federal agencies	1,972		1,935		6,205		5,931		7,767		7,651		1,824		1,742		17,768		17,259
Non-U.S. debt securities:
Mortgage-backed securities	123		123		339		336		20		20		1,198		1,183		1,680		1,662
Asset-backed securities	272		266		653		642		422		415		324		317		1,671		1,640
Non-U.S. sovereign, supranational and non-U.S. agency	3,929		3,894		7,653		7,244		2,560		2,536		—		—		14,142		13,674
Other	241		238		1,864		1,715		130		110		27		21		2,262		2,084
Total non-U.S. debt securities	4,565		4,521		10,509		9,937		3,132		3,081		1,549		1,521		19,755		19,060
Asset-backed securities:
Student loans	51		51		—		—		—		—		83		82		134		133
Collateralized loan obligations	164		161		422		413		1,240		1,214		545		529		2,371		2,317
Non-agency CMBS and RMBS	—		—		—		—		—		—		220		215		220		215
Other	—		—		90		88		—		—		—		—		90		88
Total asset-backed securities	215		212		512		501		1,240		1,214		848		826		2,815		2,753
State and political subdivisions	197		195		309		299		390		379		56		51		952		924
Other U.S. debt securities	91		89		942		864		40		37		—		—		1,073		990
Total	$	7,040	$	6,952	$	18,477	$	17,532	$	12,569	$	12,362	$	4,277	$	4,140	$	42,363	$	40,986
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	97	$	96	$	11,502	$	11,152	$	24	$	22	$	14	$	14	$	11,637	$	11,284
Mortgage-backed securities	158		143		622		584		4,549		3,756		37,638		32,277		42,967		36,760
Total U.S. Treasury and federal agencies	255		239		12,124		11,736		4,573		3,778		37,652		32,291		54,604		48,044
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency	638		632		4,945		4,722		558		519		—		—		6,141		5,873
Total non-U.S. debt securities	638		632		4,945		4,722		558		519		—		—		6,141		5,873
Asset-backed securities:
Student loans	315		304		12		12		989		973		2,922		2,846		4,238		4,135
Non-agency CMBS and RMBS	176		183		—		—		—		—		73		85		249		268
Total asset-backed securities	491		487		12		12		989		973		2,995		2,931		4,487		4,403
Total	$	1,384	$	1,358	$	17,081	$	16,470	$	6,120	$	5,270	$	40,647	$	35,222	$	65,232	$	58,320

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 September 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 both September 30, 2022 and December 31, 2021.

Our allowance for credit losses on our AFS securities was approximately $1 million and $2 million as of September 30, 2022 and December 31, 2021, respectively. In the third quarter of 2022, we recorded $1 million 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 $8.32 billion related to 2,150 securities as of September 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.