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Investment Securities | 12 Months Ended
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Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract] |
Investment Securities |
NOTE 2—INVESTMENT SECURITIES
Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”); and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96% of our total investment securities portfolio as of both December 31, 2019 and 2018. On December 31, 2019, we transferred our entire portfolio of held to maturity securities to available for sale in consideration of changes to regulatory capital requirements under the Tailoring Rules, which no longer required us to include in regulatory capital certain elements of AOCI, including unrealized gains and losses from available for sale securities. On the date of transfer, these securities had a fair value of $33.2 billion, including pre-tax unrealized gains of $1.2 billion. The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of December 31, 2019 and 2018. Table 2.1: Investment Securities Available for Sale
|  | December 31, 2019
(Dollars in millions) |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Investment securities available for sale: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 4,122 |  |  | $ | 6 |  |  | $ | (4 | ) |  | $ | 4,124 |
RMBS: |  |  |  |  |  |  |  |
Agency |  | 62,003 |  |  | 1,120 |  |  | (284 | ) |  | 62,839 |
Non-agency |  | 1,235 |  |  | 266 |  |  | (2 | ) |  | 1,499 |
Total RMBS |  | 63,238 |  |  | 1,386 |  |  | (286 | ) |  | 64,338 |
Agency CMBS |  | 9,303 |  |  | 165 |  |  | (42 | ) |  | 9,426 |
Other securities(1) |  | 1,321 |  |  | 4 |  |  | 0 |  |  | 1,325 |
Total investment securities available for sale |  | $ | 77,984 |  |  | $ | 1,561 |  |  | $ | (332 | ) |  | $ | 79,213 |
|  | December 31, 2018
(Dollars in millions) |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Investment securities available for sale: |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 6,146 |  |  | $ | 15 |  |  | $ | (17 | ) |  | $ | 6,144 |
RMBS: |  |  |  |  |  |  |  |
Agency |  | 32,710 |  |  | 62 |  |  | (869 | ) |  | 31,903 |
Non-agency |  | 1,440 |  |  | 304 |  |  | (2 | ) |  | 1,742 |
Total RMBS |  | 34,150 |  |  | 366 |  |  | (871 | ) |  | 33,645 |
Agency CMBS |  | 4,806 |  |  | 11 |  |  | (78 | ) |  | 4,739 |
Other securities(1) |  | 1,626 |  |  | 2 |  |  | (6 | ) |  | 1,622 |
Total investment securities available for sale |  | $ | 46,728 |  |  | $ | 394 |  |  | $ | (972 | ) |  | $ | 46,150 |
__________
(1) | Includes primarily supranational bonds, foreign government bonds and other asset-backed securities.
Investment Securities in a Gross Unrealized Loss Position The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019 and 2018. Table 2.2: Securities in a Gross Unrealized Loss Position
|  | December 31, 2019
|  | Less than 12 Months |  | 12 Months or Longer |  | Total
(Dollars in millions) |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
Investment securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 2,647 |  |  | $ | (4 | ) |  | $ | 0 |  |  | $ | 0 |  |  | $ | 2,647 |  |  | $ | (4 | )
RMBS: |  |  |  |  |  |  |  |  |  |  |  |
Agency |  | 10,494 |  |  | (92 | ) |  | 10,567 |  |  | (192 | ) |  | 21,061 |  |  | (284 | )
Non-agency |  | 35 |  |  | (1 | ) |  | 16 |  |  | (1 | ) |  | 51 |  |  | (2 | )
Total RMBS |  | 10,529 |  |  | (93 | ) |  | 10,583 |  |  | (193 | ) |  | 21,112 |  |  | (286 | )
Agency CMBS |  | 2,580 |  |  | (23 | ) |  | 1,563 |  |  | (19 | ) |  | 4,143 |  |  | (42 | )
Other securities |  | 126 |  |  | 0 |  |  | 106 |  |  | 0 |  |  | 232 |  |  | 0 |
Total investment securities available for sale in a gross unrealized loss position |  | $ | 15,882 |  |  | $ | (120 | ) |  | $ | 12,252 |  |  | $ | (212 | ) |  | $ | 28,134 |  |  | $ | (332 | )
|  | December 31, 2018
|  | Less than 12 Months |  | 12 Months or Longer |  | Total
(Dollars in millions) |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
Investment securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 2,543 |  |  | $ | (3 | ) |  | $ | 1,076 |  |  | $ | (14 | ) |  | $ | 3,619 |  |  | $ | (17 | )
RMBS: |  |  |  |  |  |  |  |  |  |  |  |
Agency |  | 7,863 |  |  | (260 | ) |  | 18,118 |  |  | (609 | ) |  | 25,981 |  |  | (869 | )
Non-agency |  | 89 |  |  | (2 | ) |  | 10 |  |  | 0 |  |  | 99 |  |  | (2 | )
Total RMBS |  | 7,952 |  |  | (262 | ) |  | 18,128 |  |  | (609 | ) |  | 26,080 |  |  | (871 | )
Agency CMBS |  | 2,004 |  |  | (31 | ) |  | 1,540 |  |  | (47 | ) |  | 3,544 |  |  | (78 | )
Other securities |  | 244 |  |  | (1 | ) |  | 678 |  |  | (5 | ) |  | 922 |  |  | (6 | )
Total investment securities available for sale in a gross unrealized loss position |  | $ | 12,743 |  |  | $ | (297 | ) |  | $ | 21,422 |  |  | $ | (675 | ) |  | $ | 34,165 |  |  | $ | (972 | )
As of December 31, 2019, the amortized cost of approximately 900 securities available for sale exceeded their fair value by $332 million, of which $212 million related to securities that had been in a loss position for 12 months or longer. Maturities and Yields of Investment Securities The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment securities as of December 31, 2019. Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security. Table 2.3: Contractual Maturities and Weighted-Average Yields of Securities
|  | December 31, 2019
(Dollars in millions) |  | Due in 1 Year or Less |  | Due > 1 Year through 5 Years |  | Due > 5 Years through 10 Years |  | Due > 10 Years |  | Total
Fair value of securities available for sale: |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 0 |  |  | $ | 1,476 |  |  | $ | 2,648 |  |  | $ | 0 |  |  | $ | 4,124 |
RMBS(1): |  |  |  |  |  |  |  |  |  |
Agency |  | 0 |  |  | 36 |  |  | 891 |  |  | 61,912 |  |  | 62,839 |
Non-agency |  | 0 |  |  | 0 |  |  | 0 |  |  | 1,499 |  |  | 1,499 |
Total RMBS |  | 0 |  |  | 36 |  |  | 891 |  |  | 63,411 |  |  | 64,338 |
Agency CMBS(1) |  | 2 |  |  | 1,753 |  |  | 3,574 |  |  | 4,097 |  |  | 9,426 |
Other securities |  | 501 |  |  | 557 |  |  | 267 |  |  | 0 |  |  | 1,325 |
Total securities available for sale |  | $ | 503 |  |  | $ | 3,822 |  |  | $ | 7,380 |  |  | $ | 67,508 |  |  | $ | 79,213 |
Amortized cost of securities available for sale |  | $ | 503 |  |  | $ | 3,816 |  |  | $ | 7,334 |  |  | $ | 66,331 |  |  | $ | 77,984 |
Weighted-average yield for securities available for sale |  | 1.43 | % |  | 2.37 | % |  | 2.60 | % |  | 3.06 | % |  | 2.97 | %
__________
(1) | As of December 31, 2019, the weighted-average expected maturities of RMBS and Agency CMBS is 5.4 years for each portfolio.
Other-Than-Temporary Impairment We evaluate all securities in an unrealized loss position at least quarterly, and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our OTTI assessment is based on a discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment, as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected market and macro-economic conditions. If we intend to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, the entire difference between the amortized cost basis of the security and its fair value is recognized in earnings. As of December 31, 2019, we had sold all securities previously designated with the intent to sell, and did not intend to sell, nor believe that we will be required to sell, any other security in an unrealized loss position prior to the recovery of its amortized cost basis. For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit-related impairment recorded in AOCI. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows, discounted at the security’s effective yield. Realized Gains and Losses on Securities and OTTI Recognized in Earnings The following table presents the gross realized gains or losses and proceeds from the sale of securities available for sale for the years ended December 31, 2019, 2018 and 2017. We did not sell any investment securities that were classified as held to maturity. Table 2.4: Realized Gains and Losses on Securities and OTTI Recognized in Earnings
|  | Year Ended December 31,
(Dollars in millions) |  | 2019 |  | 2018 |  | 2017
Realized gains (losses): |  |  |  |  |  |
Gross realized gains |  | $ | 44 |  |  | $ | 13 |  |  | $ | 144 |
Gross realized losses |  | (18 | ) |  | (21 | ) |  | (74 | )
Net realized gains (losses) |  | 26 |  |  | (8 | ) |  | 70 |
OTTI recognized in earnings: |  |  |  |  |  |
Credit-related OTTI |  | 0 |  |  | (1 | ) |  | (2 | )
Intent-to-sell OTTI |  | 0 |  |  | (200 | ) |  | (3 | )
Total OTTI recognized in earnings |  | 0 |  |  | (201 | ) |  | (5 | )
Net securities gains (losses) |  | $ | 26 |  |  | $ | (209 | ) |  | $ | 65 |
Total proceeds from sales |  | $ | 4,780 |  |  | $ | 6,399 |  |  | $ | 8,181 |
The cumulative credit loss component of the OTTI losses that have been recognized in our consolidated statements of income related to the securities that we do not intend to sell was $134 million and $140 million as of December 31, 2019 and 2018, respectively. Securities Pledged and Received We pledged investment securities totaling $14.0 billion and $16.3 billion as of December 31, 2019 and 2018, respectively. These securities are primarily pledged to secure FHLB advances and Public Funds deposits, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $1 million as of both December 31, 2019 and 2018, related to our derivative transactions. Purchased Credit-Impaired Debt Securities The table below presents the outstanding balance and carrying value of the purchased credit-impaired debt securities as of December 31, 2019 and 2018. Table 2.5: Outstanding Balance and Carrying Value of Purchased Credit-Impaired Debt Securities
(Dollars in millions) |  | December 31, 2019 |  | December 31, 2018
Outstanding balance |  | $ | 1,501 |  |  | $ | 1,784 |
Carrying value |  | 1,347 |  |  | 1,537 |
Changes in Accretable Yield of Purchased Credit-Impaired Debt Securities The following table presents changes in the accretable yield related to the purchased credit-impaired debt securities for the years ended December 31, 2019, 2018 and 2017. Table 2.6: Changes in the Accretable Yield of Purchased Credit-Impaired Debt Securities
|  | Year Ended December 31,
(Dollars in millions) |  | 2019 |  | 2018 |  | 2017
Accretable yield, beginning of period |  | $ | 698 |  |  | $ | 826 |  |  | $ | 1,173 |
Accretion recognized in earnings |  | (166 | ) |  | (153 | ) |  | (182 | )
Reduction due to payoffs, disposals, transfers and other |  | (7 | ) |  | (3 | ) |  | (157 | )
Net reclassifications (to) from nonaccretable difference |  | 19 |  |  | 28 |  |  | (8 | )
Accretable yield, end of period |  | $ | 544 |  |  | $ | 698 |  |  | $ | 826 |

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