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SECURITIES | 9 Months Ended
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Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract] |
SECURITIES | SECURITIES The following table presents the major components of securities at amortized cost and fair value:
| September 30, 2018 |  | December 31, 2017
(in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |  | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
Debt Securities Available for Sale, at Fair Value |  |  |  |  |  |  |  |  |
U.S. Treasury and other |  | $12 |  |  | $— |  |  | $— |  |  | $12 |  |  |  | $12 |  |  | $— |  |  | $— |  |  | $12 |
State and political subdivisions | 5 |  | — |  | — |  | 5 |  |  | 6 |  | — |  | — |  | 6 |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 20,703 |  | 8 |  | (825 | ) | 19,886 |  |  | 20,065 |  | 40 |  | (277 | ) | 19,828 |
Other/non-agency | 251 |  | 4 |  | (6 | ) | 249 |  |  | 311 |  | 7 |  | (7 | ) | 311 |
Total mortgage-backed securities | 20,954 |  | 12 |  | (831 | ) | 20,135 |  |  | 20,376 |  | 47 |  | (284 | ) | 20,139 |
Total debt securities available for sale, at fair value |  | $20,971 |  |  | $12 |  |  | ($831 | ) |  | $20,152 |  |  |  | $20,394 |  |  | $47 |  |  | ($284 | ) |  | $20,157 |
Debt Securities Held to Maturity |  |  |  |  |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities |  | $3,525 |  |  | $— |  |  | ($177 | ) |  | $3,348 |  |  |  | $3,853 |  |  | $7 |  |  | ($46 | ) |  | $3,814 |
Other/non-agency | 759 |  | 1 |  | (6 | ) | 754 |  |  | 832 |  | 22 |  | — |  | 854 |
Total mortgage-backed securities | 4,284 |  | 1 |  | (183 | ) | 4,102 |  |  | 4,685 |  | 29 |  | (46 | ) | 4,668 |
Total debt securities held to maturity |  | $4,284 |  |  | $1 |  |  | ($183 | ) |  | $4,102 |  |  |  | $4,685 |  |  | $29 |  |  | ($46 | ) |  | $4,668 |
Equity Securities, at Fair Value |  |  |  |  |  |  |  |  |
Money market mutual fund investments |  | $175 |  |  | $— |  |  | $— |  |  | $175 |  |  |  | $165 |  |  | $— |  |  | $— |  |  | $165 |
Other investments | — |  | — |  | — |  | — |  |  | 4 |  | — |  | — |  | 4 |
Total equity securities, at fair value |  | $175 |  |  | $— |  |  | $— |  |  | $175 |  |  |  | $169 |  |  | $— |  |  | $— |  |  | $169 |
Equity Securities, at Cost |  |  |  |  |  |  |  |  |
Federal Reserve Bank stock |  | $463 |  |  | $— |  |  | $— |  |  | $463 |  |  |  | $463 |  |  | $— |  |  | $— |  |  | $463 |
Federal Home Loan Bank stock | 404 |  | — |  | — |  | 404 |  |  | 252 |  | — |  | — |  | 252 |
Other equity securities | 7 |  | — |  | — |  | 7 |  |  | 7 |  | — |  | — |  | 7 |
Total equity securities, at cost |  | $874 |  |  | $— |  |  | $— |  |  | $874 |  |  |  | $722 |  |  | $— |  |  | $— |  |  | $722 |
The amortized cost and fair value of debt securities by contractual maturity as of September 30, 2018 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
| September 30, 2018
| Distribution of Maturities
(in millions) | 1 Year or Less | 1-5 Years | 5-10 Years | After 10 Years | Total |
Amortized Cost: |  |  |  |  |
Debt securities available for sale |  |  |  |  |
U.S. Treasury and other |  | $12 |  |  | $— |  |  | $— |  |  | $— |  |  | $12 |
State and political subdivisions | — |  | — |  | — |  | 5 |  | 5 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | 312 |  | 1,595 |  | 18,796 |  | 20,703 |
Other/non-agency | 2 |  | 11 |  | — |  | 238 |  | 251 |
Total debt securities available for sale | 14 |  | 323 |  | 1,595 |  | 19,039 |  | 20,971 |
Debt securities held to maturity |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 3,525 |  | 3,525 |
Other/non-agency | — |  | — |  | — |  | 759 |  | 759 |
Total debt securities held to maturity | — |  | — |  | — |  | 4,284 |  | 4,284 |
Total amortized cost of debt securities |  | $14 |  |  | $323 |  |  | $1,595 |  |  | $23,323 |  |  | $25,255 |
Fair Value: |  |  |  |  |
Debt securities available for sale |  |  |  |  |
U.S. Treasury and other |  | $12 |  |  | $— |  |  | $— |  |  | $— |  |  | $12 |
State and political subdivisions | — |  | — |  | — |  | 5 |  | 5 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | 306 |  | 1,555 |  | 18,025 |  | 19,886 |
Other/non-agency | 2 |  | 11 |  | — |  | 236 |  | 249 |
Total debt securities available for sale | 14 |  | 317 |  | 1,555 |  | 18,266 |  | 20,152 |
Debt securities held to maturity |  |  |  |  |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 3,348 |  | 3,348 |
Other/non-agency | — |  | — |  | — |  | 754 |  | 754 |
Total debt securities held to maturity | — |  | — |  | — |  | 4,102 |  | 4,102 |
Total fair value of debt securities |  | $14 |  |  | $317 |  |  | $1,555 |  |  | $22,368 |  |  | $24,254 |
Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $167 million and $155 million for the three months ended September 30, 2018 and 2017, respectively, and was $500 million and $469 million for the nine months ended September 30, 2018 and 2017, respectively. Realized gains and losses on securities are presented below:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Gains on sale of debt securities |  | $3 |  |  |  | $2 |  |  |  | $13 |  |  |  | $9 |
Losses on sale of debt securities | — |  |  | — |  |  | — |  |  | — |
Debt securities gains, net |  | $3 |  |  |  | $2 |  |  |  | $13 |  |  |  | $9 |
Equity securities gains |  | $— |  |  |  | $— |  |  |  | $— |  |  |  | $1 |
The amortized cost and fair value of debt securities pledged are presented below:
| September 30, 2018 |  | December 31, 2017
(in millions) | Amortized Cost | Fair Value |  |  | Amortized Cost | Fair Value |
Pledged against repurchase agreements |  | $391 |  |  | $376 |  |  |  | $358 |  |  | $357 |
Pledged against FHLB borrowed funds | 764 |  | 760 |  |  | 839 |  | 861 |
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law | 3,699 |  | 3,519 |  |  | 3,113 |  | 3,082 |
The Company regularly enters into security repurchase agreements with unrelated counterparties. Repurchase agreements are financial transactions that involve the transfer of a security from one party to another and a subsequent transfer of substantially the same security back to the original party. The Company’s repurchase agreements are typically short-term transactions and accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. When permitted by GAAP, the Company offsets short-term receivables associated with its reverse repurchase agreements against short-term payables associated with its repurchase agreements. The Company recognized no offsetting of short-term receivables or payables as of September 30, 2018 or December 31, 2017. The Company offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 9 “Derivatives.” Securitizations of mortgage loans retained in the investment portfolio for the three months ended September 30, 2018 and 2017 were $32 million and $38 million, respectively, and $87 million and $82 million for the nine months ended September 30, 2018 and 2017, respectively. These securitizations include a substantive guarantee by a third party. In 2018 and 2017, the guarantors were FNMA, FHLMC, and GNMA. The debt securities received from the guarantors are classified as AFS. The following tables present mortgage-backed debt securities whose fair values are below carrying values, segregated by those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:
| September 30, 2018
| Less than 12 Months |  | 12 Months or Longer |  | Total
(dollars in millions) | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities | 493 |  |  | $15,177 |  |  | ($514 | ) |  | 159 |  |  | $7,215 |  |  | ($488 | ) |  | 652 |  |  | $22,392 |  |  | ($1,002 | )
Other/non-agency | 14 |  | 542 |  | (6 | ) |  | 11 |  | 76 |  | (6 | ) |  | 25 |  | 618 |  | (12 | )
Total | 507 |  |  | $15,719 |  |  | ($520 | ) |  | 170 |  |  | $7,291 |  |  | ($494 | ) |  | 677 |  |  | $23,010 |  |  | ($1,014 | )
| December 31, 2017
| Less than 12 Months |  | 12 Months or Longer |  | Total
(dollars in millions) | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities | 294 |  |  | $10,163 |  |  | ($97 | ) |  | 152 |  |  | $8,061 |  |  | ($226 | ) |  | 446 |  |  | $18,224 |  |  | ($323 | )
Other/non-agency | 6 |  | 55 |  | (1 | ) |  | 10 |  | 84 |  | (6 | ) |  | 16 |  | 139 |  | (7 | )
Total | 300 |  |  | $10,218 |  |  | ($98 | ) |  | 162 |  |  | $8,145 |  |  | ($232 | ) |  | 462 |  |  | $18,363 |  |  | ($330 | )
The following table presents the cumulative credit-related losses recognized in earnings on debt securities held by the Company:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Cumulative balance at beginning of period |  | $81 |  |  |  | $79 |  |  |  | $80 |  |  |  | $75 |
Credit impairments recognized in earnings on debt securities that have been previously impaired | 1 |  |  | 1 |  |  | 3 |  |  | 6 |
Reductions due to increases in cash flow expectations on impaired debt securities(1) | (1 | ) |  | — |  |  | (2 | ) |  | (1 | )
Cumulative balance at end of period |  | $81 |  |  |  | $80 |  |  |  | $81 |  |  |  | $80 |
(1) Reported in interest income from investment securities on the Consolidated Statements of Operations. Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2018 and 2017 were $81 million and $80 million, respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio for the three and nine months ended September 30, 2018 and 2017. For the three months ended September 30, 2018 and 2017, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million. For the nine months ended September 30, 2018 and 2017, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $3 million and $6 million, respectively. There were no credit-impaired debt securities sold during the three and nine months ended September 30, 2018 and 2017. The Company does not currently have the intent to sell these impaired debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. The Company has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of September 30, 2018. The unrealized losses on these debt securities reflect non-credit-related factors such as changing interest rates and market liquidity. Therefore, the Company has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases.

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