Annual report pursuant to Section 13 and 15(d)

Securities (Tables)

v3.8.0.1
Securities (Tables)
 12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value, HTM debt securities and AFS marketable equity securities at December 31, 2017 and 2016.
 
 
 
 
 
 
 
 
Debt Securities and Available-for-Sale Marketable Equity Securities
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in millions)
December 31, 2017
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 

Agency
$
194,119

 
$
506

 
$
(1,696
)
 
$
192,929

Agency-collateralized mortgage obligations
6,846

 
39

 
(81
)
 
6,804

Commercial
13,864

 
28

 
(208
)
 
13,684

Non-agency residential (1)
2,410

 
267

 
(8
)
 
2,669

Total mortgage-backed securities
217,239

 
840

 
(1,993
)
 
216,086

U.S. Treasury and agency securities
54,523

 
18

 
(1,018
)
 
53,523

Non-U.S. securities
6,669

 
9

 
(1
)
 
6,677

Other taxable securities, substantially all asset-backed securities
5,699

 
73

 
(2
)
 
5,770

Total taxable securities
284,130

 
940

 
(3,014
)
 
282,056

Tax-exempt securities
20,541

 
138

 
(104
)
 
20,575

Total available-for-sale debt securities
304,671

 
1,078

 
(3,118
)
 
302,631

Other debt securities carried at fair value
12,273

 
252

 
(39
)
 
12,486

Total debt securities carried at fair value
316,944

 
1,330

 
(3,157
)
 
315,117

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
125,013

 
111

 
(1,825
)
 
123,299

Total debt securities (2)
$
441,957

 
$
1,441

 
$
(4,982
)
 
$
438,416

Available-for-sale marketable equity securities (3)
$
27

 
$
—

 
$
(2
)
 
$
25

 
 
 
 
 
 
 
 
 
December 31, 2016
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 

 
 

 
 

 
 

Agency
$
190,809

 
$
640

 
$
(1,963
)
 
$
189,486

Agency-collateralized mortgage obligations
8,296

 
85

 
(51
)
 
8,330

Commercial
12,594

 
21

 
(293
)
 
12,322

Non-agency residential (1)
1,863

 
181

 
(31
)
 
2,013

Total mortgage-backed securities
213,562

 
927

 
(2,338
)
 
212,151

U.S. Treasury and agency securities
48,800

 
204

 
(752
)
 
48,252

Non-U.S. securities
6,372

 
13

 
(3
)
 
6,382

Other taxable securities, substantially all asset-backed securities
10,573

 
64

 
(23
)
 
10,614

Total taxable securities
279,307

 
1,208

 
(3,116
)
 
277,399

Tax-exempt securities
17,272

 
72

 
(184
)
 
17,160

Total available-for-sale debt securities
296,579

 
1,280

 
(3,300
)
 
294,559

Less: Available-for-sale securities of business held for sale (4)
(619
)
 
—

 
—

 
(619
)
Other debt securities carried at fair value
19,748

 
121

 
(149
)
 
19,720

Total debt securities carried at fair value
315,708

 
1,401

 
(3,449
)
 
313,660

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
117,071

 
248

 
(2,034
)
 
115,285

Total debt securities (2)
$
432,779

 
$
1,649

 
$
(5,483
)
 
$
428,945

Available-for-sale marketable equity securities (3)
$
325

 
$
51

 
$
(1
)
 
$
375

(1) 
At December 31, 2017 and 2016, the underlying collateral type included approximately 62 percent and 60 percent prime, 13 percent and 19 percent Alt-A, and 25 percent and 21 percent subprime.
(2) 
The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $163.6 billion and $50.3 billion, and a fair value of $162.1 billion and $50.0 billion at December 31, 2017, and an amortized cost of $156.4 billion and $48.7 billion, and a fair value of $154.4 billion and $48.3 billion at December 31, 2016.
(3) 
Classified in other assets on the Consolidated Balance Sheet.
(4) 
Represents AFS debt securities of business held for sale. In 2017, the Corporation sold its non-U.S. consumer credit card business.
Schedule of Other Debt Securities Carried at Fair Value
The following table presents the components of other debt securities carried at fair value where the changes in fair value are reported in other income. In 2017, the Corporation recorded unrealized mark-to-market net gains of $243 million and realized net losses of $49 million compared to unrealized mark-to-market net gains of $51 million and realized net losses of $128 million in 2016. These amounts exclude hedge results.
 
 
 
 
Other Debt Securities Carried at Fair Value
 
 
 
December 31
(Dollars in millions)
2017
 
2016
Mortgage-backed securities:
 
 
 
Agency-collateralized mortgage obligations
$
5

 
$
5

Non-agency residential
2,764

 
3,139

Total mortgage-backed securities
2,769

 
3,144

Non-U.S. securities (1)
9,488

 
16,336

Other taxable securities, substantially all asset-backed securities
229

 
240

Total
$
12,486

 
$
19,720

(1) 
These securities are primarily used to satisfy certain international regulatory liquidity requirements.
Components of Realized Gains and Losses on Sales of Debt Securities
The gross realized gains and losses on sales of AFS debt securities for 2017, 2016 and 2015 are presented in the table below.
 
 
 
 
 
 
Gains and Losses on Sales of AFS Debt Securities
 
 
 
 
 
 
(Dollars in millions)
2017
 
2016
 
2015
Gross gains
$
352

 
$
520

 
$
1,174

Gross losses
(97
)
 
(30
)
 
(36
)
Net gains on sales of AFS debt securities
$
255

 
$
490

 
$
1,138

Income tax expense attributable to realized net gains on sales of AFS debt securities
$
97

 
$
186

 
$
432

Amortized Cost and Fair Value of Corporations Investment
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2017 and 2016.
 
 
 
 
 
 
 
 
 
 
 
 
Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities
 
 
 
 
 
 
 
 
 
Less than Twelve Months
 
Twelve Months or Longer
 
Total
 
Fair
Value
 
Gross Unrealized Losses
 
Fair
Value
 
Gross Unrealized Losses
 
Fair
Value
 
Gross Unrealized Losses
(Dollars in millions)
December 31, 2017
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
73,535

 
$
(352
)
 
$
72,612

 
$
(1,344
)
 
$
146,147

 
$
(1,696
)
Agency-collateralized mortgage obligations
2,743

 
(29
)
 
1,684

 
(52
)
 
4,427

 
(81
)
Commercial
5,575

 
(50
)
 
4,586

 
(158
)
 
10,161

 
(208
)
Non-agency residential
335

 
(7
)
 
—

 
—

 
335

 
(7
)
Total mortgage-backed securities
82,188

 
(438
)
 
78,882

 
(1,554
)
 
161,070

 
(1,992
)
U.S. Treasury and agency securities
27,537

 
(251
)
 
24,035

 
(767
)
 
51,572

 
(1,018
)
Non-U.S. securities
772

 
(1
)
 
—

 
—

 
772

 
(1
)
Other taxable securities, substantially all asset-backed securities
—

 
—

 
92

 
(2
)
 
92

 
(2
)
Total taxable securities
110,497

 
(690
)
 
103,009

 
(2,323
)
 
213,506

 
(3,013
)
Tax-exempt securities
1,090

 
(2
)
 
7,100

 
(102
)
 
8,190

 
(104
)
Total temporarily impaired AFS debt securities
111,587

 
(692
)
 
110,109

 
(2,425
)
 
221,696

 
(3,117
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
58

 
(1
)
 
—

 
—

 
58

 
(1
)
Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
111,645

 
$
(693
)
 
$
110,109

 
$
(2,425
)
 
$
221,754

 
$
(3,118
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
135,210

 
$
(1,846
)
 
$
3,770

 
$
(117
)
 
$
138,980

 
$
(1,963
)
Agency-collateralized mortgage obligations
3,229

 
(25
)
 
1,028

 
(26
)
 
4,257

 
(51
)
Commercial
9,018

 
(293
)
 
—

 
—

 
9,018

 
(293
)
Non-agency residential
212

 
(1
)
 
204

 
(13
)
 
416

 
(14
)
Total mortgage-backed securities
147,669

 
(2,165
)
 
5,002

 
(156
)
 
152,671

 
(2,321
)
U.S. Treasury and agency securities
28,462

 
(752
)
 
—

 
—

 
28,462

 
(752
)
Non-U.S. securities
52

 
(1
)
 
142

 
(2
)
 
194

 
(3
)
Other taxable securities, substantially all asset-backed securities
762

 
(5
)
 
1,438

 
(18
)
 
2,200

 
(23
)
Total taxable securities
176,945

 
(2,923
)
 
6,582

 
(176
)
 
183,527

 
(3,099
)
Tax-exempt securities
4,782

 
(148
)
 
1,873

 
(36
)
 
6,655

 
(184
)
Total temporarily impaired AFS debt securities
181,727

 
(3,071
)
 
8,455

 
(212
)
 
190,182

 
(3,283
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
94

 
(1
)
 
401

 
(16
)
 
495

 
(17
)
Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
181,821

 
$
(3,072
)
 
$
8,856

 
$
(228
)
 
$
190,677

 
$
(3,300
)
(1) 
Includes OTTI AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.
Significant Assumptions Used in the Valuation of Non-Agency Residential MBS
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency residential mortgage-backed securities (RMBS) were as follows at December 31, 2017.
 
 
 
 
 
 
Significant Assumptions
 
 
 
 
 
 
 
Range (1)
 
Weighted-
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Prepayment speed
12.4
%
 
3.0
%
 
21.3
%
Loss severity
20.2

 
9.1

 
36.7

Life default rate
20.9

 
1.2

 
76.6

(1) 
Represents the range of inputs/assumptions based upon the underlying collateral.
(2) 
The value of a variable below which the indicated percentile of observations will fall.
Expected Maturity Distribution
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2017 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due in One
Year or Less
 
Due after One Year
through Five Years
 
Due after Five Years
through Ten Years
 
Due after
Ten Years
 
Total
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
(Dollars in millions)
December 31, 2017
Amortized cost of debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$
5

 
4.20
%
 
$
28

 
3.69
%
 
$
555

 
2.57
%
 
$
193,531

 
3.22
%
 
$
194,119

 
3.22
%
Agency-collateralized mortgage obligations
—

 
—

 
—

 
—

 
33

 
2.52

 
6,817

 
3.18

 
6,850

 
3.18

Commercial
54

 
7.45

 
974

 
1.98

 
11,866

 
2.43

 
970

 
2.78

 
13,864

 
2.44

Non-agency residential
—

 
—

 
—

 
—

 
24

 
0.01

 
4,955

 
9.32

 
4,979

 
9.28

Total mortgage-backed securities
59

 
7.18

 
1,002

 
2.03

 
12,478

 
2.43

 
206,273

 
3.36

 
219,812

 
3.31

U.S. Treasury and agency securities
490

 
0.39

 
23,395

 
1.42

 
30,615

 
2.03

 
23

 
2.52

 
54,523

 
1.75

Non-U.S. securities
13,832

 
1.02

 
2,111

 
0.97

 
48

 
0.72

 
167

 
6.60

 
16,158

 
1.07

Other taxable securities, substantially all asset-backed securities
1,979

 
2.53

 
2,029

 
3.02

 
1,151

 
3.22

 
751

 
4.74

 
5,910

 
3.11

Total taxable securities
16,360

 
1.21

 
28,537

 
1.52

 
44,292

 
2.17

 
207,214

 
3.37

 
296,403

 
2.89

Tax-exempt securities
1,327

 
1.81

 
6,927

 
1.88

 
9,132

 
1.79

 
3,155

 
1.84

 
20,541

 
1.83

Total amortized cost of debt securities carried at fair value
$
17,687

 
1.25

 
$
35,464

 
1.59

 
$
53,424

 
2.11

 
$
210,369

 
3.35

 
$
316,944

 
2.82

Amortized cost of HTM debt securities (2)
$
1

 
5.82

 
$
71

 
3.06

 
$
1,144

 
2.65

 
$
123,797

 
3.03

 
$
125,013

 
3.03

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$
5

 
 

 
$
28

 
 

 
$
555

 
 

 
$
192,341

 
 

 
$
192,929

 
 

Agency-collateralized mortgage obligations
—

 
 

 
—

 
 

 
32

 
 

 
6,777

 
 

 
6,809

 
 

Commercial
54

 
 

 
969

 
 

 
11,703

 
 

 
958

 
 

 
13,684

 
 

Non-agency residential
—

 
 

 
—

 
 

 
33

 
 

 
5,400

 
 

 
5,433

 
 

Total mortgage-backed securities
59

 
 
 
997

 
 
 
12,323

 
 
 
205,476

 
 
 
218,855

 
 
U.S. Treasury and agency securities
491

 
 
 
22,898

 
 
 
30,111

 
 
 
23

 
 
 
53,523

 
 
Non-U.S. securities
13,830

 
 

 
2,115

 
 

 
48

 
 

 
172

 
 

 
16,165

 
 

Other taxable securities, substantially all asset-backed securities
1,981

 
 

 
2,006

 
 

 
1,184

 
 

 
828

 
 

 
5,999

 
 

Total taxable securities
16,361

 
 

 
28,016

 
 

 
43,666

 
 

 
206,499

 
 

 
294,542

 
 

Tax-exempt securities
1,326

 
 

 
6,934

 
 

 
9,162

 
 

 
3,153

 
 

 
20,575

 
 

Total debt securities carried at fair value
$
17,687

 
 

 
$
34,950

 
 

 
$
52,828

 
 

 
$
209,652

 
 

 
$
315,117

 
 

Fair value of HTM debt securities (2)
$
1

 
 
 
$
71

 
 
 
$
1,117

 
 
 
$
122,110

 
 
 
$
123,299

 
 
(1) 
The average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
(2) 
Substantially all U.S. agency MBS.