Annual report pursuant to Section 13 and 15(d)

Securities

v3.19.3.a.u2
Securities
12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Securities 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 and HTM debt securities at December 31, 2019 and 2018.
 
 
 
 
 
 
 
 
Debt Securities
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in millions)
December 31, 2019
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 

Agency
$
121,698

 
$
1,013

 
$
(183
)
 
$
122,528

Agency-collateralized mortgage obligations
4,587

 
78

 
(24
)
 
4,641

Commercial
14,797

 
249

 
(25
)
 
15,021

Non-agency residential (1)
948

 
138

 
(9
)
 
1,077

Total mortgage-backed securities
142,030

 
1,478

 
(241
)
 
143,267

U.S. Treasury and agency securities
67,700

 
1,023

 
(195
)
 
68,528

Non-U.S. securities
11,987

 
6

 
(2
)
 
11,991

Other taxable securities, substantially all asset-backed securities
3,874

 
67

 

 
3,941

Total taxable securities
225,591

 
2,574

 
(438
)
 
227,727

Tax-exempt securities
17,716

 
202

 
(6
)
 
17,912

Total available-for-sale debt securities
243,307

 
2,776

 
(444
)
 
245,639

Other debt securities carried at fair value (2)
10,596

 
255

 
(23
)
 
10,828

Total debt securities carried at fair value
253,903

 
3,031

 
(467
)
 
256,467

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
215,730

 
4,433

 
(342
)
 
219,821

Total debt securities (3, 4)
$
469,633

 
$
7,464

 
$
(809
)
 
$
476,288

 
 
 
 
 
 
 
 
 
December 31, 2018
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 

 
 

 
 

 
 

Agency
$
125,116

 
$
138

 
$
(3,428
)
 
$
121,826

Agency-collateralized mortgage obligations
5,621

 
19

 
(110
)
 
5,530

Commercial
14,469

 
11

 
(402
)
 
14,078

Non-agency residential (1)
1,792

 
136

 
(11
)
 
1,917

Total mortgage-backed securities
146,998

 
304

 
(3,951
)
 
143,351

U.S. Treasury and agency securities
56,239

 
62

 
(1,378
)
 
54,923

Non-U.S. securities
9,307

 
5

 
(6
)
 
9,306

Other taxable securities, substantially all asset-backed securities
4,387

 
29

 
(6
)
 
4,410

Total taxable securities
216,931

 
400

 
(5,341
)
 
211,990

Tax-exempt securities
17,349

 
99

 
(72
)
 
17,376

Total available-for-sale debt securities
234,280

 
499

 
(5,413
)
 
229,366

Other debt securities carried at fair value (2)
8,595

 
172

 
(32
)
 
8,735

Total debt securities carried at fair value
242,875

 
671

 
(5,445
)
 
238,101

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
203,652

 
747

 
(3,964
)
 
200,435

Total debt securities (3, 4)
$
446,527

 
$
1,418

 
$
(9,409
)
 
$
438,536

(1) 
At December 31, 2019 and 2018, the underlying collateral type included approximately 49 percent and 68 percent prime, six percent and four percent Alt-A and 45 percent and 28 percent subprime.
(2) 
Primarily includes non-U.S. securities used to satisfy certain international regulatory requirements. Any changes in value are reported in other income. For detail on the components, see Note 21 – Fair Value Measurements.
(3) 
Includes securities pledged as collateral of $67.0 billion and $40.6 billion at December 31, 2019 and 2018.
(4) 
The Corporation held debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $157.2 billion and $54.1 billion, and a fair value of $160.6 billion and $55.1 billion at December 31, 2019, and an amortized cost of $161.2 billion and $52.2 billion, and a fair value of $158.5 billion and $51.4 billion at December 31, 2018.
At December 31, 2019, the accumulated net unrealized gain on AFS debt securities, excluding the amount related to debt securities previously transferred to held to maturity, included in accumulated OCI was $1.8 billion, net of the related income tax expense of $569 million. The Corporation had nonperforming AFS debt securities of $9 million and $11 million at December 31, 2019 and 2018.
At December 31, 2019, the Corporation held equity securities at an aggregate fair value of $891 million and other equity securities, as valued under the measurement alternative, at cost of $183 million, both of which are included in other assets. At December 31, 2019, the Corporation also held equity securities at fair value of $1.0 billion included in time deposits placed and other short-term investments.
The gross realized gains and losses on sales of AFS debt securities for 2019, 2018 and 2017 are presented in the table below.
 
 
 
 
 
 
Gains and Losses on Sales of AFS Debt Securities
 
 
 
 
(Dollars in millions)
2019
 
2018
 
2017
Gross gains
$
336

 
$
169

 
$
352

Gross losses
(119
)
 
(15
)
 
(97
)
Net gains on sales of AFS debt securities
$
217

 
$
154

 
$
255

Income tax expense attributable to realized net gains on sales of AFS debt securities
$
54

 
$
37

 
$
97


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, 2019 and 2018.
 
 
 
 
 
 
 
 
 
 
 
 
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, 2019
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
17,641

 
$
(41
)
 
$
17,238

 
$
(142
)
 
$
34,879

 
$
(183
)
Agency-collateralized mortgage obligations
255

 
(1
)
 
925

 
(23
)
 
1,180

 
(24
)
Commercial
2,180

 
(22
)
 
442

 
(3
)
 
2,622

 
(25
)
Non-agency residential
19

 
(1
)
 
1

 

 
20

 
(1
)
Total mortgage-backed securities
20,095

 
(65
)
 
18,606

 
(168
)
 
38,701

 
(233
)
U.S. Treasury and agency securities
12,836

 
(71
)
 
18,866

 
(124
)
 
31,702

 
(195
)
Non-U.S. securities
851

 

 
837

 
(2
)
 
1,688

 
(2
)
Other taxable securities, substantially all asset-backed securities
938

 

 
222

 

 
1,160

 

Total taxable securities
34,720

 
(136
)
 
38,531

 
(294
)
 
73,251

 
(430
)
Tax-exempt securities
4,286

 
(5
)
 
190

 
(1
)
 
4,476

 
(6
)
Total temporarily impaired AFS debt securities
39,006

 
(141
)
 
38,721

 
(295
)
 
77,727

 
(436
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities

103

 
(5
)
 
21

 
(3
)
 
124

 
(8
)
Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
39,109

 
$
(146
)
 
$
38,742

 
$
(298
)
 
$
77,851

 
$
(444
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
14,771

 
$
(49
)
 
$
99,211

 
$
(3,379
)
 
$
113,982

 
$
(3,428
)
Agency-collateralized mortgage obligations
3

 

 
4,452

 
(110
)
 
4,455

 
(110
)
Commercial
1,344

 
(8
)
 
11,991

 
(394
)
 
13,335

 
(402
)
Non-agency residential
106

 
(8
)
 
49

 
(3
)
 
155

 
(11
)
Total mortgage-backed securities
16,224

 
(65
)
 
115,703

 
(3,886
)
 
131,927

 
(3,951
)
U.S. Treasury and agency securities
288

 
(1
)
 
51,374

 
(1,377
)
 
51,662

 
(1,378
)
Non-U.S. securities
773

 
(5
)
 
21

 
(1
)
 
794

 
(6
)
Other taxable securities, substantially all asset-backed securities
183

 
(1
)
 
185

 
(5
)
 
368

 
(6
)
Total taxable securities
17,468

 
(72
)
 
167,283

 
(5,269
)
 
184,751

 
(5,341
)
Tax-exempt securities
232

 
(2
)
 
2,148

 
(70
)
 
2,380

 
(72
)
Total temporarily impaired AFS debt securities
17,700

 
(74
)
 
169,431

 
(5,339
)
 
187,131

 
(5,413
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
131

 

 
3

 

 
134

 

Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
17,831

 
$
(74
)
 
$
169,434

 
$
(5,339
)
 
$
187,265

 
$
(5,413
)
(1) 
Includes other-than-temporarily impaired AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.
In 2019, 2018 and 2017, the Corporation had $24 million, $33 million and $41 million, respectively, of credit-related OTTI losses on AFS debt securities which were recognized in other income. The amount of non-credit related OTTI losses for these AFS debt securities, which is recognized in OCI, was not significant for all periods presented.
The cumulative OTTI credit losses recognized in income on AFS debt securities that the Corporation does not intend to sell were $85 million, $120 million and $274 million at December 31, 2019, 2018 and 2017, respectively.
The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key
assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security.
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, 2019.
 
 
 
 
 
 
Significant Assumptions
 
 
 
 
 
 
 
Range (1)
 
Weighted
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Prepayment speed
16.6
%
 
5.5
%
 
27.8
%
Loss severity
14.7

 
8.0

 
30.7

Life default rate
11.9

 
1.0

 
36.5

(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.
Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as LTV, creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 12.9 percent for prime, 11.1 percent for Alt-A and 18.8 percent for subprime at December 31, 2019. Default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates
by collateral type were 7.8 percent for prime, 11.6 percent for Alt-A and 13.6 percent for subprime at December 31, 2019.
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2019 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
(Dollars in millions)
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
Amortized cost of debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$

 
%
 
$
11

 
5.25
%
 
$
66

 
4.56
%
 
$
124,618

 
3.24
%
 
$
124,695

 
3.24
%
Agency-collateralized mortgage obligations

 

 

 

 
27

 
2.48

 
4,560

 
3.16

 
4,587

 
3.16

Commercial

 

 
3,806

 
2.37

 
10,136

 
2.57

 
868

 
2.99

 
14,810

 
2.54

Non-agency residential

 

 

 

 
12

 

 
2,157

 
9.26

 
2,169

 
9.22

Total mortgage-backed securities

 

 
3,817

 
2.38

 
10,241

 
2.58

 
132,203

 
3.33

 
146,261

 
3.25

U.S. Treasury and agency securities
1,350

 
0.92

 
35,544

 
1.67

 
30,789

 
2.25

 
20

 
2.45

 
67,703

 
1.92

Non-U.S. securities
15,648

 
1.17

 
2,598

 
1.03

 
7

 
4.17

 
96

 
6.74

 
18,349

 
1.18

Other taxable securities, substantially all asset-backed securities
1,189

 
2.80

 
1,650

 
3.02

 
440

 
3.32

 
595

 
2.91

 
3,874

 
2.97

Total taxable securities
18,187

 
1.26

 
43,609

 
1.74

 
41,477

 
2.34

 
132,914

 
3.34

 
236,187

 
2.70

Tax-exempt securities
2,189

 
1.72

 
7,472

 
2.10

 
4,849

 
2.06

 
3,206

 
2.44

 
17,716

 
2.10

Total amortized cost of debt securities carried at fair value
$
20,376

 
1.31

 
$
51,081

 
1.79

 
$
46,326

 
2.31

 
$
136,120

 
3.32

 
$
253,903

 
2.67

Amortized cost of HTM debt securities (2)
$
1,025

 
2.83

 
$
48

 
3.57

 
$
1,102

 
2.57

 
$
213,555

 
3.19

 
$
215,730

 
3.19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$

 
 

 
$
11

 
 

 
$
71

 
 

 
$
125,449

 
 

 
$
125,531

 
 

Agency-collateralized mortgage obligations

 
 

 

 
 

 
26

 
 

 
4,615

 
 

 
4,641

 
 

Commercial

 
 

 
3,854

 
 

 
10,287

 
 

 
893

 
 

 
15,034

 
 

Non-agency residential

 
 

 

 
 

 
25

 
 

 
2,386

 
 

 
2,411

 
 

Total mortgage-backed securities

 
 
 
3,865

 
 
 
10,409

 
 
 
133,343

 
 
 
147,617

 
 
U.S. Treasury and agency securities
1,347

 
 
 
35,686

 
 
 
31,478

 
 
 
20

 
 
 
68,531

 
 
Non-U.S. securities
15,751

 
 

 
2,606

 
 

 
8

 
 

 
98

 
 

 
18,463

 
 

Other taxable securities, substantially all asset-backed securities
1,196

 
 

 
1,687

 
 

 
465

 
 

 
596

 
 

 
3,944

 
 

Total taxable securities
18,294

 
 

 
43,844

 
 

 
42,360

 
 

 
134,057

 
 

 
238,555

 
 

Tax-exempt securities
2,192

 
 

 
7,509

 
 

 
4,976

 
 

 
3,235

 
 

 
17,912

 
 

Total debt securities carried at fair value
$
20,486

 
 

 
$
51,353

 
 

 
$
47,336

 
 

 
$
137,292

 
 

 
$
256,467

 
 

Fair value of HTM debt securities (2)
$
1,025

 
 
 
$
48

 
 
 
$
1,113

 
 
 
$
217,635

 
 
 
$
219,821

 
 
(1) 
The weighted-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.