Quarterly report pursuant to Section 13 or 15(d)

Securities (Tables)

v3.7.0.1
Securities (Tables)
 6 Months Ended
Jun. 30, 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 available-for-sale (AFS) debt securities, other debt securities carried at fair value, held-to-maturity (HTM) debt securities and AFS marketable equity securities at June 30, 2017 and December 31, 2016.
 
 
 
 
 
 
 
 
Debt Securities and Available-for-Sale Marketable Equity Securities
 
 
 
 
 
 
 
June 30, 2017
(Dollars in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 

Agency
$
193,222

 
$
662

 
$
(1,710
)
 
$
192,174

Agency-collateralized mortgage obligations
7,441

 
84

 
(41
)
 
7,484

Commercial
12,574

 
48

 
(181
)
 
12,441

Non-agency residential (1)
1,673

 
258

 
(17
)
 
1,914

Total mortgage-backed securities
214,910

 
1,052

 
(1,949
)
 
214,013

U.S. Treasury and agency securities
51,903

 
143

 
(623
)
 
51,423

Non-U.S. securities
6,595

 
9

 
(2
)
 
6,602

Other taxable securities, substantially all asset-backed securities
8,976

 
80

 
(5
)
 
9,051

Total taxable securities
282,384

 
1,284

 
(2,579
)
 
281,089

Tax-exempt securities
18,476

 
121

 
(120
)
 
18,477

Total available-for-sale debt securities
300,860

 
1,405

 
(2,699
)
 
299,566

Other debt securities carried at fair value
15,771

 
245

 
(73
)
 
15,943

Total debt securities carried at fair value
316,631

 
1,650

 
(2,772
)
 
315,509

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
119,008

 
162

 
(1,840
)
 
117,330

Total debt securities (2)
$
435,639

 
$
1,812

 
$
(4,612
)
 
$
432,839

Available-for-sale marketable equity securities (3)
$
8

 
$
69

 
$
—

 
$
77

 
 
 
 
 
 
 
 
 
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 June 30, 2017 and December 31, 2016, the underlying collateral type included approximately 60 percent and 60 percent prime, 20 percent and 19 percent Alt-A, and 20 percent and 21 percent subprime.
(2) 
The Corporation had debt securities from Fannie Mae (FNMA) and Freddie Mac (FHLMC) that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $161.8 billion and $46.5 billion, and a fair value of $160.4 billion and $46.3 billion at June 30, 2017. Debt securities from FNMA and FHLMC that exceeded 10 percent of shareholders’ equity had 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. On June 1, 2017, the Corporation completed the sale of its non-U.S. consumer credit card business.
Schedule of Other Debt Securities Carried at Fair Value
The table below presents the components of other debt securities carried at fair value where the changes in fair value are reported in other income. In the three and six months ended June 30, 2017, the Corporation recorded unrealized mark-to-market net gains of $83 million and $199 million, and realized net losses of $14 million and $118 million, compared to unrealized mark-to-market net gains of $24 million and net losses of $72 million, and realized net losses of $34 million and $37 million for the same periods in 2016. These amounts exclude hedge results.
 
 
 
 
Other Debt Securities Carried at Fair Value
 
 
 
 
(Dollars in millions)
June 30
2017
 
December 31
2016
Mortgage-backed securities:
 
 
 
Agency-collateralized mortgage obligations
$
5

 
$
5

Non-agency residential
3,037

 
3,139

Total mortgage-backed securities
3,042

 
3,144

Non-U.S. securities (1)
12,665

 
16,336

Other taxable securities, substantially all asset-backed securities
236

 
240

Total
$
15,943

 
$
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 the three and six months ended June 30, 2017 and 2016 are presented in the table below.
 
 
 
 
 
 
 
 
Gains and Losses on Sales of AFS Debt Securities
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Gross gains
$
102

 
$
254

 
$
156

 
$
457

Gross losses
(1
)
 
(5
)
 
(3
)
 
(18
)
Net gains on sales of AFS debt securities
$
101

 
$
249

 
$
153

 
$
439

Income tax expense attributable to realized net gains on sales of AFS debt securities
$
38

 
$
95

 
$
58

 
$
167

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 June 30, 2017 and December 31, 2016.
 
 
 
 
 
 
 
 
 
 
 
 
Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
Less than Twelve Months
 
Twelve Months or Longer
 
Total
(Dollars in millions)
Fair
Value
 
Gross Unrealized Losses
 
Fair
Value
 
Gross Unrealized Losses
 
Fair
Value
 
Gross Unrealized Losses
Temporarily impaired AFS debt securities
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
132,527

 
$
(1,602
)
 
$
3,486

 
$
(108
)
 
$
136,013

 
$
(1,710
)
Agency-collateralized mortgage obligations
2,275

 
(14
)
 
1,050

 
(27
)
 
3,325

 
(41
)
Commercial
7,690

 
(181
)
 
—

 
—

 
7,690

 
(181
)
Non-agency residential
29

 
(1
)
 
145

 
(9
)
 
174

 
(10
)
Total mortgage-backed securities
142,521

 
(1,798
)
 
4,681

 
(144
)
 
147,202

 
(1,942
)
U.S. Treasury and agency securities
34,992

 
(622
)
 
39

 
(1
)
 
35,031

 
(623
)
Non-U.S. securities
—

 
—

 
9

 
(2
)
 
9

 
(2
)
Other taxable securities, substantially all asset-backed securities
47

 
(1
)
 
634

 
(4
)
 
681

 
(5
)
Total taxable securities
177,560

 
(2,421
)
 
5,363

 
(151
)
 
182,923

 
(2,572
)
Tax-exempt securities
1,152

 
(58
)
 
1,267

 
(62
)
 
2,419

 
(120
)
Total temporarily impaired AFS debt securities
178,712

 
(2,479
)
 
6,630

 
(213
)
 
185,342

 
(2,692
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
—

 
—

 
84

 
(7
)
 
84

 
(7
)
Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
178,712

 
$
(2,479
)
 
$
6,714

 
$
(220
)
 
$
185,426

 
$
(2,699
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 other-than-temporary impairment (OTTI) AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.
Corporation Recorded Other-than-Temporary Impairment Losses on AFS Debt Securities
The Corporation recorded OTTI losses on AFS debt securities for the three and six months ended June 30, 2017 and 2016 as presented in the table below. Substantially all OTTI losses in the three and six months ended June 30, 2017 and 2016 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income.
 
 
 
 
 
 
 
 
Net Credit-related Impairment Losses Recognized in Earnings
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Total OTTI losses
$
(12
)
 
$
(15
)
 
$
(39
)
 
$
(31
)
Less: non-credit portion of total OTTI losses recognized in OCI
6

 
10

 
6

 
19

Net credit-related impairment losses recognized in earnings
$
(6
)
 
$
(5
)
 
$
(33
)
 
$
(12
)
The table below presents a rollforward of the credit losses recognized in earnings for the three and six months ended June 30, 2017 and 2016 on AFS debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell.
 
 
 
 
 
 
 
 
Rollforward of OTTI Credit Losses Recognized
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Balance, beginning of period
$
279

 
$
269

 
$
253

 
$
266

Additions for credit losses recognized on AFS debt securities that had no previous impairment losses
5

 
1

 
9

 
2

Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses
1

 
4

 
23

 
10

Reductions for AFS debt securities matured, sold or intended to be sold
(1
)
 
(28
)
 
(1
)
 
(32
)
Balance, June 30
$
284

 
$
246

 
$
284

 
$
246

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 RMBS were as follows at June 30, 2017.
 
 
 
 
 
 
Significant Assumptions
 
 
 
 
 
 
 
 
 
Range (1)
 
Weighted-
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Prepayment speed
11.5
%
 
2.9
%
 
20.0
%
Loss severity
20.3

 
9.2

 
37.4

Life default rate
22.0

 
1.2

 
79.2

(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 June 30, 2017 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other asset-backed securities (ABS) are passed through to the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
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
$
3

 
4.67
%
 
$
42

 
3.73
%
 
$
641

 
2.57
%
 
$
192,536

 
3.23
%
 
$
193,222

 
3.23
%
Agency-collateralized mortgage obligations
—

 
—

 
—

 
—

 
—

 
—

 
7,445

 
3.18

 
7,445

 
3.18

Commercial
48

 
7.64

 
485

 
1.90

 
11,529

 
2.44

 
512

 
2.71

 
12,574

 
2.45

Non-agency residential
—

 
—

 
—

 
—

 
28

 
0.01

 
4,527

 
8.75

 
4,555

 
8.70

Total mortgage-backed securities
51

 
7.47

 
527

 
2.05

 
12,198

 
2.44

 
205,020

 
3.35

 
217,796

 
3.30

U.S. Treasury and agency securities
718

 
0.64

 
25,714

 
1.51

 
25,404

 
1.88

 
67

 
5.09

 
51,903

 
1.69

Non-U.S. securities
17,221

 
0.48

 
1,755

 
1.36

 
88

 
1.17

 
194

 
6.65

 
19,258

 
0.62

Other taxable securities, substantially all asset-backed securities
2,447

 
2.37

 
4,008

 
2.37

 
1,514

 
3.00

 
1,229

 
3.26

 
9,198

 
2.59

Total taxable securities
20,437

 
0.73

 
32,004

 
1.62

 
39,204

 
2.10

 
206,510

 
3.35

 
298,155

 
2.82

Tax-exempt securities
536

 
1.75

 
6,577

 
1.81

 
9,076

 
1.70

 
2,287

 
1.83

 
18,476

 
1.76

Total amortized cost of debt securities carried at fair value
$
20,973

 
0.75

 
$
38,581

 
1.65

 
$
48,280

 
2.02

 
$
208,797

 
3.34

 
$
316,631

 
2.76

Amortized cost of HTM debt securities (2)
$
—

 
—

 
$
22

 
3.79

 
$
928

 
2.39

 
$
118,058

 
3.02

 
$
119,008

 
3.02

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$
3

 
 

 
$
43

 
 

 
$
646

 
 

 
$
191,482

 
 

 
$
192,174

 
 

Agency-collateralized mortgage obligations
—

 
 

 
—

 
 

 
—

 
 

 
7,489

 
 

 
7,489

 
 

Commercial
48

 
 

 
486

 
 

 
11,407

 
 

 
500

 
 

 
12,441

 
 

Non-agency residential
—

 
 

 
—

 
 

 
37

 
 

 
4,914

 
 

 
4,951

 
 

Total mortgage-backed securities
51

 
 
 
529

 
 
 
12,090

 
 
 
204,385

 
 
 
217,055

 
 
U.S. Treasury and agency securities
719

 
 
 
25,537

 
 
 
25,097

 
 
 
70

 
 
 
51,423

 
 
Non-U.S. securities
17,218

 
 

 
1,703

 
 

 
146

 
 

 
200

 
 

 
19,267

 
 

Other taxable securities, substantially all asset-backed securities
2,449

 
 

 
3,998

 
 

 
1,538

 
 

 
1,302

 
 

 
9,287

 
 

Total taxable securities
20,437

 
 

 
31,767

 
 

 
38,871

 
 

 
205,957

 
 

 
297,032

 
 

Tax-exempt securities
536

 
 

 
6,587

 
 

 
9,069

 
 

 
2,285

 
 

 
18,477

 
 

Total debt securities carried at fair value
$
20,973

 
 

 
$
38,354

 
 

 
$
47,940

 
 

 
$
208,242

 
 

 
$
315,509

 
 

Fair value of HTM debt securities (2)
$
—

 
 
 
$
22

 
 
 
$
901

 
 
 
$
116,407

 
 
 
$
117,330

 
 
(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.