INVESTMENTS

Investment Securities

Securities are classified as HTM, AFS or trading. HTM securities, which management has the intent and ability to hold until maturity, are carried at amortized cost. AFS securities are carried at fair value and unrealized gains and losses are reported as net increases or decreases to accumulated other comprehensive income (“AOCI”). Trading securities are carried at fair value with gains and losses recognized in current period earnings. The purchase premiums and discounts for both HTM and AFS securities are amortized and accreted at a constant effective yield to the contractual maturity date and no assumption is made concerning prepayments. As principal prepayments occur, the portion of the unamortized premium or discount associated with the principal reduction is recognized as interest income in the period the principal is reduced. Note 3 discusses the process to estimate fair value for investment securities.



	March 31, 2017
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	815	$	7	$	19	$	803
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,858		3		8		1,853
Agency guaranteed mortgage-backed securities	10,060		12		111		9,961
SBA loan-backed securities	2,360		8		19		2,349
Municipal securities	1,299		4		18		1,285
Other debt securities	25		—		1		24
	15,602		27		157		15,472
Money market mutual funds and other	134		—		—		134
	15,736		27		157		15,606
Total	$	16,551	$	34	$	176	$	16,409



	December 31, 2016
(In millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	868	$	5	$	23	$	850
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	1,846		2		9		1,839
Agency guaranteed mortgage-backed securities	7,986		7		110		7,883
SBA loan-backed securities	2,298		8		18		2,288
Municipal securities	1,182		1		29		1,154
Other debt securities	25		—		1		24
	13,337		18		167		13,188
Money market mutual funds and other	184		—		—		184
	13,521		18		167		13,372
Total	$	14,389	$	23	$	190	$	14,222

Maturities

The amortized cost and estimated fair value of investment debt securities are shown subsequently as of March 31, 2017 by expected timing of principal payments. Actual principal payments may differ from contractual or expected principal payments because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	March 31, 2017
	Held-to-maturity				Available-for-sale
(In millions)	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value

Principal return in one year or less	$	142	$	142	$	1,884	$	1,868
Principal return after one year through five years	273		274		5,875		5,828
Principal return after five years through ten years	196		196		4,904		4,860
Principal return after ten years	204		191		2,939		2,916
	$	815	$	803	$	15,602	$	15,472

The following is a summary of the amount of gross unrealized losses for investment securities and the estimated fair value by length of time the securities have been in an unrealized loss position:



	March 31, 2017
	Less than 12 months				12 months or more				Total
(In millions)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	10	$	309	$	9	$	128	$	19	$	437
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	7		1,297		1		124		8		1,421
Agency guaranteed mortgage-backed securities	103		7,220		8		440		111		7,660
Small Business Administration loan-backed securities	4		547		15		798		19		1,345
Municipal securities	17		811		1		14		18		825
Other	—		—		1		13		1		13
	131		9,875		26		1,389		157		11,264
Total	$	141	$	10,184	$	35	$	1,517	$	176	$	11,701



	December 31, 2016
	Less than 12 months				12 months or more				Total
(In millions)	Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value
Held-to-maturity
Municipal securities	$	15	$	467	$	8	$	61	$	23	$	528
Available-for-sale
U.S. Government agencies and corporations:
Agency securities	9		950		—		127		9		1,077
Agency guaranteed mortgage-backed securities	102		6,649		7		326		109		6,975
Small Business Administration loan-backed securities	3		527		16		841		19		1,368
Municipal securities	28		992		—		9		28		1,001
Other	—		—		2		14		2		14
	142		9,118		25		1,317		167		10,435
Total	$	157	$	9,585	$	33	$	1,378	$	190	$	10,963

At March 31, 2017 and December 31, 2016, respectively, 453 and 642 HTM and 2,121 and 2,398 AFS investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

Ongoing Policy

We review investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date (the majority of the investment portfolio are debt securities). Under these circumstances, OTTI is considered to have occurred if (1) we have formed a documented intent to sell identified securities or initiated such sales; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Noncredit-related OTTI in securities we intend to sell is recognized in earnings as is any credit-related OTTI in securities, regardless of our intent. Noncredit-related OTTI on AFS securities not expected to be sold is recognized in other comprehensive income (“OCI”). The amount of noncredit-related OTTI in a security is quantified as the difference in a security’s amortized cost after adjustment for credit impairment, and its lower fair value. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

Our OTTI evaluation process takes into consideration current market conditions; fair value in relationship to cost; extent and nature of change in fair value; severity and duration of the impairment; recent events specific to the issuer or industry; our assessment of the creditworthiness of the issuer, including external credit ratings, changes, recent downgrades, and trends; the cash flow priority position of the instrument that we hold in the case of structured securities; volatility of earnings and trends; current analysts’ evaluations; all available information relevant to the collectability of debt securities; and other key measures. In addition, for AFS securities with fair values below amortized cost, we must determine if we intend to sell the securities or if it is more likely than not that we will be required to sell the securities before recovery of their amortized cost basis. For HTM securities, we must determine we have the ability to hold the securities to maturity. We consider any other relevant factors before concluding our evaluation for the existence of OTTI in our securities portfolio.

OTTI Conclusions

Our 2016 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation by each security type that has significant gross unrealized losses at March 31, 2017:

Agency Guaranteed Mortgage-Backed Securities: These pass-through securities are comprised largely of fixed and floating-rate residential mortgage-backed securities issued by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation. They were generally purchased at premiums with maturity dates from 10 to 15 years for fixed-rate securities and 30 years for floating-rate securities. These securities benefit from certain guarantee provisions or, in the case of GNMA, direct U.S. government guarantees. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At March 31, 2017, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is not more likely than not we would be required to sell such securities before recovery of their amortized cost basis. Therefore, these securities did not have any OTTI recognized during the first quarter of 2017.

SBA Loan-Backed Securities: These securities were generally purchased at premiums with maturities from 5 to 25 years and have principal cash flows guaranteed by the SBA. Unrealized losses relate to changes in interest rates subsequent to purchase and are not attributable to credit. At March 31, 2017, we did not have an intent to sell identified SBA securities with unrealized losses or initiate such sales, and we believe it is not likely that we would be required to sell such securities before recovery of their amortized cost basis. Therefore, these securities did not have any OTTI recognized during the first quarter of 2017.

Municipal Securities: These securities were fixed or variable-rate securities purchased at premiums or at par and with maturities from 1 to 30 years. Unrealized losses may relate to changes in interest rates subsequent to purchase and/or may be attributable to credit. Securities with significant credit deterioration and fair value declines are subject to further assessment for impairment including analysis of the creditworthiness of the issuer. We take into account all available information relevant to the collectability of municipal security, including the extent and nature of change in fair value; recent events specific to the issuer; current analysts’ evaluations; and other key measures. At March 31, 2017, we did not have an intent to sell identified securities with unrealized losses or initiate such sales, and we believe it is not more likely than not we would be required to sell such securities before recovery of their amortized cost basis. Therefore, these securities did not have any OTTI recognized during the first quarter of 2017.

The following summarizes gains and losses, including OTTI, of which there was none, that were recognized in the statement of income:



	Three Months Ended
	March 31, 2017				March 31, 2016
(In millions)	Gross gains		Gross losses		Gross gains		Gross losses
(In millions)	Gross gains		Gross losses		Gross gains		Gross losses
Investment securities:
Held-to-maturity	$	—	$	—	$	—	$	—
Available-for-sale	—		—		—		—
Other noninterest-bearing investments	10		5		3		3
	10		5		3		3
Net gains			$	5			$	—
Statement of income information:
Securities gains, net			$	5			$	—
Net gains			$	5			$	—

Interest income by security type is as follows:



(In millions)	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
	Taxable		Nontaxable		Total		Taxable		Nontaxable		Total
Investment securities:
Held-to-maturity	$	3	$	4	$	7	$	2	$	3	$	5
Available-for-sale	66		5		71		40		2		42
	$	69	$	9	$	78	$	42	$	5	$	47

Investment securities with a carrying value of $2.1 billion at March 31, 2017 and $1.4 billion at December 31, 2016 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.

Private Equity Investments

Effect of Volcker Rule

The Volcker Rule, as published pursuant to the Dodd-Frank Act in December 2013 and amended in January 2014, significantly restricted certain activities by covered bank holding companies, including restrictions on certain types of securities, proprietary trading, and private equity investing. The Company’s private equity investments (“PEIs”) consist of Small Business Investment Companies (“SBICs”) and non-SBICs. Of the recorded PEIs of $143 million at March 31, 2017, approximately $5 million remain prohibited by the Volcker Rule.

As of March 31, 2017, we have sold a total of $11 million of PEIs during 2017 and 2016 as follows: $1 million during 2017 and $10 million during 2016. All of these sales were related to prohibited PEIs and resulted in insignificant amounts of realized gains or losses. We will dispose of the remaining $5 million of prohibited PEIs before the required deadline, which has been extended to July 21, 2017. The Federal Reserve Board announced in December 2016 that it would allow banks to apply for an additional five-year extension to comply with the Dodd-Frank Act requirement for these investments. The Company applied for and was granted an extension for the vast majority of its remaining portfolio of PEIs. See other discussions related to private equity investments in Notes 3 and 9.

As discussed in Note 9, we have $24 million at March 31, 2017 of unfunded commitments for PEIs, of which approximately $3 million relate to prohibited PEIs. Until we dispose of the prohibited PEIs, we expect to fund these commitments if and as the capital calls are made, as allowed under the Volcker Rule.