Investment Securities

12 Months Ended

Dec. 31, 2018

NOTE 5

Investment Securities

Investment securities principally include available-for-sale debt securities carried at fair value on the Consolidated Balance Sheets, with unrealized gains and losses recorded in AOCI, net of income taxes. Realized gains and losses are recognized upon disposition of the securities using the specific identification method.

Investment securities also include equity securities carried at fair value on the Consolidated Balance Sheets. Effective January 1, 2018, the unrealized gains and losses on equity securities are recorded in the Consolidated Statements of Income; prior to January 1, 2018, the unrealized gains and losses on equity securities were recorded in AOCI, net of income taxes.

Refer to Note 15 for a description of our methodology for determining the fair value of investment securities.

The following is a summary of investment securities as of December 31:

		2018								2017									2016
Description of Securities (Millions)			Cost	Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Cost	Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Cost	Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale debt securities:
	State and municipal obligations	$	594	$	4	$	(2)	$	596	$	1,369	$	11	$	(3)	$	1,377	$	2,019	$	28	$	(11)	$	2,036
	U.S. Government agency obligations		10		―		―		10		11		―		―		11		12		―		―		12
	U.S. Government treasury obligations		3,452		5		(17)		3,440		1,051		3		(9)		1,045		465		3		(8)		460
	Corporate debt securities		28		―		―		28		28		―		―		28		19		―		―		19
	Mortgage-backed securities ^(a)		50		1		―		51		67		2		―		69		92		3		―		95
	Foreign government bonds and obligations		474		―		―		474		581		―		―		581		486		1		(1)		486
Equity securities ^(b)			51		―		(3)		48		51		―		(3)		48		51		―		(2)		49
	Total	$	4,659	$	10	$	(22)	$	4,647	$	3,158	$	16	$	(15)	$	3,159	$	3,144	$	35	$	(22)	$	3,157

Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
Equity securities comprise investments in common stock and mutual funds.

The following table provides information about our investment securities with gross unrealized losses and the length of time that individual securities have been in an unrealized loss position as of December 31:

	2018								2017
	Less than 12 months				12 months or more				Less than 12 months				12 months or more
Description of Securities (Millions)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
State and municipal obligations	$	―	$	―	$	82	$	(1)	$	157	$	(3)	$	―	$	―
U.S. Government treasury obligations		224		(2)		791		(15)		650		(3)		175		(6)
Equity securities		(a)		(a)		(a)		(a)		―		―		36		(2)
Total	$	224	$	(2)	$	873	$	(16)	$	807	$	(6)	$	211	$	(8)

Effective January 1, 2018, the unrealized gains and losses on equity securities are recorded in the Consolidated Statements of Income and are no longer assessed for other-than-temporary impairment.

The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of December 31:

	Less than 12 months					12 months or more					Total
Ratio of Fair Value to Amortized Cost (Dollars in millions)	Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses		Number of Securities	Estimated Fair Value		Gross Unrealized Losses
2018:
90%–100%	2	$	224	$	(2)	29	$	873	$	(16)	31	$	1,097	$	(18)
Total as of December 31, 2018	2	$	224	$	(2)	29	$	873	$	(16)	31	$	1,097	$	(18)
2017:
90%–100%	34	$	807	$	(6)	13	$	211	$	(8)	47	$	1,018	$	(14)
Total as of December 31, 2017	34	$	807	$	(6)	13	$	211	$	(8)	47	$	1,018	$	(14)

The gross unrealized losses for available-for-sale debt securities are attributed to wider credit spreads for specific issuers, adverse changes in benchmark interest rates, or a combination thereof, all compared to those prevailing when the investment securities were purchased.

Overall, for the available-for-sale debt securities in gross unrealized loss positions, (i) we do not intend to sell the securities, (ii) it is more likely than not that we will not be required to sell the securities before recovery of the unrealized losses, and (iii) we expect that the contractual principal and interest will be received on the securities. As a result, we recognized no other-than-temporary impairment during the periods presented.

Weighted average yields and contractual maturities for investment securities with stated maturities as of December 31, 2018 were as follows:

(Millions)	Due within 1 year			Due after 1 year but within 5 years			Due after 5 years but within 10 years			Due after 10 years				Total
State and municipal obligations^(a)	$	13		$	47		$	66		$	470		$	596
U.S. Government agency obligations		―			―			―			10			10
U.S. Government treasury obligations		1,773			1,534			131			2			3,440
Corporate debt securities		2			26			―			―			28
Mortgage-backed securities^(a)		―			―			―			51			51
Foreign government bonds and obligations		474			―			―			―			474
Total Estimated Fair Value	$	2,262		$	1,607		$	197		$	533		$	4,599

Total Cost	$	2,261		$	1,617		$	199		$	531		$	4,608
Weighted average yields^(b)		2.81	%		2.15	%		3.49	%		3.53	%		2.69	%

The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.
Average yields for investment securities have been calculated using the effective yield on the date of purchase. Yields on tax-exempt investment securities have been computed on a tax-equivalent basis using the U.S. federal statutory tax rate of 21 percent.