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Securities
 9 Months Ended
Sep. 30, 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 held-to-maturity (HTM) debt securities at September 30, 2019 and December 31, 2018.
 
 
 
 
 
 
 
 
Debt Securities
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in millions)
September 30, 2019
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 

Agency
$
133,973

 
$
1,250

 
$
(274
)
 
$
134,949

Agency-collateralized mortgage obligations
4,877

 
103

 
(18
)
 
4,962

Commercial
14,301

 
380

 
(4
)
 
14,677

Non-agency residential (1)
1,725

 
227

 
(9
)
 
1,943

Total mortgage-backed securities
154,876

 
1,960

 
(305
)
 
156,531

U.S. Treasury and agency securities
55,746

 
1,364

 
(163
)
 
56,947

Non-U.S. securities
11,074

 
7

 
(2
)
 
11,079

Other taxable securities, substantially all asset-backed securities
3,806

 
77

 
—

 
3,883

Total taxable securities
225,502

 
3,408

 
(470
)
 
228,440

Tax-exempt securities
16,263

 
203

 
(34
)
 
16,432

Total available-for-sale debt securities
241,765

 
3,611

 
(504
)
 
244,872

Other debt securities carried at fair value (2)
9,284

 
205

 
(19
)
 
9,470

Total debt securities carried at fair value
251,049

 
3,816

 
(523
)
 
254,342

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
190,252

 
4,358

 
(336
)
 
194,274

Total debt securities (3, 4)
$
441,301

 
$
8,174

 
$
(859
)
 
$
448,616

 
 
 
 
 
 
 
 
 
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 September 30, 2019 and December 31, 2018, the underlying collateral type included approximately 66 percent and 68 percent prime, five percent and four percent Alt-A and 29 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 15 – Fair Value Measurements.
(3) 
Includes securities pledged as collateral of $42.8 billion and $40.6 billion at September 30, 2019 and December 31, 2018.
(4) 
The Corporation held debt securities from Fannie Mae (FNMA) and Freddie Mac (FHLMC) that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $153.2 billion and $49.5 billion, and a fair value of $156.6 billion and $50.6 billion at September 30, 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 September 30, 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 $2.3 billion, net of the related income tax expense of $761 million. The Corporation had nonperforming AFS debt securities of $11 million at both September 30, 2019 and December 31, 2018.
At September 30, 2019, the Corporation held equity securities at an aggregate fair value of $853 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
September 30, 2019, the Corporation also held equity securities at fair value of $1.4 billion included in time deposits placed and other short-term investments.
Sales of AFS debt securities during the three months ended September 30, 2019 were not significant. In the nine months ended September 30, 2019, the Corporation recorded gross realized gains on sales of AFS debt securities of $228 million and gross realized losses of $112 million, resulting in net gains of $116 million, with $28 million of income taxes attributable to the realized net gains on sales of these AFS debt securities. For the same periods in 2018, gross gains and losses were not significant.
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 September 30, 2019 and December 31, 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)
September 30, 2019
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
7,409

 
$
(10
)
 
$
28,226

 
$
(264
)
 
$
35,635

 
$
(274
)
Agency-collateralized mortgage obligations
64

 
—

 
1,014

 
(18
)
 
1,078

 
(18
)
Commercial
928

 
(3
)
 
114

 
(1
)
 
1,042

 
(4
)
Non-agency residential
33

 
(1
)
 
1

 
—

 
34

 
(1
)
Total mortgage-backed securities
8,434

 
(14
)
 
29,355

 
(283
)
 
37,789

 
(297
)
U.S. Treasury and agency securities
4,193

 
(18
)
 
18,628

 
(145
)
 
22,821

 
(163
)
Non-U.S. securities
1,234

 
(2
)
 
140

 
—

 
1,374

 
(2
)
Other taxable securities, substantially all asset-backed securities
354

 
—

 
280

 
—

 
634

 
—

Total taxable securities
14,215

 
(34
)
 
48,403

 
(428
)
 
62,618

 
(462
)
Tax-exempt securities
233

 
—

 
1,039

 
(34
)
 
1,272

 
(34
)
Total temporarily impaired AFS debt securities
14,448

 
(34
)
 
49,442

 
(462
)
 
63,890

 
(496
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities

118

 
(4
)
 
28

 
(4
)
 
146

 
(8
)
Total temporarily impaired and other-than-temporarily impaired
AFS debt securities
$
14,566

 
$
(38
)
 
$
49,470

 
$
(466
)
 
$
64,036

 
$
(504
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
The Corporation had $12 million and $23 million of credit-related other-than-temporary impairment (OTTI) losses on AFS debt securities which were recognized in other income for the three and nine months ended September 30, 2019 and 2018. The amount of noncredit-related OTTI losses for these AFS debt securities, which is recognized in OCI, was not significant for the periods presented.
The cumulative OTTI credit losses that have been recognized in income on AFS debt securities that the Corporation does not
intend to sell were $135 million at both September 30, 2019 and 2018.
For more information on OTTI losses and significant assumptions used for the Corporation’s underlying collateral, see Note 4 – Securities to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K. 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 September 30, 2019.

 
 
 
 
 
 
Significant Assumptions
 
 
 
 
 
 
 
Range (1)
 
Weighted
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Prepayment speed
16.2
%
 
4.9
%
 
28.1
%
Loss severity
15.5

 
8.0

 
32.3

Life default rate
12.6

 
0.8

 
41.1

(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 loan-to-value (LTV), creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 12.5 percent for prime, 11.5 percent for Alt-A and 20.2 percent for subprime at September 30, 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 8.8 percent for prime, 11.3 percent for Alt-A and 15.4 percent for subprime at September 30, 2019.
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at September 30, 2019 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
—

 
—
%
 
$
120

 
2.37
%
 
$
1,715

 
2.42
%
 
$
132,139

 
3.29
%
 
$
133,974

 
3.28
%
Agency-collateralized mortgage obligations
—

 
—

 
—

 
—

 
27

 
2.56

 
4,850

 
3.17

 
4,877

 
3.17

Commercial
—

 
—

 
3,326

 
2.28

 
10,100

 
2.60

 
888

 
2.99

 
14,314

 
2.55

Non-agency residential
—

 
—

 
—

 
—

 
12

 
—

 
3,083

 
10.49

 
3,095

 
10.46

Total mortgage-backed securities
—

 
—

 
3,446

 
2.28

 
11,854

 
2.57

 
140,960

 
3.44

 
156,260

 
3.35

U.S. Treasury and agency securities
482

 
0.33

 
36,446

 
1.65

 
18,803

 
2.50

 
18

 
2.54

 
55,749

 
1.92

Non-U.S. securities
18,097

 
1.07

 
762

 
1.50

 
11

 
4.38

 
101

 
6.24

 
18,971

 
1.12

Other taxable securities, substantially all asset-backed securities
520

 
3.36

 
2,175

 
3.20

 
436

 
3.29

 
675

 
3.61

 
3,806

 
3.31

Total taxable securities
19,099

 
1.12

 
42,829

 
1.78

 
31,104

 
2.54

 
141,754

 
3.44

 
234,786

 
2.83

Tax-exempt securities
724

 
1.98

 
7,169

 
2.22

 
5,483

 
2.20

 
2,887

 
2.33

 
16,263

 
2.23

Total amortized cost of debt securities carried at fair value
$
19,823

 
1.16

 
$
49,998

 
1.84

 
$
36,587

 
2.49

 
$
144,641

 
3.42

 
$
251,049

 
2.79

Amortized cost of HTM debt securities (2)
$
354

 
3.96

 
$
50

 
3.80

 
$
1,112

 
2.53

 
$
188,736

 
3.24

 
$
190,252

 
3.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Agency
$
—

 
 

 
$
120

 
 

 
$
1,719

 
 

 
$
133,111

 
 

 
$
134,950

 
 

Agency-collateralized mortgage obligations
—

 
 

 
—

 
 

 
28

 
 

 
4,934

 
 

 
4,962

 
 

Commercial
—

 
 

 
3,364

 
 

 
10,395

 
 

 
931

 
 

 
14,690

 
 

Non-agency residential
—

 
 

 
—

 
 

 
26

 
 

 
3,459

 
 

 
3,485

 
 

Total mortgage-backed securities
—

 
 
 
3,484

 
 
 
12,168

 
 
 
142,435

 
 
 
158,087

 
 
U.S. Treasury and agency securities
483

 
 
 
36,629

 
 
 
19,820

 
 
 
18

 
 
 
56,950

 
 
Non-U.S. securities
18,099

 
 

 
772

 
 

 
12

 
 

 
104

 
 

 
18,987

 
 

Other taxable securities, substantially all asset-backed securities
527

 
 

 
2,214

 
 

 
463

 
 

 
682

 
 

 
3,886

 
 

Total taxable securities
19,109

 
 

 
43,099

 
 

 
32,463

 
 

 
143,239

 
 

 
237,910

 
 

Tax-exempt securities
724

 
 

 
7,186

 
 

 
5,608

 
 

 
2,914

 
 

 
16,432

 
 

Total debt securities carried at fair value
$
19,833

 
 

 
$
50,285

 
 

 
$
38,071

 
 

 
$
146,153

 
 

 
$
254,342

 
 

Fair value of HTM debt securities (2)
$
354

 
 
 
$
50

 
 
 
$
1,139

 
 
 
$
192,731

 
 
 
$
194,274

 
 
(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.