Securities Available for Sale and Securities Held to Maturity

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity are as follows:


September 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale:
U.S. agency residential mortgage-backed securities	$	23,298	$	480	$	6	$	23,772
Non-agency residential mortgage-backed securities		856		3		77		782
Corporate debt securities		5,555		56		1		5,610
Certificates of deposit		5,524		14		2		5,536
Commercial paper		449		—		—		449
U.S. agency notes		350		—		—		350
Asset-backed and other securities		5,916		35		2		5,949

Total securities available for sale	$	41,948	$	588	$	88	$	42,448

Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	15,450	$	618	$	1	$	16,067
Other securities		162		—		—		162

Total securities held to maturity	$	15,612	$	618	$	1	$	16,229


December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale:
U.S. agency residential mortgage-backed securities	$	20,666	$	269	$	14	$	20,921
Non-agency residential mortgage-backed securities		1,130		—		223		907
Corporate debt securities		3,592		5		26		3,571
Certificates of deposit		3,623		2		3		3,622
Commercial paper		225		—		—		225
U.S. agency notes		1,795		5		—		1,800
Asset-backed and other securities		2,919		7		7		2,919

Total securities available for sale	$	33,950	$	288	$	273	$	33,965

Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	14,770	$	430	$	2	$	15,198
Other securities		338		3		—		341

Total securities held to maturity	$	15,108	$	433	$	2	$	15,539

A summary of securities with unrealized losses, aggregated by category and period of continuous unrealized loss, is as follows:


	Less than 12 months				12 months or longer				Total
September 30, 2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. agency residential mortgage-backed securities	$	—	$	—	$	346	$	6	$	346	$	6
Non-agency residential mortgage-backed securities		—		—		606		77		606		77
Corporate debt securities		776		1		—		—		776		1
Certificates of deposit		698		2		—		—		698		2
Asset-backed and other securities		—		—		923		2		923		2

Total	$	1,474	$	3	$	1,875	$	85	$	3,349	$	88

Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	249	$	1	$	—	$	—	$	249	$	1

Total	$	249	$	1	$	—	$	—	$	249	$	1

Total securities with unrealized losses ⁽¹⁾	$	1,723	$	4	$	1,875	$	85	$	3,598	$	89

⁽¹⁾	The number of investment positions with unrealized losses totaled 128 for securities available for sale and 7 for securities held to maturity.


	Less than 12 months				12 months or longer				Total
December 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. agency residential mortgage-backed securities	$	5,551	$	14	$	—	$	—	$	5,551	$	14
Non-agency residential mortgage-backed securities		121		8		746		215		867		223
Corporate debt securities		1,888		26		—		—		1,888		26
Certificates of deposit		2,158		3		—		—		2,158		3
Asset-backed and other securities		1,376		6		152		1		1,528		7

Total	$	11,094	$	57	$	898	$	216	$	11,992	$	273

Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	384	$	2	$	—	$	—	$	384	$	2

Total	$	384	$	2	$	—	$	—	$	384	$	2

Total securities with unrealized losses ⁽¹⁾	$	11,478	$	59	$	898	$	216	$	12,376	$	275

⁽¹⁾	The number of investment positions with unrealized losses totaled 296 for securities available for sale and 3 for securities held to maturity.

Unrealized losses in securities available for sale of $88 million as of September 30, 2012, were concentrated in non-agency residential mortgage-backed securities. Included in non-agency residential mortgage-backed securities are securities collateralized by loans that are considered to be “Prime” (defined as loans to borrowers with a Fair Isaac Corporation credit score of 620 or higher at origination), and “Alt-A” (defined as Prime loans with reduced documentation at origination). At September 30, 2012, the amortized cost and fair value of Alt-A residential mortgage-backed securities were $326 million and $280 million, respectively.

Certain Alt-A and Prime residential mortgage-backed securities experienced continued credit deterioration in the first nine months of 2012, including increased payment delinquency rates and losses on foreclosures of underlying mortgages. In addition, the Company increased the projected default rates for modified loans in the first quarter of 2012. Based on the Company’s cash flow projections, management determined that it does not expect to recover all of the amortized cost of these securities and therefore determined that these securities were other-than-temporarily impaired (OTTI). The Company employs a buy and hold strategy relative to its mortgage-related securities, and does not intend to sell these securities and will not be required to sell these securities before anticipated recovery of the unrealized losses on these securities. Further, the Company has adequate liquidity at September 30, 2012, with cash and cash equivalents totaling $8.5 billion, a loan-to-deposit ratio of 15%, adequate access to short-term borrowing facilities and regulatory capital ratios in excess of “well capitalized” levels. Because the Company does not intend to sell these securities and it is not “more likely than not” that the Company will be required to sell these securities, the Company recognized an impairment charge equal to the securities’ expected credit losses of $3 million and $28 million during the third quarter and first nine months of 2012, respectively. The expected credit losses were measured as the difference between the present value of expected cash flows and the amortized cost of the securities. Further deterioration in the performance of the underlying loans in the Company’s residential mortgage-backed securities portfolio could result in the recognition of additional impairment charges.

Actual credit losses on the Company’s residential mortgage-backed securities were not material during the third quarters or first nine months of 2012 or 2011.

The following table is a rollforward of the amount of credit losses recognized in earnings for OTTI securities held by the Company during the period for which a portion of the impairment was recognized in other comprehensive income:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Balance at beginning of period	$	152	$	105	$	127	$	96
Credit losses recognized into current period earnings on debt securities for which an other-than-temporary impairment was not previously recognized		1		2		6		4
Credit losses recognized into current period earnings on debt securities for which an other-than-temporary impairment was previously recognized		2		11		22		18

Balance at end of period	$	155	$	118	$	155	$	118

The maturities of securities available for sale and securities held to maturity at September 30, 2012, are as follows:


	Within 1 year		After 1 year through 5 years		After 5 years through 10 years		After 10 years		Total
Securities available for sale:
U.S. agency residential mortgage-backed securities ⁽¹⁾	$	—	$	2	$	4,031	$	19,739	$	23,772
Non-agency residential mortgage-backed securities ⁽¹⁾		—		—		8		774		782
Corporate debt securities		1,015		4,595		—		—		5,610
Certificates of deposit		4,030		1,506		—		—		5,536
Commercial paper		449		—		—		—		449
U.S. agency notes		—		100		250		—		350
Asset-backed and other securities		—		474		440		5,035		5,949

Total fair value	$	5,494	$	6,677	$	4,729	$	25,548	$	42,448
Total amortized cost	$	5,484	$	6,617	$	4,565	$	25,282	$	41,948

Securities held to maturity:
U.S. agency residential mortgage-backed securities ⁽¹⁾	$	—	$	—	$	7,049	$	9,018	$	16,067
Other securities		—		162		—		—		162

Total fair value	$	—	$	162	$	7,049	$	9,018	$	16,229
Total amortized cost	$	—	$	162	$	6,678	$	8,772	$	15,612

⁽¹⁾

Residential mortgage-backed securities have been allocated over maturity groupings based on final contractual maturities. Actual maturities will differ from final contractual maturities because borrowers on a certain portion of loans underlying these securities have the right to prepay their obligations.

Proceeds and gross realized gains (losses) from sales of securities available for sale are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Proceeds	$	201	$	—	$	1,524	$	450
Gross realized gains	$	—	$	—	$	2	$	1
Gross realized losses	$	—	$	—	$	—	$	—