Investment Securities

9 Months Ended

Sep. 30, 2011

Note 4 Investment Securities

The amortized cost, other-than-temporary impairment recorded in other comprehensive income (loss), gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale securities were as follows:


	September 30, 2011											December 31, 2010
					Unrealized Losses											Unrealized Losses
	Amortized		Unrealized		Other-than-					Fair		Amortized		Unrealized		Other-than-					Fair
(Dollars in Millions)	Cost		Gains		Temporary (d)		Other (e)			Value		Cost		Gains		Temporary (d)		Other (e)			Value
Held-to-maturity (a)
U.S. Treasury and agencies	$	2,623	$	36	$	–	$	–		$	2,659	$	165	$	–	$	–	$	(1	)	$	164
Mortgage-backed securities
Residential
Agency		13,400		339		–		(4	)		13,735		847		–		–		(4	)		843
Non-agency non-prime		2		–		–		(1	)		1		3		–		–		–			3
Commercial non-agency		5		–		–		(2	)		3		10		–		–		(5	)		5
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		60		13		–		(3	)		70		157		13		–		(18	)		152
Other		24		1		–		(7	)		18		127		–		(1)		(7	)		119
Obligations of state and political subdivisions		24		1		–		(1	)		24		27		1		–		(1	)		27
Obligations of foreign governments		7		–		–		–			7		7		–		–		–			7
Other debt securities		124		–		–		(28	)		96		126		–		–		(27	)		99

Total held-to-maturity	$	16,269	$	390	$	–	$	(46	)	$	16,613	$	1,469	$	14	$	(1)	$	(63	)	$	1,419

Available-for-sale (b)
U.S. Treasury and agencies	$	1,477	$	12	$	–	$	–		$	1,489	$	2,559	$	6	$	–	$	(28	)	$	2,537
Mortgage-backed securities
Residential
Agency		38,767		992		–		(21	)		39,738		37,144		718		–		(159	)		37,703
Non-agency
Prime (c)		950		6		(48)		(49	)		859		1,216		12		(86)		(39	)		1,103
Non-prime		1,076		17		(224)		(12	)		857		1,193		15		(243)		(18	)		947
Commercial
Agency		140		7		–		–			147		194		5		–		(2	)		197
Non-agency		43		2		–		–			45		47		3		–		–			50
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		189		34		(2)		(3	)		218		204		23		(2)		(1	)		224
Other		693		19		(3)		(23	)		686		709		23		(3)		(9	)		720
Obligations of state and political subdivisions		6,409		130		–		(40	)		6,499		6,835		3		–		(421	)		6,417
Obligations of foreign governments		6		–		–		–			6		6		–		–		–			6
Corporate debt securities		1,109		–		–		(140	)		969		1,109		–		–		(151	)		958
Perpetual preferred securities		455		31		–		(80	)		406		456		41		–		(49	)		448
Other investments		178		13		–		(1	)		190		183		17		–		(1	)		199

Total available-for-sale	$	51,492	$	1,263	$	(277)	$	(369	)	$	52,109	$	51,855	$	866	$	(334)	$	(878	)	$	51,509


(a)		Held-to-maturity securities are carried at historical cost adjusted for amortization of premiums and accretion of discounts and credit-related other-than-temporary impairment.
(b)		Available-for-sale securities are carried at fair value with unrealized net gains or losses reported within accumulated other comprehensive income (loss) in shareholders’ equity.
(c)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(d)		Represents impairment not related to credit for those securities that have been determined to be other-than-temporarily impaired.
(e)		Represents unrealized losses on securities that have not been determined to be other-than-temporarily impaired.

The weighted-average maturity of the available-for-sale investment securities was 5.3 years at September 30, 2011, compared with 7.4 years at December 31, 2010. The corresponding weighted-average yields were 3.25 percent and 3.41 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 4.0 years at September 30, 2011, and 6.3 years at December 31, 2010. The corresponding weighted-average yields were 2.20 percent and 2.07 percent, respectively.

For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding at September 30, 2011, refer to Table 4 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

Securities carried at $21.3 billion at September 30, 2011, and $28.0 billion at December 31, 2010, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by law. Included in these amounts were securities sold under agreements to repurchase where the buyer/lender has the right to sell or pledge the securities and which were collateralized by securities with a carrying amount of $7.0 billion at September 30, 2011, and $9.3 billion at December 31, 2010.

The following table provides information about the amount of interest income from taxable and non-taxable investment securities:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in Millions)	2011		2010		2011		2010
Taxable	$	394	$	323	$	1,127	$	973
Non-taxable		76		77		230		231

Total interest income from investment securities	$	470	$	400	$	1,357	$	1,204

The following table provides information about the amount of gross gains and losses realized through the sales of available-for-sale investment securities:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in Millions)	2011			2010		2011			2010
Realized gains	$	4		$	9	$	6		$	21
Realized losses		(4	)		–		(4	)		–

Net realized gains (losses)	$	–		$	9	$	2		$	21

Income tax (benefit) on realized gains (losses)	$	–		$	4	$	1		$	8

In 2007, the Company purchased certain structured investment securities (“SIVs”) from certain money market funds managed by an affiliate of the Company. Subsequent to the initial purchase, the Company exchanged its interest in the SIVs for a pro-rata portion of the underlying investment securities according to the applicable restructuring agreements. The SIVs and the investment securities received are collectively referred to as “SIV-related securities.”

Some of the SIV-related securities evidenced credit deterioration at the time of acquisition by the Company. Investment securities with evidence of credit deterioration at acquisition had an unpaid principal balance and fair value of $429 million and $157 million, respectively, at September 30, 2011, and $485 million and $173 million, respectively, at December 31, 2010. Changes in the accretable balance for these securities were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2011			2010			2011			2010
Balance at beginning of period	$	117		$	302		$	139		$	292
Additions (a)		–			66			–			66
Disposals (a)		–			(50	)		–			(50	)
Accretion		(4	)		(8	)		(13	)		(23	)
Other (b)		(6	)		(1	)		(19	)		24

Balance at end of period	$	107		$	309		$	107		$	309


(a)		Additions and disposals resulted from the exchange of certain SIV’s for the underlying investment securities.
(b)		Primarily represents changes in projected future cash flows related to variable rates on certain investment securities.

The Company conducts a regular assessment of its investment securities with unrealized losses to determine whether securities are other-than-temporarily impaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying collateral, market conditions and whether the Company intends to sell or it is more likely than not the Company will be required to sell the securities.

The following tables summarize other-than-temporary impairment by investment category:


	2011									2010
	Losses									Losses
Three Months Ended September 30	Recorded in			Other Gains						Recorded in			Other Gains
(Dollars in Millions)	Earnings			(Losses) (b)			Total			Earnings			(Losses) (b)			Total
Held-to-maturity
Asset-backed securities
Other	$	–		$	–		$	–		$	–		$	–		$	–

Total held-to-maturity	$	–		$	–		$	–		$	–		$	–		$	–

Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	–		$	–		$	–		$	(1	)	$	(1	)	$	(2	)
Non-prime		(6	)		(4	)		(10	)		(13	)		(11	)		(24	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–			–			–			(1	)		–			(1	)
Other		(3	)		2			(1	)		(2	)		2			–
Perpetual preferred securities		–			–			–			(1	)		–			(1	)

Total available-for-sale	$	(9	)	$	(2	)	$	(11	)	$	(18	)	$	(10	)	$	(28	)


(a)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(b)		Represents the non-credit portion of other-than-temporary impairment recorded in other comprehensive income for securities determined to be other-than-temporarily impaired during the period.


	2011									2010
	Losses									Losses
Nine Months Ended September 30	Recorded in			Other Gains						Recorded in			Other Gains
(Dollars in Millions)	Earnings			(Losses) (b)			Total			Earnings			(Losses) (b)			Total
Held-to-maturity
Asset-backed securities
Other	$	–		$	–		$	–		$	(2	)	$	–		$	(2	)

Total held-to-maturity	$	–		$	–		$	–		$	(2	)	$	–		$	(2	)

Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	(2	)	$	(3	)	$	(5	)	$	(4	)	$	(11	)	$	(15	)
Non-prime		(18	)		(16	)		(34	)		(59	)		(54	)		(113	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–			–			–			(6	)		–			(6	)
Other		(4	)		2			(2	)		(12	)		4			(8	)
Perpetual preferred securities		–			–			–			(1	)		–			(1	)
Other debt securities		–			–			–			(1	)		1			–

Total available-for-sale	$	(24	)	$	(17	)	$	(41	)	$	(83	)	$	(60	)	$	(143	)


(a)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhancements consistent with securities designated as prime.
(b)		Represents the non-credit portion of other-than-temporary impairment recorded in other comprehensive income for securities determined to be other-than-temporarily impaired during the period.

The Company determined the other-than-temporary impairment recorded in earnings for securities by estimating the future cash flows of each individual security, using market information where available, and discounting the cash flows at the original effective rate of the security. Other-than-temporary impairment recorded in other comprehensive income (loss) was measured as the difference between that discounted amount and the fair value of each security. The following table includes the ranges for principal assumptions used for those available-for-sale non-agency mortgage-backed securities determined to be other-than-temporarily impaired:


	Prime									Non-Prime
	Minimum			Maximum			Average			Minimum			Maximum			Average
September 30, 2011
Estimated lifetime prepayment rates		7	%		15	%		13	%		1	%		11	%		6	%
Lifetime probability of default rates		2			7			3			1			19			6
Lifetime loss severity rates		40			55			46			8			70			53
December 31, 2010
Estimated lifetime prepayment rates		4	%		14	%		13	%		1	%		12	%		6	%
Lifetime probability of default rates		3			9			3			1			20			8
Lifetime loss severity rates		40			55			41			37			71			55

Changes in the credit losses on debt securities (excludes perpetual preferred securities) are summarized as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Millions)	2011			2010			2011			2010
Balance at beginning of period	$	319		$	382		$	358		$	335
Additions to credit losses due to other-than-temporary impairments
Credit losses on securities not previously considered other-than-temporarily impaired		1			3			3			18
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized		8			15			21			67

Total other-than-temporary impairment on debt securities		9			18			24			85
Other changes in credit losses
Increases in expected cash flows		(3	)		(4	)		(20	)		(17	)
Realized losses (a)		(19	)		(19	)		(55	)		(44	)
Credit losses on security sales and securities expected to be sold		–			–			(1	)		–
Other		–			–			–			18

Balance at end of period	$	306		$	377		$	306		$	377


(a)		Primarily represents principal losses allocated to mortgage and asset-backed securities in the Company’s portfolio under the terms of the securitization transaction documents.

At September 30, 2011, certain investment securities had a fair value below amortized cost. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time the individual securities have been in continuous unrealized loss positions, at September 30, 2011:


	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in Millions)	Value		Losses			Value		Losses			Value		Losses
Held-to-maturity
Mortgage-backed securities
Residential
Agency	$	1,769	$	(4	)	$	–	$	–		$	1,769	$	(4	)
Non-agency non-prime (a)		–		–			1		(1	)		1		(1	)
Commercial non-agency		–		–			3		(2	)		3		(2	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–		–			31		(3	)		31		(3	)
Other		–		–			15		(7	)		15		(7	)
Obligations of state and political subdivisions		–		–			9		(1	)		9		(1	)
Other debt securities		–		–			96		(28	)		96		(28	)

Total held-to-maturity	$	1,769	$	(4	)	$	155	$	(42	)	$	1,924	$	(46	)

Available-for-sale
U.S. Treasury and agencies	$	208	$	–		$	–	$	–		$	208	$	–
Mortgage-backed securities
Residential
Agency		10,936		(21	)		141		–			11,077		(21	)
Non-agency (a)
Prime (b)		103		(4	)		689		(93	)		792		(97	)
Non-prime		59		(6	)		699		(230	)		758		(236	)
Commercial non-agency		22		–			–		–			22		–
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		16		(3	)		7		(2	)		23		(5	)
Other		460		(12	)		117		(14	)		577		(26	)
Obligations of state and political subdivisions		457		(3	)		1,087		(37	)		1,544		(40	)
Corporate debt securities		186		(4	)		641		(136	)		827		(140	)
Perpetual preferred securities		61		(14	)		231		(66	)		292		(80	)
Other investments		1		–			3		(1	)		4		(1	)

Total available-for-sale	$	12,509	$	(67	)	$	3,615	$	(579	)	$	16,124	$	(646	)


(a)		The Company has $334 million of unrealized losses on residential non-agency mortgage-backed securities. Credit-related other-than-temporary impairment on these securities may occur if there is further deterioration in underlying collateral pool performance. Borrower defaults may increase if current economic conditions persist or worsen. Additionally, further deterioration in home prices may increase the severity of projected losses.
(b)		Prime securities are those designated as such by the issuer or those with underlying asset characteristics and/or credit enhanacements consistent with securities designated as prime.

The Company does not consider these unrealized losses to be credit-related. These unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. A substantial portion of securities that have unrealized losses are either corporate debt, obligations of state and political subdivisions or mortgage-backed securities issued with high investment grade credit ratings. In general, the issuers of the investment securities are contractually prohibited from prepayment at less than par, and the Company did not pay significant purchase premiums for these securities. At September 30, 2011, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not it would not be required to sell such securities before recovery of their amortized cost.