Investment Securities

12 Months Ended

Dec. 31, 2011

Investment Securities [Abstract]

Investment Securities

  NOTE 5   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 at December 31 were as follows:

	2011												2010
					Unrealized Losses												Unrealized Losses
(Dollars in Millions)	Amortized Cost		Unrealized Gains		Other- than- Temporary (d)			Other (e)			Fair Value		Amortized Cost		Unrealized Gains		Other- than- Temporary (d)			Other (e)			Fair Value
Held-to-maturity (a)
U.S. Treasury and agencies	$	2,560	$	35	$	–		$	–		$	2,595	$	165	$	–	$	–		$	(1	)	$	164
Mortgage-backed securities
Residential
Agency		16,085		333		–			(3	)		16,415		847		–		–			(4	)		843
Non-agency
non-prime		2		–		–			–			2		3		–		–			–			3
Commercial
non-agency		4		–		–			(2	)		2		10		–		–			(5	)		5
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		52		13		–			(2	)		63		157		13		–			(18	)		152
Other		23		1		(6	)		(1	)		17		127		–		(1	)		(7	)		119
Obligations of state and political subdivisions		23		1		–			(1	)		23		27		1		–			(1	)		27
Obligations of foreign governments		7		–		–			–			7		7		–		–			–			7
Other debt securities		121		–		–			(29	)		92		126		–		–			(27	)		99
Total held-to-maturity	$	18,877	$	383	$	(6	)	$	(38	)	$	19,216	$	1,469	$	14	$	(1	)	$	(63	)	$	1,419
Available-for-sale (b)
U.S. Treasury and agencies	$	1,045	$	13	$	–		$	(1	)	$	1,057	$	2,559	$	6	$	–		$	(28	)	$	2,537
Mortgage-backed securities
Residential
Agency		39,337		981		–			(4	)		40,314		37,144		718		–			(159	)		37,703
Non-agency
Prime (c)		911		5		(63	)		(50	)		803		1,216		12		(86	)		(39	)		1,103
Non-prime		1,047		9		(247	)		(7	)		802		1,193		15		(243	)		(18	)		947
Commercial
Agency		133		7		–			–			140		194		5		–			(2	)		197
Non-agency		42		2		–			(2	)		42		47		3		–			–			50
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		180		31		(3	)		(2	)		206		204		23		(2	)		(1	)		224
Other		694		16		(5	)		(24	)		681		709		23		(3	)		(9	)		720
Obligations of state and political subdivisions		6,394		167		–			(22	)		6,539		6,835		3		–			(421	)		6,417
Obligations of foreign governments		6		–		–			–			6		6		–		–			–			6
Corporate debt securities		1,000		1		–			(174	)		827		1,109		–		–			(151	)		958
Perpetual preferred securities		379		25		–			(86	)		318		456		41		–			(49	)		448
Other investments		188		15		–			(1	)		202		183		17		–			(1	)		199
Total available-for-sale	$	51,356	$	1,272	$	(318	)	$	(373	)	$	51,937	$	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 5.2 years at December 31, 2011, compared with 7.4 years at December 31, 2010. The corresponding weighted-average yields were 3.19 percent and 3.41 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 3.9 years at December 31, 2011, and 6.3 years at December 31, 2010. The corresponding weighted-average yields were 2.21 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 December 31, 2011, refer to Table 13 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

Securities carried at $20.7 billion at December 31, 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 December 31, 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:

Year Ended December 31 (Dollars in Millions)	2011		2010		2009
Taxable	$	1,517	$	1,292	$	1,295
Non-taxable		303		309		311
Total interest income from investment securities	$	1,820	$	1,601	$	1,606

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

Year Ended December 31 (Dollars in Millions)	2011			2010			2009
Realized gains	$	11		$	21		$	150
Realized losses		(7	)		(8	)		(3	)
Net realized gains (losses)	$	4		$	13		$	147
Income tax (benefit) on net realized gains (losses)	$	2		$	5		$	56

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” and are predominately included in non-agency mortgage-backed securities and asset-backed 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 $416 million and $145 million, respectively, at December 31, 2011, and $485 million and $173 million, respectively, at December 31, 2010. Changes in the accretable balance for these securities were as follows:

Year Ended December 31 (Dollars in Millions)	2011			2010			2009
Balance at beginning of period	$	139		$	292		$	349
Impact of other-than-temporary impairment accounting change		–			–			(124	)
Adjusted balance at beginning of period		139			292			225
Additions (a)		–			66			127
Disposals (b)		–			(219	)		–
Accretion		(17	)		(29	)		(6	)
Other (c)		(22	)		29			(54	)
Balance at end of period	$	100		$	139		$	292

(a) Primarily resulted from the exchange of certain SIVs for the underlying investment securities.

(b) Primarily resulted from the sale of securities covered under loss sharing agreements with the FDIC and the exchange of certain SIVs for the underlying investment securities.

(c) 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 table summarizes other-than-temporary impairment by investment category:

	2011									2010									2009
Year Ended December 31 (Dollars in Millions)	Losses Recorded in Earnings			Other Gains (Losses) (b)			Total			Losses Recorded in Earnings			Other Gains (Losses) (b)			Total			Losses Recorded in Earnings			Other Gains (Losses) (b)			Total
Held-to-maturity
Other asset-backed securities	$	–		$	–		$	–		$	(2	)	$	–		$	(2	)	$	–		$	–		$	–
Total held-to-maturity	$	–		$	–		$	–		$	(2	)	$	–		$	(2	)	$	–		$	–		$	–
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)	$	(3	)	$	(5	)	$	(8	)	$	(5	)	$	(10	)	$	(15	)	$	(13	)	$	(182	)	$	(195	)
Non-prime		(24	)		(23	)		(47	)		(63	)		(60	)		(123	)		(151	)		(304	)		(455	)
Commercial non-agency		–			–			–			–			–			–			(1	)		(1	)		(2	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–			–			–			(6	)		(1	)		(7	)		(17	)		(3	)		(20	)
Other		(4	)		3			(1	)		(13	)		4			(9	)		(186	)		88			(98	)
Obligations of state and political subdivisions		(4	)		–			(4	)		–			–			–			–			–			–
Corporate debt securities		–			–			–			–			–			–			(7	)		–			(7	)
Perpetual preferred securities		–			–			–			(1	)		–			(1	)		(223	)		–			(223	)
Other debt securities		–			–			–			(1	)		1			–			–			–			–
Total available-for-sale	$	(35	)	$	(25	)	$	(60	)	$	(89	)	$	(66	)	$	(155	)	$	(598	)	$	(402	)	$	(1,000	)

(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
December 31, 2011
Estimated lifetime prepayment rates		4	%		15	%		14	%		2	%		11	%		6	%
Lifetime probability of default rates		2			9			3			1			20			5
Lifetime loss severity rates		40			50			46			8			70			52
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:

Year Ended December 31 (Dollars in Millions)	2011			2010			2009
Balance at beginning of period	$	358		$	335		$	299
Additions to credit losses due to other-than-temporary impairments
Credit losses on securities not previously considered other-than-temporarily impaired		7			19			94
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized		28			72			148
Total other-than-temporary impairment on debt securities		35			91			242
Other changes in credit losses
Increases in expected cash flows		(21	)		(26	)		(49	)
Realized losses (a)		(73	)		(60	)		(30	)
Credit losses on security sales and securities expected to be sold		(1	)		–			(127	)
Other		–			18			–
Balance at end of period	$	298		$	358		$	335

(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 December 31, 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 December 30, 2011:

	Less Than 12 Months					12 Months or Greater						Total
(Dollars in Millions)	Fair Value		Unrealized Losses				Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Held-to-maturity
Mortgage-backed securities
Residential
Agency	$	697	$	(3	)		$	–	$	–		$	697	$	(3	)
Non-agency non-prime (a)		–		–				1		–			1		–
Commercial non-agency		–		–				3		(2	)		3		(2	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		–		–				29		(2	)		29		(2	)
Other		–		–				14		(7	)		14		(7	)
Obligations of state and political subdivisions		–		–				9		(1	)		9		(1	)
Other debt securities		–		–				92		(29	)		92		(29	)
Total held-to-maturity	$	697	$	(3	)		$	148	$	(41	)	$	845	$	(44	)
Available-for-sale
U.S. Treasury and agencies	$	22	$	(1	)		$	–	$	–		$	22	$	(1	)
Mortgage-backed securities
Residential
Agency		2,689		(3	)			676		(1	)		3,365		(4	)
Non-agency (a)
Prime (b)		102		(6	)			649		(107	)		751		(113	)
Non-prime		47		(4	)			685		(250	)		732		(254	)
Commercial non-agency		21		(2	)			1		–			22		(2	)
Asset-backed securities
Collateralized debt obligations/Collaterized loan obligations		14		(2	)			9		(3	)		23		(5	)
Other		497		(14	)			116		(15	)		613		(29	)
Obligations of state and political subdivisions		73		–				879		(22	)		952		(22	)
Obligations of foreign governments		6		–				–		–			6		–
Corporate debt securities		156		(1	)			580		(173	)		736		(174	)
Perpetual preferred securities		78		(19	)			162		(67	)		240		(86	)
Other investments		1		–				2		(1	)		3		(1	)
Total available-for-sale	$	3,706	$	(52	)		$	3,759	$	(639	)	$	7,465	$	(691	)

(a) The Company has $367 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 enhancements 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 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 December 31, 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.