XML 41 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
Investment Securities
 3 Months Ended
Mar. 31, 2012
Investment Securities [Abstract]  
Investment Securities Note 2 Investment Securities
     

Note 2

   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 investment securities were as follows:

 

                                                                                 
    March 31, 2012            December 31, 2011  
                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

   $ 2,559     $ 29     $ —     $ —     $ 2,588     $ 2,560     $ 35     $ —     $ —     $ 2,595  

Mortgage-backed securities

                                                                                

Residential

                                                                                

Agency

     18,734       359       —       (17)       19,076       16,085       333       —       (3)       16,415  

Non-agency non-prime

     1       —       —       —       1       2       —       —       —       2  

Commercial non-agency

     4       —       —       (1)       3       4       —       —       (2)       2  

Asset-backed securities

                                                                                

Collateralized debt obligations/
Collaterized loan obligations

     35       13       —       —       48       52       13       —       (2)       63  

Other

     22       1       (5)       (1)       17       23       1       (6)       (1)       17  

Obligations of state and political subdivisions

     22       2       —       (1)       23       23       1       —       (1)       23  

Obligations of foreign governments

     8       —       —       —       8       7       —       —       —       7  

Other debt securities

     120       —       —       (22)       98       121       —       —       (29)       92  
                                                                                 

Total held-to-maturity

   $ 21,505     $ 404     $ (5)     $ (42)     $ 21,862     $ 18,877     $ 383     $ (6)     $ (38)     $ 19,216  
                                                                                 

Available-for-sale (b)

                                                                                

U.S. Treasury and agencies

   $ 850     $ 11     $ —     $ —     $ 861     $ 1,045     $ 13     $ —     $ (1)     $ 1,057  

Mortgage-backed securities

                                                                                

Residential

                                                                                

Agency

     40,276       1,017       —       (17)       41,276       39,337       981       —       (4)       40,314  

Non-agency

                                                                                

Prime (c)

     826       4       (61)       (36)       733       911       5       (63)       (50)       803  

Non-prime

     1,014       11       (213)       (6)       806       1,047       9       (247)       (7)       802  

Commercial

                                                                                

Agency

     131       7       —       —       138       133       7       —       —       140  

Non-agency

     41       1       —       (2)       40       42       2       —       (2)       42  

Asset-backed securities

                                                                                

Collateralized debt obligations/
Collaterized loan obligations

     179       33       (2)       (4)       206       180       31       (3)       (2)       206  

Other

     684       27       (5)       (10)       696       694       16       (5)       (24)       681  

Obligations of state and political subdivisions

     6,267       249       —       (7)       6,509       6,394       167       —       (22)       6,539  

Obligations of foreign governments

     6       —       —       —       6       6       —       —       —       6  

Corporate debt securities

     1,000       1       —       (116)       885       1,000       1       —       (174)       827  

Perpetual preferred securities

     370       33       —       (46)       357       379       25       —       (86)       318  

Other investments

     217       19       —       —       236       188       15       —       (1)       202  

Total available-for-sale

   $ 51,861     $ 1,413     $ (281)     $ (244)     $ 52,749     $ 51,356     $ 1,272     $ (318)     $ (373)     $ 51,937  
                                                                                 

 

(a) Held-to-maturity investment 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 investment 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 investment securities that have been determined to be other-than-temporarily impaired.
(e) Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.

The weighted-average maturity of the available-for-sale investment securities was 4.6 years at March 31, 2012, compared with 5.2 years at December 31, 2011. The corresponding weighted-average yields were 3.13 percent and 3.19 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 4.0 years at March 31, 2012, and 3.9 years at December 31, 2011. The corresponding weighted-average yields were 2.15 percent and 2.21 percent, respectively.

For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale investment securities outstanding at March 31, 2012, refer to Table 4 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

Investment securities carried at $19.2 billion at March 31, 2012, and $20.7 billion at December 31, 2011, 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 investment securities with a carrying amount of $5.6 billion at March 31, 2012, and $7.0 billion at December 31, 2011.

 

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

 

                 

Three Months Ended March 31

(Dollars in Millions)

   2012     2011  

Taxable

   $ 397     $ 351  

Non-taxable

     71       77  

Total interest income from investment securities

   $ 468     $ 428  

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 March 31

(Dollars in Millions)

   2012     2011  

Realized gains

   $ 9     $ 1  

Realized losses

     —       —  

Net realized gains (losses)

   $ 9     $ 1  

Income tax (benefit) on net realized gains (losses)

   $ 3     $ —  

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 $402 million and $148 million, respectively, at March 31, 2012, and $416 million and $145 million, respectively, at December 31, 2011. Changes in the accretable balance for these investment securities were as follows:

 

                 

Three Months Ended March 31

(Dollars in Millions)

   2012     2011  

Balance at beginning of period

   $ 100     $ 139  

Accretion

     (4 )      (5 ) 
Other (a)     8       (8 ) 
   

 

 

  

Balance at end of period

   $ 104     $ 126  
                 

 

(a) 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 investment securities are other-than-temporarily impaired considering, among other factors, the nature of the investment 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 investment securities.

The following table summarizes other-than-temporary impairment by investment category:

 

                                                 
    2012     2011  

Three Months Ended March 31

(Dollars in Millions)

   Losses
Recorded in
Earnings		     Other Gains
(Losses) (b)		     Total     Losses
Recorded in
Earnings		     Other Gains
(Losses) (b)		     Total  

Available-for-sale

                                                

Mortgage-backed securities

                                                

Non-agency residential

                                                

Prime (a)

   $ (1)     $ (3 )    $ (4)     $ (1 )    $ 1     $ —  

Non-prime

     (7)       3       (4)       (5 )      (6 )      (11 ) 

Commercial non-agency

     —       (1 )      (1)       —       —       —  

Other asset-backed securities

     (1)       1       —       —       —       —  

Total available-for-sale

   $ (9)     $ —     $ (9 )    $ (6 )    $ (5 )    $ (11 ) 

 

(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 investment securities determined to be other-than-temporarily impaired during the period.

The Company determined the other-than-temporary impairment recorded in earnings for investment securities by estimating the future cash flows of each individual investment security, using market information where available, and discounting the cash flows at the original effective rate of the investment 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 investment 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  

March 31, 2012

                                                

Estimated lifetime prepayment rates

     11 %      15 %      13 %      2 %      10 %      6 % 

Lifetime probability of default rates

     1       3       2       1       19       6  

Lifetime loss severity rates

     32       50       40       8       70       52  

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  
                                                 

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

 

                 
Three Months Ended March 31 (Dollars in Millions)   2012     2011  

Balance at beginning of period

   $ 298     $ 358  

Additions to credit losses due to other-than-temporary impairments

                

Credit losses on securities not previously considered other-than-temporarily impaired

     1       1  

Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized

     8       5  
                 

Total other-than-temporary impairment on debt securities

     9       6  

Other changes in credit losses

                

Increases in expected cash flows

     (6 )      (7 ) 

Realized losses (a)

     (13 )      (17 ) 

Credit losses on security sales and securities expected to be sold

     —       (1 ) 
                 

Balance at end of period

   $ 288     $ 339  
                 

 

(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 March 31, 2012, 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 investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at March 31, 2012:

 

                                                     
    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

   $ 2,612     $ (17 )        $ 11     $ —     $ 2,623     $ (17 ) 

Non-agency non-prime (a)

     —       —           1       —       1       —  

Commercial non-agency

     —       —           2       (1 )      2       (1 ) 

Asset-backed securities

                                                    

Collateralized debt obligations/Collaterized loan obligations

     —       —           6       —       6       —  

Other

     —       —           13       (6 )      13       (6 ) 

Obligations of state and political subdivisions

     —       —           9       (1 )      9       (1 ) 

Other debt securities

     —       —           99       (22 )      99       (22 ) 
                                                     

Total held-to-maturity

   $ 2,612     $ (17 )        $ 141     $ (30 )    $ 2,753     $ (47 ) 
                                                     

Available-for-sale

                                                    

U.S. Treasury and agencies

   $ 33     $ —         $ —     $ —     $ 33     $ —  

Mortgage-backed securities

                                                    

Residential

                                                    

Agency

     3,779       (16 )          572       (1 )      4,351       (17 ) 

Non-agency (a)

                                                    

Prime (b)

     84       (5 )          599       (92 )      683       (97 ) 

Non-prime

     36       (3 )          684       (216 )      720       (219 ) 

Commercial non-agency

     20       (2 )          1       —       21       (2 ) 

Asset-backed securities

                                                    

Collateralized debt obligations/Collaterized loan obligations

     15       (2 )          10       (4 )      25       (6 ) 

Other

     23       (2 )          51       (13 )      74       (15 ) 

Obligations of state and political subdivisions

     123       (1 )          183       (6 )      306       (7 ) 

Obligations of foreign governments

     6       —           —       —       6       —  

Corporate debt securities

     56       —           637       (116 )      693       (116 ) 

Perpetual preferred securities

     95       (2 )          186       (44 )      281       (46 ) 

Other investments

     —       —           3       —       3       —  
                                                     

Total available-for-sale

   $ 4,270     $ (33 )        $ 2,926     $ (492 )    $ 7,196     $ (525 ) 
                                                     

 

(a) The Company has $316 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 the 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 investment 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 investment securities. At March 31, 2012, the Company had no plans to sell investment securities with unrealized losses, and believes it is more likely than not it would not be required to sell such investment securities before recovery of their amortized cost.