Investment Securities (Tables)

3 Months Ended

Mar. 31, 2013

Table 4

Investment Securities


	Available-for-Sale									Held-to-Maturity
At March 31, 2013 (Dollars in Millions)	Amortized Cost		Fair Value		Weighted- Average Maturity in Years		Weighted- Average Yield (e)			Amortized Cost		Fair Value		Weighted- Average Maturity in Years		Weighted- Average Yield (e)
U.S. Treasury and Agencies
Maturing in one year or less	$	1,201	$	1,202		.7		1.47	%	$	1,411	$	1,420		.7		.97	%
Maturing after one year through five years		139		141		1.6		2.34			1,034		1,043		1.2		1.03
Maturing after five years through ten years		152		161		7.3		3.13			968		971		9.3		1.86
Maturing after ten years		1		2		14.4		4.15			60		60		11.9		1.81
Total	$	1,493	$	1,506		1.4		1.72	%	$	3,473	$	3,494		3.5		1.25	%
Mortgage-Backed Securities (a)
Maturing in one year or less	$	1,767	$	1,776		.6		1.70	%	$	194	$	194		.6		1.55	%
Maturing after one year through five years		21,662		22,212		3.5		2.27			27,931		28,355		3.3		2.04
Maturing after five years through ten years		6,139		6,200		6.1		1.85			2,834		2,856		5.9		1.41
Maturing after ten years		403		409		12.2		1.62			122		125		11.0		1.29
Total	$	29,971	$	30,597		3.9		2.14	%	$	31,081	$	31,530		3.6		1.98	%
Asset-Backed Securities (a)
Maturing in one year or less	$	–	$	–		.1		7.66	%	$	–	$	–		.3		.43	%
Maturing after one year through five years		55		64		3.2		2.60			9		9		3.3		.74
Maturing after five years through ten years		565		575		7.2		2.26			8		11		6.8		.84
Maturing after ten years		–		–		18.3		5.39			5		13		22.0		.75
Total	$	620	$	639		6.9		2.29	%	$	22	$	33		8.9		.78	%
Obligations of State and Political Subdivisions (b) (c)
Maturing in one year or less	$	38	$	38		.5		7.14	%	$	1	$	1		.6		6.88	%
Maturing after one year through five years		5,225		5,552		3.4		6.73			4		5		2.9		7.47
Maturing after five years through ten years		614		640		7.8		5.76			2		2		8.0		7.72
Maturing after ten years		50		50		21.2		8.07			12		12		14.5		5.36
Total	$	5,927	$	6,280		3.9		6.65	%	$	19	$	20		10.8		6.12	%
Other Debt Securities
Maturing in one year or less	$	6	$	6		.9		1.15	%	$	1	$	1		.4		1.00	%
Maturing after one year through five years		–		–		–		–			94		93		3.0		1.19
Maturing after five years through ten years		–		–		–		–			26		12		7.6		1.03
Maturing after ten years		814		740		24.2		3.12			–		–		–		–
Total	$	820	$	746		24.0		3.11	%	$	121	$	106		3.9		1.16	%
Other Investments	$	759	$	802		8.7		1.29	%	$	–	$	–		–		–	%
Total investment securities (d)	$	39,590	$	40,570		4.4		2.80	%	$	34,716	$	35,183		3.6		1.91	%

(a)

Information related to asset and mortgage-backed securities included above is presented based upon weighted-average maturities anticipating future prepayments.

(b)

Information related to obligations of state and politcal subdivisions is presented based upon yield to first optional call date if the security is purchased at a premium, yield to maturity if purchased at par or a discount.

(c)

Maturity calculations for obligations of state and politicial subdivisions are based on the first optional call date for securities with a fair value above par and contractual maturity for securities with a fair value equal to or below par.

(d)

The weighted-average maturity of the available-for-sale investment securities was 4.1 years at December 31, 2012, with a corresponding weighted-average yield of 2.93 percent. The weighted-average maturity of the held-to-maturity investment securities was 3.3 years at December 31, 2012, with a corresponding weighted-average yield of 1.94 percent.

(e)

Average yields are presented on a fully-taxable equivalent basis under a tax rate of 35 percent. Yields on available-for-sale and held-to-maturity investment securities are computed based on amortized cost balances, excluding any premiums or discounts recorded related to the transfer of investment securities at fair value from available-for-sale to held-to-maturity. Average yield and maturity calculations exclude equity securities that have no stated yield or maturity.


	March 31, 2013					December 31, 2012
(Dollars in Millions)	Amortized Cost		Percent of Total			Amortized Cost		Percent of Total
U.S. Treasury and agencies	$	4,966		6.7	%	$	4,365		5.9	%
Mortgage-backed securities		61,052		82.1			61,019		83.1
Asset-backed securities		642		.9			637		.9
Obligations of state and political subdivisions		5,946		8.0			6,079		8.3
Other debt securities and investments		1,700		2.3			1,329		1.8
Total investment securities	$	74,306		100.0	%	$	73,429		100.0	%

Investment Securities Held to Maturity and Available for Sale

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, 2013												December 31, 2012
					Unrealized Losses												Unrealized Losses
(Dollars in Millions)	Amortized Cost		Unrealized Gains		Other-than- Temporary (e)			Other (f)			Fair Value		Amortized Cost		Unrealized Gains		Other-than- Temporary (e)			Other (f)			Fair Value
Held-to-maturity (a)
U.S. Treasury and agencies	$	3,473	$	23	$	–		$	(2	)	$	3,494	$	3,154	$	27	$	–		$	–		$	3,181
Mortgage-backed securities
Residential
Agency		31,078		469		–			(20	)		31,527		31,064		545		–			(6	)		31,603
Non-agency non-prime (d)		1		–		–			–			1		1		–		–			–			1
Commercial non-agency		2		–		–			–			2		2		–		–			–			2
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		4		11		–			–			15		7		15		–			–			22
Other		18		3		(2	)		(1	)		18		19		2		(3	)		(1	)		17
Obligations of state and political subdivisions		19		1		–			–			20		20		1		–			–			21
Obligations of foreign governments		7		–		–			–			7		7		–		–			–			7
Other debt securities		114		–		–			(15	)		99		115		–		–			(17	)		98

Total held-to-maturity	$	34,716	$	507	$	(2	)	$	(38	)	$	35,183	$	34,389	$	590	$	(3	)	$	(24	)	$	34,952

Available-for-sale (b)
U.S. Treasury and agencies	$	1,493	$	14	$	–		$	(1	)	$	1,506	$	1,211	$	16	$	–		$	(1	)	$	1,226
Mortgage-backed securities
Residential
Agency		28,833		668		–			(40	)		29,461		28,754		746		–			(5	)		29,495
Non-agency
Prime (c)		605		6		(9	)		(3	)		599		641		3		(16	)		(4	)		624
Non-prime (d)		353		6		(9	)		–			350		372		4		(20	)		(1	)		355
Commercial agency		180		7		–			–			187		185		8		–			–			193
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		20		6		–			–			26		32		10		–			–			42
Other		600		14		–			(1	)		613		579		14		–			(1	)		592
Obligations of state and political subdivisions		5,927		357		–			(4	)		6,280		6,059		396		–			–			6,455
Obligations of foreign governments		6		–		–			–			6		6		–		–			–			6
Corporate debt securities		814		3		–			(77	)		740		814		2		–			(85	)		731
Perpetual preferred securities		205		32		–			(12	)		225		205		27		–			(14	)		218
Other investments		554		23		–			–			577		182		20		–			–			202
Total available-for-sale	$	39,590	$	1,136	$	(18	)	$	(138	)	$	40,570	$	39,040	$	1,246	$	(36	)	$	(111	)	$	40,139

(a)

Held-to-maturity investment securities are carried at historical cost or at fair value at the time of transfer from the available-for-sale to held-to-maturity category, 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 at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads). When the Company determines the designation, prime securities typically have a weighted average credit score of 725 or higher and a loan-to-value of 80 percent or lower; however, other pool characteristics may result in designations that deviate from these credit score and loan-to-value thresholds.

(d)

Includes all securities not meeting the conditions to be designated as prime.

(e)

Represents impairment not related to credit for those investment securities that have been determined to be other-than-temporarily impaired.

(f)

Represents unrealized losses on investment securities that have not been determined to be other-than-temporarily impaired.

Amount of Interest Income from Taxable and Non-Taxable Investment Securities

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)	2013		2012
Taxable	$	344	$	397
Non-taxable		66		71
Total interest income from investment securities	$	410	$	468

Amount of Gross Gains and Losses Realized through Sales of Available for Sale Investment Securities

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)	2013		2012
Realized gains	$	12	$	9
Realized losses		–		–
Net realized gains (losses)	$	12	$	9
Income tax (benefit) on net realized gains (losses)	$	5	$	3

Summary of Other than Temporary Impairment by Investment Category

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


	2013									2012
Three Months Ended March 31 (Dollars in Millions)		Losses Recorded in Earnings			Other Gains (Losses) (c)		Total			Losses Recorded in Earnings			Other Gains (Losses) (c)			Total
Available-for-sale
Mortgage-backed securities
Non-agency residential
Prime (a)		$	(1	)	$	1	$	–		$	(1	)	$	(3	)	$	(4	)
Non-prime (b)			(6	)		5		(1	)		(7	)		3			(4	)
Commercial non-agency			–			–		–			–			(1	)		(1	)
Other asset-backed securities			–			–		–			(1	)		1			–
Total available-for-sale		$	(7	)	$	6	$	(1	)	$	(9	)	$	–		$	(9	)

(a)

(b)

Includes all securities not meeting the conditions to be designated as prime.

(c)

Losses represent the non-credit portion of other-than-temporary impairment recorded in other comprehensive income (loss) for investment securities determined to be other-than-temporarily impaired during the period. Gains represent recoveries in the fair value of securities that had non-credit other-than-temporary impairment during the period.

Summary of Ranges used in Valuation of Non-Agency Mortgage-Backed Securities Other than Temporarily Impaired

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 (a)									Non-Prime (b)
	Minimum			Maximum			Average			Minimum			Maximum			Average
March 31, 2013
Estimated lifetime prepayment rates		8	%		18	%		16	%		2	%		10	%		6	%
Lifetime probability of default rates		4			6			4			4			10			7
Lifetime loss severity rates		45			50			48			50			70			60
December 31, 2012
Estimated lifetime prepayment rates		6	%		22	%		14	%		3	%		10	%		6	%
Lifetime probability of default rates		3			6			4			3			10			7
Lifetime loss severity rates		40			50			47			45			65			56

(a)

(b)

Includes all securities not meeting the conditions to be designated as prime.

Changes in Credit Losses on Debt Securities

Changes in the credit losses on debt securities are summarized as follows:


Three Months Ended March 31 (Dollars in Millions)	2013			2012
Balance at beginning of period	$	134		$	298
Additions to Credit Losses Due to Other-than-temporary Impairments
Credit losses on securities not previously considered other-than-temporarily impaired		–			1
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized		7			8

Total other-than-temporary impairment on debt securities		7			9
Other Changes in Credit Losses
Increases in expected cash flows		–			(6	)
Realized losses (a)		(8	)		(13	)

Balance at end of period	$	133		$	288

(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.

Gross Unrealized Losses and Fair Value of Company's Investments with Unrealized Losses

At March 31, 2013, 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, 2013:


	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
U.S. Treasury and agencies	$	444	$	(2	)	$	–	$	–		$	444	$	(2	)
Mortgage-backed securities
Residential agency		3,478		(20	)		–		–			3,478		(20	)
Commercial non-agency		2		–			–		–			2		–
Other asset-backed securities		–		–			9		(3	)		9		(3	)
Corporate debt securities		–		–			99		(15	)		99		(15	)

Total held-to-maturity	$	3,924	$	(22	)	$	108	$	(18	)	$	4,032	$	(40	)

Available-for-sale
U.S. Treasury and agencies	$	599	$	(1	)	$	–	$	–		$	599	$	(1	)
Mortgage-backed securities
Residential
Agency		6,484		(40	)		166		–			6,650		(40	)
Non-agency (a)
Prime (b)		91		–			254		(12	)		345		(12	)
Non-prime (c)		22		–			190		(9	)		212		(9	)
Other asset-backed securities		–		–			2		(1	)		2		(1	)
Obligations of state and political subdivisions		339		(4	)		12		–			351		(4	)
Corporate debt securities		–		–			429		(77	)		429		(77	)
Perpetual preferred securities		–		–			121		(12	)		121		(12	)

Total available-for-sale	$	7,535	$	(45	)	$	1,174	$	(111	)	$	8,709	$	(156	)

(a)

The Company has $21 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)

(c)

Includes all securities not meeting the conditions to be designated as prime.

- Definition

Tabular disclosure of the amount of other than temporary impairment (OTTI) related to credit losses recognized in earnings including: (a) the beginning balance of the amount related to credit losses on debt securities held by the investor at the beginning of the period for which a portion of an OTTI was recognized in other comprehensive income; (b) additions for the amount related to the credit loss for which an OTTI was not previously recognized; (c) reductions for securities sold during the period (realized); (d) reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the investor intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis; (e) additional increases to the amount related to the credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the investor will be required to sell the security before recovery of its amortized cost basis; (f) reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security; and (g) the ending balance of the amount related to credit losses on debt securities held by the entity at the end of the period for which a portion of an OTTI was recognized in other comprehensive income.

+ References+ Details