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Investment Securities
3 Months Ended
Mar. 31, 2013
Text Block [Abstract]  
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, 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.

The weighted-average maturity of the available-for-sale investment securities was 4.4 years at March 31, 2013, compared with 4.1 years at December 31, 2012. The corresponding weighted-average yields were 2.80 percent and 2.93 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 3.6 years at March 31, 2013, and 3.3 years at December 31, 2012. The corresponding weighted-average yields were 1.91 percent and 1.94 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, 2013, 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 with a fair value of $18.1 billion at March 31, 2013, and $20.1 billion at December 31, 2012, were pledged to secure public, private and trust deposits, repurchase agreements and for other purposes required by contractual obligation or law. Included in these amounts were securities where the Company and certain counterparties have agreements granting the counterparties the right to sell or pledge the securities. Investment securities delivered under these types of arrangements had a fair value of $2.5 billion at March 31, 2013, and $3.5 billion at December 31, 2012.

 

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   

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   

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:

 

     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) 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).
(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.

The Company determined the other-than-temporary impairment recorded in earnings for debt securities not intended to be sold 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 (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) 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).
(b) Includes all securities not meeting the conditions to be designated as prime.

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.

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) 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).
(c) Includes all securities not meeting the conditions to be 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, 2013, 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.