Note 3

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:


	September 30, 2016												December 31, 2015
					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	$	4,767	$	96	$	–		$	(1	)	$	4,862	$	2,925	$	14	$	–		$	(20	)	$	2,919
Mortgage-backed securities
Residential
Agency		38,062		453		–			(23	)		38,492		40,619		175		–			(273	)		40,521
Non-agency non-prime (d)		1		–		–			–			1		1		–		–			–			1
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		5		–			–			5		–		6		–			–			6
Other		8		3		–			–			11		10		3		–			–			13
Obligations of state and political subdivisions		8		1		–			(1	)		8		8		1		–			(1	)		8
Obligations of foreign governments		9		–		–			–			9		9		–		–			–			9
Other debt securities		18		–		–			–			18		18		–		–			(2	)		16
Total held-to-maturity	$	42,873	$	558	$	–		$	(25	)	$	43,406	$	43,590	$	199	$	–		$	(296	)	$	43,493
Available-for-sale (b)
U.S. Treasury and agencies	$	14,454	$	179	$	–		$	(3	)	$	14,630	$	4,611	$	12	$	–		$	(27	)	$	4,596
Mortgage-backed securities
Residential
Agency		44,904		582		–			(53	)		45,433		50,056		384		–			(364	)		50,076
Non-agency
Prime (c)		257		6		(3	)		(1	)		259		316		6		(3	)		(1	)		318
Non-prime (d)		191		18		(3	)		–			206		221		20		(1	)		–			240
Commercial agency		16		–		–			–			16		52		–		–			–			52
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		11		2		–			–			13		16		3		–			–			19
Other		516		8		–			–			524		532		9		–			–			541
Obligations of state and political subdivisions		5,232		152		–			(8	)		5,376		5,149		169		–			(2	)		5,316
Corporate debt securities		628		10		–			(59	)		579		677		3		–			(70	)		610
Perpetual preferred securities		36		17		–			–			53		153		20		–			(12	)		161
Other investments		31		35		–			–			66		34		34		–			–			68
Total available-for-sale	$	66,276	$	1,009	$	(6	)	$	(124	)	$	67,155	$	61,817	$	660	$	(4	)	$	(476	)	$	61,997

(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 4.2 years at September 30, 2016, compared with 4.7 years at December 31, 2015. The corresponding weighted-average yields were 2.09 percent and 2.21 percent, respectively. The weighted-average maturity of the held-to-maturity investment securities was 3.8 years at September 30, 2016, and 4.2 years at December 31, 2015. The corresponding weighted-average yields were 1.90 percent and 1.92 percent, respectively.

For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale investment securities outstanding at September 30, 2016, 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 $11.4 billion at September 30, 2016, and $13.1 billion at December 31, 2015, 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 securing these types of arrangements had a fair value of $840 million at September 30, 2016, and $1.0 billion at December 31, 2015.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in Millions)	2016		2015		2016		2015
Taxable	$	467	$	448	$	1,403	$	1,333
Non-taxable		48		54		152		169
Total interest income from investment securities	$	515	$	502	$	1,555	$	1,502

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 September 30,				Nine Months Ended September 30,
(Dollars in Millions)	2016		2015		2016			2015
Realized gains	$	12	$	–	$	31		$	1
Realized losses		–		–		(12	)		(1	)
Net realized gains (losses)	$	12	$	–	$	19		$	–
Income tax (benefit) on net realized gains (losses)	$	4	$	–	$	7		$	–

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, the credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying collateral, the existence of any government or agency guarantees, 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 Company determines 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) is measured as the difference between that discounted amount and the fair value of each investment security. The total amount of other-than-temporary impairment recorded was immaterial for the three and nine months ended September 30, 2016 and 2015.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Millions)	2016			2015			2016			2015
Balance at beginning of period	$	79		$	91		$	84		$	101
Additions to Credit Losses Due to Other-than-temporary Impairments
Decreases in expected cash flows on securities for which other-than-temporary impairment was previously recognized		2			1			3			1
Total other-than-temporary impairment on debt securities		2			1			3			1
Other Changes in Credit Losses
Increases in expected cash flows		–			(1	)		(1	)		(3	)
Realized losses (a)		(2	)		(3	)		(7	)		(11	)
Balance at end of period	$	79		$	88		$	79		$	88

(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, 2016, 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 September 30, 2016:


	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	$	250	$	(1	)	$	–	$	–		$	250	$	(1	)
Residential agency mortgage-backed securities		3,728		(7	)		2,237		(16	)		5,965		(23	)
Other asset-backed securities		–		–			5		–			5		–
Obligations of state and political subdivisions		–		–			3		(1	)		3		(1	)
Other debt securities		–		–			18		–			18		–
Total held-to-maturity	$	3,978	$	(8	)	$	2,263	$	(17	)	$	6,241	$	(25	)
Available-for-sale
U.S. Treasury and agencies	$	1,611	$	(3	)	$	–	$	–		$	1,611	$	(3	)
Residential mortgage-backed securities
Agency		9,743		(35	)		2,885		(18	)		12,628		(53	)
Non-agency (a)
Prime (b)		48		–			91		(4	)		139		(4	)
Non-prime (c)		19		–			12		(3	)		31		(3	)
Commercial agency		10		–			–		–			10		–
Other asset-backed securities		–		–			2		–			2		–
Obligations of state and political subdivisions		687		(8	)		2		–			689		(8	)
Corporate debt securities		–		–			437		(59	)		437		(59	)
Total available-for-sale	$	12,118	$	(46	)	$	3,429	$	(84	)	$	15,547	$	(130	)

(a)

The Company had $7 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 economic conditions worsen. Additionally, 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.

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 issued with high investment grade credit ratings or agency mortgage-backed securities. 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 September 30, 2016, 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.