Securities

The amortized cost and fair value of the securities available-for-sale and securities held-to-maturity portfolios are summarized in the following tables.



March 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	26,715	$	475	$	(26	)	$	27,164
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	176		1		(2		)	175
Direct agency obligations	4,029		374		(2		)	4,401
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	15,471		536		(8		)	15,999
Collateralized mortgage obligations	4,865		130		(19		)	4,976
Direct agency obligations	1		—		—			1
Obligations of U.S. states and political subdivisions	743		30		(3		)	770
Asset backed securities collateralized by:
Residential mortgages	1		—		—			1
Commercial mortgages	180		5		—			185
Home equity	299		—		(44		)	255
Student loans	—		—		—			—
Other	102		—		(17		)	85
Corporate and other domestic debt securities	24		2		—			26
Foreign debt securities⁽²⁾⁽⁴⁾	5,267		14		(33		)	5,248
Equity securities	167		5		—			172
Total available-for-sale securities	$	58,040	$	1,572	$	(154	)	$	59,458
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	1,035	$	146	$	—		$	1,181
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	62		11		—			73
Collateralized mortgage obligations	261		39		—			300
Obligations of U.S. states and political subdivisions	37		2		—			39
Asset backed securities collateralized by:
Residential mortgages	39		2		—			41
Total held-to-maturity securities	$	1,434	$	200	$	—		$	1,634



December 31, 2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	34,800	$	566	$	(24	)	$	35,342
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	166		1		(1		)	166
Direct agency obligations	4,039		364		(2		)	4,401
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	15,646		674		(6		)	16,314
Collateralized mortgage obligations	4,315		156		—			4,471
Direct agency obligations	1		—		—			1
Obligations of U.S. states and political subdivisions	877		37		(2		)	912
Asset backed securities collateralized by:
Residential mortgages	1		—		—			1
Commercial mortgages	208		6		—			214
Home equity	310		—		(52		)	258
Student loans	—		—		—			—
Other	102		—		(18		)	84
Corporate and other domestic debt securities	24		2		—			26
Foreign debt securities⁽²⁾⁽⁴⁾	5,385		16		(48		)	5,353
Equity securities	167		6		—			173
Total available-for-sale securities	$	66,041	$	1,828	$	(153	)	$	67,716
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	1,121	$	148	$	—		$	1,269
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	66		12		—			78
Collateralized mortgage obligations	277		42		—			319
Obligations of U.S. states and political subdivisions	38		3		—			41
Asset backed securities collateralized by:
Residential mortgages	118		6		—			124
Total held-to-maturity securities	$	1,620	$	211	$	—		$	1,831


⁽¹⁾	Includes securities at amortized cost of $152 million and $153 million issued or guaranteed by FNMA at March 31, 2013 and December 31, 2012, respectively, and $24 million and $13 million issued or guaranteed by FHLMC at March 31, 2013 and December 31, 2012, respectively.


⁽²⁾	At March 31, 2013 and December 31, 2012, foreign debt securities consisted of $1.4 billion and $1.5 billion, respectively, of securities fully backed by foreign governments. The remainder of foreign debt securities represents foreign bank or corporate debt.


⁽³⁾	Includes securities at amortized cost of $477 million and $507 million issued or guaranteed by FNMA at March 31, 2013 and December 31, 2012, respectively, and $558 million and $614 million issued and guaranteed by FHLMC at March 31, 2013 and December 31, 2012, respectively.


⁽⁴⁾	We did not hold any foreign debt securities issued by the governments of Greece, Ireland, Italy, Portugal or Spain at March 31, 2013 and December 31, 2012.

A summary of gross unrealized losses and related fair values as of March 31, 2013 and December 31, 2012 classified as to the length of time the losses have existed follows:



	One Year or Less						Greater Than One Year
March 31, 2013	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment
	(dollars are in millions)
Securities available-for-sale:
U.S. Treasury	4	$	(7	)	$	686	6	$	(19	)	$	568
U.S. Government sponsored enterprises	13	(4		)	468		12	—			7
U.S. Government agency issued or guaranteed	39	(27		)	2,593		1	—			—
Obligations of U.S. states and political subdivisions	14	(3		)	171		1	—			6
Asset backed securities	1	—			1		15	(61		)	353
Foreign debt securities	—	—			—		9	(33		)	3,733
Securities available-for-sale	71	$	(41	)	$	3,919	44	$	(113	)	$	4,667
Securities held-to-maturity:
U.S. Government sponsored enterprises	20	$	—		$	—	48	$	—		$	—
U.S. Government agency issued or guaranteed	78	—			—		916	—			2
Obligations of U.S. states and political subdivisions	4	—			2		2	—			1
Asset backed securities	—	—			—		—	—			—
Securities held-to-maturity	102	$	—		$	2	966	$	—		$	3



	One Year or Less						Greater Than One Year
December 31, 2012	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment
	(dollars are in millions)
Securities available-for-sale:
U.S. Treasury	6	$	(3	)	$	3,344	6	$	(21	)	$	587
U.S. Government sponsored enterprises	9	(3		)	431		14	—			7
U.S. Government agency issued or guaranteed	18	(6		)	1,059		—	—			—
Obligations of U.S. states and political subdivisions	14	(2		)	168		1	—			7
Asset backed securities	3	—			20		13	(70		)	354
Foreign debt securities	—	—			—		9	(48		)	3,787
Securities available-for-sale	50	$	(14	)	$	5,022	43	$	(139	)	$	4,742
Securities held-to-maturity:
U.S. Government sponsored enterprises	24	$	—		$	—	52	$	—		$	—
U.S. Government agency issued or guaranteed	75	—			—		947	—			2
Obligations of U.S. states and political subdivisions	2	—			1		1	—			—
Asset backed securities	1	—			4		2	—			7
Securities held-to-maturity	102	$	—		$	5	1,002	$	—		$	9

Net unrealized gains decreased within the available-for-sale portfolio in the first three months of 2013 primarily due to higher rates on U.S. Treasury and Government Agency securities since December 31, 2012 and security sales during the first quarter of 2013. We have reviewed the securities for which there is an unrealized loss for other-than-temporary impairment in accordance with our accounting policies. During the three months ended March 31, 2013 and 2012, none of our debt securities were determined to have either initial other-than-temporary impairment or changes to previous other-than-temporary impairment estimates relating to the credit component.

We do not consider any debt securities to be other-than-temporarily impaired at March 31, 2013 as we expect to recover the amortized cost basis of these securities and we neither intend nor expect to be required to sell these securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

On-going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if its fair value is less than its amortized cost at the reporting date. If impaired, we assess whether the unrealized loss is other-than-temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss attributable to factors other than credit loss is recognized, net of tax, in other comprehensive income provided we do not intend to sell the underlying debt security and it is more likely than not that we would not have to sell the debt security prior to recovery.

For all securities held in the available-for-sale or held-to-maturity portfolio for which unrealized losses attributed to factors other than credit loss have existed for a period of time, we do not have the intention to sell and believe we will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. As debt securities issued by U.S. Treasury, U.S. Government agencies and government sponsored entities accounted for 89 percent and 90 percent of total available-for-sale and held-to-maturity securities as of March 31, 2013 and December 31, 2012, respectively, our assessment for credit loss was concentrated on private label asset-backed securities and foreign securities. Substantially all of the private label asset-backed securities are supported by residential mortgages, home equity loans or commercial mortgages. Our assessment for credit loss was concentrated on this particular asset class because of the following inherent risk factors:


•	The recovery of the U.S. economy has been slow;


•	The continued uncertainty in the U.S. housing markets with high levels of pending foreclosure volume;


•	A lack of significant traction in government sponsored programs in loan modifications;


•	A lack of refinancing activities within certain segments of the mortgage market, even at the current low interest rate environment, and the re-default rate for refinanced loans;


•	The unemployment rate although improving remains high compared to historical levels;


•	The decline in the occupancy rate in commercial properties; and


•	The severity and duration of unrealized loss.

In determining whether a credit loss exists and the period over which the debt security is expected to recover, we considered the following factors:


•	The length of time and the extent to which the fair value has been less than the amortized cost basis;


•	The level of credit enhancement provided by the structure, which includes but is not limited to credit subordination positions, over collateralization, protective triggers and financial guarantees provided by monoline wraps;


•	Changes in the near term prospects of the issuer or underlying collateral of a security such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;


•	The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and


•	Any adverse change to the credit conditions of the issuer, the monoline insurer or the security such as credit downgrades by the rating agencies.

We use a standard valuation model to measure the credit loss for available-for-sale and held-to-maturity securities. The valuation model captures the composition of the underlying collateral and the cash flow structure of the security. Management develops inputs to the model based on external analyst reports and forecasts and internal credit assessments. Significant inputs to the model include delinquencies, collateral types and related contractual features, estimated rates of default, loss given default and prepayment assumptions. Using the inputs, the model estimates cash flows generated from the underlying collateral and distributes those cash flows to respective tranches of securities considering credit subordination and other credit enhancement features. The projected future cash flows attributable to the debt security held are discounted using the effective interest rates determined at the original acquisition date if the security bears a fixed rate of return. The discount rate is adjusted for the floating index rate for securities which bear a variable rate of return, such as LIBOR-based instruments.

For the three months ended March 31, 2013 and 2012 there were no other-than-temporary impairment losses recognized related to credit loss. At March 31, 2013 and December 31, 2012, there were no remaining non-credit component unrealized loss amounts recognized.

At March 31, 2013, we held 27 individual asset-backed securities in the available-for-sale portfolio, of which 8 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $339 million of the total aggregate fair value of asset-backed securities of $526 million at March 31, 2013. The gross unrealized losses on these monoline securities were $61 million at March 31, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of March 31, 2013 and, therefore, we only considered the financial guarantee of monoline insurers on securities for purposes of evaluating other-than-temporary impairment with a fair value of $110 million. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at March 31, 2013.

At December 31, 2012, we held 27 individual asset-backed securities in the available-for-sale portfolio, of which 8 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $343 million of the total aggregate fair value of asset-backed securities of $557 million at December 31, 2012. The gross unrealized losses on these monoline securities were $69 million at December 31, 2012. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2012 and, therefore, we only considered the financial guarantee of monoline insurers on securities with a fair value of $110 million for purposes of evaluating other-than-temporary impairment. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at December 31, 2012.

As discussed above, certain asset-backed securities have an embedded financial guarantee provided by monoline insurers. Because the financial guarantee is not a separate and distinct contract from the asset-backed security, they are considered as a single unit of account for fair value measurement and impairment assessment purposes. The monoline insurers are regulated by the insurance commissioners of the relevant states and certain monoline insurers that write the financial guarantee contracts are public companies. As discussed above, we do not consider the value of the monoline wrap of any non-investment grade monoline insurer at March 31, 2013 and December 31, 2012. In evaluating the extent of our reliance on investment grade monoline insurance companies, consideration is given to our assessment of the creditworthiness of the monoline and other market factors. We perform both a credit as well as a liquidity analysis on the monoline insurers each quarter. Our analysis also compares market-based credit default spreads, when available, to assess the appropriateness of our monoline insurer’s creditworthiness. Based on the public information available, including the regulatory reviews and actions undertaken by the state insurance commissions and the published financial results, we determine the degree of reliance to be placed on the financial guarantee policy in estimating the cash flows to be collected for the purpose of recognizing and measuring impairment loss.

A credit downgrade to non-investment grade is a key but not the only factor in determining the credit risk or the monoline insurer’s ability to fulfill its contractual obligation under the financial guarantee arrangement. Although a monoline may have been down-graded by the credit rating agencies or have been ordered to commute its operations by the insurance commissioners, it may retain the ability and the obligation to continue to pay claims in the near term. We evaluate the short-term liquidity of and the ability to pay claims by the monoline insurers in estimating the amounts of cash flows expected to be collected from specific asset-backed securities for the purpose of assessing and measuring credit loss.

The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale securities.



Three Months Ended March 31,	2013			2012
	(in millions)
Gross realized gains	$	124		$	70
Gross realized losses	(1		)	(40		)
Net realized gains	$	123		$	30

The following table summarizes realized gains and losses on investment securities transactions attributable to held-to-maturity securities.



Three Months Ended March 31,	2013		2012
	(in millions)
Gross realized gains	$	8	$	—
Gross realized losses	—		—
Net realized gains (losses)	$	8	$	—

During the first quarter of 2013, we sold six asset-backed securities out of our held-to-maturity portfolio with a total carrying value of $71 million. These sales were in response to the significant credit deterioration which had occurred on these securities which had been classified as substandard for regulatory reporting purposes and, therefore, these disposals do not affect our intent and ability to hold our remaining held-to-maturity portfolio until maturity.

The amortized cost and fair values of securities available-for-sale and securities held-to-maturity at March 31, 2013, are summarized in the table below by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. Securities available-for-sale amounts exclude equity securities as they do not have stated maturities. The table below also reflects the distribution of maturities of debt securities held at March 31, 2013, together with the approximate taxable equivalent yield of the portfolio. The yields shown are calculated by dividing annual interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at March 31, 2013. Yields on tax-exempt obligations have been computed on a taxable equivalent basis using applicable statutory tax rates.



	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years
Taxable Equivalent Basis	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(dollars are in millions)
Available-for-sale:
U.S. Treasury	$	2,002	.41	%	$	19,694	.48	%	$	2,880	2.60	%	$	2,139	3.57	%
U.S. Government sponsored enterprises	50		.39		333		3.26		3,000		3.05		822		3.64
U.S. Government agency issued or guaranteed	—		—		4		4.66		88		1.88		20,245		2.79
Obligations of U.S. states and political subdivisions	—		—		49		4.20		293		4.01		401		3.68
Asset backed securities	—		—		1		1.83		11		.41		570		2.77
Other domestic debt securities	—		—		—		—		—		—		24		4.00
Foreign debt securities	665		3.48		4,602		1.87		—		—		—		—
Total amortized cost	$	2,717	1.16	%	$	24,683	.79	%	$	6,272	2.87	%	$	24,201	2.90	%
Total fair value	$	2,721			$	24,769			$	6,794			$	25,002
Held-to-maturity:
U.S. Government sponsored enterprises	$	1	7.98	%	$	5	7.68	%	$	1	7.89	%	$	1,028	6.16	%
U.S. Government agency issued or guaranteed	—		—		1		7.59		3		7.69		319		6.50
Obligations of U.S. states and political subdivisions	5		5.05		14		5.13		9		4.42		9		5.02
Asset backed securities	—		—		—		—		—		—		39		6.41
Total amortized cost	$	6	5.57	%	$	20	5.87	%	$	13	5.41	%	$	1,395	6.23	%
Total fair value	$	6			$	20			$	14			$	1,594

Investments in Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank (“FRB”) stock of $143 million and $483 million, respectively, were included in other assets at March 31, 2013 and December 31, 2012.