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.



June 30, 2013	Amortized Cost		Non-Credit Loss Component of OTTI Securities			Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	22,807	$	—		$	439	$	(84	)	$	23,162
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	199		—			—		(13		)	186
Direct agency obligations	3,931		—			298		(14		)	4,215
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	12,354		—			130		(240		)	12,244
Collateralized mortgage obligations	6,553		—			69		(100		)	6,522
Direct agency obligations	1		—			—		—			1
Obligations of U.S. states and political subdivisions	874		—			19		(24		)	869
Asset backed securities collateralized by:
Residential mortgages	1		—			—		—			1
Commercial mortgages	162		—			4		—			166
Home equity	285		—			—		(40		)	245
Student loans	—		—			—		—			—
Other	102		—			2		—			104
Corporate and other domestic debt securities	23		—			1		—			24
Foreign debt securities⁽²⁾⁽⁴⁾	4,976		—			9		(31		)	4,954
Equity securities	165		—			2		(2		)	165
Total available-for-sale securities	$	52,433	$	—		$	973	$	(548	)	$	52,858
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	956	$	—		$	113	$	—		$	1,069
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	59		—			9		—			68
Collateralized mortgage obligations	242		—			31		—			273
Obligations of U.S. states and political subdivisions	33		—			2		—			35
Asset-backed securities collateralized by residential mortgages	30		—			1		—			31
Asset-backed securities and other debt securities held by consolidated VIE⁽⁵⁾	333		(115		)	20		—			238
Total held-to-maturity securities	$	1,653	$	(115	)	$	176	$	—		$	1,714



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 $165 million and $153 million issued or guaranteed by FNMA at June 30, 2013 and December 31, 2012, respectively, and $34 million and $13 million issued or guaranteed by FHLMC at June 30, 2013 and December 31, 2012, respectively.


⁽²⁾	At June 30, 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 $448 million and $507 million issued or guaranteed by FNMA at June 30, 2013 and December 31, 2012, respectively, and $508 million and $614 million issued and guaranteed by FHLMC at June 30, 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 June 30, 2013 and December 31, 2012.


⁽⁵⁾	Relates to securities held by Bryant Park Funding LLC, a variable interest entity which was consolidated in the second quarter of 2013, See Note 18, "Variable Interest Entities" for additional information.

A summary of gross unrealized losses and related fair values as of June 30, 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
June 30, 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	17	$	(71	)	$	7,145	6	$	(13	)	$	531
U.S. Government sponsored enterprises	25	(27		)	749		14	—			7
U.S. Government agency issued or guaranteed	160	(340		)	12,647		1	—			—
Obligations of U.S. states and political subdivisions	48	(24		)	434		—	—			—
Asset backed securities	—	—			—		13	(40		)	258
Foreign debt securities	6	—			499		9	(31		)	3,649
Equity Securities	1	(2		)	157		—	—			—
Securities available-for-sale	257	$	(464	)	$	21,631	43	$	(84	)	$	4,445
Securities held-to-maturity:
U.S. Government sponsored enterprises	16	$	—		$	—	46	$	—		$	—
U.S. Government agency issued or guaranteed	68	—			—		900	—			2
Obligations of U.S. states and political subdivisions	3	—			2		2	—			1
Asset backed securities	—	—			—		—	—			—
Securities held-to-maturity	87	$	—		$	2	948	$	—		$	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 six months of 2013 primarily due to a significant rise in yields on U.S. Treasury and other U.S. Government securities during the second quarter of 2013 due to concerns that the Federal Reserve will wind down its bond buying program sooner than previously expected as well as security sales during the first half 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 and six months ended June 30, 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.

Upon consolidation of Bryant Park Funding LLC during the second quarter of 2013, we have held-to-maturity asset backed securities totaling $218 million which were previously determined to be other-than-temporarily impaired. We do not consider any other debt securities to be other-than-temporarily impaired at June 30, 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 88 percent and 90 percent of total available-for-sale and held-to-maturity securities as of June 30, 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 high levels of pending foreclosure volume associated with a U.S. housing market in the early stages of recovery;


•	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 with 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 and six months ended June 30, 2013 and 2012 there were no other-than-temporary impairment losses recognized related to credit loss. At June 30, 2013, as a result of consolidating a previously unconsolidated VIE in the second quarter of 2013, the excess future cash flows over fair value, representing the non-credit component of the unrealized loss associated with all other-than-temporarily impaired securities, was $115 million. At December 31, 2012, there were no non-credit component unrealized loss amounts recognized.

The following table summarizes the rollforward of credit losses on debt securities that were other-than-temporarily impaired which have previously been recognized in income that we do not intend to sell nor will likely be required to sell:



	Three Months Ended June 30, 2013		Six Months Ended June 30, 2013
	(in millions)
Credit losses at the beginning of the period	$	—	$	—
Credit losses previously recognized on held-to-maturity debt securities of VIE consolidated during the second quarter of 2013	61		61
Ending balance of credit losses on held-to-maturity debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)	$	61	$	61

At June 30, 2013, we held 26 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 $349 million of the total aggregate fair value of asset-backed securities of $516 million at June 30, 2013. The gross unrealized losses on these monoline securities were $38 million at June 30, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of June 30, 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 $107 million. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at June 30, 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 in the available-for-sale portfolio 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 did not consider the value of the monoline wrap of any non-investment grade monoline insurer at June 30, 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.

Realized Gains (Losses)

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
							(in millions)
Gross realized gains	$	83		$	132		$	207		$	201
Gross realized losses	(60		)	(67		)	(61		)	(106		)
Net realized gains	$	23		$	65		$	146		$	95

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		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.

Contractual Maturities and Yields The amortized cost and fair values of securities available-for-sale and securities held-to-maturity at June 30, 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 June 30, 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 June 30, 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	$	7,597	.30	%	$	10,424	.62	%	$	2,821	2.42	%	$	1,965	3.92	%
U.S. Government sponsored enterprises	50		.39		515		2.49		2,798		3.19		767		3.91
U.S. Government agency issued or guaranteed	—		—		6		5.09		102		2.43		18,800		2.59
Obligations of U.S. states and political subdivisions	—		—		74		3.90		323		3.72		477		3.49
Asset backed securities	—		—		1		1.99		11		.40		538		2.74
Other domestic debt securities	—		—		—		—		—		—		23		3.90
Foreign debt securities	721		2.85		4,255		1.95		—		—		—		—
Total amortized cost	$	8,368	.52	%	$	15,275	1.07	%	$	6,055	2.84	%	$	22,570	2.77	%
Total fair value	$	8,376			$	15,270			$	6,451			$	22,596
Held-to-maturity:
U.S. Government sponsored enterprises	$	2	7.98	%	$	2	7.45	%	$	1	7.91	%	$	951	6.16	%
U.S. Government agency issued or guaranteed	—		—		1		7.61		2		7.70		298		6.51
Obligations of U.S. states and political subdivisions	5		5.10		12		5.06		7		4.03		9		5.02
Asset backed securities	—		—		—		—		—		—		30		6.37
Asset backed securities issued by consolidated VIE	—		—		—		—		69		.30		149		.36
Total amortized cost	$	7	5.85	%	$	15	5.61	%	$	79	.99	%	$	1,437	5.63	%
Total fair value	$	7			$	16			$	81			$	1,610

Investments in Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank (“FRB”) stock of $139 million and $482 million, respectively, were included in other assets at June 30, 2013 . 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 December 31, 2012.