Securities

Our securities available-for-sale and securities held-to-maturity portfolios consisted of the following.



September 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	$	18,228	$	—		$	423	$	(60	)	$	18,591
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	161		—			—		(11		)	150
Collateralized mortgage obligations	43		—			—		(1		)	42
Direct agency obligations	4,082		—			276		(14		)	4,344
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	10,800		—			179		(270		)	10,709
Collateralized mortgage obligations	8,045		—			30		(139		)	7,936
Direct agency obligations	1		—			—		—			1
Obligations of U.S. states and political subdivisions	867		—			17		(26		)	858
Asset backed securities collateralized by:
Residential mortgages	1		—			1		—			2
Commercial mortgages	133		—			2		—			135
Home equity	272		—			—		(42		)	230
Other	103		—			—		—			103
Foreign debt securities⁽²⁾⁽⁴⁾	4,805		—			10		(27		)	4,788
Equity securities	165		—			2		(3		)	164
Total available-for-sale securities	$	47,706	$	—		$	940	$	(593	)	$	48,053
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	893	$	—		$	105	$	—		$	998
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	55		—			9		—			64
Collateralized mortgage obligations	225		—			28		—			253
Obligations of U.S. states and political subdivisions	31		—			1		—			32
Asset-backed securities collateralized by residential mortgages	21		—			1		—			22
Asset-backed securities and other debt securities held by consolidated VIE⁽⁵⁾	320		(112		)	21		—			229
Total held-to-maturity securities	$	1,545	$	(112	)	$	165	$	—		$	1,598



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	144		1		(1		)	144
Collateralized mortgage obligations	22		—		—			22
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
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 $170 million and $153 million issued or guaranteed by FNMA at September 30, 2013 and December 31, 2012, respectively, and $34 million and $13 million issued or guaranteed by FHLMC at September 30, 2013 and December 31, 2012, respectively.


⁽²⁾	At September 30, 2013 and December 31, 2012, foreign debt securities consisted of $1.2 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 $422 million and $507 million issued or guaranteed by FNMA at September 30, 2013 and December 31, 2012, respectively, and $471 million and $614 million issued and guaranteed by FHLMC at September 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 September 30, 2013 and December 31, 2012.


⁽⁵⁾	Relates to securities held by Bryant Park Funding LLC, a variable interest entity which was consolidated in May 2013. See Note 17, "Variable Interest Entities" for additional information.

The following table summarizes gross unrealized losses and related fair values as of September 30, 2013 and December 31, 2012 classified as to the length of time the losses have existed:



	One Year or Less						Greater Than One Year
September 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	10	$	(43	)	$	5,644	7	$	(17	)	$	609
U.S. Government sponsored enterprises	31	(21		)	531		16	(5		)	237
U.S. Government agency issued or guaranteed	202	(409		)	7,759		1	—			—
Obligations of U.S. states and political subdivisions	50	(26		)	455		—	—			—
Asset backed securities	—	—			—		12	(42		)	241
Foreign debt securities	1	—			15		8	(27		)	3,324
Equity Securities	1	(3		)	156		—	—			—
Securities available-for-sale	295	$	(502	)	$	14,560	44	$	(91	)	$	4,411
Securities held-to-maturity:
U.S. Government sponsored enterprises	15	$	—		$	—	45	$	—		$	—
U.S. Government agency issued or guaranteed	72	—			—		874	—			2
Obligations of U.S. states and political subdivisions	5	—			2		2	—			—
Asset backed securities	2	—			2		—	—			—
Securities held-to-maturity	94	$	—		$	4	921	$	—		$	2



	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 nine months of 2013 primarily due to a significant rise in yields on U.S. Treasury and other U.S. Government securities during 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 nine months 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 nine months ended September 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 credit.

Upon consolidation of Bryant Park Funding LLC during the second quarter of 2013, we have held-to-maturity asset backed securities totaling $208 million at September 30, 2013 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 September 30, 2013 as we expect to recover their amortized cost basis 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 portfolios for which unrealized losses attributed to factors other than credit 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. Our assessment for credit loss was concentrated on private label asset-backed 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.

For a complete description of the factors considered when analyzing debt securities for impairment, see Note 7, "Securities" in our 2012 Form 10-K. There have been no material changes in our process for assessing impairment during 2013.

For the three and nine months ended September 30, 2013 and 2012 there were no other-than-temporary impairment losses recognized related to credit loss. At September 30, 2013, as a result of consolidating a previously unconsolidated VIE in the second quarter of 2013, the excess of discounted future cash flows over fair value, representing the non-credit component of the unrealized loss associated with all other-than-temporarily impaired securities, was $112 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 September 30, 2013		Nine Months Ended September 30, 2013
	(in millions)
Credit losses at the beginning of the period	$	61	$	—
Credit losses previously recognized on held-to-maturity debt securities of VIE consolidated during the second quarter of 2013	—		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 September 30, 2013, we held 24 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 $333 million of the total aggregate fair value of asset-backed securities of $470 million at September 30, 2013. The gross unrealized losses on these monoline securities were $42 million at September 30, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of September 30, 2013 and, therefore, we only considered the financial guarantee of monoline insurers on securities for purposes of evaluating other-than-temporary impairment on securities with a fair value of $100 million. No security wrapped by a below investment grade monoline insurance company was deemed to be other-than-temporarily impaired at September 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. We did not consider the value of the monoline wrap of any non-investment grade monoline insurer at September 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 September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
							(in millions)
Gross realized gains	$	68		$	59		$	275		$	260
Gross realized losses	(33		)	(9		)	(94		)	(115		)
Net realized gains	$	35		$	50		$	181		$	145

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 and recognized a gain of $8 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 following table summarizes the amortized cost and fair values of securities available-for-sale and securities held-to-maturity at September 30, 2013 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 September 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 September 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	$	500	.32	%	$	13,165	.82	%	$	2,656	2.45	%	$	1,907	4.07	%
U.S. Government sponsored enterprises	50		.38		570		2.36		2,940		3.20		726		3.99
U.S. Government agency issued or guaranteed	—		—		15		4.23		86		2.28		18,745		2.68
Obligations of U.S. states and political subdivisions	—		—		88		3.95		329		3.54		450		3.56
Asset backed securities	—		—		1		2.02		11		.39		497		2.62
Foreign debt securities	657		2.60		4,148		1.95				—		—		—
Total amortized cost	$	1,207	1.57	%	$	17,987	1.14	%	$	6,022	2.87	%	$	22,325	2.86	%
Total fair value	$	1,210			$	18,027			$	6,374			$	22,278
Held-to-maturity:
U.S. Government sponsored enterprises	$	1	8.00	%	$	1	7.20	%	$	2	8.02	%	$	889	6.16	%
U.S. Government agency issued or guaranteed	—		—		1		7.62		2		7.69		277		6.51
Obligations of U.S. states and political subdivisions	5		4.99		12		4.70		6		3.96		8		5.12
Asset backed securities	—		—		—		—		—		—		21		6.24
Asset backed securities issued by consolidated VIE	—		—		—		—		67		.29		141		.29
Total amortized cost	$	6	5.71	%	$	14	5.18	%	$	77	.96	%	$	1,336	5.61	%
Total fair value	$	6			$	16			$	79			$	1,497

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 September 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.