Securities

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



December 31, 2014	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	11,793	$	276	$	(58	)	$	12,011
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	520		5		(1		)	524
Collateralized mortgage obligations	35		—		—			35
Direct agency obligations	3,995		217		(6		)	4,206
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	7,985		101		(27		)	8,059
Collateralized mortgage obligations	329		3		(2		)	330
Obligations of U.S. states and political subdivisions	661		10		(4		)	667
Asset backed securities collateralized by:
Commercial mortgages	43		—		—			43
Home equity	97		—		(8		)	89
Other	110		—		(16		)	94
Foreign debt securities⁽²⁾	3,921		6		(12		)	3,915
Equity securities	165		3		(1		)	167
Total available-for-sale securities	$	29,654	$	621	$	(135	)	$	30,140
Securities held-to-maturity:⁽⁵⁾
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	4,868	$	120	$	(1	)	$	4,987
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	3,700		53		(1		)	3,752
Collateralized mortgage obligations	4,867		54		(1		)	4,920
Obligations of U.S. states and political subdivisions	23		1		—			24
Asset-backed securities collateralized by residential mortgages	11		1		—			12
Total held-to-maturity securities	$	13,469	$	229	$	(3	)	$	13,695



December 31, 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	$	27,716	$	—		$	391	$	(113	)	$	27,994
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	159		—			—		(14		)	145
Collateralized mortgage obligations	41		—			—		(1		)	40
Direct agency obligations	4,115		—			225		(16		)	4,324
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	10,304		—			40		(342		)	10,002
Collateralized mortgage obligations	6,584		—			17		(154		)	6,447
Obligations of U.S. states and political subdivisions	755		—			12		(25		)	742
Asset backed securities collateralized by:
Residential mortgages	1		—			—		—			1
Commercial mortgages	125		—			1		—			126
Home equity	263		—			—		(36		)	227
Other	100		—			—		(6		)	94
Foreign debt securities⁽²⁾	4,607		—			10		(15		)	4,602
Equity securities	165		—			2		(5		)	162
Total available-for-sale securities	$	54,935	$	—		$	698	$	(727	)	$	54,906
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	845	$	—		$	88	$	—		$	933
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	52		—			8		—			60
Collateralized mortgage obligations	214		—			24		—			238
Obligations of U.S. states and political subdivisions	29		—			1		—			30
Asset-backed securities collateralized by residential mortgages	18		—			1		—			19
Asset-backed securities and other debt securities held by a consolidated VIE⁽⁴⁾	304		(104		)	19		—			219
Total held-to-maturity securities	$	1,462	$	(104	)	$	141	$	—		$	1,499


⁽¹⁾	Includes securities at amortized cost of $521 million and $167 million issued or guaranteed by FNMA at December 31, 2014 and 2013, respectively, and $34 million and $33 million issued or guaranteed by FHLMC at December 31, 2014 and 2013, respectively.


⁽²⁾	At December 31, 2014 and 2013, foreign debt securities consisted of $689 million and $1,101 million, respectively, of securities fully backed by foreign governments. The remainder of foreign debt securities represents public sector entity, bank or corporate debt.


⁽³⁾	Includes securities at amortized cost of $3,185 million and $398 million issued or guaranteed by FNMA at December 31, 2014 and 2013, respectively, and $1,683 million and $447 million issued and guaranteed by FHLMC at December 31, 2014 and 2013, respectively.


⁽⁴⁾	Relates to securities held by Bryant Park Funding LLC ("Bryant Park"), a variable interest entity which was consolidated in 2013. During the fourth quarter of 2014, the securities underlying Bryant Park were sold and the related agreements were terminated. See Note 25, "Variable Interest Entities" for additional information.

⁽⁵⁾

During the third quarter of 2014, we transferred U.S. government sponsored and U.S. government agency mortgage-backed securities with a fair value of $10,985 million from available-for-sale to held-to-maturity. These securities were transferred to held-to-maturity at fair value as of the transfer date with the fair value amount becoming the amortized cost basis for the transferred securities. The difference between the par value of the securities and their fair value at the date of transfer will be amortized as an adjustment to yield over the remaining contractual life of each security. At the date of the transfer, AOCI included net pretax unrealized losses of $234 million related to the transferred securities which will be amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The transfers reflect our intent to hold the securities to maturity and will reduce the impact of price volatility on AOCI and regulatory capital under Basel III.

The following table summarizes gross unrealized losses and related fair values as of December 31, 2014 and 2013 classified as to the length of time the losses have existed:



	One Year or Less						Greater Than One Year
December 31, 2014	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	$	(47	)	$	3,459	4	$	(11	)	$	1,546
U.S. Government sponsored enterprises	2	(1		)	128		24	(6		)	391
U.S. Government agency issued or guaranteed	30	(20		)	2,046		10	(9		)	213
Obligations of U.S. states and political subdivisions	34	(2		)	146		23	(2		)	194
Asset backed securities	1	—			3		9	(24		)	199
Foreign debt securities	5	(9		)	1,805		3	(3		)	898
Equity securities	1	(1		)	158		—	—			—
Securities available-for-sale	79	$	(80	)	$	7,745	73	$	(55	)	$	3,441
Securities held-to-maturity:
U.S. Government sponsored enterprises	144	$	(1	)	$	394	47	$	—		$	—
U.S. Government agency issued or guaranteed	103	(2		)	985		800	—			2
Obligations of U.S. states and political subdivisions	—	—			—		3	—			1
Securities held-to-maturity	247	$	(3	)	$	1,379	850	$	—		$	3



	One Year or Less						Greater Than One Year
December 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	22	$	(82	)	$	16,958	6	$	(31	)	$	630
U.S. Government sponsored enterprises	23	(12		)	400		20	(19		)	356
U.S. Government agency issued or guaranteed	170	(494		)	10,243		5	(2		)	23
Obligations of U.S. states and political subdivisions	42	(19		)	330		5	(6		)	65
Asset backed securities	3	(6		)	115		10	(36		)	237
Foreign debt securities	1	—			50		7	(15		)	2,916
Equity securities	1	(5		)	154		—	—			—
Securities available-for-sale	262	$	(618	)	$	28,250	53	$	(109	)	$	4,227
Securities held-to-maturity:
U.S. Government sponsored enterprises	13	$	—		$	—	48	$	—		$	—
U.S. Government agency issued or guaranteed	79	—			—		859	—			2
Obligations of U.S. states and political subdivisions	7	—			4		2	—			1
Securities held-to-maturity	99	$	—		$	4	909	$	—		$	3

Net unrealized gains and losses increased within the available-for-sale portfolio in 2014 due to the transfer of certain securities from available-for-sale to held-to-maturity discussed above, a decrease in yields on U.S. Government agency securities and U.S. Treasury securities during 2014 and sales of U.S. government agency mortgage-backed securities and other asset-backed securities that were in a net unrealized loss position at December 31, 2013.

Although the fair value of a particular security is below its amortized cost, it does not necessarily result in a credit loss and hence an other-than-temporary impairment. The decline in fair value may be caused by, among other things, the illiquidity of the market. We have reviewed the securities for which there is an unrealized loss for other-than-temporary impairment in accordance with our accounting policies, discussed further below. At December 31, 2013, we had held-to-maturity asset backed securities that were previously determined to be other-than-temporarily impaired which totaled $200 million. During the fourth quarter of 2014, the securities underlying Bryant Park were sold in response to requests received from other participants and the related agreements were terminated. As a result, we do not consider any of our debt securities to be other-than-temporarily impaired at December 31, 2014 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, other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

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 impairment is other-than-temporary.

If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is considered other-than-temporary and the unrealized loss is recorded in earnings. An impairment is also considered other-than-temporary if a credit loss exists (i.e., the present value of the expected future cash flows is less than the amortized cost basis of the debt security). In the event a credit loss exists, the credit loss component of an other-than-temporary impairment 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.

For all securities held in the available-for-sale or held-to-maturity portfolios for which unrealized losses attributed to factors other than credit existed, we do not have the intention to sell and believe will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. 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 credit protection features embedded within the instrument, which includes but is not limited to credit subordination positions, payment structure, over collateralization, protective triggers and financial guarantees provided by third parties;


•	Changes in the near term prospects of the issuer or the 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. We make reference to external forecasts on key economic data and consider internal assessments on credit quality in developing significant inputs to the impairment model. 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.

During 2014, none of our debt securities were determined to have initial other-than-temporary impairment while two held-to-maturity asset-backed debt securities, which were previously determined to be other-than-temporarily impaired, had changes to their other-than-temporary impairment estimates related to the credit component. The additional credit losses associated with the impaired debt securities, which reflects the excess of amortized cost over the present value of expected future cash flows, was $11 million during 2014 and was recorded as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of income. During 2013, 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, as such, there were no other-than-temporary impairment losses recognized related to credit loss.

At December 31, 2013, the excess of discounted future cash flows over fair value, representing the non-credit component of the unrealized loss associated with other-than-temporary impaired securities which is recognized in accumulated other comprehensive income (loss), was $104 million. During the fourth quarter of 2014, the securities underlying Bryant Park were sold and the related agreements were terminated. As a result, there were no non-credit component unrealized loss amounts recognized in accumulated other comprehensive income at December 31, 2014.

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



Year Ended December 31,	2014			2013
	(in millions)
Beginning 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		$	—
Credit losses previously recognized on held-to-maturity debt securities of a VIE consolidated during 2013	—			61
Increase in credit losses for which an other-than-temporary impairment was previously recognized	11			—
Reduction of credit losses previously recognized on held-to-maturity debt securities due to closure of a VIE	(72		)	—
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

At December 31, 2014, we held 15 individual asset-backed securities in the available-for-sale portfolio, of which 5 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $183 million of the total aggregate fair value of asset-backed securities of $226 million at December 31, 2014. The gross unrealized losses on these monoline wrapped securities were $23 million at December 31, 2014. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2014 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 $89 million.

At December 31, 2013, we held 22 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 $321 million of the total aggregate fair value of asset-backed securities of $448 million at December 31, 2013. The gross unrealized losses on these monoline wrapped securities were $42 million at December 31, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2013 and, therefore, we only considered the financial guarantee of monoline insurers on securities with a fair value of $98 million for purposes of evaluating other-than-temporary impairment.

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. 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. We did not consider the value of the monoline wrap of any non-investment grade monoline insurer at December 31, 2014 and 2013.

Realized Gains (Losses) The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale securities:



Year Ended December 31,	2014			2013			2012
	(in millions)
Gross realized gains	$	201		$	314		$	260
Gross realized losses	(79		)	(120		)	(115		)
Net realized gains	$	122		$	194		$	145

During the fourth quarter of 2014, the securities underlying Bryant Park were sold and the related agreements, which had a total carrying value of $76 million at September 30, 2014, were terminated and we recognized a loss of $9 million. These sales were in response to requests we received from the other participants to sell the securities underlying Bryant Park and were executed in connection with the closure of the Bryant Park facility. Therefore, these sales did not affect our intent and ability to hold our remaining held-to-maturity portfolio until maturity.

During 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 did 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 December 31, 2014 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 December 31, 2014, 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 December 31, 2014. 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	$	1,155	.87	%	$	7,387	.84	%	$	1,457	3.20	%	$	1,794	3.41	%
U.S. Government sponsored enterprises	—		—		1,944		3.16		1,417		3.24		1,189		3.19
U.S. Government agency issued or guaranteed	—		—		10		4.22		44		3.89		8,260		2.81
Obligations of U.S. states and political subdivisions	—		—		113		4.13		298		2.99		250		3.69
Asset backed securities	—		—		—		—		—		—		250		3.33
Foreign debt securities	108		2.92		3,813		1.60		—		—		—		—
Total amortized cost	$	1,263	1.05	%	$	13,267	1.43	%	$	3,216	3.21	%	$	11,743	2.97	%
Total fair value	$	1,270			$	13,341			$	3,428			$	11,934
Held-to-maturity:
U.S. Government sponsored enterprises	$	—	—	%	$	92	1.38	%	$	406	2.85	%	$	4,370	3.10	%
U.S. Government agency issued or guaranteed	—		—		2		7.64		49		2.64		8,516		2.42
Obligations of U.S. states and political subdivisions	3		5.00		10		3.95		6		3.83		4		5.35
Asset backed securities	—		—		—		—		—		—		11		6.39
Total amortized cost	$	3	5.02	%	$	104	1.66	%	$	461	2.84	%	$	12,901	2.66	%
Total fair value	$	3			$	103			$	472			$	13,117

Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $108 million and $483 million, respectively, were included in other assets at December 31, 2014. Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $139 million and $483 million, respectively, were included in other assets at December 31, 2013.