Quarterly report pursuant to Section 13 or 15(d)

Securities (Tables)

v2.4.0.8
Securities (Tables)
 9 Months Ended
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities
The following tables present the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale (AFS) debt securities, other debt securities carried at fair value, held-to-maturity (HTM) debt securities and AFS marketable equity securities at September 30, 2014 and December 31, 2013.

Debt Securities and Available-for-Sale Marketable Equity Securities
 
September 30, 2014
(Dollars in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
57,491

 
$
107

 
$
(125
)
 
$
57,473

Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
160,469

 
855

 
(2,163
)
 
159,161

Agency-collateralized mortgage obligations
14,262

 
86

 
(96
)
 
14,252

Non-agency residential (1)
4,509

 
286

 
(81
)
 
4,714

Commercial
2,701

 
29

 
(4
)
 
2,726

Non-U.S. securities
6,621

 
39

 
(10
)
 
6,650

Corporate/Agency bonds
685

 
11

 
(2
)
 
694

Other taxable securities, substantially all asset-backed securities
12,047

 
46

 
(19
)
 
12,074

Total taxable securities
258,785

 
1,459

 
(2,500
)
 
257,744

Tax-exempt securities
9,106

 
11

 
(21
)
 
9,096

Total available-for-sale debt securities
267,891

 
1,470

 
(2,521
)
 
266,840

Other debt securities carried at fair value
41,602

 
138

 
(631
)
 
41,109

Total debt securities carried at fair value
309,493

 
1,608

 
(3,152
)
 
307,949

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
60,175

 
126

 
(1,311
)
 
58,990

Total debt securities
$
369,668

 
$
1,734

 
$
(4,463
)
 
$
366,939

Available-for-sale marketable equity securities (2)
$
318

 
$
—

 
$
(8
)
 
$
310

 
 
 
 
 
 
 
 
 
December 31, 2013
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
8,910

 
$
106

 
$
(62
)
 
$
8,954

Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
170,112

 
777

 
(5,954
)
 
164,935

Agency-collateralized mortgage obligations
22,731

 
76

 
(315
)
 
22,492

Non-agency residential (1)
6,124

 
238

 
(123
)
 
6,239

Commercial
2,429

 
63

 
(12
)
 
2,480

Non-U.S. securities
7,207

 
37

 
(24
)
 
7,220

Corporate/Agency bonds
860

 
20

 
(7
)
 
873

Other taxable securities, substantially all asset-backed securities
16,805

 
30

 
(5
)
 
16,830

Total taxable securities
235,178

 
1,347

 
(6,502
)
 
230,023

Tax-exempt securities
5,967

 
10

 
(49
)
 
5,928

Total available-for-sale debt securities
241,145

 
1,357

 
(6,551
)
 
235,951

Other debt securities carried at fair value
34,145

 
34

 
(1,335
)
 
32,844

Total debt securities carried at fair value
275,290

 
1,391

 
(7,886
)
 
268,795

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
55,150

 
20

 
(2,740
)
 
52,430

Total debt securities
$
330,440

 
$
1,411

 
$
(10,626
)
 
$
321,225

Available-for-sale marketable equity securities (2)
$
230

 
$
—

 
$
(7
)
 
$
223

(1) 
At September 30, 2014 and December 31, 2013, the underlying collateral type included approximately 76 percent and 89 percent prime, 14 percent and seven percent Alt-A, and 10 percent and four percent subprime.
(2) 
Classified in other assets on the Consolidated Balance Sheet.
Schedule of Other Debt Securities Carried at Fair Value
The table below presents the components of other debt securities carried at fair value where the changes in fair value are reported in other income. In the three and nine months ended September 30, 2014, the Corporation recorded unrealized mark-to-market net losses in other income of $53 million and unrealized net gains of $807 million, and realized net gains of $73 million and $156 million on other debt securities carried at fair value, which excludes the benefit of certain hedges, the results of which are also reported in other income, compared to unrealized mark-to-market net gains of $459 million, and unrealized net losses of $925 million and realized net losses of $515 million and $720 million for the same periods in 2013.

Other Debt Securities Carried at Fair Value
 
 
 
(Dollars in millions)
September 30
2014
 
December 31
2013
U.S. Treasury and agency securities
$
3,180

 
$
4,062

Mortgage-backed securities:
 
 
 
Agency
15,711

 
16,500

Agency-collateralized mortgage obligations
—

 
218

Non-agency residential
3,717

 
—

Commercial
787

 
749

Non-U.S. securities (1)
17,405

 
11,315

Other taxable securities, substantially all asset-backed securities
309

 
—

Total
$
41,109

 
$
32,844

(1) 
These securities are primarily used to satisfy certain international regulatory liquidity requirements.

Components of Realized Gains and Losses on Sales of Debt Securities
The gross realized gains and losses on sales of AFS debt securities for the three and nine months ended September 30, 2014 and 2013 are presented in the table below.

Gains and Losses on Sales of AFS Debt Securities
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Gross gains
$
434

 
$
358

 
$
1,195

 
$
901

Gross losses
(2
)
 
(2
)
 
(4
)
 
(20
)
Net gains on sales of AFS debt securities
$
432

 
$
356

 
$
1,191

 
$
881

Income tax expense attributable to realized net gains on sales of AFS debt securities
$
164

 
$
132

 
$
453

 
$
326

Current Fair Value and Associated Gross Unrealized Losses on Investments
The amortized cost and fair value of the Corporation's debt securities carried at fair value and HTM debt securities from Fannie Mae (FNMA), the Government National Mortgage Association (GNMA), U.S. Treasury and Freddie Mac (FHLMC), where the investment exceeded 10 percent of consolidated shareholders' equity at September 30, 2014 and December 31, 2013, are presented in the table below.

Selected Securities Exceeding 10 Percent of Shareholders' Equity
 
September 30, 2014
 
December 31, 2013
(Dollars in millions)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Fannie Mae
$
127,610

 
$
126,061

 
$
123,813

 
$
118,708

Government National Mortgage Association
101,052

 
99,757

 
118,700

 
115,314

U.S. Treasury
58,263

 
58,208

 
10,533

 
10,428

Freddie Mac
25,717

 
25,553

 
24,908

 
24,075


Amortized Cost and Fair Value of Corporations Investment
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at September 30, 2014 and December 31, 2013.

Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities
 
 
September 30, 2014
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in millions)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
38,672

 
$
(110
)
 
$
682

 
$
(15
)
 
$
39,354

 
$
(125
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
24,807

 
(83
)
 
78,277

 
(2,080
)
 
103,084

 
(2,163
)
Agency-collateralized mortgage obligations
4,091

 
(22
)
 
3,305

 
(74
)
 
7,396

 
(96
)
Non-agency residential
618

 
(10
)
 
811

 
(47
)
 
1,429

 
(57
)
Commercial
404

 
(4
)
 
—

 
—

 
404

 
(4
)
Non-U.S. securities
159

 
(8
)
 
35

 
(2
)
 
194

 
(10
)
Corporate/Agency bonds
—

 
—

 
93

 
(2
)
 
93

 
(2
)
Other taxable securities, substantially all asset-backed securities
984

 
(8
)
 
705

 
(11
)
 
1,689

 
(19
)
Total taxable securities
69,735

 
(245
)
 
83,908

 
(2,231
)
 
153,643

 
(2,476
)
Tax-exempt securities
1,590

 
(3
)
 
367

 
(18
)
 
1,957

 
(21
)
Total temporarily impaired AFS debt securities
71,325

 
(248
)
 
84,275

 
(2,249
)
 
155,600

 
(2,497
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
397

 
(24
)
 
—

 
—

 
397

 
(24
)
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
$
71,722

 
$
(272
)
 
$
84,275

 
$
(2,249
)
 
$
155,997

 
$
(2,521
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
5,770

 
$
(61
)
 
$
19

 
$
(1
)
 
$
5,789

 
$
(62
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
132,032

 
(5,457
)
 
9,324

 
(497
)
 
141,356

 
(5,954
)
Agency-collateralized mortgage obligations
13,438

 
(210
)
 
2,661

 
(105
)
 
16,099

 
(315
)
Non-agency residential
819

 
(15
)
 
1,237

 
(106
)
 
2,056

 
(121
)
Commercial
286

 
(12
)
 
—

 
—

 
286

 
(12
)
Non-U.S. securities
—

 
—

 
45

 
(24
)
 
45

 
(24
)
Corporate/Agency bonds
106

 
(3
)
 
282

 
(4
)
 
388

 
(7
)
Other taxable securities, substantially all asset-backed securities
116

 
(2
)
 
280

 
(3
)
 
396

 
(5
)
Total taxable securities
152,567

 
(5,760
)
 
13,848

 
(740
)
 
166,415

 
(6,500
)
Tax-exempt securities
1,789

 
(30
)
 
990

 
(19
)
 
2,779

 
(49
)
Total temporarily impaired AFS debt securities
154,356

 
(5,790
)
 
14,838

 
(759
)
 
169,194

 
(6,549
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
2

 
(1
)
 
1

 
(1
)
 
3

 
(2
)
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
$
154,358

 
$
(5,791
)
 
$
14,839

 
$
(760
)
 
$
169,197

 
$
(6,551
)
(1)
Includes other-than-temporarily impaired AFS debt securities on which an OTTI loss remains in accumulated OCI.

Corporation Recorded Other-than-Temporary Impairment Losses on AFS Debt Securities
The Corporation's net impairment losses recognized in earnings consisted entirely of credit losses. The table below presents a rollforward of the credit losses recognized in earnings for the three and nine months ended September 30, 2014 and 2013 on AFS debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell.

Rollforward of Credit Losses Recognized
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Balance, beginning of period
$
195

 
$
205

 
$
184

 
$
243

Additions for credit losses recognized on AFS debt securities that had no previous impairment losses
—

 
1

 
11

 
6

Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses
1

 
6

 
1

 
14

Reductions for AFS debt securities matured, sold or intended to be sold
—

 
—

 
—

 
(51
)
Balance, September 30
$
196

 
$
212

 
$
196

 
$
212

The Corporation recorded other-than-temporary impairment (OTTI) losses on AFS debt securities for the three and nine months ended September 30, 2014 and 2013 as presented in the Net Impairment Losses Recognized in Earnings table. All such OTTI losses in the three and nine months ended September 30, 2014 and 2013 were on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income on the Consolidated Statement of Income. A debt security is impaired when its fair value is less than its amortized cost. If the Corporation intends or will more-likely-than-not be required to sell a debt security prior to recovery, the entire impairment loss is recorded in the Consolidated Statement of Income. For AFS debt securities the Corporation does not intend or will not more-likely-than-not be required to sell, an analysis is performed to determine if any of the impairment is due to credit or whether it is due to other factors (e.g., interest rate). Credit losses are considered unrecoverable and are recorded in the Consolidated Statement of Income with the remaining unrealized losses recorded in OCI. In certain instances, the credit loss on a debt security may exceed the total impairment, in which case, the excess of the credit loss over the total impairment is recorded as an unrealized gain in OCI.

Net Impairment Losses Recognized in Earnings
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Total OTTI losses (unrealized and realized)
$
(3
)
 
$
(8
)
 
$
(19
)
 
$
(21
)
Unrealized OTTI losses recognized in OCI
2

 
1

 
7

 
1

Net impairment losses recognized in earnings
$
(1
)
 
$
(7
)
 
$
(12
)
 
$
(20
)
Significant Assumptions Used in the Valuation of Non-Agency Residential MBS
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency RMBS were as follows at September 30, 2014.

Significant Assumptions
 
 
 
Range (1)
 
Weighted-
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Annual prepayment speed
14.8
%
 
3.3
%
 
28.4
%
Loss severity
38.4

 
12.1

 
48.4

Life default rate
41.1

 
1.9

 
98.7

(1) 
Represents the range of inputs/assumptions based upon the underlying collateral.
(2) 
The value of a variable below which the indicated percentile of observations will fall.

Expected Maturity Distribution
The expected maturity distribution of the Corporation's MBS, the contractual maturity distribution of the Corporation's other debt securities carried at fair value and HTM debt securities, and the yields on the Corporation's debt securities carried at fair value and HTM debt securities at September 30, 2014 are summarized in the table below. Actual maturities may differ from the contractual or expected maturities since borrowers may have the right to prepay obligations with or without prepayment penalties.

Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities
 
September 30, 2014
 
Due in One
Year or Less
 
Due after One Year
through Five Years
 
Due after Five
Years through Ten Years
 
Due after
Ten Years
 
Total
(Dollars in millions)
Amount
Yield (1)
 
Amount
Yield (1)
 
Amount
Yield (1)
 
Amount
Yield (1)
 
Amount
Yield (1)
Amortized cost of debt securities carried at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
519

3.35
%
 
$
54,173

1.69
%
 
$
4,523

2.65
%
 
$
1,426

3.30
%
 
$
60,641

1.81
%
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
8

4.80

 
10,549

2.70

 
135,392

2.90

 
30,725

2.90

 
176,674

2.90

Agency-collateralized mortgage obligations
775

0.01

 
3,764

2.00

 
9,273

2.80

 
450

3.20

 
14,262

2.50

Non-agency residential
586

4.99

 
1,646

4.79

 
1,416

5.08

 
4,586

8.73

 
8,234

7.05

Commercial
300

8.13

 
97

2.98

 
3,115

2.80

 
3

2.83

 
3,515

3.29

Non-U.S. securities
21,147

0.74

 
2,658

3.30

 
206

2.61

 
9

3.20

 
24,020

0.98

Corporate/Agency bonds
303

1.64

 
145

3.79

 
98

3.79

 
139

0.56

 
685

2.24

Other taxable securities, substantially all asset-backed securities
4,426

1.40

 
5,592

1.32

 
1,536

2.06

 
802

3.89

 
12,356

1.60

Total taxable securities
28,064

1.04

 
78,624

1.97

 
155,559

2.91

 
38,140

3.56

 
300,387

2.57

Tax-exempt securities
221

1.51

 
3,727

1.20

 
3,363

1.02

 
1,795

0.64

 
9,106

1.07

Total amortized cost of debt securities carried at fair value
$
28,285

0.83

 
$
82,351

1.86

 
$
158,922

2.85

 
$
39,935

3.42

 
$
309,493

2.52

Amortized cost of HTM debt securities (2)
$
108

0.51

 
$
19

3.65

 
$
59,759

2.60

 
$
289

2.82

 
$
60,175

2.60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
520

 
 
$
54,103

 
 
$
4,579

 
 
$
1,451

 
 
$
60,653

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
8

 
 
10,825

 
 
134,092

 
 
29,947

 
 
174,872

 
Agency-collateralized mortgage obligations
776

 
 
3,733

 
 
9,294

 
 
449

 
 
14,252

 
Non-agency residential
587

 
 
1,638

 
 
1,471

 
 
4,735

 
 
8,431

 
Commercial
308

 
 
99

 
 
3,103

 
 
3

 
 
3,513

 
Non-U.S. securities
21,141

 
 
2,661

 
 
245

 
 
8

 
 
24,055

 
Corporate/Agency bonds
303

 
 
153

 
 
100

 
 
138

 
 
694

 
Other taxable securities, substantially all asset-backed securities
4,432

 
 
5,583

 
 
1,564

 
 
804

 
 
12,383

 
Total taxable securities
28,075

 
 
78,795

 
 
154,448

 
 
37,535

 
 
298,853

 
Tax-exempt securities
221

 
 
3,730

 
 
3,357

 
 
1,788

 
 
9,096

 
Total debt securities carried at fair value
$
28,296

 
 
$
82,525

 
 
$
157,805

 
 
$
39,323

 
 
$
307,949

 
Fair value of HTM debt securities (2)
$
108

 
 
$
19

 
 
$
58,585

 
 
$
278

 
 
$
58,990

 
(1) 
Average yield is computed using the effective yield of each security at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and excludes the effect of related hedging derivatives.
(2) 
Substantially all U.S. agency MBS.