Quarterly report pursuant to Section 13 or 15(d)

Securities (Tables)

v3.3.0.814
Securities (Tables)
 9 Months Ended
Sep. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities
The table below presents 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, 2015 and December 31, 2014.

Debt Securities and Available-for-Sale Marketable Equity Securities
 
September 30, 2015
(Dollars in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
$
207,057

 
$
1,854

 
$
(592
)
 
$
208,319

Agency-collateralized mortgage obligations
11,836

 
263

 
(24
)
 
12,075

Non-agency residential (1)
3,383

 
255

 
(56
)
 
3,582

Commercial
5,422

 
115

 
(7
)
 
5,530

Total mortgage-backed securities
227,698

 
2,487

 
(679
)
 
229,506

U.S. Treasury and agency securities
39,422

 
711

 
(2
)
 
40,131

Non-U.S. securities
6,356

 
26

 
(7
)
 
6,375

Corporate/Agency bonds
231

 
4

 
(1
)
 
234

Other taxable securities, substantially all asset-backed securities
9,769

 
18

 
(37
)
 
9,750

Total taxable securities
283,476

 
3,246

 
(726
)
 
285,996

Tax-exempt securities
11,685

 
31

 
(26
)
 
11,690

Total available-for-sale debt securities
295,161

 
3,277

 
(752
)
 
297,686

Other debt securities carried at fair value
27,457

 
161

 
(226
)
 
27,392

Total debt securities carried at fair value
322,618

 
3,438

 
(978
)
 
325,078

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
66,573

 
495

 
(588
)
 
66,480

Total debt securities
$
389,191

 
$
3,933

 
$
(1,566
)
 
$
391,558

Available-for-sale marketable equity securities (2)
$
331

 
$
24

 
$
—

 
$
355

 
 
 
 
 
 
 
 
 
December 31, 2014
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
$
163,592

 
$
2,040

 
$
(593
)
 
$
165,039

Agency-collateralized mortgage obligations
14,175

 
152

 
(79
)
 
14,248

Non-agency residential (1)
4,244

 
287

 
(77
)
 
4,454

Commercial
3,931

 
69

 
—

 
4,000

Total mortgage-backed securities
185,942

 
2,548

 
(749
)
 
187,741

U.S. Treasury and agency securities
69,267

 
360

 
(32
)
 
69,595

Non-U.S. securities
6,208

 
33

 
(11
)
 
6,230

Corporate/Agency bonds
361

 
9

 
(2
)
 
368

Other taxable securities, substantially all asset-backed securities
10,774

 
39

 
(22
)
 
10,791

Total taxable securities
272,552

 
2,989

 
(816
)
 
274,725

Tax-exempt securities
9,556

 
12

 
(19
)
 
9,549

Total available-for-sale debt securities
282,108

 
3,001

 
(835
)
 
284,274

Other debt securities carried at fair value
36,524

 
261

 
(364
)
 
36,421

Total debt securities carried at fair value
318,632

 
3,262

 
(1,199
)
 
320,695

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
59,766

 
486

 
(611
)
 
59,641

Total debt securities
$
378,398

 
$
3,748

 
$
(1,810
)
 
$
380,336

Available-for-sale marketable equity securities (2)
$
336

 
$
27

 
$
—

 
$
363

(1) 
At September 30, 2015 and December 31, 2014, the underlying collateral type included approximately 74 percent and 76 percent prime, 14 percent and 14 percent Alt-A, and 12 percent and 10 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, 2015, the Corporation recorded unrealized mark-to-market net gains of $219 million and $49 million, and realized net losses of $152 million and $166 million, compared to unrealized net losses of $53 million and unrealized net gains of $807 million, and realized net gains of $73 million and $156 million for the same periods in 2014. These amounts exclude hedge results.

Other Debt Securities Carried at Fair Value
 
 
 
(Dollars in millions)
September 30
2015
 
December 31
2014
Mortgage-backed securities:
 
 
 
Agency
$
7,944

 
$
15,704

Agency-collateralized mortgage obligations
7

 
—

Non-agency residential
3,635

 
3,745

Total mortgage-backed securities
11,586

 
19,449

U.S. Treasury and agency securities
—

 
1,541

Non-U.S. securities (1)
15,529

 
15,132

Other taxable securities, substantially all asset-backed securities
277

 
299

Total
$
27,392

 
$
36,421

(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, 2015 and 2014 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)
2015
 
2014
 
2015
 
2014
Gross gains
$
399

 
$
434

 
$
844

 
$
1,195

Gross losses
(14
)
 
(2
)
 
(23
)
 
(4
)
Net gains on sales of AFS debt securities
$
385

 
$
432

 
$
821

 
$
1,191

Income tax expense attributable to realized net gains on sales of
AFS debt securities
$
146

 
$
164

 
$
312

 
$
453

Current Fair Value and Associated Gross Unrealized Losses on Investments
The table below presents 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, 2015 and December 31, 2014.

Selected Securities Exceeding 10 Percent of Shareholders' Equity
 
September 30, 2015
 
December 31, 2014
(Dollars in millions)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Fannie Mae
$
144,527

 
$
145,423

 
$
130,725

 
$
131,418

Government National Mortgage Association
102,427

 
102,622

 
98,278

 
98,633

Freddie Mac
52,093

 
52,485

 
28,288

 
28,556

U.S. Treasury
37,424

 
38,061

 
68,481

 
68,801


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 as of September 30, 2015 and December 31, 2014.

Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities
 
 
September 30, 2015
 
Less than Twelve Months
 
Twelve 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
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
50,512

 
$
(292
)
 
$
15,433

 
$
(300
)
 
$
65,945

 
$
(592
)
Agency-collateralized mortgage obligations
392

 
(5
)
 
1,382

 
(19
)
 
1,774

 
(24
)
Non-agency residential
475

 
(9
)
 
846

 
(37
)
 
1,321

 
(46
)
Commercial
1,071

 
(7
)
 
—

 
—

 
1,071

 
(7
)
Total mortgage-backed securities
52,450

 
(313
)
 
17,661

 
(356
)
 
70,111

 
(669
)
U.S. Treasury and agency securities
215

 
(1
)
 
218

 
(1
)
 
433

 
(2
)
Non-U.S. securities
—

 
—

 
173

 
(7
)
 
173

 
(7
)
Corporate/Agency bonds
65

 
(1
)
 
—

 
—

 
65

 
(1
)
Other taxable securities, substantially all asset-backed securities
4,321

 
(24
)
 
832

 
(13
)
 
5,153

 
(37
)
Total taxable securities
57,051

 
(339
)
 
18,884

 
(377
)
 
75,935

 
(716
)
Tax-exempt securities
2,159

 
(19
)
 
2,039

 
(7
)
 
4,198

 
(26
)
Total temporarily impaired AFS debt securities
59,210

 
(358
)
 
20,923

 
(384
)
 
80,133

 
(742
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
181

 
(2
)
 
53

 
(8
)
 
234

 
(10
)
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
$
59,391

 
$
(360
)
 
$
20,976

 
$
(392
)
 
$
80,367

 
$
(752
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
Temporarily impaired AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
$
1,366

 
$
(8
)
 
$
43,118

 
$
(585
)
 
$
44,484

 
$
(593
)
Agency-collateralized mortgage obligations
2,242

 
(19
)
 
3,075

 
(60
)
 
5,317

 
(79
)
Non-agency residential
307

 
(3
)
 
809

 
(41
)
 
1,116

 
(44
)
Total mortgage-backed securities
3,915

 
(30
)
 
47,002

 
(686
)
 
50,917

 
(716
)
U.S. Treasury and agency securities
10,121

 
(22
)
 
667

 
(10
)
 
10,788

 
(32
)
Non-U.S. securities
157

 
(9
)
 
32

 
(2
)
 
189

 
(11
)
Corporate/Agency bonds
43

 
(1
)
 
93

 
(1
)
 
136

 
(2
)
Other taxable securities, substantially all asset-backed securities
575

 
(3
)
 
1,080

 
(19
)
 
1,655

 
(22
)
Total taxable securities
14,811

 
(65
)
 
48,874

 
(718
)
 
63,685

 
(783
)
Tax-exempt securities
980

 
(1
)
 
680

 
(18
)
 
1,660

 
(19
)
Total temporarily impaired AFS debt securities
15,791

 
(66
)
 
49,554

 
(736
)
 
65,345

 
(802
)
Other-than-temporarily impaired AFS debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
555

 
(33
)
 
—

 
—

 
555

 
(33
)
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
$
16,346

 
$
(99
)
 
$
49,554

 
$
(736
)
 
$
65,900

 
$
(835
)
(1)
Includes other-than-temporarily impaired AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.

Corporation Recorded Other-than-Temporary Impairment Losses on AFS Debt Securities
The Corporation recorded other-than-temporary impairment (OTTI) losses on AFS debt securities for the three and nine months ended September 30, 2015 and 2014 as presented in the Net Credit-related Impairment Losses Recognized in Earnings table. Substantially all OTTI losses in the three and nine months ended September 30, 2015 and 2014 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income. The credit losses on the RMBS during the nine months ended September 30, 2015 were driven by decreases in the estimated RMBS cash flows primarily due to a model change resulting in the refinement of the expected cash flows. 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 Credit-related Impairment Losses Recognized in Earnings
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Total OTTI losses
$
(5
)
 
$
(3
)
 
$
(87
)
 
$
(19
)
Less: non-credit portion of total OTTI losses recognized in OCI
3

 
2

 
10

 
7

Net credit-related impairment losses recognized in earnings
$
(2
)
 
$
(1
)
 
$
(77
)
 
$
(12
)


The table below presents a rollforward of the credit losses recognized in earnings for the three and nine months ended September 30, 2015 and 2014 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 OTTI Credit Losses Recognized
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Balance, beginning of period
$
261

 
$
195

 
$
201

 
$
184

Additions for credit losses recognized on AFS debt securities that had no previous impairment losses
1

 
—

 
50

 
11

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

 
1

 
26

 
1

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

 
—

 
(15
)
 
—

Balance, September 30
$
262

 
$
196

 
$
262

 
$
196

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, 2015.

Significant Assumptions
 
 
 
Range (1)
 
Weighted-
average
 
10th
Percentile (2)
 
90th
Percentile (2)
Annual prepayment speed
12.0
%
 
3.6
%
 
24.5
%
Loss severity
33.4

 
13.4

 
36.4

Life default rate
27.3

 
0.9

 
86.7

(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, 2015 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, 2015
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
$
40

4.40
%
 
$
36,815

2.40
%
 
$
172,124

2.80
%
 
$
6,048

3.10
%
 
$
215,027

2.74
%
Agency-collateralized mortgage obligations
302

0.90

 
6,931

2.50

 
4,608

2.80

 
1

0.70

 
11,842

2.58

Non-agency residential
339

4.60

 
1,403

4.89

 
1,287

4.49

 
4,036

7.86

 
7,065

6.49

Commercial
73

6.86

 
620

1.90

 
4,729

2.80

 
—

—

 
5,422

2.75

Total mortgage-backed securities
754

3.33

 
45,769

2.49

 
182,748

2.81

 
10,085

5.00

 
239,356

2.84

U.S. Treasury and agency securities
600

0.25

 
36,006

1.60

 
2,814

2.59

 
2

4.57

 
39,422

1.65

Non-U.S. securities
20,056

0.65

 
1,814

2.99

 
6

2.85

 
—

—

 
21,876

0.86

Corporate/Agency bonds
54

3.76

 
68

3.75

 
106

3.48

 
3

5.60

 
231

3.65

Other taxable securities, substantially all asset-backed securities
2,601

1.00

 
4,675

1.28

 
1,998

2.68

 
774

3.72

 
10,048

1.62

Total taxable securities
24,065

0.78

 
88,332

2.07

 
187,672

2.81

 
10,864

4.91

 
310,933

2.52

Tax-exempt securities
557

0.63

 
3,138

1.34

 
3,446

1.49

 
4,544

0.96

 
11,685

1.19

Total amortized cost of debt securities carried at fair value
$
24,622

0.78

 
$
91,470

2.05

 
$
191,118

2.79

 
$
15,408

3.68

 
$
322,618

2.47

Amortized cost of HTM debt securities (2)
$
—

—

 
$
21,720

2.30

 
$
44,457

2.40

 
$
396

3.34

 
$
66,573

2.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities carried at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
$
41

 
 
$
37,238

 
 
$
172,932

 
 
$
6,052

 
 
$
216,263

 
Agency-collateralized mortgage obligations
303

 
 
7,042

 
 
4,736

 
 
1

 
 
12,082

 
Non-agency residential
372

 
 
1,394

 
 
1,385

 
 
4,066

 
 
7,217

 
Commercial
73

 
 
629

 
 
4,828

 
 
—

 
 
5,530

 
Total mortgage-backed securities
789

 
 
46,303

 
 
183,881

 
 
10,119

 
 
241,092

 
U.S. Treasury and agency securities
601

 
 
36,626

 
 
2,902

 
 
2

 
 
40,131

 
Non-U.S. securities
20,008

 
 
1,890

 
 
6

 
 
—

 
 
21,904

 
Corporate/Agency bonds
54

 
 
67

 
 
111

 
 
2

 
 
234

 
Other taxable securities, substantially all asset-backed securities
2,593

 
 
4,649

 
 
2,012

 
 
773

 
 
10,027

 
Total taxable securities
24,045

 
 
89,535

 
 
188,912

 
 
10,896

 
 
313,388

 
Tax-exempt securities
557

 
 
3,143

 
 
3,448

 
 
4,542

 
 
11,690

 
Total debt securities carried at fair value
$
24,602

 
 
$
92,678

 
 
$
192,360

 
 
$
15,438

 
 
$
325,078

 
Fair value of HTM debt securities (2)
$
—

 
 
$
21,874

 
 
$
44,201

 
 
$
405

 
 
$
66,480

 
(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.