Quarterly report pursuant to Section 13 or 15(d)

Securities (Tables)

v2.4.0.6
Securities (Tables)
9 Months Ended
Sep. 30, 2012
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of debt and marketable equity securities at September 30, 2012 and December 31, 2011.

 
September 30, 2012
(Dollars in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
24,794

 
$
236

 
$
(235
)
 
$
24,795

Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
196,976

 
7,091

 
(24
)
 
204,043

Agency collateralized mortgage obligations
38,863

 
1,412

 
(128
)
 
40,147

Non-agency residential (1)
9,772

 
377

 
(147
)
 
10,002

Non-agency commercial
3,733

 
394

 

 
4,127

Non-U.S. securities
5,709

 
50

 
(11
)
 
5,748

Corporate bonds
2,018

 
83

 
(18
)
 
2,083

Other taxable securities, substantially all asset-backed securities
12,128

 
85

 
(16
)
 
12,197

Total taxable securities
293,993

 
9,728

 
(579
)
 
303,142

Tax-exempt securities
2,840

 
17

 
(50
)
 
2,807

Total available-for-sale debt securities
296,833

 
9,745

 
(629
)
 
305,949

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
39,898

 
1,230

 

 
41,128

Total debt securities
$
336,731

 
$
10,975

 
$
(629
)
 
$
347,077

Available-for-sale marketable equity securities (2)
$
783

 
$
526

 
$
(5
)
 
$
1,304

 
 
 
 
 
 
 
 
 
December 31, 2011
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
43,433

 
$
242

 
$
(811
)
 
$
42,864

Mortgage-backed securities:
 
 
 
 
 
 
 
Agency
138,073

 
4,511

 
(21
)
 
142,563

Agency collateralized mortgage obligations
44,392

 
774

 
(167
)
 
44,999

Non-agency residential (1)
14,948

 
301

 
(482
)
 
14,767

Non-agency commercial
4,894

 
629

 
(1
)
 
5,522

Non-U.S. securities
4,872

 
62

 
(14
)
 
4,920

Corporate bonds
2,993

 
79

 
(37
)
 
3,035

Other taxable securities, substantially all asset-backed securities
12,889

 
49

 
(60
)
 
12,878

Total taxable securities
266,494

 
6,647

 
(1,593
)
 
271,548

Tax-exempt securities
4,678

 
15

 
(90
)
 
4,603

Total available-for-sale debt securities
271,172

 
6,662

 
(1,683
)
 
276,151

Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
35,265

 
181

 
(4
)
 
35,442

Total debt securities
$
306,437

 
$
6,843

 
$
(1,687
)
 
$
311,593

Available-for-sale marketable equity securities (2)
$
65

 
$
10

 
$
(7
)
 
$
68

(1) 
At September 30, 2012, includes approximately 91 percent prime, six percent Alt-A, and three percent subprime. At December 31, 2011, includes approximately 89 percent prime, nine percent Alt-A and two percent subprime.
(2) 
Classified in other assets on the Corporation’s Consolidated Balance Sheet.

Corporation Recorded Other-Than-Temporary Impairment Losses on AFS Debt Securities
Balances in the table below exclude $1 million and $4 million for the three and nine months ended September 30, 2012 of unrealized gains recorded in accumulated OCI related to these securities compared to $2 million and $6 million for the same periods in 2011.

Net Impairment Losses Recognized in Earnings
 
Three Months Ended September 30, 2012
(Dollars in millions)
Non-agency
Residential
MBS
 
Non-agency
Commercial
MBS
 
Other
Taxable
Securities
 
Total
Total OTTI losses (unrealized and realized)
$
(9
)
 
$

 
$

 
$
(9
)
Unrealized OTTI losses recognized in accumulated OCI
3

 

 

 
3

Net impairment losses recognized in earnings
$
(6
)
 
$

 
$

 
$
(6
)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2011
Total OTTI losses (unrealized and realized)
$
(114
)
 
$

 
$

 
$
(114
)
Unrealized OTTI losses recognized in accumulated OCI
29

 

 

 
29

Net impairment losses recognized in earnings
$
(85
)
 
$

 
$

 
$
(85
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
Total OTTI losses (unrealized and realized)
$
(64
)
 
$
(6
)
 
$

 
$
(70
)
Unrealized OTTI losses recognized in accumulated OCI
18

 

 

 
18

Net impairment losses recognized in earnings
$
(46
)
 
$
(6
)
 
$

 
$
(52
)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2011
Total OTTI losses (unrealized and realized)
$
(269
)
 
$

 
$
(2
)
 
$
(271
)
Unrealized OTTI losses recognized in accumulated OCI
53

 

 

 
53

Net impairment losses recognized in earnings
$
(216
)
 
$

 
$
(2
)
 
$
(218
)
Credit Component Recognized in Earnings on Debt Securities for Which a Portion of the Other Than Temporary Loss Remains in OCI
The table below presents a rollforward of the credit losses recognized in earnings on AFS debt securities for the three and nine months ended September 30, 2012 and 2011 on 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)
2012
 
2011
 
2012
 
2011
Balance, beginning of period
$
246

 
$
930

 
$
310

 
$
2,148

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

 
1

 
6

 
50

Additions for credit losses recognized on debt securities that had previously incurred impairment losses
6

 
12

 
46

 
96

Reductions for debt securities sold or intended to be sold
(8
)
 
(672
)
 
(118
)
 
(2,023
)
Balance, September 30
$
244

 
$
271

 
$
244

 
$
271

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 residential mortgage-backed securities (RMBS) were as follows at September 30, 2012.

Significant Assumptions
 
 
 
Range (1)
 
Weighted-average
 
10th Percentile (2)
 
90th Percentile (2)
Annual prepayment speed
10.5%
 
3.0%
 
24.7%
Loss severity
55.4
 
27.9
 
69.9
Life default rate
56.9
 
3.6
 
98.2
(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.
Current Fair Value and Associated Gross Unrealized Losses on Investments
The table below presents the fair value and the associated gross unrealized losses on AFS securities with gross unrealized losses at September 30, 2012 and December 31, 2011, and whether these securities have had gross unrealized losses for less than twelve months or for twelve months or longer.

Temporarily Impaired and Other-than-temporarily Impaired Securities
 
 
September 30, 2012
 
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 available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
6,262

 
$
(11
)
 
$
15,155

 
$
(224
)
 
$
21,417

 
$
(235
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
4,361

 
(18
)
 
849

 
(6
)
 
5,210

 
(24
)
Agency collateralized mortgage obligations
4,952

 
(20
)
 
6,209

 
(108
)
 
11,161

 
(128
)
Non-agency residential
822

 
(17
)
 
1,735

 
(124
)
 
2,557

 
(141
)
Non-U.S. securities
743

 
(2
)
 
569

 
(9
)
 
1,312

 
(11
)
Corporate bonds
188

 
(9
)
 
101

 
(9
)
 
289

 
(18
)
Other taxable securities
3,396

 
(2
)
 
1,961

 
(14
)
 
5,357

 
(16
)
Total taxable securities
20,724

 
(79
)
 
26,579

 
(494
)
 
47,303

 
(573
)
Tax-exempt securities
280

 
(8
)
 
1,181

 
(42
)
 
1,461

 
(50
)
Total temporarily impaired available-for-sale debt securities
21,004

 
(87
)
 
27,760

 
(536
)
 
48,764

 
(623
)
Temporarily impaired available-for-sale marketable equity securities

 

 
7

 
(5
)
 
7

 
(5
)
Total temporarily impaired available-for-sale securities
21,004

 
(87
)
 
27,767

 
(541
)
 
48,771

 
(628
)
Other-than-temporarily impaired available-for-sale debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
39

 
(1
)
 
88

 
(5
)
 
127

 
(6
)
Total temporarily impaired and other-than-temporarily impaired available-for-sale securities (2)
$
21,043

 
$
(88
)
 
$
27,855

 
$
(546
)
 
$
48,898

 
$
(634
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
Temporarily impaired available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$

 
$

 
$
38,269

 
$
(811
)
 
$
38,269

 
$
(811
)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
4,679

 
(13
)
 
474

 
(8
)
 
5,153

 
(21
)
Agency collateralized mortgage obligations
11,448

 
(134
)
 
976

 
(33
)
 
12,424

 
(167
)
Non-agency residential
2,112

 
(59
)
 
3,950

 
(350
)
 
6,062

 
(409
)
Non-agency commercial
55

 
(1
)
 

 

 
55

 
(1
)
Non-U.S. securities
1,008

 
(13
)
 
165

 
(1
)
 
1,173

 
(14
)
Corporate bonds
415

 
(29
)
 
111

 
(8
)
 
526

 
(37
)
Other taxable securities
4,210

 
(41
)
 
1,361

 
(19
)
 
5,571

 
(60
)
Total taxable securities
23,927

 
(290
)
 
45,306

 
(1,230
)
 
69,233

 
(1,520
)
Tax-exempt securities
1,117

 
(25
)
 
2,754

 
(65
)
 
3,871

 
(90
)
Total temporarily impaired available-for-sale debt securities
25,044

 
(315
)
 
48,060

 
(1,295
)
 
73,104

 
(1,610
)
Temporarily impaired available-for-sale marketable equity securities
31

 
(1
)
 
6

 
(6
)
 
37

 
(7
)
Total temporarily impaired available-for-sale securities
25,075

 
(316
)
 
48,066

 
(1,301
)
 
73,141

 
(1,617
)
Other-than-temporarily impaired available-for-sale debt securities (1)
 
 
 
 
 
 
 
 
 
 
 
Non-agency residential mortgage-backed securities
158

 
(28
)
 
489

 
(45
)
 
647

 
(73
)
Total temporarily impaired and other-than-temporarily impaired available-for-sale securities (2)
$
25,233

 
$
(344
)
 
$
48,555

 
$
(1,346
)
 
$
73,788

 
$
(1,690
)
(1) 
Includes other-than-temporarily impaired AFS debt securities on which OTTI loss remains in OCI.
(2) 
At September 30, 2012, the amortized cost of approximately 2,300 AFS securities exceeded their fair value by $634 million. At December 31, 2011, the amortized cost of approximately 3,800 AFS securities exceeded their fair value by $1.7 billion.
Amortized Cost And Fair Value Of Corporations Investment
The amortized cost and fair value of the Corporation’s investment in AFS and HTM debt securities from Fannie Mae (FNMA), the Government National Mortgage Association (GNMA), Freddie Mac (FHLMC) and U.S. Treasury securities where the investment exceeded 10 percent of consolidated shareholders’ equity at September 30, 2012 and December 31, 2011 are presented in the table below.

Selected Securities Exceeding 10 Percent of Shareholders' Equity
 
September 30, 2012
 
December 31, 2011
(Dollars in millions)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Fannie Mae
$
131,755

 
$
135,416

 
$
87,898

 
$
89,243

Government National Mortgage Association
118,851

 
122,753

 
102,960

 
106,200

Freddie Mac
24,936

 
25,724

 
26,617

 
27,129

U.S. Treasury securities
24,387

 
24,388

 
39,946

 
39,164

Expected Maturity Distribution
The expected maturity distribution of the Corporation’s MBS and the contractual maturity distribution of the Corporation’s other AFS debt securities, and the yields on the Corporation’s AFS debt securities portfolio at September 30, 2012 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.

Debt Securities Maturities
 
September 30, 2012
 
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 AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
539

0.12
%
 
$
619

1.00
%
 
$
2,094

5.00
%
 
$
21,542

2.60
%
 
$
24,794

2.80
%
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
11

4.60

 
66,676

2.90

 
121,332

2.90

 
8,957

2.70

 
196,976

2.90

Agency-collateralized mortgage obligations
100

1.10

 
14,549

1.30

 
24,197

2.70

 
17

1.00

 
38,863

2.20

Non-agency residential
909

4.30

 
5,351

4.20

 
2,883

4.00

 
629

5.40

 
9,772

4.20

Non-agency commercial
270

5.60

 
3,429

5.80

 
15

4.20

 
19

5.20

 
3,733

4.10

Non-U.S. securities
3,922

0.77

 
1,626

6.10

 
161

2.10

 


 
5,709

2.07

Corporate bonds
545

1.80

 
1,028

1.80

 
327

4.80

 
118

0.90

 
2,018

1.80

Other taxable securities
2,924

1.10

 
5,644

1.60

 
2,289

1.20

 
1,271

1.20

 
12,128

1.40

Total taxable securities
9,220

1.22

 
98,922

2.79

 
153,298

2.90

 
32,553

2.62

 
293,993

2.77

Tax-exempt securities
145

0.50

 
944

1.60

 
832

2.50

 
919

0.30

 
2,840

1.39

Total amortized cost of AFS debt securities
$
9,365

1.21

 
$
99,866

2.78

 
$
154,130

2.89

 
$
33,472

2.56

 
$
296,833

2.76

Total amortized cost of held-to-maturity debt securities (2)
$
6

5.00
%
 
$
8,853

2.30
%
 
$
27,103

2.70
%
 
$
3,936

2.90
%
 
$
39,898

2.60
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of AFS debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
$
540

 
 
$
645

 
 
$
2,303

 
 
$
21,307

 
 
$
24,795

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency
11

 
 
68,754

 
 
126,145

 
 
9,133

 
 
204,043

 
Agency-collateralized mortgage obligations
101

 
 
14,549

 
 
25,480

 
 
17

 
 
40,147

 
Non-agency residential
909

 
 
5,476

 
 
2,938

 
 
679

 
 
10,002

 
Non-agency commercial
280

 
 
3,809

 
 
18

 
 
20

 
 
4,127

 
Non-U.S. securities
3,914

 
 
1,669

 
 
165

 
 

 
 
5,748

 
Corporate bonds
548

 
 
1,058

 
 
369

 
 
108

 
 
2,083

 
Other taxable securities
2,928

 
 
5,699

 
 
2,303

 
 
1,267

 
 
12,197

 
Total taxable securities
9,231

 
 
101,659

 
 
159,721

 
 
32,531

 
 
303,142

 
Tax-exempt securities
148

 
 
941

 
 
835

 
 
883

 
 
2,807

 
Total fair value of AFS debt securities
$
9,379

 
 
$
102,600

 
 
$
160,556

 
 
$
33,414

 
 
$
305,949

 
Total fair value of held-to-maturity debt securities (2)
$
6

 
 
$
9,102

 
 
$
28,054

 
 
$
3,966

 
 
$
41,128

 
(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 mortgage-backed securities.
Components of Realized Gains and Losses on Sales of Debt Securities
The gross realized gains and losses on sales of debt securities for the three and nine months ended September 30, 2012 and 2011 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)
2012
 
2011
 
2012
 
2011
Gross gains
$
361

 
$
745

 
$
1,957

 
$
2,200

Gross losses
(22
)
 
(8
)
 
(466
)
 
(18
)
Net gains on sales of debt securities
$
339

 
$
737

 
$
1,491

 
$
2,182

Income tax expense attributable to realized net gains on sales of debt securities
$
125

 
$
273

 
$
552

 
$
807