Note 3—Securities

Securities Available for Sale

At June 30, 2013 and December 31, 2012, the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of securities are presented below.

	June 30, 2013

(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government sponsored agencies	$	362	$	2	$	—	$	364
Residential mortgage-backed securities:
U.S. government agency and government sponsored agencies		14,930		57		314		14,673
Privately issued		330		4		6		328
Commercial mortgage-backed securities		3,904		24		178		3,750
Collateralized loan obligations (CLOs)		2,414		33		2		2,445
Asset-backed and other		79		1		—		80

Asset Liability Management securities		22,019		121		500		21,640
Other debt securities:
Direct bank purchase bonds		1,708		33		38		1,703
Other		155		3		6		152
Equity securities		15		—		—		15

Total securities available for sale	$	23,897	$	157	$	544	$	23,510

	December 31, 2012

(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government-sponsored agencies	$	866	$	19	$	—	$	885
Residential mortgage-backed securities:
U.S. government agency and government-sponsored agencies		13,104		232		3		13,333
Privately issued		445		8		10		443
Commercial mortgage-backed securities		2,863		114		6		2,971
CLOs		1,996		7		44		1,959
Asset-backed and other		145		1		—		146

Asset Liability Management securities		19,419		381		63		19,737
Other debt securities:
Direct bank purchase bonds		1,482		27		71		1,438
Other		156		6		4		158
Equity securities		19		—		—		19

Total securities available for sale	$	21,076	$	414	$	138	$	21,352

The Company's securities available for sale with a continuous unrealized loss position at June 30, 2013 and December 31, 2012 are shown below, identified for periods less than 12 months and 12 months or more.

	June 30, 2013

	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Residential mortgage-backed securities:
U.S. government agency and government sponsored agencies	$	11,885	$	314	$	1	$	—	$	11,886	$	314
Privately issued		88		2		68		4		156		6
Commercial mortgage-backed securities		2,851		178		—		—		2,851		178
CLOs		233		1		27		1		260		2
Asset-backed and other		5		—		1		—		6		—

Asset Liability Management securities		15,062		495		97		5		15,159		500
Other debt securities:
Direct bank purchase bonds		1,131		38		—		—		1,131		38
Other		55		1		37		5		92		6

Total securities available for sale	$	16,248	$	534	$	134	$	10	$	16,382	$	544

	December 31, 2012

	Less than 12 months				12 months or more				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Residential mortgage-backed securities:
U.S. government agency and government sponsored agencies	$	1,152	$	3	$	13	$	—	$	1,165	$	3
Privately issued		32		—		137		10		169		10
Commercial mortgage-backed securities		675		6		—		—		675		6
CLOs		168		1		980		43		1,148		44
Asset-backed and other		32		—		3		—		35		—

Asset Liability Management securities		2,059		10		1,133		53		3,192		63
Other debt securities:
Direct bank purchase bonds		1,019		71		—		—		1,019		71
Other		34		3		13		1		47		4

Total securities available for sale	$	3,112	$	84	$	1,146	$	54	$	4,258	$	138

At June 30, 2013, the Company did not have the intent to sell any securities in an unrealized loss position before a recovery of the amortized cost, which may be at maturity. The Company also believes that it is more likely than not that it will not have to sell the securities prior to recovery of amortized cost.

Agency residential mortgage-backed securities consist of securities guaranteed by a U.S. government corporation or a government-sponsored enterprise (GSE) such as Fannie Mae, Freddie Mac, and Ginnie Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from changes in interest rates and not credit quality. At June 30, 2013, the Company expects to recover the entire amortized cost basis of these securities because the Company determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the Company from losses.

Commercial mortgage-backed securities are collateralized by commercial mortgage loans and are generally subject to prepayment penalties. The unrealized losses on commercial mortgage-backed securities resulted from higher market yields since purchase. The Company estimated loss projections for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on the analysis performed as of June 30, 2013, the Company expects to recover the entire amortized cost basis of these securities.

Other debt securities primarily consist of direct bank purchase bonds, which are not rated by external credit rating agencies. The unrealized losses on these bonds resulted from a higher return on capital expected by the secondary market compared with the return on capital required at the time of origination when the bonds were purchased. The Company estimated loss projections for each security by assessing the underlying collateral of each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as probability of default and loss severity. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost and potential impairment is identified. Based on the analysis performed as of June 30, 2013, the Company expects to recover the entire amortized cost basis of these securities.

The fair value of debt securities available for sale by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	June 30, 2013

(Dollars in millions)	One Year or Less		Over One Year Through Five Years		Over Five Years Through Ten Years		Over Ten Years		Total Fair Value
U.S. government sponsored agencies	$	364	$	—	$	—	$	—	$	364
Residential mortgage-backed securities:
U.S. government agency and government sponsored agencies		5		87		819		13,762		14,673
Privately issued		—		—		6		322		328
Commercial mortgage-backed securities		—		—		921		2,829		3,750
CLOs		—		404		647		1,394		2,445
Asset-backed and other		—		71		9		—		80

Asset Liability Management securities		369		562		2,402		18,307		21,640
Other debt securities
Direct bank purchase bonds		90		235		974		404		1,703
Other		—		32		21		99		152

Total debt securities available for sale	$	459	$	829	$	3,397	$	18,810	$	23,495

The proceeds from sales of securities available for sale and gross realized gains and losses are shown below. The specific identification method is used to calculate realized gains and losses on sales.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,

(Dollars in millions)	2013		2012		2013		2012
Proceeds from sales	$	487	$	2,873	$	5,585	$	4,124
Gross realized gains		27		30		126		49
Gross realized losses		—		1		—		1

Securities Held to Maturity

The securities held to maturity consist of CLOs and U.S. government and government sponsored agencies residential mortgage-backed securities. Management has asserted the positive intent and ability to hold these securities to maturity. At June 30, 2013 and December 31, 2012, the amortized cost, gross unrealized gains and losses recognized in other comprehensive income (OCI), carrying amount, gross unrealized gains and losses not recognized in OCI, and fair values of securities held to maturity are presented below.

	June 30, 2013

			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
CLOs	$	16	$	—	$	2	$	14	$	3	$	—	$	17
U.S. government agency and government sponsored agencies—residential mortgage backed securities		888		3		—		891		—		17		874

Total securities held to maturity	$	904	$	3	$	2	$	905	$	3	$	17	$	891

	December 31, 2012

			Recognized in OCI						Not Recognized in OCI
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
CLOs	$	118	$	—	$	17	$	101	$	20	$	—	$	121
U.S. government agency and government sponsored agencies—residential mortgage backed securities		997		5		—		1,002		12		—		1,014

Total securities held to maturity	$	1,115	$	5	$	17	$	1,103	$	32	$	—	$	1,135

For securities held to maturity, the amount recognized in OCI primarily reflects the unrealized gain or loss at date of transfer to the held to maturity classification, net of amortization. Amortized cost is defined as the original purchase cost, adjusted for any accretion or amortization of a purchase discount or premium, less principal payments and any impairment previously recognized in earnings.

The Company's securities held to maturity with a continuous unrealized loss position at June 30, 2013 and December 31, 2012 are shown below, separately for periods less than 12 months and 12 months or more.

	June 30, 2013

	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
CLOs	$	—	$	—	$	—	$	17	$	2	$	—	$	17	$	2	$	—
U.S. government agency and government sponsored agencies—residential mortgage backed securities		874		—		17		—		—		—		874		—		17

Total securities held to maturity	$	874	$	—	$	17	$	17	$	2	$	—	$	891	$	2	$	17

	December 31, 2012

	Less than 12 months						12 months or more						Total
			Unrealized Losses						Unrealized Losses						Unrealized Losses
(Dollars in millions)	Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI		Fair Value		Recognized in OCI		Not Recognized in OCI
CLOs	$	—	$	—	$	—	$	121	$	17	$	—	$	121	$	17	$	—

The carrying amount and fair value of securities held to maturity by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	June 30, 2013

	Over One Year Through Five Years				Over Ten Years				Total
(Dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
CLOs	$	14	$	17	$	—	$	—	$	14	$	17
U.S. government agency and government sponsored agencies—residential mortgage backed securities		—		—		891		874		891		874

Total securities held to maturity	$	14	$	17	$	891	$	874	$	905	$	891

Securities Pledged as Collateral

Transactions involving purchases of securities under agreements to resell (reverse repurchase agreements or reverse repos) or sales of securities under agreements to repurchase (repurchase agreements or repos) are accounted for as collateralized financings except where the Company does not have an agreement to sell (or purchase) the same or substantially the same securities before maturity at a fixed or determinable price. The Company's policy is to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

The Company separately identifies in the consolidated balance sheets, securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or repledge the securities. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At June 30, 2013, the Company had $7.0 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. These available for sale securities have been pledged to secure borrowings ($0.7 billion), to support unrealized losses on derivative transactions reported in trading liabilities ($0.3 billion) and to secure public and trust deposits ($6.0 billion).

At June 30, 2013 and December 31, 2012, the Company accepted securities as collateral that it is permitted by contract to sell or repledge of $15 million (none of which has been repledged) and $19 million (none of which has been repledged), respectively. These securities were received as collateral for secured lending.