SECURITIES

The following table provides the major components of securities at amortized cost and fair value:



	September 30, 2014									December 31, 2013
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
U.S. Treasury		$15		$—		$—			$15		$15		$—		$—			$15
State and political subdivisions	10		—		—			10		11		—		(1		)	10
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	17,759		207		(68		)	17,898		14,970		151		(128		)	14,993
Other/non-agency	747		6		(35		)	718		992		5		(45		)	952
Total mortgage-backed securities	18,506		213		(103		)	18,616		15,962		156		(173		)	15,945
Total debt securities available for sale	18,531		213		(103		)	18,641		15,988		156		(174		)	15,970
Marketable equity securities	10		3		—			13		10		3		—			13
Other equity securities	12		—		—			12		12		—		—			12
Total equity securities available for sale	22		3		—			25		22		3		—			25
Total securities available for sale		$18,553		$216		($103	)		$18,666		$16,010		$159		($174	)		$15,995
Securities Held to Maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities		$3,833		$9		($46	)		$3,796		$2,940		$—		($33	)		$2,907
Other/non-agency	1,456		26		—			1,482		1,375		—		(25		)	1,350
Total securities held to maturity		$5,289		$35		($46	)		$5,278		$4,315		$—		($58	)		$4,257
Other Investment Securities
Federal Reserve Bank stock		$470		$—		$—			$470		$462		$—		$—			$462
Federal Home Loan Bank stock	417		—		—			417		468		—		—			468
Venture capital and other investments	6		—		—			6		5		—		—			5
Total other investment securities		$893		$—		$—			$893		$935		$—		$—			$935

The Company has reviewed its securities portfolio for other-than-temporary impairments. The following tables summarize those securities whose fair values are below carrying values, segregated by those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:



	September 30, 2014
	Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
U.S. Treasury	—		$—		$—		—		$—		$—		—		$—		$—
State and political subdivisions	—	—		—			1	10		—			1	10		—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	121	7,178		(63		)	45	1,213		(51		)	166	8,391		(114		)
Other/non-agency	5	112		(1		)	17	414		(34		)	22	526		(35		)
Total mortgage-backed securities	126	7,290		(64		)	62	1,627		(85		)	188	8,917		(149		)
Total	126		$7,290		($64	)	63		$1,637		($85	)	189		$8,927		($149	)



	December 31, 2013
	Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
State and political subdivisions	1		$10		($1	)	—		$—		$—		1		$10		($1	)
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	263	12,067		(158		)	7	20		(2		)	270	12,087		(160		)
Other/non-agency	22	1,452		(34		)	19	490		(37		)	41	1,942		(71		)
Total mortgage-backed securities	285	13,519		(192		)	26	510		(39		)	311	14,029		(231		)
Total	286		$13,529		($193	)	26		$510		($39	)	312		$14,039		($232	)

For each debt security identified with an unrealized loss, the Company reviews the expected cash flows to determine if the impairment in value is temporary or other-than-temporary. If the Company has determined that the present value of the debt security’s expected cash flows is less than its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of impairment loss that is recognized in current period earnings is dependent on the Company’s intent to sell (or not sell) the debt security.

If the Company intends to sell the impaired debt security, the impairment loss recognized in current period earnings equals the difference between the debt security’s fair value and its amortized cost. If the Company does not intend to sell the impaired debt security, and it is not likely that the Company will be required to sell the impaired security, the credit-related impairment loss is recognized in current period earnings and equals the difference between the amortized cost of the debt security and the present value of the expected cash flows that have currently been projected.

In addition to these cash flow projections, several other characteristics of each debt security are reviewed when determining whether a credit loss exists and the period over which the debt security is expected to recover. These characteristics include: (1) the type of investment, (2) various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), (3) the length and severity of impairment, and (4) the public credit rating of the instrument.

The Company estimates the portion of loss attributable to credit using a cash flow model. The inputs to this model include prepayment, default and loss severity assumptions that are based on industry research and observed data. The loss projections generated by the model are reviewed on a quarterly basis by a cross-functional governance committee. This governance committee determines whether security impairments are other-than-temporary based on this review.

The following table presents the cumulative credit related losses recognized in earnings on debt securities held by the Company as of:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2014			2013			2014			2013
Cumulative balance at beginning of period		$60			$56			$56			$55
Credit impairments recognized in earnings on debt securities that have been previously impaired	1			3			7			7
Reductions due to increases in cash flow expectations on impaired securities	(1		)	(3		)	(3		)	(6		)
Cumulative balance at end of period		$60			$56			$60			$56

Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2014 and 2013 were $60 million and $56 million, respectively. There were no credit losses recognized in earnings for the Company's HTM portfolio as of September 30, 2014 and 2013. In the three months ended September 30, 2014 and 2013, the Company recognized credit related other-than-temporary impairment losses in earnings of $1 million and $3 million, respectively, related to non-agency MBS in the AFS portfolio. For the nine months ended September 30, 2014 and 2013, $7 million of credit related other-than-temporary impairment losses was recognized in earnings. No impaired debt securities were sold during the three or nine month periods ended September 30, 2014 and 2013. Reductions in credit losses due to increases in cash flow expectations were $1 million and $3 million in the three months ended September 30, 2014 and 2013, and were $3 million and $6 million for the nine months ended September 30, 2014 and 2013, respectively, and were presented in investment securities interest income on the Consolidated Statements of Operations. The Company does not currently have the intent to sell these debt securities, and it is not likely that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. As of September 30, 2014 and 2013, $35 million and $54 million, respectively, of pre-tax non-credit related losses were deferred in OCI.

The Company has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of the current reporting date. The unrealized losses on these debt securities reflect the reduced liquidity in the MBS market and the increased risk spreads due to the uncertainty of the U.S. macroeconomic environment. Therefore, the Company has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not likely that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Additionally, any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases.

The amortized cost and fair value of debt securities at September 30, 2014 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Distribution of Maturities
(in millions)	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized Cost:
Debt securities available for sale
U.S. Treasury		$15		$—		$—		$—		$15
State and political subdivisions	—		—		—		10		10
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4		56		2,438		15,261		17,759
Other/non-agency	—		61		62		624		747
Total debt securities available for sale	19		117		2,500		15,895		18,531
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,833		3,833
Other/non-agency	—		—		—		1,456		1,456
Total debt securities held to maturity	—		—		—		5,289		5,289
Total amortized cost of debt securities		$19		$117		$2,500		$21,184		$23,820

Fair Value:
Debt securities available for sale
U.S. Treasury		$15		$—		$—		$—		$15
State and political subdivisions	—		—		—		10		10
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4		60		2,441		15,393		17,898
Other/non-agency	—		61		64		593		718
Total debt securities available for sale	19		121		2,505		15,996		18,641
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,796		3,796
Other/non-agency	—		—		—		1,482		1,482
Total debt securities held to maturity	—		—		—		5,278		5,278
Total fair value of debt securities		$19		$121		$2,505		$21,274		$23,919

The following table reports the amounts recognized in interest income from investment securities on the Consolidated Statement of Operations:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2014		2013		2014		2013
Taxable		$155		$120		$458		$348
Non-taxable	—		—		—		—
Total interest income from investment securities		$155		$120		$458		$348

The Company recognized gains on sale of debt securities in earnings of $2 million and $25 million for the three months ended September 30, 2014 and 2013, respectively, and $27 million and $119 million for the nine months ended September 30, 2014 and 2013, respectively.

The amortized cost and fair value of securities pledged are shown below:



	September 30, 2014				December 31, 2013
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Pledged against repurchase agreements		$5,129		$5,165		$5,016		$4,998
Pledged against FHLB borrowed funds	1,390		1,416		1		1
Pledged against derivatives to qualify for fiduciary powers, and to secure public and other deposits as required by law	3,463		3,514		2,818		2,853

The Company regularly enters into security repurchase agreements with unrelated counterparties. Repurchase agreements are financial transactions that involve the transfer of a security from one party to another and a subsequent transfer of the same (or "substantially the same") security back to the original party. The Company’s repurchase agreements are typically short-term transactions (e.g., overnight), but they may be extended to longer terms to maturity. Such transactions are accounted for as secured borrowed funds on the Company’s financial statements. When permitted by GAAP, the Company offsets the short-term receivables associated with its reverse repurchase agreements with the short-term payables associated with its repurchase agreements.

The effects of this offsetting on the Consolidated Balance Sheets are presented in the following table:



	September 30, 2014								December 31, 2013
(in millions)	Gross Assets (Liabilities)			Gross Assets (Liabilities) Offset		Net Amounts of Assets (Liabilities)			Gross Assets (Liabilities)			Gross Assets (Liabilities) Offset		Net Amounts of Assets (Liabilities)
Securities purchased under agreements to resell		$—			$—		$—			$—			$—		$—
Securities sold under agreements to repurchase	(4,100		)	—		(4,100		)	(3,000		)	—		(3,000		)

Note: The Company also offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. See Note 11 "Derivatives" to the Company's unaudited interim Consolidated Financial Statements included in Part I, Item 1 — Financial Information for further information.