Securities

Our securities available-for-sale and securities held-to-maturity portfolios consisted of the following:



September 30, 2014	Amortized Cost		Non-Credit Loss Component of OTTI Securities			Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	13,088	$	—		$	351	$	(34	)	$	13,405
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	506		—			—		(5		)	501
Collateralized mortgage obligations	29		—			—		—			29
Direct agency obligations	3,977		—			251		(8		)	4,220
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	5,887		—			101		(79		)	5,909
Collateralized mortgage obligations	290		—			3		(4		)	289
Obligations of U.S. states and political subdivisions	702		—			11		(7		)	706
Asset backed securities collateralized by:
Residential mortgages	1		—			—		—			1
Commercial mortgages	60		—			—		—			60
Home equity	100		—			—		(8		)	92
Other	106		—			—		(11		)	95
Foreign debt securities⁽²⁾	4,327		—			9		(7		)	4,329
Equity securities	165		—			3		(3		)	165
Total available-for-sale securities	$	29,238	$	—		$	729	$	(166	)	$	29,801
Securities held-to-maturity:⁽⁵⁾
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	4,402	$	—		$	79	$	(1	)	$	4,480
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	3,028		—			9		—			3,037
Collateralized mortgage obligations	4,503		—			26		—			4,529
Obligations of U.S. states and political subdivisions	24		—			1		—			25
Asset-backed securities collateralized by residential mortgages	12		—			1		—			13
Asset-backed securities and other debt securities held by a consolidated VIE⁽⁴⁾	164		(88		)	61		—			137
Total held-to-maturity securities	$	12,133	$	(88	)	$	177	$	(1	)	$	12,221



December 31, 2013	Amortized Cost		Non-Credit Loss Component of OTTI Securities			Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Securities available-for-sale:
U.S. Treasury	$	27,716	$	—		$	391	$	(113	)	$	27,994
U.S. Government sponsored enterprises:⁽¹⁾
Mortgage-backed securities	159		—			—		(14		)	145
Collateralized mortgage obligations	41		—			—		(1		)	40
Direct agency obligations	4,115		—			225		(16		)	4,324
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	10,304		—			40		(342		)	10,002
Collateralized mortgage obligations	6,584		—			17		(154		)	6,447
Obligations of U.S. states and political subdivisions	755		—			12		(25		)	742
Asset backed securities collateralized by:
Residential mortgages	1		—			—		—			1
Commercial mortgages	125		—			1		—			126
Home equity	263		—			—		(36		)	227
Other	100		—			—		(6		)	94
Foreign debt securities⁽²⁾	4,607		—			10		(15		)	4,602
Equity securities	165		—			2		(5		)	162
Total available-for-sale securities	$	54,935	$	—		$	698	$	(727	)	$	54,906
Securities held-to-maturity:
U.S. Government sponsored enterprises:⁽³⁾
Mortgage-backed securities	$	845	$	—		$	88	$	—		$	933
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	52		—			8		—			60
Collateralized mortgage obligations	214		—			24		—			238
Obligations of U.S. states and political subdivisions	29		—			1		—			30
Asset-backed securities collateralized by residential mortgages	18		—			1		—			19
Asset-backed securities and other debt securities held by a consolidated VIE⁽⁴⁾	304		(104		)	19		—			219
Total held-to-maturity securities	$	1,462	$	(104	)	$	141	$	—		$	1,499


⁽¹⁾	Includes securities at amortized cost of $507 million and $167 million issued or guaranteed by FNMA at September 30, 2014 and December 31, 2013, respectively, and $28 million and $33 million issued or guaranteed by FHLMC at September 30, 2014 and December 31, 2013, respectively.


⁽²⁾	At September 30, 2014 and December 31, 2013, foreign debt securities consisted of $1,040 million and $1,101 million, respectively, of securities fully backed by foreign governments. The remainder of foreign debt securities represents public sector entity, bank or corporate debt.


⁽³⁾	Includes securities at amortized cost of $2,776 million and $398 million issued or guaranteed by FNMA at September 30, 2014 and December 31, 2013, respectively, and $1,626 million and $447 million issued and guaranteed by FHLMC at September 30, 2014 and December 31, 2013, respectively.


⁽⁴⁾	Relates to securities held by Bryant Park Funding LLC ("Bryant Park"), a variable interest entity which was consolidated in the second quarter of 2013. See Note 16, "Variable Interest Entities" for additional information.

⁽⁵⁾

During the third quarter of 2014, we transferred U.S. government sponsored and U.S. government agency mortgage-backed securities with a fair value of $10,985 million from available-for-sale to held-to-maturity. These securities were transferred to held-to-maturity at fair value as of the transfer date with the fair value amount becoming the amortized cost basis for the transferred securities. The difference between the par value of the securities and their fair value at the date of transfer will be amortized as an adjustment to yield over the remaining contractual life of each security. At the date of the transfer, AOCI included net pretax unrealized losses of $234 million related to the transferred securities which will be amortized over the remaining contractual life of each security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The transfers reflect our intent to hold the securities to maturity and will reduce the impact of price volatility on AOCI and regulatory capital under Basel III.

The following table summarizes gross unrealized losses and related fair values as of September 30, 2014 and December 31, 2013 classified as to the length of time the losses have existed:



	One Year or Less						Greater Than One Year
September 30, 2014	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment
	(dollars are in millions)
Securities available-for-sale:
U.S. Treasury	10	$	(14	)	$	3,515	5	$	(20	)	$	1,582
U.S. Government sponsored enterprises	13	(2		)	361		25	(11		)	432
U.S. Government agency issued or guaranteed	6	(80		)	891		10	(3		)	62
Obligations of U.S. states and political subdivisions	23	(2		)	141		29	(5		)	285
Asset backed securities	5	(11		)	129		6	(8		)	93
Foreign debt securities	5	—			696		6	(7		)	2,419
Equity securities	1	(3		)	156		—	—			—
Securities available-for-sale	63	$	(112	)	$	5,889	81	$	(54	)	$	4,873
Securities held-to-maturity:
U.S. Government sponsored enterprises	213	$	(1	)	$	1,200	49	$	—		$	—
U.S. Government agency issued or guaranteed	116	—			1,266		809	—			2
Obligations of U.S. states and political subdivisions	—	—			—		3	—			1
Securities held-to-maturity	329	$	(1	)	$	2,466	861	$	—		$	3



	One Year or Less						Greater Than One Year
December 31, 2013	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment		Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investment
	(dollars are in millions)
Securities available-for-sale:
U.S. Treasury	22	$	(82	)	$	16,958	6	$	(31	)	$	630
U.S. Government sponsored enterprises	23	(12		)	400		20	(19		)	356
U.S. Government agency issued or guaranteed	170	(494		)	10,243		5	(2		)	23
Obligations of U.S. states and political subdivisions	42	(19		)	330		5	(6		)	65
Asset backed securities	3	(6		)	115		10	(36		)	237
Foreign debt securities	1	—			50		7	(15		)	2,916
Equity securities	1	(5		)	154		—	—			—
Securities available-for-sale	262	$	(618	)	$	28,250	53	$	(109	)	$	4,227
Securities held-to-maturity:
U.S. Government sponsored enterprises	13	$	—		$	—	48	$	—		$	—
U.S. Government agency issued or guaranteed	79	—			—		859	—			2
Obligations of U.S. states and political subdivisions	7	—			4		2	—			1
Securities held-to-maturity	99	$	—		$	4	909	$	—		$	3

Net unrealized gains and losses increased within the available-for-sale portfolio in the nine months ended September 30, 2014 due to the transfer of certain securities from available-for-sale to held-to-maturity discussed above, sales of U.S. government agency mortgage-backed securities and other asset-backed securities that were in a net unrealized loss position at December 31, 2013 and a decrease in yields on U.S. Government agency securities and U.S. Treasury securities during the period.

We have reviewed the securities for which there is an unrealized loss for other-than-temporary impairment in accordance with our accounting policies, discussed further below. We have held-to-maturity asset backed securities that were previously determined to be other-than-temporarily impaired which totaled $76 million and $200 million at September 30, 2014 and December 31, 2013, respectively. We do not consider any other debt securities to be other-than-temporarily impaired at September 30, 2014 as we expect to recover their amortized cost basis and we neither intend nor expect to be required to sell these securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if its fair value is less than its amortized cost at the reporting date. If impaired, we assess whether the unrealized loss is other-than-temporary.

If the entity intends to sell the debt security or if it is more likely than not that the entity will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is considered other-than-temporary and is recorded in earnings. An impairment is also considered other-than-temporary if a credit loss exists (i.e., the present value of the expected future cash flows is less than the amortized cost basis of the debt security). In the event of a credit loss, the credit loss component of an other-than-temporary impairment is recorded in earnings while the remaining portion of the impairment loss attributable to factors other than credit loss is recognized, net of tax, in other comprehensive income.

For all securities held in the available-for-sale or held-to-maturity portfolios for which unrealized losses attributed to factors other than credit existed, we do not have the intention to sell and believe will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. Our assessment for credit loss was concentrated on private label asset-backed securities. Substantially all of the private label asset-backed securities are supported by residential mortgages, home equity loans or commercial mortgages. Our assessment for credit loss was concentrated on this particular asset class because of the following inherent risk factors:


•	The recovery of the U.S. economy has been slow;


•	The high levels of pending foreclosure volume associated with a U.S. housing market in the early stages of recovery;


•	A lack of significant traction in government sponsored programs in loan modifications;


•	A lack of refinancing activities within certain segments of the mortgage market, even at the current low interest rate environment, and the re-default rate for refinanced loans;


•	The unemployment rate although improving remains somewhat high compared with historical levels;


•	The decline in the occupancy rate in commercial properties; and


•	The severity and duration of unrealized loss.

For a complete description of the factors considered when analyzing debt securities for impairment, see Note 5, "Securities" in our 2013 Form 10-K. There have been no material changes in our process for assessing impairment during 2014.

During the three and nine months ended September 30, 2014, none of our debt securities were determined to have initial other-than-temporary impairment while two held-to-maturity asset-backed debt securities were determined to have changes to their previous other-than-temporary impairment estimates related to the credit component. The additional credit losses associated with the impaired debt securities, which reflects the excess of amortized cost over the present value of expected future cash flows, were $4 million and $11 million during the three and nine months ended September 30, 2014, respectively, and were recorded as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of income.

During the three and nine months ended September 30, 2013, none of our debt securities were determined to have either initial other-than-temporary impairment or changes to previous other-than-temporary impairment estimates relating to the credit component, as such, there were no other-than-temporary impairment losses recognized related to credit loss.

At September 30, 2014 and December 31, 2013, the excess of discounted future cash flows over fair value, representing the non-credit component of the unrealized loss associated with other-than-temporary impaired securities which is recognized in accumulated other comprehensive income (loss), was $88 million and $104 million, respectively.

The following table summarizes the rollforward of credit losses which have been recognized in income on other-than-temporary impaired securities that we do not intend to sell nor will likely be required to sell:



	Three Months Ended September 30, 2014		Nine Months Ended September 30, 2014
	(in millions)
Beginning balance of credit losses on held-to-maturity debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)	$	68	$	61
Increase in credit losses for which an other-than-temporary impairment was previously recognized	4		11
Ending balance of credit losses on held-to-maturity debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)	$	72	$	72

At September 30, 2014, we held 17 individual asset-backed securities in the available-for-sale portfolio, of which 5 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $187 million of the total aggregate fair value of asset-backed securities of $248 million at September 30, 2014. The gross unrealized losses on these monoline wrapped securities were $19 million at September 30, 2014. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of September 30, 2014 and, therefore, we only considered the financial guarantee of monoline insurers on securities for purposes of evaluating other-than-temporary impairment on securities with a fair value of $92 million.

At December 31, 2013, we held 22 individual asset-backed securities in the available-for-sale portfolio, of which 8 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $321 million of the total aggregate fair value of asset-backed securities of $448 million at December 31, 2013. The gross unrealized losses on these monoline wrapped securities were $42 million at December 31, 2013. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2013 and, therefore, we only considered the financial guarantee of monoline insurers on securities with a fair value of $98 million for purposes of evaluating other-than-temporary impairment.

As discussed above, certain asset-backed securities in the available-for-sale portfolio have an embedded financial guarantee provided by monoline insurers. Because the financial guarantee is not a separate and distinct contract from the asset-backed security, they are considered as a single unit of account for fair value measurement and impairment assessment purposes. The monoline insurers are regulated by the insurance commissioners of the relevant states and certain monoline insurers that write the financial guarantee contracts are public companies. We did not consider the value of the monoline wrap of any non-investment grade monoline insurer at September 30, 2014 and December 31, 2013. In evaluating the extent of our reliance on investment grade monoline insurance companies, consideration is given to our assessment of the creditworthiness of the monoline and other market factors. We perform both a credit as well as a liquidity analysis on the monoline insurers each quarter. Our analysis also compares market-based credit default spreads, when available, to assess the appropriateness of our monoline insurer’s creditworthiness. Based on the public information available, including the regulatory reviews and actions undertaken by the state insurance commissions and the published financial results, we determine the degree of reliance to be placed on the financial guarantee policy in estimating the cash flows to be collected for the purpose of recognizing and measuring impairment loss.

A credit downgrade to non-investment grade is a key but not the only factor in determining the credit risk or the monoline insurer’s ability to fulfill its contractual obligation under the financial guarantee arrangement. Although a monoline may have been down-graded by the credit rating agencies or have been ordered to commute its operations by the insurance commissioners, it may retain the ability and the obligation to continue to pay claims in the near term. We evaluate the short-term liquidity of and the ability to pay claims by the monoline insurers in estimating the amounts of cash flows expected to be collected from specific asset-backed securities for the purpose of assessing and measuring credit loss.

Realized Gains (Losses) The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale securities:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in millions)
Gross realized gains	$	45		$	68		$	113		$	275
Gross realized losses	(18		)	(33		)	(71		)	(94		)
Net realized gains	$	27		$	35		$	42		$	181

During the first quarter of 2013, we sold six asset-backed securities out of our held-to-maturity portfolio with a total carrying value of $71 million and recognized a gain of $8 million. These sales were in response to the significant credit deterioration which had occurred on these securities which had been classified as substandard for regulatory reporting purposes and, therefore, these disposals did not affect our intent and ability to hold our remaining held-to-maturity portfolio until maturity.

Contractual Maturities and Yields The following table summarizes the amortized cost and fair values of securities available-for-sale and securities held-to-maturity at September 30, 2014 by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. Securities available-for-sale amounts exclude equity securities as they do not have stated maturities. The table below also reflects the distribution of maturities of debt securities held at September 30, 2014, together with the approximate taxable equivalent yield of the portfolio. The yields shown are calculated by dividing annual interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at September 30, 2014. Yields on tax-exempt obligations have been computed on a taxable equivalent basis using applicable statutory tax rates.



	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years
Taxable Equivalent Basis	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(dollars are in millions)
Available-for-sale:
U.S. Treasury	$	275	.35	%	$	9,446	.84	%	$	1,514	3.67	%	$	1,853	3.73	%
U.S. Government sponsored enterprises	—		—		1,074		3.08		2,316		3.26		1,122		3.31
U.S. Government agency issued or guaranteed	—		—		11		4.22		47		3.89		6,119		2.97
Obligations of U.S. states and political subdivisions	—		—		121		3.72		284		3.27		297		3.45
Asset backed securities	—		—		—		—		—		—		267		3.48
Foreign debt securities	454		2.84		3,873		1.95		—		—		—		—
Total amortized cost	$	729	1.90	%	$	14,525	1.33	%	$	4,161	3.42	%	$	9,658	3.18	%
Total fair value	$	729			$	14,595			$	4,455			$	9,857
Held-to-maturity:
U.S. Government sponsored enterprises	$	—	—	%	$	92	1.38	%	$	407	2.86	%	$	3,903	3.22	%
U.S. Government agency issued or guaranteed	—		—		1		7.63		52		2.56		7,478		2.47
Obligations of U.S. states and political subdivisions	5		5.52		9		3.97		5		4.00		5		4.98
Asset backed securities	—		—		—		—		—		—		12		6.41
Asset backed securities issued by consolidated VIE	—		—		76		0.39		—		—		—		—
Total amortized cost	$	5	5.52	%	$	178	1.11	%	$	464	2.84	%	$	11,398	2.73	%
Total fair value	$	5			$	240			$	467			$	11,509

Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $108 million and $483 million, respectively, were included in other assets at September 30, 2014. Investments in Federal Home Loan Bank stock and Federal Reserve Bank stock of $139 million and $483 million, respectively, were included in other assets at December 31, 2013.