Securities

9 Months Ended

Sep. 30, 2013

Securities

Securities

NOTE 2. Securities

			Amortized		Gross Unrealized				Fair
September 30, 2013			Cost		Gains		Losses		Value
			(Dollars in millions)
AFS securities:
	GSE securities		$	549	$	—	$	—	$	549
	MBS issued by GSE			18,957		128		369		18,716
	States and political subdivisions			1,892		69		102		1,859
	Non-agency MBS			273		10		5		278
	Other securities			17		—		—		17
	Covered securities			1,033		413		—		1,446
		Total AFS securities	$	22,721	$	620	$	476	$	22,865
HTM securities:
	GSE securities		$	5,382	$	3	$	328	$	5,057
	MBS issued by GSE			7,668		27		61		7,634
	States and political subdivisions			32		1		1		32
	Other securities			447		11		—		458
		Total HTM securities	$	13,529	$	42	$	390	$	13,181

			Amortized		Gross Unrealized				Fair
December 31, 2012			Cost		Gains		Losses		Value
			(Dollars in millions)
AFS securities:
	GSE securities		$	290	$	—	$	—	$	290
	MBS issued by GSE			20,482		466		18		20,930
	States and political subdivisions			1,948		153		90		2,011
	Non-agency MBS			307		16		11		312
	Other securities			3		—		—		3
	Covered securities			1,147		444		—		1,591
		Total AFS securities	$	24,177	$	1,079	$	119	$	25,137
HTM securities:
	GSE securities		$	3,808	$	17	$	1	$	3,824
	MBS issued by GSE			9,273		238		1		9,510
	States and political subdivisions			34		1		1		34
	Other securities			479		4		3		480
		Total HTM securities	$	13,594	$	260	$	6	$	13,848

As of September 30, 2013 and December 31, 2012, the fair value of covered securities included $1.1 billion and $1.3 billion, respectively, of non-agency MBS and $315 million and $326 million, respectively, of municipal securities.

As of September 30, 2013 and December 31, 2012, securities with carrying values of approximately $18.5 billion and $19.0 billion, respectively, were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded ten percent of shareholders' equity at September 30, 2013. The FNMA investments had total amortized cost and fair value of $13.5 billion and $13.1 billion, respectively. The FHLMC investments had total amortized cost and fair value of $7.2 billion and $7.1 billion, respectively.

The gross realized gains and losses on securities are reflected in the following table:
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
			2013		2012		2013		2012
		(Dollars in millions)
	Gross gains	$	―	$	1	$	46	$	1
	Gross losses		―		―		―		(4)
	Net realized gains (losses)	$	―	$	1	$	46	$	(3)

The following table reflects changes in credit losses on securities with OTTI (excluding covered), which were primarily non-agency MBS, where a portion of the unrealized loss was recognized in OCI. OTTI of $4 million related to covered securities during 2012 is not reflected in this table.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2013		2012		2013		2012
	(Dollars in millions)
Balance at beginning of period	$	96	$	113	$	105	$	130
Credit losses on securities with previously recognized OTTI		―		2		―		5
Reductions for securities sold/settled during the period		(3)		(4)		(12)		(24)
Balance at end of period	$	93	$	111	$	93	$	111

The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table.The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.

		AFS				HTM
		Amortized		Fair		Amortized		Fair
September 30, 2013		Cost		Value		Cost		Value
		(Dollars in millions)
Due in one year or less		$	251	$	251	$	―	$	―
Due after one year through five years			432		440		―		―
Due after five years through ten years			572		595		5,213		4,901
Due after ten years			21,466		21,579		8,316		8,280
	Total debt securities	$	22,721	$	22,865	$	13,529	$	13,181

The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
				Less than 12 months				12 months or more				Total
				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	September 30, 2013			Value		Losses		Value		Losses		Value		Losses
				(Dollars in millions)
	AFS securities:
		MBS issued by GSE		$	8,952	$	343	$	436	$	26	$	9,388	$	369
		States and political subdivisions			256		13		412		89		668		102
		Non-agency MBS			46		—		81		5		127		5
			Total	$	9,254	$	356	$	929	$	120	$	10,183	$	476
	HTM securities:
		GSE securities		$	4,822	$	328	$	—	$	—	$	4,822	$	328
		MBS issued by GSE			5,984		61		8		—		5,992		61
		States and political subdivisions			20		1		2		—		22		1
			Total	$	10,826	$	390	$	10	$	—	$	10,836	$	390

			Less than 12 months				12 months or more				Total
			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2012			Value		Losses		Value		Losses		Value		Losses
			(Dollars in millions)
AFS securities:
	MBS issued by GSE		$	2,662	$	18	$	—	$	—	$	2,662	$	18
	States and political subdivisions			52		1		478		89		530		90
	Non-agency MBS			—		—		113		11		113		11
		Total	$	2,714	$	19	$	591	$	100	$	3,305	$	119
HTM securities:
	GSE securities		$	805	$	1	$	—	$	—	$	805	$	1
	MBS issued by GSE			593		1		—		—		593		1
	States and political subdivisions			22		1		—		—		22		1
	Other securities			266		3		—		—		266		3
		Total	$	1,686	$	6	$	—	$	—	$	1,686	$	6

Periodic reviews are conducted to identify and evaluate each investment with an unrealized loss for OTTI. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI for AFS securities.

Cash flow modeling is used to evaluate non-agency MBS in an unrealized loss position for potential credit impairment. These models give consideration to long-term macroeconomic factors applied to current security default rates, prepayment rates and recovery rates and security-level performance. At September 30, 2013, three non-agency MBS were below investment grade and had unrealized losses, none of which were significant.

At September 30, 2013, $71 million of unrealized loss on municipal securities was the result of fair value hedge basis adjustments that are a component of amortized cost. Municipal securities in an unrealized loss position are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. The evaluation of municipal securities indicated there were no credit losses evident.