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Investment Securities
 9 Months Ended
Sep. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
NOTE 3—INVESTMENT SECURITIES
Our investment portfolio consists primarily of the following: U.S. Treasury debt; U.S. agency debt and corporate debt securities guaranteed by U.S. government agencies; U.S. government sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”); other asset-backed securities (“ABS”); and other investments. The carrying value of our investments in U.S. Treasury, Agency securities and other securities guaranteed by the U.S. government or U.S. government agencies represents 85% and 77% of our total investment securities as of September 30, 2014 and December 31, 2013, respectively.
Our investment portfolio includes securities available for sale and securities held to maturity. We classify securities as available for sale or held to maturity based on our investment strategy and management’s assessment of our intent and ability to hold the securities until maturity.
The table below presents the overview of our investment portfolio at September 30, 2014 and December 31, 2013.
Table 3.1: Overview of Investment Portfolio
(Dollars in millions)
 
September 30, 2014
 
December 31, 2013
Securities available for sale, at fair value
 
$
39,665

 
$
41,800

Securities held to maturity, at carrying value
 
22,182

 
19,132

Total investments
 
$
61,847

 
$
60,932


The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale at September 30, 2014 and December 31, 2013.
Table 3.2: Investment Securities Available for Sale
 
 
September 30, 2014
(Dollars in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(1)
 
Fair
Value
Investment securities available for sale:
 
 
 
 
 
 
 
 
U.S. Treasury debt obligations
 
$
4,261

 
$
2

 
$
(2
)
 
$
4,261

U.S. agency debt obligations
 
1

 
0

 
0

 
1

Corporate debt securities guaranteed by U.S. government agencies
 
1,001

 
1

 
(23
)
 
979

Residential mortgage-backed securities (“RMBS”):
 
 
 
 
 
 
 
 
Agency(2)
 
20,853

 
274

 
(141
)
 
20,986

Non-agency
 
3,024

 
486

 
(13
)
 
3,497

Total RMBS
 
23,877

 
760

 
(154
)
 
24,483

Commercial mortgage-backed securities (“CMBS”):
 
 
 
 
 
 
 
 
Agency(2)
 
4,029

 
25

 
(71
)
 
3,983

Non-agency
 
1,809

 
22

 
(28
)
 
1,803

Total CMBS
 
5,838

 
47

 
(99
)
 
5,786

Other asset-backed securities (“ABS”)(3)
 
3,038

 
58

 
(13
)
 
3,083

Other securities(4)
 
1,087

 
6

 
(21
)
 
1,072

Total investment securities available for sale
 
$
39,103

 
$
874

 
$
(312
)
 
$
39,665

 
 
December 31, 2013
(Dollars in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses(1)
 
Fair
Value
Investment securities available for sale:
 
 
 
 
 
 
 
 
U.S. Treasury debt obligations
 
$
831

 
$
2

 
$
0

 
$
833

U.S. agency debt obligations
 
1

 
0

 
0

 
1

Corporate debt securities guaranteed by U.S. government agencies
 
1,282

 
1

 
(49
)
 
1,234

RMBS:
 
 
 
 
 
 
 
 
Agency(2)
 
21,572

 
239

 
(332
)
 
21,479

Non-agency
 
3,165

 
450

 
(15
)
 
3,600

Total RMBS
 
24,737

 
689

 
(347
)
 
25,079

CMBS:
 
 
 
 
 
 
 
 
Agency(2)
 
4,262

 
20

 
(84
)
 
4,198

Non-agency
 
1,854

 
14

 
(60
)
 
1,808

Total CMBS
 
6,116

 
34

 
(144
)
 
6,006

Other ABS(3)
 
7,123

 
49

 
(36
)
 
7,136

Other securities(4)
 
1,542

 
24

 
(55
)
 
1,511

Total investment securities available for sale
 
$
41,632

 
$
799

 
$
(631
)
 
$
41,800

__________
(1) 
Includes non-credit related OTTI that remains in Accumulated Other Comprehensive Income (“AOCI”) of $8 million and $12 million as of September 30, 2014 and December 31, 2013, respectively. Substantially all of this amount is related to non-agency RMBS.
(2) 
The Agency includes Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Government National Mortgage Association (“Ginnie Mae”).
(3) 
ABS collateralized by credit card loans constituted approximately 55% and 65% of the other ABS portfolio as of September 30, 2014, and December 31, 2013, respectively, and ABS collateralized by auto dealer floor plan inventory loans and leases constituted approximately 16% and 15% of the other ABS portfolio as of September 30, 2014 and December 31, 2013, respectively. Approximately 89% of the securities in our other ABS portfolio were rated AAA or its equivalent as of September 30, 2014, compared with 87% as of December 31, 2013.
(4) 
Includes foreign government/agency bonds, covered bonds, corporate securities, municipal securities and equity investments primarily related to activities under the Community Reinvestment Act (“CRA”).
The table below presents the carrying value, gross unrealized gains and losses, and fair value of securities held to maturity at September 30, 2014 and December 31, 2013.
Table 3.3: Investment Securities Held to Maturity
 
 
September 30, 2014
(Dollars in millions)
 
Amortized
Cost
 
Unrealized
Losses Recorded in AOCI(1)
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency RMBS
 
$
21,565

 
$
(1,216
)
 
$
20,349

 
$
694

 
$
(5
)
 
$
21,038

Agency CMBS
 
1,956

 
(123
)
 
1,833

 
65

 
(8
)
 
1,890

Total investment securities held to maturity
 
$
23,521

 
$
(1,339
)
 
$
22,182

 
$
759

 
$
(13
)
 
$
22,928

 
 
December 31, 2013
(Dollars in millions)
 
Amortized
Cost
 
Unrealized
Losses Recorded in AOCI(1)
 
Carrying Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency RMBS
 
$
18,746

 
$
(1,303
)
 
$
17,443

 
$
72

 
$
(30
)
 
$
17,485

Agency CMBS
 
1,821

 
(132
)
 
1,689

 
16

 
(5
)
 
1,700

Total investment securities held to maturity
 
$
20,567

 
$
(1,435
)
 
$
19,132

 
$
88

 
$
(35
)
 
$
19,185

__________
(1) 
Represents the unrealized holding gain or loss at the date of transfer from available for sale to held to maturity, net of any accretion.
Investment Securities in a Gross Unrealized Loss Position
The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2014 and December 31, 2013.
Table 3.4: Securities in Unrealized Loss Position
 
 
September 30, 2014
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in millions)
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury debt obligations(1)
 
$
2,340

 
$
(2
)
 
$
0

 
$
0

 
$
2,340

 
$
(2
)
Corporate debt securities guaranteed by U.S. government agencies
 
187

 
(3
)
 
554

 
(20
)
 
741

 
(23
)
RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
3,071

 
(17
)
 
4,787

 
(124
)
 
7,858

 
(141
)
Non-agency
 
363

 
(8
)
 
104

 
(5
)
 
467

 
(13
)
Total RMBS
 
3,434

 
(25
)
 
4,891

 
(129
)
 
8,325

 
(154
)
CMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
688

 
(9
)
 
1,867

 
(62
)
 
2,555

 
(71
)
Non-agency
 
264

 
(1
)
 
749

 
(27
)
 
1,013

 
(28
)
Total CMBS
 
952

 
(10
)
 
2,616

 
(89
)
 
3,568

 
(99
)
Other ABS
 
282

 
0

 
732

 
(13
)
 
1,014

 
(13
)
Other securities
 
144

 
(1
)
 
559

 
(20
)
 
703

 
(21
)
Total investment securities available for sale in a gross unrealized loss position
 
$
7,339

 
$
(41
)
 
$
9,352

 
$
(271
)
 
$
16,691

 
$
(312
)
 
 
December 31, 2013
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
(Dollars in millions)
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities guaranteed by U.S. government agencies
 
1,143

 
(47
)
 
46

 
(2
)
 
1,189

 
(49
)
RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
9,769

 
(263
)
 
1,770

 
(69
)
 
11,539

 
(332
)
Non-agency
 
454

 
(10
)
 
56

 
(5
)
 
510

 
(15
)
Total RMBS
 
10,223

 
(273
)
 
1,826

 
(74
)
 
12,049

 
(347
)
CMBS:
 
 
 
 
 
 
 
 
 
 
 
 
Agency
 
2,842

 
(74
)
 
256

 
(10
)
 
3,098

 
(84
)
Non-agency
 
952

 
(43
)
 
183

 
(17
)
 
1,135

 
(60
)
Total CMBS
 
3,794

 
(117
)
 
439

 
(27
)
 
4,233

 
(144
)
Other ABS
 
2,528

 
(34
)
 
392

 
(2
)
 
2,920

 
(36
)
Other securities
 
1,149

 
(51
)
 
57

 
(4
)
 
1,206

 
(55
)
Total investment securities available for sale in a gross unrealized loss position
 
$
18,837

 
$
(522
)
 
$
2,760

 
$
(109
)
 
$
21,597

 
$
(631
)
__________
(1) 
None of our investments in U.S. Treasury debt obligations were in an unrealized loss position as of December 31, 2013.
As of September 30, 2014, the amortized cost of approximately 550 securities available for sale exceeded their fair value by $312 million, of which $271 million related to investment securities that had been in a loss position for 12 months or longer. Our investments in non-agency RMBS and CMBS, other ABS, and other securities accounted for $76 million, or 24%, of total gross unrealized losses on securities available for sale as of September 30, 2014. As of September 30, 2014, the carrying value of approximately 30 securities held to maturity exceeded their fair value by $13 million. Substantially all of these unrecognized losses relate to securities held to maturity that have been in a loss position for less than 12 months as of September 30, 2014.
Gross unrealized losses on our investment securities have generally decreased since December 31, 2013. The unrealized losses related to investment securities for which we have not recognized credit impairment are primarily attributable to changes in market interest rates. We have recognized in earnings the unrealized losses related to the investment securities that we intend to sell. As of September 30, 2014, we do not intend to sell any securities with unrealized losses recorded in AOCI nor believe that we will be required to sell prior to recovery of their amortized cost. As discussed in more detail below, we conduct periodic reviews of all investment securities with unrealized losses to assess whether impairment is other-than-temporary. We believe the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of September 30, 2014.
Maturities and Yields of Investment Securities
The following tables summarize the remaining scheduled contractual maturities, assuming no prepayments, of our investment securities as of September 30, 2014:
Table 3.5: Contractual Maturities of Securities Available for Sale

 
September 30, 2014
 (Dollars in millions)
 
Amortized Cost
 
Fair Value
Due in 1 year or less
 
$
1,345

 
$
1,348

Due after 1 year through 5 years
 
6,580

 
6,587

Due after 5 years through 10 years
 
3,112

 
3,094

Due after 10 years(1)
 
28,066

 
28,636

Total
 
$
39,103

 
$
39,665

__________
(1) 
Investments with no stated maturities, which consist of equity securities, are included with contractual maturities due after 10 years.
Table 3.6: Contractual Maturities of Securities Held to Maturity
 
 
September 30, 2014
 (Dollars in millions)
 
Carrying Value
 
Fair Value
Due after 5 years through 10 years
 
$
1,142

 
$
1,200

Due after 10 years
 
21,040

 
21,728

Total
 
$
22,182

 
$
22,928


Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented above. The table below summarizes, by major security type, the expected maturities and weighted average yields of our investment securities as of September 30, 2014.
Table 3.7: Expected Maturities and Weighted Average Yields of Securities
 
 
September 30, 2014
(Dollars in millions)
 
Due in 1 Year
or Less
 
Due > 1 Year
through
5 Years
 
Due > 5 Years
through
10 Years
 
Due > 10 Years
 
Total
Fair value of securities available for sale:
U.S. Treasury debt obligations
 
$
653

 
$
3,608

 
$
0

 
$
0

 
$
4,261

U.S. agency debt obligations
 
1

 
0

 
0

 
0

 
1

Corporate debt securities guaranteed by U.S. government agencies
 
0

 
392

 
573

 
14

 
979

RMBS:
 
 
 
 
 
 
 
 
 
 
Agency
 
158

 
9,998

 
10,830

 
0

 
20,986

Non-agency
 
17

 
944

 
1,898

 
638

 
3,497

Total RMBS
 
175

 
10,942

 
12,728

 
638

 
24,483

CMBS:
 
 
 
 
 
 
 
 
 
 
Agency
 
364

 
2,672

 
947

 
0

 
3,983

Non-agency
 
83

 
502

 
1,198

 
20

 
1,803

Total CMBS
 
447

 
3,174

 
2,145

 
20

 
5,786

Other ABS
 
1,019

 
1,705

 
256

 
103

 
3,083

Other securities
 
55

 
316

 
614

 
87

 
1,072

Total securities available for sale
 
2,350

 
20,137

 
16,316

 
862

 
39,665

Amortized cost of securities available for sale
 
$
2,349

 
$
19,945

 
$
16,065

 
$
744

 
$
39,103

Weighted average yield for securities available for sale(1)
 
1.16
%
 
2.14
%
 
3.01
%
 
7.90
%
 
2.55
%
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
(Dollars in millions)
 
Due in 1 Year
or Less
 
Due > 1 Year
through
5 Years
 
Due > 5 Years
through
10 Years
 
Due > 10 Years
 
Total
Carrying value of securities held to maturity:
Agency RMBS
 
$
0

 
$
193

 
$
17,421

 
$
2,735

 
$
20,349

Agency CMBS
 
0

 
425

 
1,339

 
69

 
1,833

Total securities held for maturity
 
0

 
618

 
18,760

 
2,804

 
22,182

Fair value of securities held to maturity
 
$
0

 
$
616

 
$
19,348

 
$
2,964

 
$
22,928

Weighted average yield for securities held to maturity(1)
 
0.00
%
 
2.38
%
 
2.70
%
 
3.32
%
 
2.76
%
__________
(1)
Average yield is calculated based on the amortized cost of each security. Effective in the second quarter of 2014, we began reporting the effective yield for the investment securities. Prior to the second quarter of 2014, we reported the purchase yield for the investment securities. The impact of this change on prior periods is not material.
Other-Than-Temporary Impairment
We evaluate all securities in an unrealized loss position at least on a quarterly basis, and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment (“OTTI”) assessment is based on a discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal payments; the value of underlying collateral; our intent and ability to hold the security for the long term; and current and projected market and macro-economic conditions.
For a debt security that has experienced a decline in the fair value below its amortized cost basis, we recognize OTTI in earnings if we have the intent to sell the security or if we believe it is more likely than not that we will be required to sell the security in the near term. For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit related impairment recorded in AOCI. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows, discounted based on the effective yield.
The table below presents a rollforward of the credit related OTTI recognized in earnings for the three and nine months ended September 30, 2014 and 2013 on investment securities that we do not intend to sell:
Table 3.8: Credit Impairment Rollforward
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
 
2014
 
2013
 
2014
 
2013
Credit loss component, beginning of period
 
$
165

 
$
149

 
$
160

 
$
120

Additions:
 
 
 
 
 
 
 
 
Initial credit impairment
 
1

 
3

 
2

 
14

Subsequent credit impairment
 
2

 
8

 
6

 
26

Total additions
 
3

 
11

 
8

 
40

Reduction due to payoffs, disposals, transfers & other
 
(2
)
 
0

 
(2
)
 
0

Credit loss component, end of period
 
$
166

 
$
160

 
$
166

 
$
160


Realized Gains and Losses on Securities and OTTI Recognized in Earnings
The following table presents the gross realized gains and losses on the sale and redemption of securities available for sale, and the OTTI losses recognized in earnings for the three and nine months ended September 30, 2014 and 2013. We also present the proceeds from the sale of securities available for sale for the periods presented. We did not sell any investment securities that are held to maturity.
Table 3.9: Realized Gains and Losses and OTTI Recognized in Earnings
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
 
2014
 
2013
 
2014
 
2013
Realized gains (losses):
 
 
 
 
 
 
 
 
Gross realized gains
 
$
16

 
$
0

 
$
50

 
$
6

Gross realized losses
 
(10
)
 
0

 
(32
)
 
(3
)
Net realized gains (losses)
 
$
6

 
$
0

 
$
18

 
$
3

OTTI recognized in earnings:
 
 
 
 
 
 
 
 
Credit-related OTTI
 
$
(3
)
 
$
(11
)
 
$
(8
)
 
$
(40
)
Intent-to-sell OTTI
 
(6
)
 
0

 
(7
)
 
0

Total OTTI recognized in earnings
 
$
(9
)
 
$
(11
)
 
$
(15
)
 
$
(40
)
Net securities gains (losses)
 
$
(3
)
 
$
(11
)
 
$
3

 
$
(37
)
Total proceeds from sales
 
$
3,268

 
$
35

 
$
6,827

 
$
1,355


Securities Pledged and Received
As part of our liquidity management strategy, we pledge securities to secure borrowings from counterparties including the Federal Home Loan Banks (“FHLB”) and the Federal Reserve Bank. We also pledge securities to secure trust and public deposits and for other purposes as required or permitted by law. We pledged securities available for sale with a fair value of $5.8 billion and $10.7 billion as of September 30, 2014 and December 31, 2013, respectively. We pledged securities held to maturity with a carrying value of $13.7 billion and $8.2 billion as of September 30, 2014 and December 31, 2013, respectively. Of the total securities pledged as collateral, we have encumbered $11.3 billion and $17.3 billion as of September 30, 2014 and December 31, 2013, respectively, primarily related to FHLB transactions and Public Fund deposits. We accepted pledges of securities with a fair value of $63 million and $53 million as of September 30, 2014 and December 31, 2013, respectively, primarily related to our derivative transactions.
Securities Acquired
Our investment portfolio includes certain acquired debt securities that were deemed to be credit impaired at acquisition date. These securities are accounted for in accordance with accounting guidance for purchased credit-impaired debt securities.
Outstanding Balance and Carrying Value of Acquired Securities
The table below presents the outstanding contractual balance and the carrying value of the acquired credit-impaired debt securities as of September 30, 2014 and December 31, 2013.
Table 3.10: Outstanding Balance and Carrying Value of Acquired Securities
(Dollars in millions)
 
September 30, 2014
 
December 31, 2013
Contractual principal and interest
 
$
4,366

 
$
4,700

Carrying value
 
2,923

 
2,896

Amortized cost
 
2,413

 
2,432


Changes in Accretable Yield of Acquired Securities
The following table presents changes in the accretable yield related to the acquired credit-impaired debt securities:
Table 3.11: Changes in Accretable Yield of Acquired Securities
(Dollars in millions)
 
Acquired
Credit-Impaired
Securities
Accretable yield as of December 31, 2012
 
$
1,512

Additions from new acquisitions
 
88

Accretion recognized in earnings
 
(247
)
Reduction due to payoffs, disposals, transfers & other
 
(2
)
Net reclassifications (to) from nonaccretable difference
 
72

Accretable yield as of December 31, 2013
 
$
1,423

Additions from new acquisitions
 
34

Accretion recognized in earnings
 
(182
)
Reduction due to payoffs, disposals, transfers & other
 
(3
)
Net reclassifications (to) from nonaccretable difference
 
81

Accretable yield as of September 30, 2014
 
$
1,353