NOTE 6
Investment Securities
Investment securities include debt and equity securities classified as available for sale. The Company's investment securities, principally debt securities, are carried at fair value on the Consolidated Balance Sheets with unrealized gains (losses) recorded in AOCI, net of income taxes. Realized gains and losses are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 3 for a description of the Company's methodology for determining the fair value of investment securities.
The following is a summary of investment securities as of December 31:
| 2013 | 2012 | |||||||||||||||||||||||
| Gross | Gross | Estimated | Gross | Gross | Estimated | |||||||||||||||||||
| Unrealized | Unrealized | Fair | Unrealized | Unrealized | Fair | |||||||||||||||||||
| Description of Securities (Millions) | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||
| State and municipal obligations | $ | 4,060 | $ | 54 | $ | (79) | $ | 4,035 | $ | 4,280 | $ | 199 | $ | (5) | $ | 4,474 | ||||||||
| U.S. Government agency obligations | 3 | ― | ― | 3 | 3 | ― | ― | 3 | ||||||||||||||||
| U.S. Government treasury obligations | 318 | 3 | (1) | 320 | 330 | 8 | ― | 338 | ||||||||||||||||
| Corporate debt securities | 43 | 3 | ― | 46 | 73 | 6 | ― | 79 | ||||||||||||||||
| Mortgage-backed securities (a) | 160 | 5 | (1) | 164 | 210 | 14 | ― | 224 | ||||||||||||||||
| Equity securities (b) | 29 | 95 | ― | 124 | 64 | 232 | ― | 296 | ||||||||||||||||
| Foreign government bonds and obligations | 272 | 5 | (1) | 276 | 134 | 15 | ― | 149 | ||||||||||||||||
| Other (c) | 50 | ― | (2) | 48 | 51 | ― | ― | 51 | ||||||||||||||||
| Total | $ | 4,935 | $ | 165 | $ | (84) | $ | 5,016 | $ | 5,145 | $ | 474 | $ | (5) | $ | 5,614 | ||||||||
The following table provides information about the Company's investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31:
| 2013 | 2012 | |||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Less than 12 months | 12 months or more | |||||||||||||||||||||||
| Gross | Gross | Gross | Gross | |||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Description of Securities (Millions) | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
| State and municipal obligations | $ | 1,320 | $ | (63) | $ | 106 | $ | (16) | $ | 100 | $ | (1) | $ | 73 | $ | (4) | ||||||||||
| Foreign government bonds and obligations | 208 | (1) | ― | ― | ― | ― | ― | ― | ||||||||||||||||||
| U.S. Government treasury obligations | 166 | (1) | ― | ― | ― | ― | ― | ― | ||||||||||||||||||
| Mortgage-backed securities | 35 | (1) | ― | ― | ― | ― | ― | ― | ||||||||||||||||||
| Other | 30 | (1) | 17 | (1) | ― | ― | ― | ― | ||||||||||||||||||
| Total | $ | 1,759 | $ | (67) | $ | 123 | $ | (17) | $ | 100 | $ | (1) | $ | 73 | $ | (4) | ||||||||||
The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of December 31:
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
| Gross | Gross | Gross | |||||||||||||||||||||||
| Ratio of Fair Value to | Number of | Estimated | Unrealized | Number of | Estimated | Unrealized | Number of | Estimated | Unrealized | ||||||||||||||||
| Amortized Cost (Dollars in millions) | Securities | Fair Value | Losses | Securities | Fair Value | Losses | Securities | Fair Value | Losses | ||||||||||||||||
| 2013: | |||||||||||||||||||||||||
| 90%–100% | 228 | $ | 1,665 | $ | (53) | 6 | $ | 24 | $ | (2) | 234 | $ | 1,689 | $ | (55) | ||||||||||
| Less than 90% | 13 | 94 | (14) | 5 | 99 | (15) | 18 | 193 | (29) | ||||||||||||||||
| Total as of December 31, 2013 | 241 | $ | 1,759 | $ | (67) | 11 | $ | 123 | $ | (17) | 252 | $ | 1,882 | $ | (84) | ||||||||||
| 2012: | |||||||||||||||||||||||||
| 90%–100% | 46 | $ | 100 | $ | (1) | 4 | $ | 73 | $ | (4) | 50 | $ | 173 | $ | (5) | ||||||||||
| Total as of December 31, 2012 | 46 | $ | 100 | $ | (1) | 4 | $ | 73 | $ | (4) | 50 | $ | 173 | $ | (5) | ||||||||||
The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.
Overall, for the investment securities in gross unrealized loss positions identified above, (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.
Supplemental Information
Gross realized gains and losses on the sales of investment securities, included in other non-interest revenues, were as follows:
| (Millions) | 2013 | 2012 | 2011 | |||||||
| Gains | $ | 136 | $ | 127 | $ | 16 | ||||
| Losses | ― | (1) | ― | |||||||
| Total | $ | 136 | $ | 126 | $ | 16 | ||||
Contractual maturities of investment securities, excluding equity securities and other securities, as of December 31, 2013 were as follows:
| Estimated | |||||||
| (Millions) | Cost | Fair Value | |||||
| Due within 1 year | $ | 505 | $ | 505 | |||
| Due after 1 year but within 5 years | 489 | 496 | |||||
| Due after 5 years but within 10 years | 215 | 224 | |||||
| Due after 10 years | 3,647 | 3,619 | |||||
| Total | $ | 4,856 | $ | 4,844 | |||
The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.