NOTE 5 Investment Securities Investment securities include debt and equity securities that the Company classifies 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 15 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: | | 2014 | | 2013 | | | 2012 | | | | | | Gross | | Gross | | Estimated | | | | | Gross | | Gross | | Estimated | | Estimated | | | | | Unrealized | Unrealized | | Fair | | | Unrealized | Unrealized | | Fair | | | Fair | | Description of Securities (Millions) | | | Cost | Gains | Losses | | Value | | Cost | Gains | Losses | | Value | | | Value | | State and municipal obligations | | $ | 3,366 | | $ | 129 | | $ | (2) | | $ | 3,493 | | $ | 4,060 | | $ | 54 | | $ | (79) | | $ | 4,035 | | $ | 4,474 | | U.S. Government agency obligations | | | 3 | | | ― | | | ― | | | 3 | | | 3 | | | ― | | | ― | | | 3 | | | 3 | | U.S. Government treasury obligations | | | 346 | | | 4 | | | ― | | | 350 | | | 318 | | | 3 | | | (1) | | | 320 | | | 338 | | Corporate debt securities | | | 37 | | | 3 | | | ― | | | 40 | | | 43 | | | 3 | | | ― | | | 46 | | | 79 | | Mortgage-backed securities (a) | | | 128 | | | 8 | | | ― | | | 136 | | | 160 | | | 5 | | | (1) | | | 164 | | | 224 | | Equity securities (b) | | | ― | | | 1 | | | ― | | | 1 | | | 29 | | | 95 | | | ― | | | 124 | | | 296 | | Foreign government bonds and obligations | | | 350 | | | 9 | | | ― | | | 359 | | | 272 | | | 5 | | | (1) | | | 276 | | | 149 | | Other (c) | | | 50 | | | ― | | | (1) | | | 49 | | | 50 | | | ― | | | (2) | | | 48 | | | 51 | | Total | | $ | 4,280 | | $ | 154 | | $ | (3) | | $ | 4,431 | | $ | 4,935 | | $ | 165 | | $ | (84) | | $ | 5,016 | | $ | 5,614 |
- Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
- Primarily represents the Company’s investment in the Industrial and Commercial Bank of China (ICBC) as of December 31, 2013 and 2012.
- Other comprises investments in various mutual funds.
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: | | | | 2014 | | 2013 | | | 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 | | $ | ― | | $ | ― | | $ | 72 | | $ | (2) | | $ | 1,320 | | $ | (63) | | $ | 106 | | $ | (16) | | Foreign government bonds and obligations | | | ― | | | ― | | | ― | | | ― | | | 208 | | | (1) | | | ― | | | ― | | U.S. Government treasury obligations | | | ― | | | ― | | | ― | | | ― | | | 166 | | | (1) | | | ― | | | ― | | Mortgage-backed securities | | | ― | | | ― | | | ― | | | ― | | | 35 | | | (1) | | | ― | | | ― | | Other | | | ― | | | ― | | | 33 | | | (1) | | | 30 | | | (1) | | | 17 | | | (1) | | Total | | $ | ― | | $ | ― | | $ | 105 | | $ | (3) | | $ | 1,759 | | $ | (67) | | $ | 123 | | $ | (17) |
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 | | 2014: | | | | | | | | | | | | | | | | | | | | | | | | | | 90%–100% | | ― | | $ | ― | | $ | ― | | 15 | | $ | 105 | | $ | (3) | | 15 | | $ | 105 | | $ | (3) | | Total as of December 31, 2014 | | ― | | $ | ― | | $ | ― | | 15 | | $ | 105 | | $ | (3) | | 15 | | $ | 105 | | $ | (3) | | 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) | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 Contractual maturities and weighted average yields for investment securities, excluding equity securities and other securities, as of December 31, 2014 were as follows: | | | | | | Due after 1 | | Due after 5 | | | | | | | | | Due within | year but | | years but | | Due after | | | | | (Millions) | | 1 year | | within 5 years | | within 10 years | | 10 years | | | Total | | State and municipal obligations(a) | | $ | 182 | | $ | 74 | | $ | 233 | | $ | 3,004 | | $ | 3,493 | | U.S. Government agency obligations | | | ― | | | ― | | | ― | | | 3 | | | 3 | | U.S. Government treasury obligations | | | 66 | | | 264 | | | 8 | | | 12 | | | 350 | | Corporate debt securities | | | 6 | | | 34 | | | ― | | | ― | | | 40 | | Mortgage-backed securities(a) | | | ― | | | 2 | | | ― | | | 134 | | | 136 | | Foreign government bonds and obligations | | | 307 | | | 7 | | | ― | | | 45 | | | 359 | | Total Estimated Fair Value | | $ | 561 | | $ | 381 | | $ | 241 | | $ | 3,198 | | | 4,381 | | | | | | | | | | | | | | | | | | | Total Cost | | $ | 560 | | $ | 374 | | $ | 225 | | $ | 3,071 | | | 4,230 | | | | | | | | | | | | | | | | | | | Weighted average yields(b)(c) | | | 2.50 | % | | 2.07 | % | | 6.71 | % | | 6.81 | % | | |
- 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.
- Average yields for investment securities have been calculated using the effective yield on the date of purchase.
- Yields on tax-exempt investment securities have been computed on a tax-equivalent basis using the U.S. federal statutory tax rate of 35 percent.
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