Bank of America 2013 Annual Report Download - page 112

110 Bank of America 2013
Securities
The securities portfolio is an integral part of our interest rate risk
management, which includes our ALM positioning, and is primarily
comprised of debt securities including MBS and to a lesser extent
U.S. Treasury, corporate, municipal and other debt securities. As
part of the ALM positioning, we use derivatives to hedge interest
rate and duration risk. At December 31, 2013 and 2012, our
securities portfolio used for ALM positioning had a carrying value
of $323.9 billion and $360.3 billion.
During 2013 and 2012, we purchased debt securities of
$190.4 billion and $185.5 billion, sold $117.7 billion and $72.4
billion, and had maturities and received paydowns of $94.0 billion
and $77.8 billion, respectively. We realized $1.3 billion and $1.7
billion in net gains on sales of AFS debt securities.
At December 31, 2013 and 2012, accumulated OCI included
after-tax net unrealized losses of $3.3 billion and gains of $4.4
billion on AFS debt securities and after-tax net unrealized losses
of $4 million and gains of $462 million on AFS marketable equity
securities. For more information on accumulated OCI, see Note 14
– Accumulated Other Comprehensive Income (Loss) to the
Consolidated Financial Statements. The pre-tax net amounts in
accumulated OCI related to AFS debt securities decreased $12.2
billion during 2013 to a $5.2 billion net unrealized loss primarily
due to the impact of higher interest rates. For more information
on our securities portfolio, see Note 3 – Securities to the
Consolidated Financial Statements.
We recognized $20 million of other-than-temporary impairment
(OTTI) losses in earnings on AFS debt securities in 2013 compared
to losses of $53 million in 2012. The recognition of OTTI losses
is based on a variety of factors, including the length of time and
extent to which the market value has been less than amortized
cost, the financial condition of the issuer of the security including
credit ratings and any specific events affecting the operations of
the issuer, underlying assets that collateralize the debt security,
other industry and macroeconomic conditions, and our intent and
ability to hold the security to recovery.
Residential Mortgage Portfolio
At December 31, 2013 and 2012, our residential mortgage
portfolio was $248.1 billion and $252.9 billion excluding $2.0
billion and $1.0 billion of consumer residential mortgage loans
accounted for under the fair value option. For more information on
consumer fair value option loans, see Consumer Portfolio Credit
Risk Management – Consumer Loans Accounted for Under the Fair
Value Option on page 85. The $4.9 billion decrease in 2013 was
primarily due to paydowns, charge-offs, transfers to foreclosed
properties and sales. These were partially offset by new origination
volume retained on our balance sheet, loans repurchased as part
of the FNMA Settlement, as well as repurchases of delinquent
loans pursuant to our servicing agreements with GNMA, which is
part of our mortgage banking activities. For more information on
the FNMA Settlement, see Note 7 – Representations and Warranties
Obligations and Corporate Guarantees to the Consolidated
Financial Statements.
During 2013, CRES and GWIM originated $44.5 billion of first-
lien mortgages that we retained compared to $35.4 billion in 2012.
Additionally, during 2013 in connection with the FNMA Settlement,
we repurchased $5.3 billion of certain residential mortgage loans
as mentioned above. We repurchased, net of loans redelivered,
$5.5 billion of loans pursuant to our servicing agreements with
GNMA, primarily FHA-insured loans, compared to $7.0 billion in
2012. Sales of loans, excluding redelivered FHA loans, during
2013 were $4.0 billion compared to $302 million in 2012.
Substantially all of the loans sold in 2013 were nonperforming or
PCI. Gains recognized on the sales of residential mortgages in
both years were not material. We received paydowns of
$53.0 billion in 2013 compared to $54.3 billion in 2012.
Interest Rate and Foreign Exchange Derivative
Contracts
Interest rate and foreign exchange derivative contracts are utilized
in our ALM activities and serve as an efficient tool to manage our
interest rate and foreign exchange risk. We use derivatives to
hedge the variability in cash flows or changes in fair value on our
balance sheet due to interest rate and foreign exchange
components. For more information on our hedging activities, see
Note 2 – Derivatives to the Consolidated Financial Statements.
Our interest rate contracts are generally non-leveraged generic
interest rate and foreign exchange basis swaps, options, futures
and forwards. In addition, we use foreign exchange contracts,
including cross-currency interest rate swaps, foreign currency
futures contracts, foreign currency forward contracts and options
to mitigate the foreign exchange risk associated with foreign
currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during
2013 reflect actions taken for interest rate and foreign exchange
rate risk management. The decisions to reposition our derivatives
portfolio are based on the current assessment of economic and
financial conditions including the interest rate and foreign currency
environments, balance sheet composition and trends, and the
relative mix of our cash and derivative positions.