FAIR VALUE DISCLOSURES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company may use various valuation approaches, including market, income and/or cost approaches. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measure considered from the perspective of a market participant. Accordingly, even when market assumptions are not readily available, the Company’s own assumptions reflect those that market participants would use in pricing the asset or liability at the measurement date. The fair value measurement accounting guidance describes the following three levels used to classify fair value measurements:


•	Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company.


•	Level 2—Quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.


•	Level 3—Unobservable inputs that are significant to the fair value of the assets or liabilities.

The availability of observable inputs can vary and in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to a fair value measurement requires judgment and consideration of factors specific to the asset or liability.

Recurring Fair Value Measurement Techniques

Mortgage-backed Securities

The Company’s mortgage-backed securities portfolio primarily comprised agency mortgage-backed securities and CMOs. Agency mortgage-backed securities and CMOs are guaranteed by U.S. government sponsored enterprises and federal agencies. The weighted average coupon rates for the available-for-sale mortgage-backed securities at March 31, 2016 are shown in the following table:



	Weighted Average Coupon Rate
Agency mortgage-backed securities	2.86	%
Agency CMOs	2.74	%

The fair value of agency mortgage-backed securities was determined using a market approach with quoted market prices, recent market transactions and spread data for similar instruments. The fair value of agency CMOs was determined using market and income approaches along with the Company’s own trading activities for identical or similar instruments. Agency mortgage-backed securities and CMOs were categorized in Level 2 of the fair value hierarchy.

Other Debt Securities

The fair value measurements of agency debentures were classified as Level 2 of the fair value hierarchy as they were based on quoted market prices observable in the marketplace.

The Company's fair value level classification of U.S. Treasuries is based on the original maturity dates of the securities and whether the securities are the most recent issuances of a given maturity. U.S. Treasuries with original maturities less than one year are classified as Level 1. U.S. Treasuries with original maturities longer than one year are classified as Level 1 if they represent the most recent issuance of a given maturity; otherwise, these securities are classified as Level 2.

The fair value measurements of agency debt securities were determined using market and income approaches along with the Company’s own trading activities for identical or similar instruments and were categorized in Level 2 of the fair value hierarchy.

The Company’s municipal bonds are revenue bonds issued by state and other local government agencies. The valuation of corporate bonds is impacted by the credit worthiness of the corporate issuer. All of the Company’s municipal bonds and corporate bonds were rated investment grade at March 31, 2016. These securities were valued using a market approach with pricing service valuations corroborated by recent market transactions for identical or similar bonds. Municipal bonds and corporate bonds were categorized in Level 2 of the fair value hierarchy.

Publicly Traded Equity Securities

The fair value measurements of the Company's publicly traded equity securities were classified as Level 1 of the fair value hierarchy as they were based on quoted market prices in active markets.

Derivative Instruments

Interest rate swap and option contracts were valued with an income approach using pricing models that are commonly used by the financial services industry. The market observable inputs used in the pricing models include the swap curve, the volatility surface, and prime or overnight indexed swap basis from a financial data provider. The Company does not consider these models to involve significant judgment on the part of management, and the Company corroborated the fair value measurements with counterparty valuations. The Company’s derivative instruments were categorized in Level 2 of the fair value hierarchy. The consideration of credit risk, the Company’s or the counterparty’s, did not result in an adjustment to the valuation of its derivative instruments in the periods presented.

Nonrecurring Fair Value Measurement Techniques

Certain other assets are recorded at fair value on a nonrecurring basis: 1) one- to four-family and home equity loans in which the amount of the loan balance in excess of the estimated current value of the underlying property less estimated selling costs has been charged-off; and 2) real estate owned that is carried at the lower of the property’s carrying value or fair value less estimated selling costs.

The Company evaluates and reviews assets that have been subject to fair value measurement requirements on a quarterly basis in accordance with policies and procedures that were designed to be in compliance with guidance from the Company’s regulators. These policies and procedures govern the frequency of the review, the use of acceptable valuation methods, and the consideration of estimated selling costs.

Loans Receivable

Loans that have been delinquent for 180 days or that are in bankruptcy and certain TDR loan modifications are charged-off based on the estimated current value of the underlying property less estimated selling costs. Property valuations for these one- to four-family and home equity loans are based on the most recent "as is" property valuation data available, which may include appraisals, broker price opinions ("BPOs"), automated valuation models or updated values using home price indices. Subsequent to the recording of an initial fair value measurement, these loans continue to be measured at fair value on a nonrecurring basis, utilizing the estimated value of the underlying property less estimated selling costs. These property valuations are updated on a monthly, quarterly or semi-annual basis depending on the type of valuation initially used. If the value of the underlying property has declined, an additional charge-off is recorded. If the value of the underlying property has increased, previously charged-off amounts are not reversed. If the valuation data obtained is significantly different from the valuation previously received, the Company reviews additional property valuation data to corroborate or update the valuation.

BPOs are a type of valuation input used to determine the estimated property values of our collateral dependent mortgage loans. In addition, when available, BPOs are used in various loss mitigation, default management and portfolio monitoring efforts, allowance for loan losses modeling and CLTV estimates. The Company validates BPOs through quality control measures, including comparison to tax records, comparable sale and listing data, prior BPO values and original appraisals. The Company does not adjust BPO values but will only utilize BPOs that pass validation.

Real Estate Owned

Property valuations for real estate owned are based on the lowest value of the most recent property valuation data available, which may include appraisals, listing prices or approved offer prices.

Nonrecurring fair value measurements on one- to four-family and home equity loans and real estate owned were classified as Level 3 of the fair value hierarchy as the valuations included unobservable inputs that were significant to the fair value. The following table presents additional information about significant unobservable inputs used in the valuation of assets measured at fair value on a nonrecurring basis that were categorized in Level 3 of the fair value hierarchy at March 31, 2016 and December 31, 2015:



	Unobservable Inputs	Average		Range
March 31, 2016
Loans receivable:
One- to four-family	Appraised value	$	395,000	$37,000-$2,000,000
Home equity	Appraised value	$	282,700	$8,000-$2,450,000
Real estate owned	Appraised value	$	304,400	$25,500-$1,630,000

December 31, 2015
Loans receivable:
One- to four-family	Appraised value	$	422,900	$8,500-$1,900,000
Home equity	Appraised value	$	274,100	$9,000-$1,300,000
Real estate owned	Appraised value	$	330,700	$26,500-$1,250,000

Recurring and Nonrecurring Fair Value Measurements

Assets and liabilities measured at fair value at March 31, 2016 and December 31, 2015 are summarized in the following tables (dollars in millions):



	Level 1		Level 2		Level 3		Total Fair Value
March 31, 2016:
Recurring fair value measurements:
Assets
Available-for-sale securities:
Debt securities:
Agency mortgage-backed securities and CMOs	$	—	$	12,759	$	—	$	12,759
Agency debentures	—		804		—		804
U.S. Treasuries	—		293		—		293
Agency debt securities	—		77		—		77
Municipal bonds	—		35		—		35
Corporate bonds	—		4		—		4
Total debt securities	—		13,972		—		13,972
Publicly traded equity securities	33		—		—		33
Total available-for-sale securities	33		13,972		—		14,005
Other assets:
Derivative assets⁽¹⁾	—		8		—		8
Total assets measured at fair value on a recurring basis⁽²⁾	$	33	$	13,980	$	—	$	14,013
Liabilities
Derivative liabilities⁽¹⁾	$	—	$	131	$	—	$	131
Total liabilities measured at fair value on a recurring basis⁽²⁾	$	—	$	131	$	—	$	131
Nonrecurring fair value measurements:
Loans receivable:
One- to four-family	$	—	$	—	$	11	$	11
Home equity	—		—		8		8
Total loans receivable	—		—		19		19
Real estate owned	—		—		17		17
Total assets measured at fair value on a nonrecurring basis⁽³⁾	$	—	$	—	$	36	$	36


(1)	All derivative assets and liabilities were interest rate contracts at March 31, 2016. Information related to derivative instruments is detailed in Note 7—Derivative Instruments and Hedging Activities.


(2)	Assets and liabilities measured at fair value on a recurring basis represented 29% and less than 1% of the Company’s total assets and total liabilities, respectively, at March 31, 2016.


(3)	Represents the fair value of assets prior to deducting estimated selling costs that were carried on the consolidated balance sheet at March 31, 2016, and for which a fair value measurement was recorded during the period.



	Level 1		Level 2		Level 3		Total Fair Value
December 31, 2015:
Recurring fair value measurements:
Assets
Available-for-sale securities:
Debt securities:
Agency mortgage-backed securities and CMOs	$	—	$	11,763	$	—	$	11,763
Agency debentures	—		557		—		557
U.S. Treasuries	—		143		—		143
Agency debt securities	—		55		—		55
Municipal bonds	—		35		—		35
Corporate bonds	—		4		—		4
Total debt securities	—		12,557		—		12,557
Publicly traded equity securities	32		—		—		32
Total available-for-sale securities	32		12,557		—		12,589
Other assets:
Derivative assets⁽¹⁾	—		10		—		10
Total assets measured at fair value on a recurring basis⁽²⁾	$	32	$	12,567	$	—	$	12,599
Liabilities
Derivative liabilities⁽¹⁾	$	—	$	55	$	—	$	55
Total liabilities measured at fair value on a recurring basis⁽²⁾	$	—	$	55	$	—	$	55
Nonrecurring fair value measurements:
Loans receivable:
One- to four-family	$	—	$	—	$	41	$	41
Home equity	—		—		22		22
Total loans receivable	—		—		63		63
Real estate owned	—		—		26		26
Total assets measured at fair value on a nonrecurring basis⁽³⁾	$	—	$	—	$	89	$	89


(1)	All derivative assets and liabilities were interest rate contracts at December 31, 2015. Information related to derivative instruments is detailed in Note 7—Derivative Instruments and Hedging Activities.


(2)	Assets and liabilities measured at fair value on a recurring basis represented 28% and less than 1% of the Company’s total assets and total liabilities, respectively, at December 31, 2015.


(3)	Represents the fair value of assets prior to deducting estimated selling costs that were carried on the consolidated balance sheet at December 31, 2015, and for which a fair value measurement was recorded during the period.

The following table presents the gains and losses associated with the assets measured at fair value on a nonrecurring basis during the three months ended March 31, 2016 and 2015 (dollars in millions):



	March 31,
	2016		2015
One- to four-family	$	1	$	2
Home equity	3		4
Total losses on loans receivable measured at fair value	$	4	$	6
Losses (gains) on real estate owned measured at fair value	$	—	$	1

Transfers Between Levels 1 and 2

For assets and liabilities measured at fair value on a recurring basis, the Company’s transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period on a quarterly basis. The Company had no transfers between Level 1 and 2 during the three months ended March 31, 2016 and 2015.

Recurring Fair Value Measurements Categorized within Level 3

At both March 31, 2016 and December 31, 2015, no assets or liabilities measured at fair value on a recurring basis were categorized within Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments Not Carried at Fair Value

The following table summarizes the carrying values, fair values and fair value hierarchy level classification of financial instruments that are not carried at fair value on the consolidated balance sheet at March 31, 2016 and December 31, 2015 (dollars in millions):



	March 31, 2016
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and equivalents	$	1,627	$	1,627	$	—	$	—	$	1,627
Cash required to be segregated under federal or other regulations	$	2,158	$	2,158	$	—	$	—	$	2,158
Held-to-maturity securities:
Agency mortgage-backed securities and CMOs	$	12,016	$	—	$	12,327	$	—	$	12,327
Agency debentures	127		—		128		—		128
Agency debt securities	2,815		—		2,906		—		2,906
Other non-agency debt securities	10		—		—		10		10
Total held-to-maturity securities	$	14,968	$	—	$	15,361	$	10	$	15,371
Margin receivables	$	6,336	$	—	$	6,336	$	—	$	6,336
Loans receivable, net:
One- to four-family	$	2,337	$	—	$	—	$	2,282	$	2,282
Home equity	1,709		—		—		1,583		1,583
Consumer and other	314		—		—		322		322
Total loans receivable, net⁽¹⁾	$	4,360	$	—	$	—	$	4,187	$	4,187
Receivables from brokers, dealers and clearing organizations	$	611	$	—	$	611	$	—	$	611
Liabilities
Deposits	$	31,829	$	—	$	31,829	$	—	$	31,829
Customer payables	$	6,793	$	—	$	6,793	$	—	$	6,793
Payables to brokers, dealers and clearing organizations	$	1,437	$	—	$	1,437	$	—	$	1,437
Trust preferred securities	$	409	$	—	$	—	$	250	$	250
Corporate debt	$	993	$	—	$	1,039	$	—	$	1,039


(1)	The carrying value of loans receivable, net includes the allowance for loan losses of $322 million and loans that are valued at fair value on a nonrecurring basis at March 31, 2016.



	December 31, 2015
	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and equivalents	$	2,233	$	2,233	$	—	$	—	$	2,233
Cash required to be segregated under federal or other regulations	$	1,057	$	1,057	$	—	$	—	$	1,057
Held-to-maturity securities:
Agency mortgage-backed securities and CMOs	$	10,353	$	—	$	10,444	$	—	$	10,444
Agency debentures	127		—		125		—		125
Agency debt securities	2,523		—		2,544		—		2,544
Other non-agency debt securities	10		—		—		10		10
Total held-to-maturity securities	$	13,013	$	—	$	13,113	$	10	$	13,123
Margin receivables	$	7,398	$	—	$	7,398	$	—	$	7,398
Loans receivable, net:
One- to four-family	$	2,465	$	—	$	—	$	2,409	$	2,409
Home equity	1,810		—		—		1,660		1,660
Consumer and other	338		—		—		343		343
Total loans receivable, net⁽¹⁾	$	4,613	$	—	$	—	$	4,412	$	4,412
Receivables from brokers, dealers and clearing organizations	$	520	$	—	$	520	$	—	$	520
Liabilities
Deposits	$	29,445	$	—	$	29,444	$	—	$	29,444
Customer Payables	$	6,544	$	—	$	6,544	$	—	$	6,544
Payables to brokers, dealers and clearing organizations	$	1,576	$	—	$	1,576	$	—	$	1,576
Other borrowings:
Securities sold under agreements to repurchase	$	82	$	—	$	82	$	—	$	82
Trust preferred securities	409		—		—		252		252
Total other borrowings	$	491	$	—	$	82	$	252	$	334
Corporate debt	$	997	$	—	$	1,055	$	—	$	1,055


(1)	The carrying value of loans receivable, net includes the allowance for loan losses of $353 million and loans that are valued at fair value on a nonrecurring basis at December 31, 2015.

The fair value measurement techniques for financial instruments not carried at fair value on the consolidated balance sheet at March 31, 2016 and December 31, 2015 are summarized as follows:

Cash and equivalents, cash required to be segregated under federal or other regulations, margin receivables, receivables from brokers, dealers and clearing organizations, customer payables and payables to brokers, dealers and clearing organizations—Due to their short term nature, fair value is estimated to be carrying value.

Held-to-maturity securities—The held-to-maturity securities portfolio included agency mortgage-backed securities and CMOs, agency debentures, agency debt securities, and other non-agency debt securities. The fair value of agency mortgage-backed securities is determined using market and income approaches with quoted market prices, recent market transactions and spread data for similar instruments. The fair value of agency CMOs and agency debt securities is determined using market and income approaches along with the Company’s own trading activities for identical or similar instruments. The fair value of agency debentures is based on quoted market prices that were derived from assumptions observable in the marketplace. Fair value of other non-agency debt securities is estimated to be carrying value.

Loans receivable, net—Fair value is estimated using a discounted cash flow model. Loans are differentiated based on their individual portfolio characteristics, such as product classification, loan category, pricing features and remaining maturity. Assumptions for expected losses, prepayments and discount rates are adjusted to reflect the individual characteristics of the loans, such as credit risk, coupon, term, and payment characteristics, as well as the secondary market conditions for these types of loans.

Although the market for one- to four-family and home equity loan portfolios has improved, given the lack of observability of valuation inputs, these fair value measurements cannot be determined with precision and changes in the underlying assumptions used, including discount rates, could significantly affect the results of current or future fair value estimates. In addition, the amount that would be realized in a forced liquidation, an actual sale or immediate settlement could be significantly lower than both the carrying value and the estimated fair value of the portfolio.

Deposits—Fair value is the amount payable on demand at the reporting date for sweep deposits, complete savings deposits, other money market and savings deposits and checking deposits. For certificates of deposit, fair value is estimated by discounting future cash flows using discount factors derived from current observable rates implied for other similar instruments with similar remaining maturities.

Securities sold under agreements to repurchase—Fair value for securities sold under agreements to repurchase was determined by discounting future cash flows using discount factors derived from current observable rates implied for other similar instruments with similar remaining maturities at December 31, 2015.

Trust preferred securities—For subordinated debentures, fair value is estimated by discounting future cash flows at the yield implied by dealer pricing quotes.

Corporate debt—For interest-bearing corporate debt, fair value is estimated using dealer pricing quotes. The fair value of the non-interest-bearing convertible debentures is directly correlated to the intrinsic value of the Company’s underlying stock; therefore, as the price of the Company’s stock increases relative to the conversion price, the fair value of the convertible debentures increases.

Fair Value of Commitments and Contingencies

In the normal course of business, the Company makes various commitments to extend credit and incur contingent liabilities that are not reflected in the consolidated balance sheet. Changes in the economy or interest rates may influence the impact that these commitments and contingencies have on the Company in the future. The Company does not estimate the fair value of those commitments. The Company has the right to cancel these commitments in certain circumstances and has closed a significant amount of customer home equity lines of credit in the past eight years. At March 31, 2016, the Company had approximately $55 million of unfunded commitments to extend credit. Information related to such commitments and contingent liabilities is detailed in Note 15—Commitments, Contingencies and Other Regulatory Matters.