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Fair Value Measurements (Tables)
 12 Months Ended
Dec. 31, 2017
Valuation of Financial Instruments that are Marked-to-Market on Recurring Basis

The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis. During 2017 and 2016, there were no significant transfers of financial instruments between levels.

 

 

 

Fair Value Measurements on a Recurring Basis

 

 

 

December 31, 2017

 

 

December 31, 2016

 

(Dollars in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential mortgage-

   backed securities

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

$

—

 

 

$

1

 

Other

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

Total available-for-sale

   investments

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

3

 

Derivative instruments:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

—

 

 

 

388

 

 

 

4

 

 

 

392

 

 

 

—

 

 

 

553

 

 

 

12

 

 

 

565

 

Cross-currency interest

   rate swaps

 

 

—

 

 

 

—

 

 

 

88

 

 

 

88

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total derivative assets(2)

 

 

—

 

 

 

388

 

 

 

92

 

 

 

480

 

 

 

—

 

 

 

553

 

 

 

12

 

 

 

565

 

Total

 

$

—

 

 

$

390

 

 

$

92

 

 

$

482

 

 

$

—

 

 

$

556

 

 

$

12

 

 

$

568

 

Liabilities(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

—

 

 

$

(144

)

 

$

(45

)

 

$

(189

)

 

$

—

 

 

$

(150

)

 

$

(58

)

 

$

(208

)

Floor Income Contracts

 

 

—

 

 

 

(74

)

 

 

—

 

 

 

(74

)

 

 

—

 

 

 

(184

)

 

 

—

 

 

 

(184

)

Cross-currency interest

   rate swaps

 

 

—

 

 

 

(44

)

 

 

(410

)

 

 

(454

)

 

 

—

 

 

 

(53

)

 

 

(1,243

)

 

 

(1,296

)

Other

 

 

—

 

 

 

—

 

 

 

(18

)

 

 

(18

)

 

 

—

 

 

 

—

 

 

 

(13

)

 

 

(13

)

Total derivative liabilities(2)

 

 

—

 

 

 

(262

)

 

 

(473

)

 

 

(735

)

 

 

—

 

 

 

(387

)

 

 

(1,314

)

 

 

(1,701

)

Total

 

$

—

 

 

$

(262

)

 

$

(473

)

 

$

(735

)

 

$

—

 

 

$

(387

)

 

$

(1,314

)

 

$

(1,701

)

 

(1)

Fair value of derivative instruments excludes accrued interest and the value of collateral.

(2)

See “Note 7 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

(3)

Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.

Change in Balance Sheet Carrying Value Associated with Level 3 Financial Instruments Carried at Fair Value on Recurring Basis

The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.

 

 

 

Year Ended December 31, 2017

 

 

 

Derivative Instruments

 

(Dollars in millions)

 

Interest

Rate Swaps

 

 

Cross

Currency

Interest

Rate Swaps

 

 

Other

 

 

Total

Derivative

Instruments

 

Balance, beginning of period

 

$

(46

)

 

$

(1,243

)

 

$

(13

)

 

$

(1,302

)

Total gains/(losses) (realized and unrealized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

—

 

 

 

803

 

 

 

(15

)

 

 

788

 

Included in other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

5

 

 

 

118

 

 

 

10

 

 

 

133

 

Transfers in and/or out of level 3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Balance, end of period

 

$

(41

)

 

$

(322

)

 

$

(18

)

 

$

(381

)

Change in unrealized gains/(losses) relating to instruments

   still held at the reporting date(2)

 

$

5

 

 

$

795

 

 

$

(5

)

 

$

795

 

 

 

 

Year Ended December 31, 2016

 

 

 

Derivative Instruments

 

(Dollars in millions)

 

Interest

Rate Swaps

 

 

Cross

Currency

Interest

Rate Swaps

 

 

Other

 

 

Total

Derivative

Instruments

 

Balance, beginning of period

 

$

(44

)

 

$

(903

)

 

$

(2

)

 

$

(949

)

Total gains/(losses) (realized and unrealized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

3

 

 

 

(428

)

 

 

(14

)

 

 

(439

)

Included in other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

3

 

 

 

88

 

 

 

3

 

 

 

94

 

Transfers in and/or out of level 3(3)

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

(8

)

Balance, end of period

 

$

(46

)

 

$

(1,243

)

 

$

(13

)

 

$

(1,302

)

Change in unrealized gains/(losses) relating to instruments

   still held at the reporting date(2)

 

$

7

 

 

$

(340

)

 

$

(11

)

 

$

(344

)

 


 

 

Year Ended December 31, 2015

 

 

 

Derivative Instruments

 

(Dollars in millions)

 

Interest

Rate Swaps

 

 

Cross

Currency

Interest

Rate Swaps

 

 

Other

 

 

Total

Derivative

Instruments

 

Balance, beginning of period

 

$

(88

)

 

$

(117

)

 

$

(11

)

 

$

(216

)

Total gains/(losses) (realized and unrealized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

39

 

 

 

(796

)

 

 

6

 

 

 

(751

)

Included in other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Settlements

 

 

5

 

 

 

10

 

 

 

3

 

 

 

18

 

Transfers in and/or out of level 3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Balance, end of period

 

$

(44

)

 

$

(903

)

 

$

(2

)

 

$

(949

)

Change in unrealized gains/(losses) relating to instruments

   still held at the reporting date(2)

 

$

37

 

 

$

(783

)

 

$

9

 

 

$

(737

)

 

 

(1)

“Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:

Included in Earnings

 

 

 

Years Ended December 31,

 

(Dollars in millions)

 

2017

 

 

2016

 

 

2015

 

Gains (losses) on derivative and hedging activities, net

 

$

906

 

 

$

(351

)

 

$

(741

)

Interest expense

 

 

(118

)

 

 

(88

)

 

 

(10

)

Total

 

$

788

 

 

$

(439

)

 

$

(751

)

 

 

(1)

Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.  

 

(2)

Consumer Price Index/LIBOR basis swaps were transferred from level 3 to level 2 in the fourth quarter of 2016 due to the conclusion that these swaps now trade in an active market.
Unobservable Data Used in Recurring Valuations of Level 3

The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.

 

(Dollars in millions)

 

Fair Value at

December 31, 2017

 

 

Valuation

Technique

 

Input

 

Range

(Weighted Average)

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Prime/LIBOR basis swaps

 

$

(41

)

 

Discounted cash flow

 

Constant Prepayment

Rate

 

6%

 

 

 

 

 

 

 

 

 

Bid/ask adjustment to

discount rate

 

.08% — .08%

(.08%)

 

Cross-currency interest rate swaps

 

 

(322

)

 

Discounted cash flow

 

Constant Prepayment

Rate

 

4%

 

Other

 

 

(18

)

 

 

 

 

 

 

 

 

Total

 

$

(381

)

 

 

 

 

 

 

 

 

 
Fair Values of Financial Assets and Liabilities, Including Derivative Financial Instruments

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.

 

 

 

December 31, 2017

 

 

December 31, 2016

 

(Dollars in millions)

 

Fair Value

 

 

Carrying

Value

 

 

Difference

 

 

Fair Value

 

 

Carrying

Value

 

 

Difference

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

82,271

 

 

$

81,703

 

 

$

568

 

 

$

86,626

 

 

$

87,730

 

 

$

(1,104

)

Private Education Loans

 

 

24,421

 

 

 

23,419

 

 

 

1,002

 

 

 

23,191

 

 

 

23,340

 

 

 

(149

)

Cash and investments(1)

 

 

5,034

 

 

 

5,034

 

 

 

—

 

 

 

5,203

 

 

 

5,203

 

 

 

—

 

Total earning assets

 

 

111,726

 

 

 

110,156

 

 

 

1,570

 

 

 

115,020

 

 

 

116,273

 

 

 

(1,253

)

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

4,783

 

 

 

4,771

 

 

 

(12

)

 

 

2,346

 

 

 

2,334

 

 

 

(12

)

Long-term borrowings

 

 

104,921

 

 

 

105,012

 

 

 

91

 

 

 

109,826

 

 

 

112,368

 

 

 

2,542

 

Total interest-bearing liabilities

 

 

109,704

 

 

 

109,783

 

 

 

79

 

 

 

112,172

 

 

 

114,702

 

 

 

2,530

 

Derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor Income Contracts

 

 

(74

)

 

 

(74

)

 

 

—

 

 

 

(184

)

 

 

(184

)

 

 

—

 

Interest rate swaps

 

 

203

 

 

 

203

 

 

 

—

 

 

 

357

 

 

 

357

 

 

 

—

 

Cross-currency interest rate swaps

 

 

(366

)

 

 

(366

)

 

 

—

 

 

 

(1,296

)

 

 

(1,296

)

 

 

—

 

Other

 

 

(18

)

 

 

(18

)

 

 

—

 

 

 

(13

)

 

 

(13

)

 

 

—

 

Excess of net asset fair value over carrying value

 

 

 

 

 

 

 

 

 

$

1,649

 

 

 

 

 

 

 

 

 

 

$

1,277

 

 

(1)

“Cash and investments” includes available-for-sale investments whose cost basis is $2 million and $3 million at December 31, 2017 and 2016, respectively, versus a fair value of $2 million and $3 million at December 31, 2017 and 2016, respectively.