Fair Values of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2019

The following table shows the significant valuation assumption ranges for MSRs at March 31, 2019:


	Minimum			Maximum			Weighted Average (a)
Expected prepayment		8	%		18	%		11	%
Option adjusted spread		7			10			8

(a)

Determined based on the relative fair value of the related mortgage loans serviced.

Valuation Assumption Ranges for Derivative Commitments

The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at March 31, 2019:


	Minimum			Maximum			Weighted Average (a)
Expected loan close rate		3	%		100	%		79	%
Inherent MSR value (basis points per loan)		17			202			127

(a)

Determined based on the relative fair value of the related mortgage loans.

Balances of Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:


(Dollars in Millions)	Level 1		Level 2		Level 3		Netting			Total
March 31, 2019
Available-for-sale securities
U.S. Treasury and agencies	$	18,266	$	653	$	–	$	–		$	18,919
Mortgage-backed securities
Residential agency		–		41,879		–		–			41,879
Commercial agency		–		2		–		–			2
Other asset-backed securities		–		395		–		–			395
Obligations of state and political subdivisions		–		6,918		–		–			6,918
Total available-for-sale		18,266		49,847		–		–			68,113
Mortgage loans held for sale		–		2,690		–		–			2,690
Mortgage servicing rights		–		–		2,656		–			2,656
Derivative assets		–		1,405		812		(872	)		1,345
Other assets		249		1,724		–		–			1,973
Total	$	18,515	$	55,666	$	3,468	$	(872	)	$	76,777
Derivative liabilities	$	8	$	1,242	$	357	$	(796	)	$	811
Short-term borrowings and other liabilities (a)		189		1,283		–		–			1,472
Total	$	197	$	2,525	$	357	$	(796	)	$	2,283
December 31, 2018
Available-for-sale securities
U.S. Treasury and agencies	$	18,585	$	672	$	–	$	–		$	19,257
Mortgage-backed securities
Residential agency		–		39,752		–		–			39,752
Commercial agency		–		2		–		–			2
Other asset-backed securities		–		403		–		–			403
Obligations of state and political subdivisions		–		6,701		–		–			6,701
Total available-for-sale		18,585		47,530		–		–			66,115
Mortgage loans held for sale		–		2,035		–		–			2,035
Mortgage servicing rights		–		–		2,791		–			2,791
Derivative assets		–		1,427		583		(942	)		1,068
Other assets		392		1,273		–		–			1,665
Total	$	18,977	$	52,265	$	3,374	$	(942	)	$	73,674
Derivative liabilities	$	1	$	1,291	$	503	$	(946	)	$	849
Short-term borrowings and other liabilities (a)		199		1,019		–		–			1,218
Total	$	200	$	2,310	$	503	$	(946	)	$	2,067

Note:

Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $86 million at March 31, 2019 and December 31, 2018. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first three months of 2019 and 2018, or on a cumulative basis.

(a)

Primarily represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

Changes in Fair Value for All Assets and Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3)

The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31:


(Dollars in Millions)	Beginning of Period Balance		Net Gains (Losses) Included in Net Income			Purchases		Sales			Issuances			Settlements		End of Period Balance			Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2019
Mortgage servicing rights	$	2,791	$	(214	) (a)	$	1	$	–		$	78	(c)	$	–	$	2,656		$	(214	) (a)
Net derivative assets and liabilities		80		363	(b)		1		(7	)		–			18		455			424	(d)

2018
Mortgage servicing rights	$	2,645	$	33	(a)	$	2	$	–		$	100	(c)	$	–	$	2,780		$	33	(a)
Net derivative assets and liabilities		107		(251	) (e)		1		(6	)		–			17		(132	)		(212	) (f)

(a)

Included in mortgage banking revenue.

(b)

Approximately $280 million included in other noninterest income and $83 million included in mortgage banking revenue.

(c)

Represents MSRs capitalized during the period.

(d)

Approximately $388 million included in other noninterest income and $36 million included in mortgage banking revenue.

(e)

Approximately $(271) million included in other noninterest income and $20 million included in mortgage banking revenue.

(f)

Approximately $(240) million included in other noninterest income and $28 million included in mortgage banking revenue.

Adjusted Carrying Values for Assets Measured at Fair Value on Nonrecurring Basis

The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:


	March 31, 2019								December 31, 2018
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Loans (a)	$	–	$	–	$	247	$	247	$	–	$	–	$	40	$	40

Other assets (b)		–		–		15		15		–		–		57		57

(a)

Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.

(b)

Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.

Losses Recognized Related to Nonrecurring Fair Value Measurements of Individual Assets or Portfolios

The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios for the three months ended March 31:


(Dollars in Millions)	2019		2018
Loans (a)	$	44	$	23
Other assets (b)		3		5

(a)

Represents write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.

(b)

Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

Differences Between Aggregate Fair Value Carrying Amount of MLHFS for which Fair Value Option has been Elected and Aggregate Unpaid Principal Amount Contractually Obligated to Receive at Maturity

The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:


	March 31, 2019						December 31, 2018
(Dollars in Millions)	Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal		Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal
Total loans	$	2,690	$	2,596	$	94	$	2,035	$	1,972	$	63
Nonaccrual loans		2		2		–		2		2		–
Loans 90 days or more past due		–		–		–		–		–		–

Estimated Fair Values of Financial Instruments

The estimated fair values of the Company’s financial instruments are shown in the table below:


	March 31, 2019										December 31, 2018
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(Dollars in Millions)	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from banks	$	18,115	$	18,115	$	–	$	–	$	18,115	$	21,453	$	21,453	$	–	$	–	$	21,453
Federal funds sold and securities purchased under resale agreements		3,868		–		3,868		–		3,868		306		–		306		–		306
Investment securities held-to-maturity		46,285		4,495		41,228		12		45,735		46,050		4,594		40,359		11		44,964
Loans held for sale (a)		35		–		–		35		35		21		–		–		21		21
Loans		283,709		–		–		286,873		286,873		282,837		–		–		284,790		284,790
Other		2,065		–		1,008		1,057		2,065		2,412		–		1,241		1,171		2,412

Financial Liabilities
Time deposits		47,051		–		46,912		–		46,912		44,554		–		44,140		–		44,140
Short-term borrowings (b)		13,924		–		13,691		–		13,691		12,921		–		12,678		–		12,678
Long-term debt		40,680		–		40,705		–		40,705		41,340		–		41,003		–		41,003
Other		3,463		–		1,396		2,067		3,463		1,726		–		–		1,726		1,726

(a)

Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.

(b)

Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.