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Fair Value
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Disclosures Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date under current market conditions. Fair value is based on the assumptions we believe market participants would use when pricing an asset or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.
Judgment is used in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements and amounts that could be realized.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.
Level 1    Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.
Level 2    Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.
Level 3    Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.
The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.
•Equity Securities — We hold various marketable equity securities measured at fair value with changes in fair value recognized in net income. Measurements based on observable market prices are classified as Level 1.
•Available-for-sale securities — We carry our available-for-sale securities at fair value based on external pricing sources. We classify our securities as Level 1 when fair value is determined using quoted prices available for the same instruments trading in active markets. We classify our securities as Level 2 when fair value is determined using prices for similar instruments trading in active markets. We perform pricing validation procedures for our available-for-sale securities.
•Interests retained in financial asset sales — We retain certain noncertificated interests retained from the sale of automotive finance receivables. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (for example, forward interest rates) and internally developed inputs (for example, prepayment speeds, delinquency levels, and credit losses).
•Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk-management strategies. Certain of these derivatives are exchange traded, such as equity options. To determine the fair value of these instruments, we utilize the quoted market prices for those particular derivative contracts; therefore, we classified these contracts as Level 1.
We also execute OTC and centrally cleared derivative contracts, such as interest rate swaps, swaptions, foreign-currency denominated forward contracts, caps, floors, and agency to-be-announced securities. We utilize third-party-developed valuation models that are widely accepted in the market to value these derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves, interpolated volatility assumptions, or equity pricing) are used in the model. We classified these derivative contracts as Level 2 because all significant inputs into these models were market observable.
We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business, certain of which meet the accounting definition of a derivative and therefore are recorded as derivatives on our Condensed Consolidated Balance Sheet. Because these derivatives are valued using internal pricing models with unobservable inputs, they are classified as Level 3.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a CVA, if warranted. The CVA calculation would utilize the credit default swap spreads of the counterparty.
Recurring Fair Value
The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk-management activities.
Recurring fair value measurements
September 30, 2020 ($ in millions)
Level 1Level 2Level 3Total
Assets
Investment securities
Equity securities (a)$621 $— $6 $627 
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
806 — — 806 
U.S. States and political subdivisions
— 970 7 977 
Foreign government17 179 — 196 
Agency mortgage-backed residential
— 20,495 — 20,495 
Mortgage-backed residential
— 3,036 — 3,036 
Agency mortgage-backed commercial— 2,244 — 2,244 
Asset-backed— 389 — 389 
Corporate debt
— 1,846 — 1,846 
Total available-for-sale securities823 29,159 7 29,989 
Mortgage loans held-for-sale (b)
— — 156 156 
Finance receivables and loans, net
Consumer other (b)— — 8 8 
Derivative contracts in a receivable position
Interest rate— — 18 18 
Foreign currency— 3 — 3 
Other2 — — 2 
Total derivative contracts in a receivable position
2 3 18 23 
Total assets$1,446 $29,162 $195 $30,803 
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Other$4 — — $4 
Total derivative contracts in a payable position
4 — — 4 
Total liabilities$4 $— $— $4 
(a)Our direct investment in any one industry did not exceed 11%.
(b)Carried at fair value due to fair value option elections.
Recurring fair value measurements
December 31, 2019 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Investment securities
Equity securities (a)
$608 $— $8 $616 
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
2,047 1 — 2,048 
U.S. States and political subdivisions
— 639 2 641 
Foreign government
15 171 — 186 
Agency mortgage-backed residential
— 21,404 — 21,404 
Mortgage-backed residential— 2,850 — 2,850 
Agency mortgage-backed commercial— 1,382 — 1,382 
Mortgage-backed commercial
— 42 — 42 
Asset-backed
— 368 — 368 
Corporate debt
— 1,363 — 1,363 
Total available-for-sale securities
2,062 28,220 2 30,284 
Mortgage loans held-for-sale (b)
— — 30 30 
Finance receivables and loans, net
Consumer other (b)— — 11 11 
Interests retained in financial asset sales— — 2 2 
Derivative contracts in a receivable position
Interest rate
— 62 2 64 
Total derivative contracts in a receivable position
— 62 2 64 
Total assets
$2,670 $28,282 $55 $31,007 
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Foreign currency$— $5 $— $5 
Total derivative contracts in a payable position
— 5 — 5 
Total liabilities
$— $5 $— $5 
(a)Our investment in any one industry did not exceed 13%.
(b)Carried at fair value due to fair value option elections.
The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. There were no transfers into or out of Level 3 in the periods presented. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk-management activities.
Level 3 recurring fair value measurements
Net realized/unrealized gainsFair value at September 30, 2020Net unrealized gains still held at September 30, 2020
($ in millions)Fair value at July 1, 2020included in earningsincluded in OCIPurchasesSalesIssuancesSettlementsincluded in earningsincluded in OCI
Assets
Investment securities
Equity securities$5 $1 (a)$— $— $— $— $— $6 $1 $— 
Available-for-sale securities5 — — 2 — — — 7 — — 
Mortgage loans held-for-sale (b)91 22 (c)— 854 (811)— — 156 — — 
Finance receivables and loans, net (b)
8 2 (d)— 5 — — (7)8 — — 
Other assets
Interests retained in financial asset sales
1 — — — — — (1)— — — 
Derivative assets
12 6 (c)— — — — — 18 6 — 
Total assets$122 $31 $— $861 $(811)$— $(8)$195 $7 $— 
(a)Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.
(b)Carried at fair value due to fair value option elections.
(c)Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.
(d)Reported as interest and fees on finance receivables and loans and other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.
Level 3 recurring fair value measurements
Net realized/unrealized (losses) gainsFair value at September 30, 2019Net unrealized losses still held at September 30, 2019
($ in millions)Fair value at July 1, 2019included in earningsincluded in OCIPurchasesSalesIssuancesSettlementsincluded in earningsincluded in OCI
Assets
Equity securities$9 $(1)(a)$— $— $— $— $— $8 $(1)$— 
Mortgage loans held-for-sale (b)22 3 (c)— 222 (209)— — 38 — — 
Other assets
Interests retained in financial asset sales
3 — — — — — — 3 — — 
Derivative assets, net of derivative liabilities2 — — — — — — 2 — — 
Total assets$36 $2 $— $222 $(209)$— $— $51 $(1)$— 
(a)Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.
(b)Carried at fair value due to fair value option elections.
(c)Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.
Level 3 recurring fair value measurements
Net realized/unrealized (losses) gainsFair value at September 30, 2020Net unrealized (losses) gains still held at September 30, 2020
($ in millions)Fair value at Jan. 1, 2020included in earningsincluded in OCIPurchasesSalesIssuancesSettlementsincluded in earningsincluded in OCI
Assets
Investment securities
Equity securities$8 $(2)(a)$— $— $— $— $— $6 $(2)$— 
Available-for-sale securities2 — — 5 — — — 7 — — 
Mortgage loans held-for-sale (b)30 35 (c)— 1,832 (1,741)— — 156 2 — 
Finance receivables and loans, net (b)
11 2 (d)— 14 — — (19)8 — — 
Other assets
Interests retained in financial asset sales
2 — — — — — (2)— — — 
Derivative assets
2 16 (c)— — — — — 18 16 — 
Total assets$55 $51 $— $1,851 $(1,741)$— $(21)$195 $16 $— 
(a)Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.
(b)Carried at fair value due to fair value option elections.
(c)Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.
(d)Reported as interest and fees on finance receivables and loans and other income, net of losses in the Condensed Consolidated Statement of Comprehensive Income.
Level 3 recurring fair value measurements
Net realized/unrealized gainsFair value at September 30, 2019Net unrealized gains still held at September 30, 2019
($ in millions)Fair value at Jan. 1, 2019included in earningsincluded in OCIPurchasesSalesIssuancesSettlementsincluded in earningsincluded in OCI
Assets
Equity securities$7 $5 (a)$— $— $— $— $(4)$8 $5 $— 
Mortgage loans held-for-sale (b)8 7 (c)— 468 (445)— — 38 — — 
Other assets
Interests retained in financial asset sales
4 — — — — — (1)3 — — 
Derivative assets, net of derivative liabilities— 2 (c)— — — — — 2 2 — 
Total assets$19 $14 $— $468 $(445)$— $(5)$51 $7 $— 
(a)Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.
(b)Carried at fair value due to fair value option elections.
(c)Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.
Nonrecurring Fair Value
We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute nonrecurring fair value measures.
The following tables display assets and liabilities measured at fair value on a nonrecurring basis and still held at September 30, 2020, and December 31, 2019, respectively. The amounts are generally as of the end of each period presented, which approximate the fair value measurements that occurred during each period.
Nonrecurring fair value measurements
Lower-of-cost or fair value reserve, valuation reserve, or cumulative adjustments
Total gain (loss) included in earnings
September 30, 2020 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Loans held-for-sale, net$— $— $285 $285 $— n/m(a)
Commercial finance receivables and loans, net (b)
Automotive
— — 13 13 (11)n/m(a)
Other
— — 59 59 (13)n/m(a)
Total commercial finance receivables and loans, net
— — 72 72 (24)n/m(a)
Other assets
Nonmarketable equity investments
— 21 5 26 15 n/m(a)
Repossessed and foreclosed assets (c)
— — 6 6 (1)n/m(a)
Total assets
$— $21 $368 $389 $(10)n/m
n/m = not meaningful
(a)We consider the applicable valuation allowance, loan loss allowance, or cumulative impairment to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation reserve, loan loss allowance, or cumulative adjustment.
(b)Represents the portion of the portfolio specifically impaired during 2020. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.
(c)The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
Nonrecurring fair value measurements
Lower-of-cost or fair value reserve, valuation reserve, or cumulative adjustments
Total gain (loss) included in earnings
December 31, 2019 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Loans held-for-sale, net
$— $— $128 $128 $— n/m(a)
Commercial finance receivables and loans, net (b)
Automotive
— — 64 64 (12)n/m(a)
Other
— — 45 45 (21)n/m(a)
Total commercial finance receivables and loans, net
— — 109 109 (33)n/m(a)
Other assets
Nonmarketable equity investments
— 5 7 12 — n/m(a)
Equity-method investments
— — 4 4 (6)n/m(a)
Repossessed and foreclosed assets (c)
— — 12 12 (1)n/m(a)
Total assets
$— $5 $260 $265 $(40)n/m
n/m = not meaningful
(a)We consider the applicable valuation allowance, loan loss allowance, or cumulative impairment to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation reserve, loan loss allowance, or cumulative adjustment.
(b)Represents the portion of the portfolio specifically impaired during 2019. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.
(c)The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale and certain acquired unsecured consumer finance receivables. We elected the fair value option for conforming mortgage loans held-for-sale to mitigate earnings volatility by better matching the accounting for the assets with the related derivatives. We elected the fair value option for certain acquired unsecured consumer finance receivables to mitigate the complexities of recording these loans at amortized cost. Our intent in electing fair value measurement was to mitigate a divergence between accounting gains or losses and economic exposure for certain assets and liabilities.
Fair Value of Financial Instruments
The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting current market data to develop the market assumptions and inputs necessary to estimate fair value. As such, the actual amount received to sell an asset or the amount paid to settle a liability could differ from our estimates. Fair value information presented herein was based on information available at September 30, 2020, and December 31, 2019.
Estimated fair value
($ in millions)
Carrying value
Level 1
Level 2
Level 3
Total
September 30, 2020
Financial assets
Held-to-maturity securities
$1,255 $— $1,336 $— $1,336 
Loans held-for-sale, net
285 — — 285 285 
Finance receivables and loans, net
114,641 — — 121,363 121,363 
FHLB/FRB stock (a)
843 — 843 — 843 
Financial liabilities
Deposit liabilities
$57,616 $— $— $58,505 $58,505 
Short-term borrowings
3,032 — — 3,033 3,033 
Long-term debt
25,704 — 19,763 8,909 28,672 
December 31, 2019
Financial assets
Held-to-maturity securities$1,568 $— $1,600 $— $1,600 
Loans held-for-sale, net128 — — 128 128 
Finance receivables and loans, net126,957 — — 130,837 130,837 
FHLB/FRB stock (a)1,150 — 1,150 — 1,150 
Financial liabilities
Deposit liabilities$60,146 $— $— $60,678 $60,678 
Short-term borrowings5,531 — — 5,532 5,532 
Long-term debt34,027 — 22,789 14,138 36,927 
(a)Included in other assets on our Condensed Consolidated Balance Sheet.