Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2021

Fair Value Measurements

Our AFS securities, derivative instruments and certain non-marketable and other equity securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our consolidated financial statements.

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021:


(Dollars in millions)	Level 1		Level 2		Level 3		Balance at December 31, 2021
Assets
AFS securities:
U.S. Treasury securities	$	15,850	$	—	$	—	$	15,850
U.S. agency debentures	—		196		—		196
Foreign government debt securities	61		—		—		61
Residential MBS:
Agency-issued MBS	—		8,589		—		8,589
Agency-issued CMO—fixed rate	—		982		—		982

Agency-issued CMBS	—		1,543		—		1,543
Total AFS securities	15,911		11,310		—		27,221
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		338

Other equity securities in public companies	43		74		—		117
Total non-marketable and other equity securities (fair value accounting)	43		74		—		455
Other assets:

Foreign exchange forward, swap and option contracts	—		171		—		171
Equity warrant assets	—		8		269		277
Interest rate swaps	—		18		—		18
Client interest rate derivatives	—		99		—		99
Other assets	8		—		—		8
Total assets	$	15,962	$	11,680	$	269	$	28,249
Liabilities
Foreign exchange forward, swap and option contracts	$	—	$	137	$	—	$	137

Client interest rate derivatives	—		101		—		101
Other liabilities	8		—		—		8
Total liabilities	$	8	$	238	$	—	$	246

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020:


(Dollars in millions)	Level 1		Level 2		Level 3		Balance at December 31, 2020
Assets
AFS securities:
U.S. Treasury securities	$	4,470	$	—	$	—	$	4,470
U.S. agency debentures	—		237		—		237
Foreign government debt securities	24		—		—		24
Residential MBS:
Agency-issued MBS	—		13,503		—		13,503
Agency-issued CMO—fixed rate	—		8,107		—		8,107

Agency-issued CMBS	—		4,572		—		4,572

Total AFS securities	4,494		26,419		—		30,913
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:

Venture capital and private equity fund investments measured at net asset value	—		—		—		274
Other equity securities in public companies	43		238		—		281
Total non-marketable and other equity securities (fair value accounting)	43		238		—		555
Other assets:
Foreign exchange forward and option contracts	—		217		—		217
Equity warrant assets	—		11		192		203

Client interest rate derivatives	—		68		—		68
Total assets	$	4,537	$	26,953	$	192	$	31,956
Liabilities
Foreign exchange forward and option contracts	$	—	$	210	$	—	$	210

Client interest rate derivatives	—		27		—		27
Total liabilities	$	—	$	237	$	—	$	237

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for 2021, 2020 and 2019, respectively:


(Dollars in millions)	Beginning Balance		Total Net Gains Included in Net Income (1)		Purchases		Sales/Exits		Issuances		Transfers Out of Level 3		Ending Balance
Year ended December 31, 2021:



Equity warrant assets (1)	$	192	$	561	$	—	$	(502)	$	24	$	(6)	$	269

Year ended December 31, 2020:



Equity warrant assets (1)	161		229		—		(215)		19		(2)		192

Year ended December 31, 2019:
Non-marketable and other equity securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (2)	1		—		—		(1)		—		—		—
Other assets:
Equity warrant assets (1)	145		134		1		(130)		16		(5)		161
Total assets	$	146	$	134	$	1	$	(131)	$	16	$	(5)	$	161

(1)Realized and unrealized gains (losses) are recorded in the line item “Gains on investment securities, net,” a component of noninterest income.

The following table presents the amount of unrealized gains included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at December 31, 2021 and 2020, respectively:


	Year ended December 31,
(Dollars in millions)	2021		2020




Other assets:
Equity warrant assets (1)	$	119	$	54
Total unrealized gains, net	$	119	$	54

(1)Unrealized gains are recorded in the line item “Gains on equity warrant assets, net,” a component of noninterest income.

The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales of securities and the timing of such actual sales.

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at December 31, 2021 and 2020. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.


(Dollars in millions)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Input Range	Weighted Average
December 31, 2021:

Equity warrant assets (public portfolio)	$	2	Black-Scholes option pricing model	Volatility	27.8% - 55.0%	43.7	%
				Risk-Free interest rate	0.6 - 1.5	1.1
				Sales restrictions discount (1)	10.0- 20.0	10.7
Equity warrant assets (private portfolio)	267		Black-Scholes option pricing model	Volatility	24.7 - 55.0	43.0
				Risk-Free interest rate	0.06 - 1.4	0.8
				Marketability discount (2)	20.1	20.1
				Remaining life assumption (3)	40.0	40.0
December 31, 2020:

Equity warrant assets (public portfolio)	$	1	Black-Scholes option pricing model	Volatility	46.0% - 56.8%	49.1	%
				Risk-Free interest rate	0.3 - 0.9	0.6
				Sales restrictions discount (1)	10.0 - 20.0	10.2
Equity warrant assets (private portfolio)	191		Black-Scholes option pricing model	Volatility	24.4 - 56.8	43.2
				Risk-Free interest rate	0.01 - 0.52	0.1
				Marketability discount (2)	20.6	20.6
				Remaining life assumption (3)	40.0	40.0

(1)We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions which typically range from three to six months.

(2)Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based upon various option-pricing models. On a quarterly basis, a sensitivity analysis is performed on our marketability discount.

(3)We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on terminations and exercises. At December 31, 2021, the weighted average contractual remaining term was 6.6 years, compared to our estimated remaining life of 2.6 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

During 2021, 2020 and 2019, we did not have any transfers between Level 3 and Level 1. All other transfers from Level 3 to Level 2 during 2021, 2020 and 2019 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (see our Level 3 reconciliation above).

Financial Instruments not Carried at Fair Value

FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at December 31, 2021 and 2020:


			Estimated Fair Value
(Dollars in millions)	Carrying Amount		Total		Level 1		Level 2		Level 3
December 31, 2021:
Financial assets:
Cash and cash equivalents	$	14,619	$	14,619	$	14,619	$	—	$	—
HTM securities	98,195		97,227		—		97,227		—
Non-marketable securities not measured at net asset value	424		424		—		—		424
Non-marketable securities measured at net asset value	710		710		—		—		—
Net Loans	65,854		67,335		—		—		67,335
FHLB and FRB stock	107		107		—		—		107
Financial liabilities:


Short-term borrowings	121		121		—		121		—
Non-maturity deposits (1)	187,464		187,464		187,464		—		—
Time deposits	1,739		1,728		—		1,728		—
3.50% Senior Notes due 2025	349		370		—		370		—
3.125% Senior Notes due 2030	496		526		—		526		—
1.800% Senior Notes due 2031	494		474		—		474		—
2.100% Senior Notes due 2028	496		501		—		501		—
1.800% Senior Notes due 2026	645		649		—		649		—
Junior subordinated debentures	90		92		—		92		—
Off-balance sheet financial assets:
Commitments to extend credit	—		47		—		—		47
December 31, 2020:
Financial assets:
Cash and cash equivalents	$	17,675	$	17,675	$	17,675	$	—	$	—
HTM securities	16,592		17,217		—		17,217		—
Non-marketable securities not measured at net asset value	241		241		—		—		241
Non-marketable securities measured at net asset value	390		390		—		—		—
Net loans	44,734		45,324		—		—		45,324
FHLB and FRB stock	61		61		—		—		61
Financial liabilities:

Short-term borrowings	21		21		—		21		—
Non-maturity deposits (1)	101,294		101,294		101,294		—		—
Time deposits	688		502		—		502		—
3.50% Senior Notes	349		383		—		383		—
3.125% senior Notes	495		564		—		564		—
Off-balance sheet financial assets:
Commitments to extend credit	—		37		—		—		37

(1)Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits.

Investments in Entities that Calculate Net Asset Value Per Share

FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee and unfunded commitments related to the investments.

Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPOs and M&A activity of the underlying assets of the fund. Subject to applicable requirements under the Volcker Rule, we do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example September 30th, for our December 31st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of December 31, 2021:


(Dollars in millions)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	338	$	338	$	12
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	670		670		11
Debt funds (2)	5		5		—
Other investments (2)	34		34		1
Total	$	1,047	$	1,047	$	24

(1)Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds (consolidated VIEs) and investments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, these investments in venture capital and private equity funds are primarily in U.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $94 million and $2 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds.

(2)Venture capital and private equity fund investments, debt funds and other fund investments within non-marketable securities (equity method accounting) include funds that invest in or lend money to primarily U.S. and global technology and life science/healthcare companies. It is estimated that we will receive distributions from the funds over the next 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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