Fair Values of Assets and Liabilities

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Values of Assets and Liabilities

Note 16: Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in Table 16.2 in this Note. From time to time, we may be required to record fair value adjustments on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of LOCOM accounting, measurement alternative accounting for nonmarketable equity securities or write-downs of individual assets. Assets recorded on a nonrecurring basis are presented in Table 16.13 in this Note.

See Note 1 (Summary of Significant Accounting Policies) in our 2018 Form 10-K for discussion of how we determine fair value. For descriptions of the valuation methodologies we use for assets and liabilities recorded at fair value on a recurring or nonrecurring basis and for estimating fair value for financial instruments that are not recorded at fair value, see Note 18 (Fair Values of Assets and Liabilities) in our 2018 Form 10-K.

FAIR VALUE HIERARCHY  We group our assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from techniques that use significant assumptions that are not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We do not classify an equity security in the fair value hierarchy if we use the non-published net asset value (NAV) per share (or its equivalent) that has been communicated to us as an investor as a practical expedient to measure fair value. We use NAV per share as the fair value measurement for certain nonmarketable equity fund investments. Marketable equity securities with published NAVs continue to be classified in the fair value hierarchy.

Fair Value Measurements from Vendors

For certain assets and liabilities, we obtain fair value measurements from vendors, which predominantly consist of third-party pricing services, and record the unadjusted fair value in our financial statements. For additional information, see Note 18 (Fair Values of Assets and Liabilities) in our 2018

Form 10-K. Table 16.1 presents unadjusted fair value measurements provided by brokers or third-party pricing services by fair value hierarchy level. Fair value measurements obtained from brokers or third-party pricing services that we have adjusted to determine the fair value recorded in our financial statements are excluded from Table 16.1.

Table 16.1: Fair Value Measurements by Brokers or Third-Party Pricing Services

	Brokers				Third-party pricing services
(in millions)	Level 1		Level 2	Level 3	Level 1		Level 2		Level 3
June 30, 2019
Trading debt securities	$	—	—	—	534		319		—
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	—		—	—	12,324		2,995		—
Securities of U.S. states and political subdivisions	—		—	—	—		44,642		38
Mortgage-backed securities	—		—	—	—		161,260		41
Other debt securities (1)	—		45	130	—		41,947		663
Total available-for-sale debt securities	—		45	130	12,324		250,844		742
Equity securities:
Marketable	—		—	—	—		160		—
Nonmarketable	—		—	—	—		—		—
Total equity securities	—		—	—	—		160		—
Derivative assets	—		—	—	12		—		—
Derivative liabilities	—		—	—	(13	)	(2	)	—
Other liabilities (2)	—		—	—	—		—		—
December 31, 2018
Trading debt securities	$	—	—	—	899		256		—
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	—		—	—	10,399		2,949		—
Securities of U.S. states and political subdivisions	—		—	—	—		48,377		43
Mortgage-backed securities	—		—	—	—		160,162		41
Other debt securities (1)	—		45	129	—		44,292		758
Total available-for-sale debt securities	—		45	129	10,399		255,780		842
Equity securities:
Marketable	—		—	—	—		158		—
Nonmarketable	—		—	—	—		1		—
Total equity securities	—		—	—	—		159		—
Derivative assets	—		—	—	17		—		—
Derivative liabilities	—		—	—	(12	)	—		—
Other liabilities (2)	—		—	—	—		—		—

(1) Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities.

(2)

Includes short sale liabilities and other liabilities.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Table 16.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.

Table 16.2: Fair Value on a Recurring Basis

(in millions)	Level 1			Level 2		Level 3			Netting (1)		Total
June 30, 2019
Trading debt securities:
Securities of U.S. Treasury and federal agencies	$	15,010		3,215		—			—		18,225
Securities of U.S. states and political subdivisions	—			3,314		—			—		3,314
Collateralized loan obligations	—			758		249			—		1,007
Corporate debt securities	—			11,321		44			—		11,365
Mortgage-backed securities	—			35,186		—			—		35,186
Asset-backed securities	—			1,084		—			—		1,084
Other trading debt securities	—			13		14			—		27
Total trading debt securities	15,010			54,891		307			—		70,208
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	12,324			2,995		—			—		15,319
Securities of U.S. states and political subdivisions	—			44,704		391			—		45,095
Mortgage-backed securities:
Federal agencies	—			155,858		—			—		155,858
Residential	—			1,263		—			—		1,263
Commercial	—			4,139		41			—		4,180
Total mortgage-backed securities	—			161,260		41			—		161,301
Corporate debt securities	37			5,810		383			—		6,230
Collateralized loan and other debt obligations (2)	—			32,346		649			—		32,995
Asset-backed securities:
Automobile loans and leases	—			889		—			—		889
Home equity loans	—			14		—			—		14
Other asset-backed securities	—			3,792		341			—		4,133
Total asset-backed securities	—			4,695		341			—		5,036
Other debt securities	—			7		—			—		7
Total available-for-sale debt securities	12,361			251,817		1,805		(3)	—		265,983
Mortgage loans held for sale	—			15,228		1,115			—		16,343
Loans held for sale	—			1,106		12			—		1,118
Loans	—			—		202			—		202
Mortgage servicing rights (residential)	—			—		12,096			—		12,096
Derivative assets:
Interest rate contracts	45			25,258		250			—		25,553
Commodity contracts	—			1,404		20			—		1,424
Equity contracts	2,162			3,300		1,915			—		7,377
Foreign exchange contracts	12			5,522		21			—		5,555
Credit contracts	—			62		79			—		141
Netting	—			—		—			(26,888	)	(26,888	)
Total derivative assets	2,219			35,546		2,285			(26,888	)	13,162
Equity securities - excluding securities at NAV:
Marketable	28,447			259		—			—		28,706
Nonmarketable	—			16		7,110			—		7,126
Total equity securities	28,447			275		7,110			—		35,832
Total assets included in the fair value hierarchy	$	58,037		358,863		24,932			(26,888	)	414,944
Equity securities at NAV (4)											118
Total assets recorded at fair value											415,062
Derivative liabilities:
Interest rate contracts	$	(55	)	(20,537	)	(45	)		—		(20,637	)
Commodity contracts	—			(1,887	)	(49	)		—		(1,936	)
Equity contracts	(1,509		)	(5,526	)	(2,143	)		—		(9,178	)
Foreign exchange contracts	(13		)	(6,224	)	(31	)		—		(6,268	)
Credit contracts	—			(63	)	(34	)		—		(97	)
Netting	—			—		—			29,717		29,717
Total derivative liabilities	(1,577		)	(34,237	)	(2,302	)		29,717		(8,399	)
Short sale liabilities:
Securities of U.S. Treasury and federal agencies	(7,768		)	(230	)	—			—		(7,998	)
Mortgage-backed securities	—			(533	)	—			—		(533	)
Asset-backed securities	—			(10	)	—			—		(10	)
Corporate debt securities	—			(4,887	)	—			—		(4,887	)
Equity securities	(2,527		)	—		—			—		(2,527	)
Other securities	—			—		—			—		—
Total short sale liabilities	(10,295		)	(5,660	)	—			—		(15,955	)
Other liabilities	—			—		(2	)		—		(2	)
Total liabilities recorded at fair value	$	(11,872	)	(39,897	)	(2,304	)		29,717		(24,356	)

(1) Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for additional information.

(2) Includes collateralized debt obligations of $649 million.

(3) A significant portion of the balance consists of securities that are investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.

(4) Consists of certain nonmarketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

(continued on following page)

(continued from previous page)

(in millions)	Level 1			Level 2		Level 3			Netting (1)		Total
December 31, 2018
Trading debt securities:
Securities of U.S. Treasury and federal agencies	$	20,525		2,892		—			—		23,417
Securities of U.S. states and political subdivisions	—			3,272		3			—		3,275
Collateralized loan obligations	—			673		237			—		910
Corporate debt securities	—			10,723		34			—		10,757
Mortgage-backed securities	—			30,715		—			—		30,715
Asset-backed securities	—			893		—			—		893
Other trading debt securities	—			6		16			—		22
Total trading debt securities	20,525			49,174		290			—		69,989
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	10,399			2,949		—			—		13,348
Securities of U.S. states and political subdivisions	—			48,820		444			—		49,264
Mortgage-backed securities:
Federal agencies	—			153,203		—			—		153,203
Residential	—			2,775		—			—		2,775
Commercial	—			4,184		41			—		4,225
Total mortgage-backed securities	—			160,162		41			—		160,203
Corporate debt securities	34			5,867		370			—		6,271
Collateralized loan and other debt obligations (2)	—			34,543		800			—		35,343
Asset-backed securities:
Automobile loans and leases	—			925		—			—		925
Home equity loans	—			112		—			—		112
Other asset-backed securities	—			4,056		389			—		4,445
Total asset-backed securities	—			5,093		389			—		5,482
Other debt securities	—			1		—			—		1
Total available-for-sale debt securities	10,433			257,435		2,044		(3)	—		269,912
Mortgage loans held for sale	—			10,774		997			—		11,771
Loans held for sale	—			1,409		60			—		1,469
Loans	—			—		244			—		244
Mortgage servicing rights (residential)	—			—		14,649			—		14,649
Derivative assets:
Interest rate contracts	46			18,294		95			—		18,435
Commodity contracts	—			1,535		53			—		1,588
Equity contracts	1,648			4,582		1,315			—		7,545
Foreign exchange contracts	17			6,689		8			—		6,714
Credit contracts	—			179		99			—		278
Netting	—			—		—			(23,790	)	(23,790	)
Total derivative assets	1,711			31,279		1,570			(23,790	)	10,770
Equity securities - excluding securities at NAV:
Marketable	23,205			757		—			—		23,962
Nonmarketable	—			24		5,468			—		5,492
Total equity securities	23,205			781		5,468			—		29,454
Total assets included in the fair value hierarchy	$	55,874		350,852		25,322			(23,790	)	408,258
Equity securities at NAV (4)											102
Total assets recorded at fair value											408,360
Derivative liabilities:
Interest rate contracts	$	(21	)	(16,217	)	(70	)		—		(16,308	)
Commodity contracts	—			(2,287	)	(49	)		—		(2,336	)
Equity contracts	(1,492		)	(3,186	)	(1,332	)		—		(6,010	)
Foreign exchange contracts	(12		)	(7,067	)	(34	)		—		(7,113	)
Credit contracts	—			(216	)	(64	)		—		(280	)
Netting	—			—		—			23,548		23,548
Total derivative liabilities	(1,525		)	(28,973	)	(1,549	)		23,548		(8,499	)
Short sale liabilities:
Securities of U.S. Treasury and federal agencies	(11,850		)	(411	)	—			—		(12,261	)
Mortgage-backed securities	—			(47	)	—			—		(47	)
Corporate debt securities	—			(4,505	)	—			—		(4,505	)
Equity securities	(2,902		)	(2	)	—			—		(2,904	)
Other securities	—			(3	)	—			—		(3	)
Total short sale liabilities	(14,752		)	(4,968	)	—			—		(19,720	)
Other liabilities	—			—		(2	)		—		(2	)
Total liabilities recorded at fair value	$	(16,277	)	(33,941	)	(1,551	)		23,548		(28,221	)

(1) Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for additional information.

(2) Includes collateralized debt obligations of $800 million.

(3) A significant portion of the balance consists of securities that are investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.

(4) Consists of certain nonmarketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

Changes in Fair Value Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in

changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2, and Level 3. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2019, are presented in Table 16.3.

Table 16.3: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2019

				Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)								Net unrealized gains (losses) included in income related to assets and liabilities held at period end (4)
(in millions)	Balance, beginning of period			Net income		Other compre- hensive income				Transfers into Level 3 (2)		Transfers out of Level 3 (3)		Balance, end of period
Quarter ended June 30, 2019
Trading debt securities:
Securities of U.S. states and political subdivisions	$	—		—		—		—		—		—		—		—
Collateralized loan obligations	275			(2	)	—		(24	)	—		—		249		(6	)
Corporate debt securities	41			1		—		3		—		(1	)	44		1
Other trading debt securities	15			(1	)	—		—		—		—		14		—
Total trading debt securities	331			(2	)	—		(21	)	—		(1	)	307		(5	)	(5)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	470			1		2		(33	)	—		(49	)	391		—
Mortgage-backed securities:
Residential	—			—		—		—		—		—		—		—
Commercial	41			—		—		—		—		—		41		—
Total mortgage-backed securities	41			—		—		—		—		—		41		—
Corporate debt securities	377			—		(1	)	7		—		—		383		—
Collateralized loan and other debt obligations	755			7		(6	)	(107	)	—		—		649		—
Asset-backed securities:
Other asset-backed securities	362			—		—		(21	)	—		—		341		—
Total asset-backed securities	362			—		—		(21	)	—		—		341		—
Total available-for-sale debt securities	2,005			8		(5	)	(154	)	—		(49	)	1,805		—		(6)
Mortgage loans held for sale	998			37		—		(22	)	104		(2	)	1,115		39		(7)
Loans held for sale	71			—		—		(3	)	—		(56	)	12		—
Loans	225			1		—		(24	)	—		—		202		(2	)	(7)
Mortgage servicing rights (residential)(8)	13,336			(1,639	)	—		399		—		—		12,096		(1,078	)	(7)
Net derivative assets and liabilities:
Interest rate contracts	101			237		—		(133	)	—		—		205		141
Commodity contracts	(18		)	(75	)	—		64		—		—		(29	)	(10	)
Equity contracts	(162		)	15		—		(66	)	(2	)	(13	)	(228	)	(29	)
Foreign exchange contracts	(16		)	3		—		3		—		—		(10	)	7
Credit contracts	49			(3	)	—		(1	)	—		—		45		(3	)
Total derivative contracts	(46		)	177		—		(133	)	(2	)	(13	)	(17	)	106		(9)
Equity securities:
Nonmarketable	6,381			724		—		—		5		—		7,110		724
Total equity securities	6,381			724		—		—		5		—		7,110		724		(10)
Other liabilities	(2		)	—		—		—		—		—		(2	)	—		(7)

(1) See Table 16.4 for detail.

(2) All assets and liabilities transferred into level 3 were previously classified within level 2.

(3) All assets and liabilities transferred out of level 3 are classified as level 2.

(4) Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.

(5) Included in net gains (losses) from trading activities in the income statement.

(6) Included in net gains (losses) on debt securities in the income statement.

(7) Included in mortgage banking and other noninterest income in the income statement.

(8) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

(9) Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.

(10) Included in net gains (losses) from equity securities in the income statement.

 (continued on following page)

(continued from previous page)

Table 16.4 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2019.

Table 16.4: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2019

(in millions)	Purchases		Sales		Issuances	Settlements		Net
Quarter ended June 30, 2019
Trading debt securities:
Securities of U.S. states and political subdivisions	$	—	—		—	—		—
Collateralized loan obligations	44		(65	)	—	(3	)	(24	)
Corporate debt securities	6		(3	)	—	—		3
Other trading debt securities	—		—		—	—		—
Total trading debt securities	50		(68	)	—	(3	)	(21	)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	—		—		6	(39	)	(33	)
Mortgage-backed securities:
Residential	—		—		—	—		—
Commercial	—		—		—	—		—
Total mortgage-backed securities	—		—		—	—		—
Corporate debt securities	8		—		—	(1	)	7
Collateralized loan and other debt obligations	—		—		—	(107	)	(107	)
Asset-backed securities:
Other asset-backed securities	—		(2	)	57	(76	)	(21	)
Total asset-backed securities	—		(2	)	57	(76	)	(21	)
Total available-for-sale debt securities	8		(2	)	63	(223	)	(154	)
Mortgage loans held for sale	30		(47	)	54	(59	)	(22	)
Loans held for sale	—		(1	)	—	(2	)	(3	)
Loans	—		—		2	(26	)	(24	)
Mortgage servicing rights (residential) (1)	—		(1	)	400	—		399
Net derivative assets and liabilities:
Interest rate contracts	—		—		—	(133	)	(133	)
Commodity contracts	—		—		—	64		64
Equity contracts	—		—		—	(66	)	(66	)
Foreign exchange contracts	—		—		—	3		3
Credit contracts	2		(3	)	—	—		(1	)
Total derivative contracts	2		(3	)	—	(132	)	(133	)
Equity securities:
Nonmarketable	—		—		—	—		—
Total equity securities	—		—		—	—		—
Other liabilities	—		—		—	—		—

(1) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

(continued from previous page)

Table 16.5 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2018.

Table 16.5: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2018

	Balance, beginning of period			Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)							Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)				Net income		Other compre- hensive income				Transfers into Level 3 (2)	Transfers out of Level 3 (3)		Balance, end of period				(4)
Quarter ended June 30, 2018
Trading debt securities:
Securities of U.S. states and      political subdivisions	$	3		—		—		—		—	—		3		—
Collateralized loan obligations	316			(6	)	—		(19	)	—	—		291		(8	)
Corporate debt securities	34			—		—		3		—	(1	)	36		1
Other trading debt securities	18			(1	)	—		—		—	—		17		—
Total trading debt securities	371			(7	)	—		(16	)	—	(1	)	347		(7	)	(5)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	617			1		—		(49	)	—	(10	)	559		—
Mortgage-backed securities:
Residential	1			—		(1	)	—		—	—		—		—
Commercial	67			—		(1	)	(13	)	—	—		53		—
Total mortgage-backed securities	68			—		(2	)	(13	)	—	—		53		—
Corporate debt securities	410			1		1		31		—	—		443		—
Collateralized loan and other debt obligations	1,045			6		10		(24	)	—	—		1,037		—
Asset-backed securities:
Other asset-backed securities	501			—		(1	)	(99	)	—	—		401		—
Total asset-backed securities	501			—		(1	)	(99	)	—	—		401		—
Total available-for-sale debt securities	2,641			8		8		(154	)	—	(10	)	2,493		—		(6)
Mortgage loans held for sale	950			(11	)	—		25		25	(3	)	986		(11	)	(7)
Loans held for sale	—			(1	)	—		—		21	—		20		—
Loans	352			—		—		(31	)	—	—		321		(4	)	(7)
Mortgage servicing rights (residential) (8)	15,041			(115	)	—		485		—	—		15,411		345		(7)
Net derivative assets and liabilities:
Interest rate contracts	(8		)	(63	)	—		30		—	—		(41	)	6
Commodity contracts	10			15		—		(2	)	3	—		26		21
Equity contracts	(322		)	(12	)	—		(7	)	—	2		(339	)	261
Foreign exchange contracts	1			(18	)	—		2		—	—		(15	)	(13	)
Credit contracts	41			(12	)	—		(5	)	—	—		24		(17	)
Total derivative contracts	(278		)	(90	)	—		18		3	2		(345	)	258		(9)
Equity securities:
Nonmarketable	5,219			585		—		—		6	(4	)	5,806		586
Total equity securities	5,219			585		—		—		6	(4	)	5,806		586		(10)
Other liabilities	(2		)	—		—		—		—	—		(2	)	—		(7)

(1) See Table 16.6 for detail.

(2) All assets and liabilities transferred into level 3 were previously classified within level 2.

(3) All assets and liabilities transferred out of level 3 are classified as level 2.

(4) Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.

(5) Included in net gains (losses) from trading activities in the income statement.

(6) Included in net gains (losses) on debt securities in the income statement.

(7) Included in mortgage banking and other noninterest income in the income statement.

(8) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

(9) Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.

(10) Included in net gains (losses) from equity securities in the income statement.

 (continued on following page)

(continued from previous page)

Table 16.6 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2018.

Table 16.6: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2018

(in millions)	Purchases		Sales		Issuances	Settlements		Net
Quarter ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	—	—		—	—		—
Collateralized loan obligations	89		(39	)	—	(69	)	(19	)
Corporate debt securities	4		(1	)	—	—		3
Other trading debt securities	—		—		—	—		—
Total trading debt securities	93		(40	)	—	(69	)	(16	)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	—		—		—	(49	)	(49	)
Mortgage-backed securities:
Residential	—		—		—	—		—
Commercial	—		—		—	(13	)	(13	)
Total mortgage-backed securities	—		—		—	(13	)	(13	)
Corporate debt securities	31		—		—	—		31
Collateralized loan and other debt obligations	—		—		—	(24	)	(24	)
Asset-backed securities:
Other asset-backed securities	—		—		9	(108	)	(99	)
Total asset-backed securities	—		—		9	(108	)	(99	)
Total available-for-sale debt securities	31		—		9	(194	)	(154	)
Mortgage loans held for sale	20		(68	)	109	(36	)	25
Loans held for sale	—		—		—	—		—
Loans	—		—		4	(35	)	(31	)
Mortgage servicing rights (residential) (1)	—		(1	)	486	—		485
Net derivative assets and liabilities:
Interest rate contracts	—		—		—	30		30
Commodity contracts	—		—		—	(2	)	(2	)
Equity contracts	—		—		—	(7	)	(7	)
Foreign exchange contracts	—		—		—	2		2
Credit contracts	5		(2	)	—	(8	)	(5	)
Total derivative contracts	5		(2	)	—	15		18
Equity securities:
Nonmarketable	—		—		—	—		—
Total equity securities	—		—		—	—		—
Other liabilities	—		—		—	—		—

(1)

For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2019, are presented in Table 16.7.

Table 16.7: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2019

				Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)							Net unrealized gains (losses) included in income related to assets and liabilities held at period end (4)
(in millions)	Balance, beginning of period			Net income		Other compre- hensive income				Transfers into Level 3 (2)	Transfers out of Level 3 (3)		Balance, end of period
Six months ended June 30, 2019
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		—		—		(2	)	—	(1	)	—		—
Collateralized loan obligations	237			(5	)	—		17		—	—		249		(4	)
Corporate debt securities	34			3		—		7		1	(1	)	44		3
Other trading debt securities	16			(2	)	—		—		—	—		14		—
Total trading debt securities	290			(4	)	—		22		1	(2	)	307		(1	)	(5)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	444			1		5		(10	)	—	(49	)	391		—
Mortgage-backed securities:
Residential	—			—		—		—		—	—		—		—
Commercial	41			—		—		—		—	—		41		—
Total mortgage-backed securities	41			—		—		—		—	—		41		—
Corporate debt securities	370			1		3		9		—	—		383		—
Collateralized loan and other debt obligations	800			13		(10	)	(154	)	—	—		649		—
Asset-backed securities:
Other asset-backed securities	389			—		(1	)	(47	)	—	—		341		—
Total asset-backed securities	389			—		(1	)	(47	)	—	—		341		—
Total available-for-sale debt securities	2,044			15		(3	)	(202	)	—	(49	)	1,805		—		(6)
Mortgage loans held for sale	997			52		—		(88	)	160	(6	)	1,115		54		(7)
Loans held for sale	60			—		—		8		37	(93	)	12		—
Loans	244			1		—		(43	)	—	—		202		(4	)	(7)
Mortgage servicing rights (residential) (8)	14,649			(3,012	)	—		459		—	—		12,096		(1,969	)	(7)
Net derivative assets and liabilities:
Interest rate contracts	25			424		—		(244	)	—	—		205		220
Commodity contracts	4			(126	)	—		91		2	—		(29	)	(26	)
Equity contracts	(17		)	(104	)	—		(69	)	7	(45	)	(228	)	(175	)
Foreign exchange contracts	(26		)	10		—		6		—	—		(10	)	17
Credit contracts	35			5		—		5		—	—		45		10
Total derivative contracts	21			209		—		(211	)	9	(45	)	(17	)	46		(9)
Equity securities:
Nonmarketable	5,468			1,650		—		(1	)	5	(12	)	7,110		1,650
Total equity securities	5,468			1,650		—		(1	)	5	(12	)	7,110		1,650		(10)
Other liabilities	(2		)	—		—		—		—	—		(2	)	—		(7)

(1) See Table 16.8 for detail.

(2) All assets and liabilities transferred into level 3 were previously classified within level 2.

(3) All assets and liabilities transferred out of level 3 are classified as level 2.

(4) Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.

(5) Included in net gains (losses) from trading activities in the income statement.

(6) Included in net gains (losses) on debt securities in the income statement.

(7) Included in mortgage banking and other noninterest income in the income statement.

(8) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

(9) Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.

(10) Included in net gains (losses) from equity securities in the income statement.

 (continued on following page)

(continued from previous page)

Table 16.8 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2019.

Table 16.8: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2019

(in millions)	Purchases		Sales		Issuances	Settlements		Net
Six months ended June 30, 2019
Trading debt securities:
Securities of U.S. states and political subdivisions	$	—	—		—	(2	)	(2	)
Collateralized loan obligations	174		(152	)	—	(5	)	17
Corporate debt securities	11		(4	)	—	—		7
Other trading debt securities	—		—		—	—		—
Total trading debt securities	185		(156	)	—	(7	)	22
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	—		—		55	(65	)	(10	)
Mortgage-backed securities:
Residential	—		—		—	—		—
Commercial	—		—		—	—		—
Total mortgage-backed securities	—		—		—	—		—
Corporate debt securities	11		—		—	(2	)	9
Collateralized loan and other debt obligations	—		—		—	(154	)	(154	)
Asset-backed securities:
Other asset-backed securities	—		(5	)	123	(165	)	(47	)
Total asset-backed securities	—		(5	)	123	(165	)	(47	)
Total available-for-sale debt securities	11		(5	)	178	(386	)	(202	)
Mortgage loans held for sale	46		(140	)	100	(94	)	(88	)
Loans held for sale	12		(2	)	—	(2	)	8
Loans	2		—		5	(50	)	(43	)
Mortgage servicing rights (residential) (1)	—		(282	)	741	—		459
Net derivative assets and liabilities:
Interest rate contracts	—		—		—	(244	)	(244	)
Commodity contracts	—		—		—	91		91
Equity contracts	—		—		—	(69	)	(69	)
Foreign exchange contracts	—		—		—	6		6
Credit contracts	8		(3	)	—	—		5
Total derivative contracts	8		(3	)	—	(216	)	(211	)
Equity securities:
Nonmarketable	—		(1	)	—	—		(1	)
Total equity securities	—		(1	)	—	—		(1	)
Other liabilities	—		—		—	—		—

(1) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2018, are presented in Table 16.9.

Table 16.9: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2018

	Balance, beginning of period			Total net gains (losses) included in				Purchases, sales, issuances and settlements, net (1)							Net unrealized gains (losses) included in income related to assets and liabilities held at period end
(in millions)				Net income		Other compre- hensive income				Transfers into Level 3 (2)	Transfers out of Level 3 (3)		Balance, end of period				(4)
Six months ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	3		—		—		—		—	—		3		—
Collateralized loan obligations	354			(4	)	—		(59	)	—	—		291		—
Corporate debt securities	31			—		—		6		—	(1	)	36		—
Other trading debt securities	19			(2	)	—		—		—	—		17		—
Total trading debt securities	407			(6	)	—		(53	)	—	(1	)	347		—		(5)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	925			5		(2	)	(90	)	—	(279	)	559		—
Mortgage-backed securities:
Residential	1			—		(1	)	—		—	—		—		—
Commercial	75			1		(2	)	(21	)	—	—		53		—
Total mortgage-backed securities	76			1		(3	)	(21	)	—	—		53		—
Corporate debt securities	407			2		4		30		—	—		443		—
Collateralized loan and other debt obligations	1,020			11		53		(47	)	—	—		1,037		—
Asset-backed securities:
Other asset-backed securities	566			8		(8	)	(165	)	—	—		401		—
Total asset-backed securities	566			8		(8	)	(165	)	—	—		401		—
Total available-for-sale debt securities	2,994			27		44		(293	)	—	(279	)	2,493		—		(6)
Mortgage loans held for sale	998			(34	)	—		(12	)	40	(6	)	986		(32	)	(7)
Loans held for sale	14			1		—		(16	)	21	—		20		—
Loans	376			(1	)	—		(54	)	—	—		321		(7	)	(7)
Mortgage servicing rights (residential) (8)	13,625			732		—		1,054		—	—		15,411		1,675		(7)
Net derivative assets and liabilities:
Interest rate contracts	71			(408	)	—		296		—	—		(41	)	(94	)
Commodity contracts	19			30		—		(26	)	3	—		26		22
Equity contracts	(511		)	57		—		64		—	51		(339	)	80
Foreign exchange contracts	7			(25	)	—		3		—	—		(15	)	(17	)
Credit contracts	36			(4	)	—		(8	)	—	—		24		(8	)
Total derivative contracts	(378		)	(350	)	—		329		3	51		(345	)	(17	)	(9)
Equity securities:
Nonmarketable	5,203			693		—		(96	)	10	(4	)	5,806		687
Total equity securities	5,203			693		—		(96	)	10	(4	)	5,806		687		(10)
Other liabilities	(3		)	1		—		—		—	—		(2	)	—		(7)

(1) See Table 16.10 for detail.

(2) All assets and liabilities transferred into level 3 were previously classified within level 2.

(3) All assets and liabilities transferred out of level 3 are classified as level 2.

(4) Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.

(5) Included in net gains (losses) from trading activities in the income statement.

(6) Included in net gains (losses) on debt securities in the income statement.

(7) Included in mortgage banking and other noninterest income in the income statement.

(8) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

(9) Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.

(10) Included in net gains (losses) from equity securities in the income statement.

(continued on following page)

(continued from previous page)

Table 16.10 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2018.

Table 16.10: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2018

(in millions)	Purchases		Sales		Issuances	Settlements		Net
Six months ended June 30, 2018
Trading debt securities:
Securities of U.S. states and political subdivisions	$	—	—		—	—		—
Collateralized loan obligations	271		(230	)	—	(100	)	(59	)
Corporate debt securities	8		(2	)	—	—		6
Other trading debt securities	—		—		—	—		—
Total trading debt securities	279		(232	)	—	(100	)	(53	)
Available-for-sale debt securities:
Securities of U.S. states and political subdivisions	—		(4	)	10	(96	)	(90	)
Mortgage-backed securities:
Residential	—		—		—	—		—
Commercial	—		—		—	(21	)	(21	)
Total mortgage-backed securities	—		—		—	(21	)	(21	)
Corporate debt securities	31		—		—	(1	)	30
Collateralized loan and other debt obligations	—		—		—	(47	)	(47	)
Asset-backed securities:
Other asset-backed securities	—		(8	)	58	(215	)	(165	)
Total asset-backed securities	—		(8	)	58	(215	)	(165	)
Total available-for-sale debt securities	31		(12	)	68	(380	)	(293	)
Mortgage loans held for sale	47		(151	)	167	(75	)	(12	)
Loans held for sale	—		(16	)	—	—		(16	)
Loans	1		—		8	(63	)	(54	)
Mortgage servicing rights (residential) (1)	—		(5	)	1,059	—		1,054
Net derivative assets and liabilities:
Interest rate contracts	—		—		—	296		296
Commodity contracts	—		—		—	(26	)	(26	)
Equity contracts	—		—		—	64		64
Foreign exchange contracts	—		—		—	3		3
Credit contracts	8		(4	)	—	(12	)	(8	)
Total derivative contracts	8		(4	)	—	325		329
Equity securities:
Nonmarketable	—		(17	)	—	(79	)	(96	)
Total equity securities	—		(17	)	—	(79	)	(96	)
Other liabilities	—		—		—	—		—

(1) For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).

Table 16.11 and Table 16.12 provide quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.

The significant unobservable inputs for Level 3 assets and liabilities that are valued using fair values obtained from third party vendors are not included in the table, as the specific inputs applied are not provided by the vendor. In addition, the table excludes the valuation techniques and significant unobservable inputs for certain classes of Level 3 assets and liabilities measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 assets and liabilities. We made this determination based upon an evaluation of each class, which considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs. For information on how changes in significant unobservable inputs affect the fair values of Level 3 assets and liabilities, see Note 18 (Fair Values of Assets and Liabilities) in our 2018 Form 10-K. 

Table 16.11: Valuation Techniques – Recurring Basis – June 30, 2019

($ in millions, except cost to service amounts)	Fair Value Level 3				Valuation Technique(s)	Significant Unobservable Input	Range of Inputs							Weighted Average (1)
June 30, 2019
Trading and available-for-sale debt securities:
Securities of U.S. states and political subdivisions:
Government, healthcare and other revenue bonds	$	353			Discounted cash flow	Discount rate	1.5			-	6.2		%	3.0
	38				Vendor priced
Collateralized loan and other debt obligations (2)	249				Market comparable pricing	Comparability adjustment	(11.3		)	-	20.0			1.7
	649				Vendor priced
Corporate debt securities	232				Discounted cash flow	Discount rate	2.0				14.9			8.5
	66				Market comparable pricing	Comparability adjustment	(14.0		)		14.4			(2.8	)
	129				Vendor priced
Asset-backed securities:
Diversified payment rights (3)	132				Discounted cash flow	Discount rate	2.5			-	4.9			3.4
Other commercial and consumer	194			(4)	Discounted cash flow	Discount rate	3.9			-	4.8			4.0
						Weighted average life	1.3			-	1.9		yrs	1.8
	15				Vendor priced
Mortgage loans held for sale (residential)	1,101				Discounted cash flow	Default rate	0.0			-	18.4		%	0.8
						Discount rate	3.0			-	6.3			4.6
						Loss severity	0.0			-	46.4			25.0
						Prepayment rate	4.3			-	14.4			6.1
	14				Market comparable pricing	Comparability adjustment	(56.3		)	-	(25.0	)		(40.9	)
Loans	202			(5)	Discounted cash flow	Discount rate	3.9			-	4.4			4.1
						Prepayment rate	4.4			-	100.0			85.6
						Loss severity	0.0			-	34.8			12.0
Mortgage servicing rights (residential)	12,096				Discounted cash flow	Cost to service per loan (6)	$	63		-	482			104
						Discount rate	6.5			-	13.2		%	7.4
						Prepayment rate (7)	10.6			-	24.6			12.2
Net derivative assets and (liabilities):
Interest rate contracts	111				Discounted cash flow	Default rate	0.0			-	5.0			2.0
						Loss severity	50.0			-	50.0			50.0
						Prepayment rate	2.8			-	25.0			15.3
Interest rate contracts: derivative loan commitments	94				Discounted cash flow	Fall-out factor	1.0			-	99.0			19.5
						Initial-value servicing	(40.5		)	-	67.1		bps	12.3
Equity contracts	146				Discounted cash flow	Conversion factor	(8.9		)	-	0.0		%	(8.3	)
						Weighted average life	1.0			-	3.5		yrs	2.0
	(374		)		Option model	Correlation factor	(77.0		)	-	98.5		%	63.9
						Volatility factor	6.5			-	105.2			24.1
Credit contracts	2				Market comparable pricing	Comparability adjustment	(48.3		)	-	29.6			(6.9	)
	43				Option model	Credit spread	0.1			-	21.4			0.9
						Loss severity	13.0			-	60.0			45.6
Nonmarketable equity securities	7,110				Market comparable pricing	Comparability adjustment	(21.7		)	-	(6.3	)		(16.6	)
Insignificant Level 3 assets, net of liabilities	26			(8)
Total level 3 assets, net of liabilities	$	22,628		(9)

(1) Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.

(2) Includes $649 million of collateralized debt obligations.

(3) Securities backed by specified sources of current and future receivables generated from foreign originators.

(4) Predominantly consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.

(5) Consists of reverse mortgage loans.

(6) The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $63 - $208.

(7) Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.

(8) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes mortgage-backed securities, other trading positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts.

(9) Consists of total Level 3 assets of $24.9 billion and total Level 3 liabilities of $2.3 billion, before netting of derivative balances.

Table 16.12: Valuation Techniques – Recurring Basis – December 31, 2018

($ in millions, except cost to service amounts)	Fair Value Level 3				Valuation Technique(s)	Significant Unobservable Input	Range of Inputs							Weighted Average (1)
December 31, 2018
Trading and available-for-sale debt securities:
Securities of U.S. states and political subdivisions:
Government, healthcare and other revenue bonds	$	404			Discounted cash flow	Discount rate	2.1			-	6.4		%	3.4
	43				Vendor priced
Collateralized loan and other debt obligations (2)	298				Market comparable pricing	Comparability adjustment	(13.5		)	-	22.1			3.2
	739				Vendor priced
Corporate debt securities	220				Discounted cash flow	Discount rate	4.0				11.7			8.5
	56				Market comparable pricing	Comparability adjustment	(11.3		)		16.6			(1.4	)
	128				Vendor priced
Asset-backed securities:
Diversified payment rights (3)	171				Discounted cash flow	Discount rate	3.4			-	6.2			4.4
Other commercial and consumer	198			(4)	Discounted cash flow	Discount rate	4.6			-	5.2			4.7
						Weighted average life	1.1			-	1.5		yrs	1.1
	20				Vendor priced
Mortgage loans held for sale (residential)	982				Discounted cash flow	Default rate	0.0			-	15.6		%	0.8
						Discount rate	1.1			-	6.6			5.5
						Loss severity	—			-	43.3			23.4
						Prepayment rate	3.2			-	13.4			4.6
	15				Market comparable pricing	Comparability adjustment	(56.3		)	-	(6.3	)		(36.3	)
Loans	244			(5)	Discounted cash flow	Discount rate	3.4			-	6.4			4.2
						Prepayment rate	2.9			-	100.0			87.2
						Loss severity	0.0			-	34.8			10.2
Mortgage servicing rights (residential)	14,649				Discounted cash flow	Cost to service per loan (6)	$	62		-	507			106
						Discount rate	7.1			-	15.3		%	8.1
						Prepayment rate (7)	9.0			-	23.5			9.9
Net derivative assets and (liabilities):
Interest rate contracts	(35		)		Discounted cash flow	Default rate	0.0			-	5.0			2.0
						Loss severity	50.0			-	50.0			50.0
						Prepayment rate	2.8			-	25.0			13.8
Interest rate contracts: derivative loan commitments	60				Discounted cash flow	Fall-out factor	1.0			-	99.0			19.4
						Initial-value servicing	(36.6		)	-	91.7		bps	18.5
Equity contracts	104				Discounted cash flow	Conversion factor	(9.3		)	-	0.0		%	(7.8	)
						Weighted average life	1.0			-	3.0		yrs	1.8
	(121		)		Option model	Correlation factor	(77.0		)	-	99.0		%	21.6
						Volatility factor	6.5			-	100.0			21.8
Credit contracts	3				Market comparable pricing	Comparability adjustment	(15.5		)	-	40.0			3.5
	32				Option model	Credit spread	0.9			-	21.5			1.3
						Loss severity	13.0			-	60.0			45.2
Nonmarketable equity securities	5,468				Market comparable pricing	Comparability adjustment	(20.6		)	-	(4.3	)		(15.8	)
Insignificant Level 3 assets, net of liabilities	93			(8)
Total level 3 assets, net of liabilities	$	23,771		(9)

(1) Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.

(2) Includes $800 million of collateralized debt obligations.

(3) Securities backed by specified sources of current and future receivables generated from foreign originators.

(4) Predominantly consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.

(5) Consists of reverse mortgage loans.

(6) The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $62 - $204.

(7) Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.

(8) Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes mortgage-backed securities, other trading positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts.

(9) Consists of total Level 3 assets of $25.3 billion and total Level 3 liabilities of $1.6 billion, before netting of derivative balances.

The valuation techniques used for our Level 3 assets and liabilities, as presented in the previous tables, are described as follows: 

• Discounted cash flow – Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the fair value amount.

• Market comparable pricing – Market comparable pricing valuation techniques are used to determine the fair value of certain instruments by incorporating known inputs, such as recent transaction prices, pending transactions, or prices of other similar investments that require significant adjustment to reflect differences in instrument characteristics.

• Option model – Option model valuation techniques are generally used for instruments in which the holder has a contingent right or obligation based on the occurrence of a future event, such as the price of a referenced asset going above or below a predetermined strike price. Option models estimate the likelihood of the specified event occurring by incorporating assumptions such as volatility estimates, price of the underlying instrument and expected rate of return.

• Vendor-priced – Prices obtained from third party pricing vendors or brokers that are used to record the fair value of the asset or liability for which the related valuation technique and significant unobservable inputs are not provided.

Significant unobservable inputs presented in the previous tables are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if by their exclusion the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change. We also consider qualitative factors, such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the table. 

• Comparability adjustment – is an adjustment made to observed market data, such as a transaction price in order to reflect dissimilarities in underlying collateral, issuer, rating, or other factors used within a market valuation approach, expressed as a percentage of an observed price.

• Conversion Factor – is the risk-adjusted rate in which a particular instrument may be exchanged for another instrument upon settlement, expressed as a percentage change from a specified rate.

• Correlation factor – is the likelihood of one instrument changing in price relative to another based on an established relationship expressed as a percentage of relative change in price over a period over time.

• Cost to service – is the expected cost per loan of servicing a portfolio of loans, which includes estimates for unreimbursed expenses (including delinquency and foreclosure costs) that may occur as a result of servicing such loan portfolios.

• Credit spread – is the portion of the interest rate in excess of a benchmark interest rate, such as Overnight Index Swap (OIS), LIBOR or U.S. Treasury rates, that when applied to an investment captures changes in the obligor’s creditworthiness.

• Default rate – is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate (CDR).

• Discount rate – is a rate of return used to calculate the present value of the future expected cash flow to arrive at the fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, OIS, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.

• Fall-out factor – is the expected percentage of loans associated with our interest rate lock commitment portfolio that are likely of not funding.

• Initial-value servicing – is the estimated value of the underlying loan, including the value attributable to the embedded servicing right, expressed in basis points of outstanding unpaid principal balance.

• Loss severity – is the estimated percentage of contractual cash flows lost in the event of a default.

• Prepayment rate – is the estimated rate at which forecasted prepayments of principal of the related loan or debt instrument are expected to occur, expressed as a constant prepayment rate (CPR).

• Volatility factor – is the extent of change in price an item is estimated to fluctuate over a specified period of time expressed as a percentage of relative change in price over a period over time.

•

Weighted average life – is the weighted average number of years an investment is expected to remain outstanding based on its expected cash flows reflecting the estimated date the issuer will call or extend the maturity of the instrument or otherwise reflecting an estimate of the timing of an instrument’s cash flows whose timing is not contractually fixed.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of LOCOM accounting, write-downs of individual assets or use of the measurement alternative for nonmarketable equity securities.

Table 16.13 provides the fair value hierarchy and fair value at the date of the nonrecurring fair value adjustment for all assets that were still held as of June 30, 2019 and December 31, 2018, and for which a nonrecurring fair value adjustment was recorded during the six months ended June 30, 2019 and year ended December 31, 2018.

Table 16.13: Fair Value on a Nonrecurring Basis

	June 30, 2019					December 31, 2018
(in millions)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Mortgage loans held for sale (LOCOM) (1)	$	—	1,865	3,148	5,013	—	1,213	1,233	2,446
Loans held for sale	—		26	—	26	—	313	—	313
Loans:
Commercial	—		215	—	215	—	339	—	339
Consumer	—		164	1	165	—	346	1	347
Total loans (2)	—		379	1	380	—	685	1	686
Nonmarketable equity securities (3)	—		812	83	895	—	774	157	931
Other assets (4)	—		153	—	153	—	149	6	155
Total assets at fair value on a nonrecurring basis	$	—	3,235	3,232	6,467	—	3,134	1,397	4,531

(1) Consists of commercial mortgages and residential real estate 1-4 family first mortgage loans.

(2) Represents the carrying value of loans for which nonrecurring adjustments are based on the appraised value of the collateral.

(3) Consists of certain nonmarketable equity securities that are measured at fair value on a nonrecurring basis, including observable price adjustments for nonmarketable equity securities carried under the measurement alternative.

(4) Includes the fair value of foreclosed real estate, other collateral owned and operating lease assets.

Table 16.14 presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the periods presented.

Table 16.14: Change in Value of Assets with Nonrecurring Fair Value Adjustment

	Six months ended June 30,
(in millions)	2019			2018
Mortgage loans held for sale (LOCOM)	$	18		13
Loans held for sale	(2		)	(78	)
Loans:
Commercial	(106		)	(138	)
Consumer	(121		)	(185	)
Total loans (1)	(227		)	(323	)
Nonmarketable equity securities (2)	264			(17	)
Other assets (3)	(29		)	(30	)
Total	$	24		(435	)

(1) Represents write-downs of loans based on the appraised value of the collateral.

(2) Includes impairment losses for nonmarketable equity securities accounted for under the equity method and measurement alternative. Also includes observable price adjustments for nonmarketable equity securities accounted for under the measurement alternative.

(3) Includes the losses on foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

Table 16.15 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets that are measured at fair value on a nonrecurring basis using an internal model. The table is limited to financial instruments that had nonrecurring fair value adjustments during the periods presented.

We have excluded from the table valuation techniques and significant unobservable inputs for certain classes of Level 3

assets measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 nonrecurring measurements. We made this determination based upon an evaluation of each class that considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs.

Table 16.15: Valuation Techniques – Nonrecurring Basis

($ in millions)	Fair Value Level 3			Valuation Technique(s) (1)	Significant Unobservable Inputs (1)		Range of inputs				Weighted Average (2)
June 30, 2019
Residential mortgage loans held for sale (LOCOM)	$	3,148	(3)	Discounted cash flow	Default rate	(4)	0.3	—	5.7	%	1.4	%
					Discount rate		1.5	—	9.5		4.8
					Loss severity		0.5	—	62.3		24.7
					Prepayment rate	(5)	5.1	—	100.0		21.6
Nonmarketable equity securities	—			Discounted cash flow	Discount rate		—	—	—		—
Insignificant level 3 assets	84
Total	$	3,232
December 31, 2018
Residential mortgage loans held for sale (LOCOM)	$	1,233	(3)	Discounted cash flow	Default rate	(4)	0.2	—	2.3	%	1.4	%
					Discount rate		1.5	—	8.5		4.0
					Loss severity		0.5	—	66.0		1.7
					Prepayment rate	(5)	3.5	—	100.0		46.5
Nonmarketable equity securities	7			Discounted cash flow	Discount rate		10.5	—	10.5		10.5
Insignificant level 3 assets	157
Total	$	1,397

(1) Refer to the narrative following Table 16.12 for a definition of the valuation technique(s) and significant unobservable inputs.

(2) For residential MLHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans.

(3) Consists of approximately $1.3 billion and $1.2 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at June 30, 2019, and December 31, 2018, respectively, and $1.8 billion and $27 million, respectively, of other mortgage loans that are not government insured/guaranteed.

(4) Applies only to non-government insured/guaranteed loans.

(5)

Includes the impact on prepayment rate of expected defaults for government insured/guaranteed loans, which impact the frequency and timing of early resolution of loans.

Fair Value Option

The fair value option is an irrevocable election, generally only permitted upon initial recognition of financial assets or liabilities, to measure eligible financial instruments at fair value with changes in fair value reflected in earnings. We may elect the fair value option to align the measurement model with how the financial assets or liabilities are managed or to reduce complexity

or accounting asymmetry. For more information, including the basis for our fair value option elections, see Note 18 (Fair Values of Assets and Liabilities) in our 2018 Form 10-K.

Table 16.16 reflects differences between the fair value carrying amount of the assets for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity. 

Table 16.16: Fair Value Option

	June 30, 2019					December 31, 2018
(in millions)	Fair value carrying amount		Aggregate unpaid principal	Fair value carrying amount less aggregate unpaid principal		Fair value carrying amount	Aggregate unpaid principal	Fair value carrying amount less aggregate unpaid principal
Mortgage loans held for sale:
Total loans	$	16,343	15,906	437		11,771	11,573	198
Nonaccrual loans	130		155	(25	)	127	158	(31	)
Loans 90 days or more past due and still accruing	8		10	(2	)	7	9	(2	)
Loans held for sale:
Total loans	1,118		1,166	(48	)	1,469	1,536	(67	)
Nonaccrual loans	57		65	(8	)	21	32	(11	)
Loans:
Total loans	202		231	(29	)	244	274	(30	)
Nonaccrual loans	150		179	(29	)	179	208	(29	)

The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The changes in fair value related to initial measurement and subsequent changes in fair value included in

earnings for these assets measured at fair value are shown in Table 16.17 by income statement line item. Amounts recorded as interest income are excluded from Table 16.17.

Table 16.17: Fair Value Option – Changes in Fair Value Included in Earnings

	2019					2018
(in millions)	Mortgage banking noninterest income		Net gains (losses) from trading activities		Other noninterest income	Mortgage banking noninterest income	Net gains (losses) from trading activities		Other noninterest income
Quarter ended June 30,
Mortgage loans held for sale	$	379	—		—	114	—		—
Loans held for sale	—		(4	)	—	—	9		—
Loans	—		—		1	—	—		—
Other interests held (1)	—		(1	)	—	—	(1	)	—
Six months ended June 30,
Mortgage loans held for sale	$	593	—		—	55	—		—
Loans held for sale	—		10		1	—	15		—
Loans	—		—		1	—	—		(1	)
Other interests held (1)	—		(2	)	—	—	(2	)	—

(1) Includes retained interests in securitizations.

For performing loans, instrument-specific credit risk gains or losses were derived principally by determining the change in fair value of the loans due to changes in the observable or implied credit spread. Credit spread is the market yield on the loans less the relevant risk-free benchmark interest rate. For nonperforming loans, we attribute all changes in fair value to

instrument-specific credit risk. Table 16.18 shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.

Table 16.18: Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk

	Quarter ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019	2018
Gains (losses) attributable to instrument-specific credit risk:
Mortgage loans held for sale	$	16		(2	)	12	(1	)
Loans held for sale	(3		)	9		11	15
Total	$	13		7		23	14

Disclosures about Fair Value of Financial Instruments

Table 16.19 is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair value on a recurring basis, as they are included within Table 16.2 in this Note. The carrying amounts in the following table are recorded on the balance sheet under the indicated captions.

We have not included assets and liabilities that are not financial instruments in our disclosure, such as the value of the long-term relationships with our deposit, credit card and trust customers, amortized MSRs, premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities.

The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

Table 16.19: Fair Value Estimates for Financial Instruments

			Estimated fair value
(in millions)	Carrying amount		Level 1	Level 2	Level 3	Total
June 30, 2019
Financial assets
Cash and due from banks (1)	$	20,880	20,880	—	—	20,880
Interest-earning deposits with banks (1)	143,547		143,312	235	—	143,547
Federal funds sold and securities purchased under resale agreements (1)	112,119		—	112,119	—	112,119
Held-to-maturity debt securities	145,876		45,336	101,943	585	147,864
Mortgage loans held for sale	6,655		—	3,548	4,102	7,650
Loans held for sale	63		—	63	—	63
Loans, net (2)	920,977		—	49,839	878,601	928,440
Nonmarketable equity securities (cost method)	5,622		—	—	5,654	5,654
Total financial assets	$	1,355,739	209,528	267,747	888,942	1,366,217
Financial liabilities
Deposits (3)	$	139,343	—	106,653	32,549	139,202
Short-term borrowings	115,344		—	115,345	—	115,345
Long-term debt (4)	241,441		—	242,529	1,626	244,155
Total financial liabilities	$	496,128	—	464,527	34,175	498,702
December 31, 2018
Financial assets
Cash and due from banks (1)	$	23,551	23,551	—	—	23,551
Interest-earning deposits with banks (1)	149,736		149,542	194	—	149,736
Federal funds sold and securities purchased under resale agreements (1)	80,207		—	80,207	—	80,207
Held-to-maturity debt securities	144,788		44,339	97,275	501	142,115
Mortgage loans held for sale	3,355		—	2,129	1,233	3,362
Loans held for sale	572		—	572	—	572
Loans, net (2)	923,703		—	45,190	872,725	917,915
Nonmarketable equity securities (cost method)	5,643		—	—	5,675	5,675
Total financial assets	$	1,331,555	217,432	225,567	880,134	1,323,133
Financial liabilities
Deposits (3)	$	130,645	—	107,448	22,641	130,089
Short-term borrowings	105,787		—	105,789	—	105,789
Long-term debt (4)	229,008		—	225,904	2,230	228,134
Total financial liabilities	$	465,440	—	439,141	24,871	464,012

(1) Amounts consist of financial instruments for which carrying value approximates fair value.

(2) Excludes lease financing with a carrying amount of $19.0 billion and $19.7 billion at June 30, 2019, and December 31, 2018, respectively.

(3) Excludes deposit liabilities with no defined or contractual maturity of $1.1 trillion and $1.2 trillion at June 30, 2019 and December 31, 2018, respectively.

(4) Excludes capital lease obligations under capital leases of $35 million and $36 million at June 30, 2019, and December 31, 2018, respectively.

Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in Table 16.19. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the allowance for unfunded credit commitments, which totaled $1.0 billion at both June 30, 2019, and December 31, 2018.