Fair Value Disclosures

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

Recurring Fair Value Measurements

Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level measurement hierarchy:

•Level 1: Quoted prices for identical instruments in active markets

•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets

•Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:

December 31, 2019 (Dollars in millions)	Total		Level 1		Level 2		Level 3		Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury	$	227	$	—	$	227	$	—	$	—
GSE	296		—		296		—		—
Agency MBS - residential	497		—		497		—		—
Agency MBS - commercial	68		—		68		—		—
States and political subdivisions	82		—		82		—		—
Non-agency MBS	277		—		277		—		—
Corporate and other debt securities	1,204		—		1,204		—		—
Loans	2,948		—		2,948		—		—
Other	134		90		44		—		—
Total trading assets	5,733		90		5,643		—		—
AFS securities:
U.S. Treasury	2,276		—		2,276		—		—
GSE	1,881		—		1,881		—		—
Agency MBS - residential	68,236		—		68,236		—		—
Agency MBS - commercial	1,341		—		1,341		—		—
States and political subdivisions	585		—		585		—		—
Non-agency MBS	368		—		—		368		—
Other	40		—		40		—		—
Total AFS securities	74,727		—		74,359		368		—
LHFS at fair value	5,673		—		5,673		—		—
MSRs at fair value	2,618		—		—		2,618		—
Other assets:
Derivative assets	2,053		606		3,620		34		(2,207)
Equity securities	817		815		2		—		—
Private equity investments	440		—		—		440		—
Total assets	$	92,061	$	1,511	$	89,297	$	3,460	$	(2,207)
Liabilities:
Derivative liabilities	$	366	$	204	$	3,117	$	15	$	(2,970)
Securities sold short	1,074		18		1,056		—		—
Total liabilities	$	1,440	$	222	$	4,173	$	15	$	(2,970)

December 31, 2018 (Dollars in millions)	Total		Level 1		Level 2		Level 3		Netting Adjustments (1)
Assets:
Trading assets	$	391	$	—	$	388	$	3	$	—
AFS securities:
U.S. Treasury	3,441		—		3,441		—		—
GSE	200		—		200		—		—
Agency MBS - residential	19,426		—		19,426		—		—
Agency MBS - commercial	729		—		729		—		—
States and political subdivisions	701		—		701		—		—
Non-agency MBS	505		—		114		391		—
Other	36		—		36		—		—
Total AFS securities	25,038		—		24,647		391		—
LHFS	988		—		988		—		—
MSRs	1,108		—		—		1,108		—
Other assets:
Derivative assets	246		—		234		12		—
Equity securities	376		374		2		—		—
Private equity investments	393		—		—		393		—
Total assets	$	28,540	$	374	$	26,259	$	1,907	$	—
Liabilities:
Derivative liabilities	$	247	$	1	$	246	$	—	$	—
Securities sold short	145		—		145		—		—
Total liabilities	$	392	$	1	$	391	$	—	$	—

(1) Refer to "Note 19. Derivative Financial Instruments" for additional discussion on netting adjustments.

The following discussion focuses on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis.

Available for Sale and Trading Securities: Securities accounted for at fair value include both the available-for-sale and trading portfolios. The Company uses prices obtained from pricing services, dealer quotes or recent trades to estimate the fair value of securities. The majority of AFS securities were priced by third-party vendors whereas trading securities are priced internally. All securities are subject to IPV. Management independently evaluates the fair values provided by the pricing service through comparisons to other external pricing sources, review of additional information provided by the pricing service and other third-party sources for selected securities and back-testing to compare the price realized on any security sales to the daily pricing information received from the pricing service. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. Security prices are also validated through actual cash settlement upon sale of a security. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.

Trading loans: The Company has elected to measure trading loans at fair value. Trading loans are valued primarily using quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active by a third-party pricing service. Trading loans include:

•loans held in connection with the Company's trading business primarily consisting of commercial and corporate leveraged loans;

•SBA loans guaranteed by the U.S. government; and

•loans made or acquired in connection with the Company’s TRS business.

U.S. Treasury securities: Treasury securities are valued using quoted prices in active over-the-counter markets.

GSE securities and agency MBS: GSE securities consist of debt obligations issued by HUD, the FHLB, and other agencies, as well as securities collateralized by loans that are guaranteed by the SBA, and thus, are backed by the full faith and credit of the U.S. government. Agency MBS includes pass-through securities and CMO issued by GSEs and U.S. government agencies, such as FNMA, FHLMC, and GNMA. Each security contains a guarantee by the issuing GSE or agency. GSE pass-through securities are valued using market-based pricing matrices that reference observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE CMOs are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.

States and political subdivisions: The Company’s investments in U.S. states and political subdivisions include obligations of county and municipal authorities and agency bonds, which are general obligations of the municipality or are supported by a specified revenue source. Holdings are geographically dispersed, with no significant concentrations in any one state or municipality. Additionally, all municipal obligations are highly rated or are otherwise collateralized by securities backed by the full faith and credit of the federal government. These securities are valued using market-based pricing matrices that reference observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.

Non-agency MBS: Non-agency MBS includes purchased interests in third-party securitizations that have a high investment grade rating, and the pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above; as such, these securities are classified as level 2. Non-agency MBS includes investments in Re-REMIC trusts that primarily hold non-agency MBS, which are valued based on broker pricing models that use baseline securities yields and tranche-level yield adjustments to discount cash flows using market convention prepayment speed and default assumptions. These investments are classified as level 3.

Other securities: These securities consist primarily of corporate bonds and commercial paper. Corporate bonds are senior and subordinated debt obligations of domestic corporations. The Company acquires commercial paper that is generally short-term in nature and highly rated. These securities are valued based on a review of quoted market prices for similar assets as well as through the various other inputs discussed previously.

LHFS: Certain mortgage loans that are originated to be sold to investors are carried at fair value. The fair value is primarily based on quoted market prices for securities backed by similar types of loans, adjusted for servicing, interest rate risk, and credit risk. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage LHFS.

MSRs: Residential MSRs are valued using an OAS valuation model to project cash flows over multiple interest rate scenarios and then are discounted at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. Fair value estimates and assumptions are compared to industry surveys, recent market activity, actual portfolio experience and, when available, other observable market data. Commercial MSRs are valued using a cash flow valuation model that calculates the present value of estimated future net servicing cash flows. The Company considers actual and expected loan prepayment rates, discount rates, servicing costs and other economic factors that are determined based on current market conditions. Refer to "Note 8. Loan Servicing" for additional discussion.

Equity securities: Equity securities primarily consist of exchange-traded securities and are valued using quoted prices in active markets.

Derivative assets and liabilities: The Company holds derivative instruments for both trading and risk management purposes. These include exchange-traded futures or option contracts, OTC swaps, options, forwards and interest rate lock commitments. The fair values of derivatives are determined based on quoted market prices and internal pricing models that use market observable assumptions for interest rates, foreign exchange, equity and credit. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted market prices adjusted for commitments that are not expected to fund and include the value attributable to the net servicing fees. Funding rates are based on the Company’s historical data. The fair value attributable to servicing is based on discounted cash flows, and is impacted by prepayment assumptions, discount rates, delinquency rates, contractually-specified servicing fees, servicing costs and underlying portfolio characteristics.

Private equity investments: In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the investee to multiples in the marketplace for similar entities. This analysis requires significant judgment, and actual values in a sale could differ materially from those estimated.

Securities sold short: Securities sold short represent debt securities sold short that are entered into as a hedging strategy for the purposes of supporting institutional and retail client trading activities.

Activity for Level 3 assets and liabilities is summarized below:

(Dollars in millions)	Trading Assets		Non-agency MBS		MSRs		Net Derivatives		Private Equity Investments
Balance at January 1, 2017	$	—	$	507	$	1,052	$	(13)	$	362
Total realized and unrealized gains (losses):
Included in earnings	—		36		48		38		58
Included in unrealized net holding gains (losses) in OCI	—		(40)		—		—		—
Purchases	—		—		—		—		142
Issuances	—		—		124		43		—
Sales	—		—		—		—		(119)
Settlements	—		(71)		(168)		(65)		(26)
Transfers out of Level 3			—		—		—		(13)
Balance at December 31, 2017	—		432		1,056		3		404
Total realized and unrealized gains (losses):
Included in earnings	—		9		71		11		66
Purchases	5		—		—		—		91
Issuances	—		—		152		24		—
Sales	(2)		—		—		—		(112)
Settlements	—		(50)		(171)		(26)		(56)
Balance at December 31, 2018	3		391		1,108		12		393
Total realized and unrealized gains (losses):
Included in earnings	—		13		(105)		63		47
Included in unrealized net holding gains (losses) in OCI	—		4		—		—		—
Purchases	23		—		31		(1)		137
Issuances	—		—		170		63		—
Sales	(26)		—		(27)		—		(91)
Settlements	—		(40)		(164)		(118)		(46)
Transfers into Level 3	—		—		—		(10)		—
Merger additions	—		—		1,605		10		—
Balance at December 31, 2019	$	—	$	368	$	2,618	$	19	$	440
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at December 31, 2019	$	—	$	12	$	(105)	$	24	$	16
Primary income statement location of realized gains (losses) included in earnings	Interest income		Interest income		Residential mortgage income and Commercial real estate related income		Residential mortgage income and Commercial real estate related income		Other income

The non-agency MBS categorized as Level 3 represent ownership interests in various tranches of Re-REMIC trusts. These securities are valued at a discount, which is unobservable in the market, to the fair value of the underlying securities owned by the trusts. The Re-REMIC tranches do not have an active market and therefore are categorized as Level 3. At December 31, 2019, the fair value of Re-REMIC non-agency MBS represented a discount of 21.5% to the fair value of the underlying securities owned by the Re-REMIC trusts.

The majority of private equity investments are in SBIC qualified funds, which primarily focus on equity and subordinated debt investments in privately-held middle market companies. The majority of these VIE investments are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates on an approximately ratable basis through 2029, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. As of December 31, 2019, restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. These investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 6x to 13x, with a weighted average of 9x, at December 31, 2019.

Refer to "Note 8. Loan Servicing" for additional information on valuation techniques and inputs for MSRs.

Fair Value Option

The following table details the fair value and UPB of LHFS that were elected to be measured at fair value. Trading loans, included in other trading assets, were also elected to be measured at fair value.

December 31, (Dollars in millions)	2019						2018
	Fair Value		UPB		Difference		Fair Value		UPB		Difference
Trading loans	$	2,948	$	2,982	$	(34)	$	—	$	—	$	—
LHFS at fair value	5,673		5,563		110		988		975		13

Nonrecurring Fair Value Measurements

The following table provides information about certain assets measured at fair value on a nonrecurring basis. The carrying values represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates throughout the period. The valuation adjustments represent the amounts recorded during the period regardless of whether the asset is still held at period end. These assets are considered to be Level 3 assets (excludes PCI).

	2019				2018
As of / For The Year Ended December 31, (Dollars in millions)	Carrying Value		Valuation Adjustments		Carrying Value		Valuation Adjustments
LHFS	$	2,700	$	(17)	$	—	$	—
Impaired loans	95		(23)		167		(35)
Foreclosed real estate	82		(248)		35		(240)

At December 31, 2019, LHFS consisted primarily of residential mortgages and commercial loans that were valued using market prices and measured at the lower of cost or market. Excluding government guaranteed loans, the Company held $107 million in nonperforming LHFS at December 31, 2019. LHFS that were 90 days or more past due and still accruing interest were not material at December 31, 2019. Impaired loans are primarily collateral dependent and may be subject to liquidity adjustments. Foreclosed real estate is measured at the lower of cost or fair value less costs to sell and consists primarily of residential homes, commercial properties, and vacant lots.

Financial Instruments Not Recorded at Fair Value

For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instrument. Values obtained relate to one trading unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.

An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. Financial assets and liabilities not recorded at fair value are summarized below:

		December 31, 2019				December 31, 2018
(Dollars in millions)	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
HTM securities	Level 2	$	—	$	—	$	20,552	$	20,047
Loans and leases HFI, net of ALLL	Level 3	298,293		298,586		147,455		145,591
Financial liabilities:
Time deposits	Level 2	35,896		35,885		16,577		16,617
Long-term debt	Level 2	41,339		42,051		23,709		23,723

The carrying value of unfunded commitments, deferred non-yield related loan fees and standby letters of credit was $373 million and $119 million at December 31, 2019 and 2018, respectively.