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Fair Value Disclosures

3 Months Ended

Mar. 31, 2020

Recurring Fair Value Measurements

Accounting standards define fair value as the 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:


March 31, 2020 (Dollars in millions)	Total		Level 1		Level 2		Level 3		Netting Adjustments (1)
Assets:
Trading assets:
U.S. Treasury	$	630	$	—	$	630	$	—	$	—
GSE	343		—		343		—		—
Agency MBS - residential	601		—		601		—		—
Agency MBS - commercial	58		—		58		—		—
States and political subdivisions	43		—		43		—		—

Corporate and other debt securities	536		—		536		—		—
Loans	1,569		—		1,569		—		—
Other	83		78		5		—		—
Total trading assets	3,863		78		3,785		—		—
AFS securities:
U.S. Treasury	2,319		—		2,319		—		—
GSE	1,933		—		1,933		—		—
Agency MBS - residential	71,753		—		71,753		—		—
Agency MBS - commercial	1,519		—		1,519		—		—
States and political subdivisions	539		—		539		—		—
Non-agency MBS	298		—		—		298		—
Other	37		—		37		—		—
Total AFS securities	78,398		—		78,100		298		—
LHFS at fair value	3,655		—		3,655		—		—
MSRs at fair value	2,150		—		—		2,150		—
Other assets:
Derivative assets	4,040		548		6,746		177		(3,431)
Equity securities	641		603		38		—		—
Private equity investments	448		—		—		448		—
Total assets	$	93,195	$	1,229	$	92,324	$	3,073	$	(3,431)
Liabilities:
Derivative liabilities	$	764	$	674	$	3,234	$	34	$	(3,178)
Securities sold short	1,085		—		1,085		—		—
Total liabilities	$	1,849	$	674	$	4,319	$	34	$	(3,178)


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	5,673		—		5,673		—		—
MSRs	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)

(1) Refer to "Note 15. Derivative Financial Instruments" for additional discussion on netting adjustments.

For a description of 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, see “Note 18. Fair Value Disclosures” of the Annual Report on Form 10-K for the year ended December 31, 2019.

Activity for Level 3 assets and liabilities is summarized below:




Three Months Ended (Dollars in millions)	Trading Securities		Non-agency MBS		MSRs		Net Derivatives		Private Equity Investments
Balance at January 1, 2019	$	3	$	391	$	1,108	$	12	$	393
Total realized and unrealized gains (losses):
Included in earnings	—		2		(54)		8		23
Included in unrealized net holding gains (losses) in OCI	—		1		—		—		—
Purchases	15		—		—		—		7
Issuances	—		—		22		17		—
Sales	(7)		—		—		—		(33)
Settlements	—		(8)		(40)		(30)		(2)


Balance at March 31, 2019	$	11	$	386	$	1,036	$	7	$	388

Balance at January 1, 2020	$	—	$	368	$	2,618	$	19	$	440
Total realized and unrealized gains (losses):
Included in earnings	—		3		(526)		111		2
Included in unrealized net holding gains (losses) in OCI	—		(64)		—		—		—
Purchases	—		—		—		—		27
Issuances	—		—		187		155		—
Sales	—		—		—		—		—
Settlements	—		(9)		(129)		(142)		(21)


Balance at March 31, 2020	$	—	$	298	$	2,150	$	143	$	448
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2020	$	—	$	3	$	(526)	$	154	$	—






































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 March 31, 2020, the fair value of Re-REMIC non-agency MBS represented a discount of 38.7% to the fair value of the underlying securities owned by the Re-REMIC trusts due to market conditions at March 31, 2020 that reflected wider discounts relative to previous periods.

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 2030, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. As of March 31, 2020, 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 14x, with a weighted average of 8x, at March 31, 2020.

Refer to "Note 7. 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.


	March 31, 2020										December 31, 2019
(Dollars in millions)	Fair Value		UPB		Difference		Fair Value		UPB		Difference


Trading loans	$	1,569	$	1,891	$	(322)	$	2,948	$	2,982	$	(34)
LHFS at fair value	3,655		3,485		170		5,673		5,563		110

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).



	2020						2019
As of / For The Three Months Ended March 31, (Dollars in millions)	Carrying Value		Valuation Adjustments		Carrying Value		Valuation Adjustments
LHFS	$	427	$	(25)	$	—	$	—
Loans and leases	101		(7)		154		(18)

Foreclosed real estate	63		(73)		33		(63)

At March 31, 2020, LHFS consisted primarily of residential mortgages and commercial loans that were valued using market prices and measured at the lower of cost or market. The table above excludes $728 million of LHFS carried at cost at March 31, 2020. Excluding government guaranteed loans, the Company held $41 million in nonperforming LHFS at March 31, 2020 and $107 million of nonperforming LHFS at December 31, 2019. LHFS that were 90 days or more past due and still accruing interest were not material at March 31, 2020. Loans and leases are primarily collateral dependent and may be subject to liquidity adjustments. Refer to “Note 1. Basis of Presentation” for additional discussion of individually evaluated loans and leases. 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. In addition, changes in assumptions could significantly affect these fair value estimates. Financial assets and liabilities not recorded at fair value are summarized below:


		March 31, 2020						December 31, 2019
(Dollars in millions)	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value


Financial assets:

Loans and leases HFI, net of ALLL	Level 3	$	314,018	$	314,838	$	298,293	$	298,586
Financial liabilities:
Time deposits	Level 2	35,539		35,821		35,896		35,885
Long-term debt	Level 2	65,662		64,998		41,339		42,051

The carrying value of unfunded commitments was $400 million and $373 million at March 31, 2020 and December 31, 2019, respectively.

- 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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