NOTE 17—FAIR VALUE MEASUREMENT

Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:



Level 1:		Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:		Valuation is based on observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities.
Level 3:		Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.

The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made any material fair value option elections as of or for the periods disclosed herein.

Fair Value Governance and Control

We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification and review of valuation judgments, methods, models, process controls and results.

Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including comparing prices from third-party pricing services to other available market information.

Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance divisions, provides guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.

We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and provides ongoing monitoring of their performance.

The fair valuation governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC is only required to convene to review escalated valuation disputes.

Financial Assets and Liabilities

The following describes the valuation techniques used in estimating the fair value of our financial assets and liabilities recorded at fair value on a recurring basis or nonrecurring basis, and for financial instruments not recorded at fair value. We applied the fair value provisions to the financial instruments not recognized on the consolidated balance sheets at fair value. The provisions requiring us to maximize the use of observable inputs and to measure fair value using a notion of exit price were factored into our selection of inputs for our established valuation techniques.

Investment Securities

Quoted prices in active markets are used to measure the fair value of U.S. Treasury securities. For the majority of securities in other investment categories, we utilize multiple third-party pricing services to obtain fair value measurements. A pricing service may be considered as the primary pricing provider for certain securities and the designation of the primary pricing provider may vary depending on how closely aligned its prices are to other vendor prices, and how consistent the prices are with other available market information. The determination of the primary pricing provider is based on our experience and validation benchmark of the pricing service’s performance in terms of providing fair value measurements for the various types of securities.

RMBS and CMBS securities are generally classified as Level 2 or 3. When significant assumptions are not consistently observable, fair values are derived using the best available data. Such data may include quotes provided by dealers, valuation from external pricing services, independent pricing models, or other model-based valuation techniques, for example, calculation of the present values of future cash flows incorporating assumptions such as benchmark yields, spreads, prepayment speeds, credit ratings and losses. Generally, the pricing services utilize observable market data to the extent available. Pricing models may be used, which can vary by asset class and may also incorporate available trade, bid and other market information. Across asset classes, information such as trader/dealer inputs, credit spreads, forward curves and prepayment speeds are used to help determine appropriate valuations. Because many fixed income securities do not trade on a daily basis, the pricing models may apply available information through processes such as benchmarking curves, grouping securities based on their characteristics and using matrix pricing to prepare valuations. In addition, model processes are used by the pricing services to develop prepayment assumptions.

We validate the pricing obtained from the primary pricing providers through comparison of pricing to additional sources, including other pricing services, dealer pricing indications in transaction results and other internal sources. Pricing variances among different pricing sources are analyzed. Additionally, on an on-going basis, we request more detailed information from the valuation vendors to understand the pricing methodology and assumptions used to value the securities.

Derivative Assets and Liabilities

We use both exchange-traded and OTC derivatives to manage our interest rate and foreign currency risk exposures. When quoted market prices are available and used to value our exchange-traded derivatives, we classify them as Level 1. However, predominantly all of our derivatives do not have readily available quoted market prices. Therefore, we value most of our derivatives using vendor-based valuation techniques. We primarily rely on market observable inputs for our models, such as interest rate yield curves, credit curves, option volatility and currency rates. These inputs can vary depending on the type of derivatives and nature of the underlying rate, price or index upon which the derivative’s value is based. We typically classify derivatives as Level 2 when significant inputs can be observed in a liquid market and the model itself does not require significant judgment. When instruments are traded in less liquid markets and significant inputs are unobservable, such as interest rate swaps whose remaining terms do not correlate with market observable interest rate yield curves, such derivatives are classified as Level 3. The impact of counterparty non-performance risk is considered when measuring the fair value of derivative assets. Official internal pricing is compared against additional pricing sources such as external valuation agents and other internal sources. Pricing variances among different pricing sources are analyzed and validated. These derivatives are included in other assets or other liabilities on the consolidated balance sheets.

Mortgage Servicing Rights

We record consumer MSRs at fair value on a recurring basis.We determine the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that we believe other market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, option-adjusted spreads, cost to service, contractual servicing fee income, ancillary income and late fees. Fair value measurements of MSRs use significant unobservable inputs and, accordingly, are classified as Level 3. In the event we enter into an agreement with a third party to sell the MSRs, the valuation is based on the agreed upon sale price which is considered to be the exit price and such MSRs are classified as Level 2.

Retained Interests in Securitizations

We have retained interests in various mortgage securitizations from previous acquisitions. Our retained interests primarily include amounts previously funded under letters of credit to cover losses on certain manufactured housing securitizations, interest-only bonds issued by a trust and negative amortization bonds. We record these retained interests at fair value using market indications and valuation models to calculate the present value of future cash flows. The models incorporate various assumptions that market participants use in estimating future cash flows including constant prepayment rate, discount rate, default rate and loss severity. Due to the use of significant unobservable inputs, retained interests in securitizations are classified as Level 3 under the fair value hierarchy.

Deferred Compensation Plan Assets

We offer a voluntary non-qualified deferred compensation plan to eligible associates. In addition to participant deferrals, we make contributions to the plan. Participants invest these contributions in a variety of publicly traded mutual funds. The plan assets, which consist of publicly traded mutual funds, are classified as Level 1.

Other Assets

Other assets subject to nonrecurring fair value measurements include foreclosed property, other repossessed assets and long-lived assets held for sale. Foreclosed property, other repossessed assets and long-lived assets held for sale are carried at the lower of the carrying amount or fair value less costs to sell. The fair value is determined based on the appraisal value, listing price of the property or collateral provided by independent appraisers, and is adjusted for the estimated costs to sell. Due to the use of significant unobservable inputs, these assets are classified as Level 3 under the fair value hierarchy. Fair value adjustments for these assets are recorded in other non-interest expense in the consolidated statements of income.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and due from banks, interest bearing deposits and other short-term investments. Cash and due from banks are generally classified as Level 1. Interest bearing deposits and other short-term investments are generally classified as Level 2, as their fair value approximates carrying value.

Restricted Cash for Securitization Investors

Restricted cash for securitization investors are classified as Level 1.

Net Loans Held For Investment

Loans held for investment that are individually impaired are carried at the lower of cost or fair value of the underlying collateral, less the estimated cost to sell. The fair values of credit card loans, auto loans, home loans and commercial loans are estimated using a discounted cash flow method, which is a form of the income approach. Discount rates are determined considering rates at which similar portfolios of loans would be made under current conditions and considering liquidity spreads applicable to each loan portfolio based on the secondary market. The fair value of credit card loans excludes any value related to customer account relationships. For loans held for investment that are recorded at fair value on our consolidated balance sheets and measured on a nonrecurring basis, the fair value is determined using appraisal values that are obtained from independent appraisers, broker pricing opinions or other available market information, adjusted for the estimated cost to sell.

Due to the use of significant unobservable inputs, loans held for investment are classified as Level 3 under the fair value hierarchy. Fair value adjustments for individually impaired collateralized loans held for investment are recorded in provision for credit losses in the consolidated statements of income.

Loans Held For Sale

Loans held for sale are carried at the lower of aggregate cost, net of deferred fees and deferred origination costs, or fair value. We originate loans with the intent to sell them. Certain commercial mortgage loans are sold to government-sponsored enterprises as part of a delegated underwriting and servicing (“DUS”) program. For DUS commercial mortgage loans, the fair value is estimated primarily using contractual prices and other market observable inputs. For residential mortgage loans classified as held for sale, the fair value is estimated using observable market prices for loans with similar characteristics as the primary component, with the secondary component derived from typical securitization activities and market conditions. Credit card loans held for sale are valued based on other market observable inputs. These assets are therefore classified as Level 2. Fair value adjustments to loans held for sale are recorded in other non-interest income in our consolidated statements of income.

Interest Receivable

Interest receivable is classified as Level 2, as its fair value estimate uses only observable market inputs.

Other Investments

Other investments include FHLB and Federal Reserve stock and cost method investments. These investments are classified as Level 2 when their fair value estimates use observable market inputs and as Level 3 if any significant unobservable inputs are employed in determining the fair value.

Deposits

Non-interest bearing deposits are classified as Level 1. Interest-bearing deposits with no stated maturities are classified as Level 2, as the fair value is equal to the amount payable on demand at the reporting date. Interest-bearing deposits with stated maturities are also classified as Level 2, as the fair value is estimated utilizing a discounted cash flow analysis using market observable inputs such as current interest rates.

Securitized Debt Obligations

We utilize multiple third-party pricing services to obtain fair value measurements for the majority of our securitized debt obligations. The pricing services use pricing models that incorporate market observable data to the extent available, such as trade, bid and other market information. We use internal pricing models such as discounted cash flow models or similar techniques to estimate the fair value of certain securitization trusts where third-party pricing is not available. Securitized debt obligations are generally classified as Level 2.

Senior and Subordinated Notes

We also engage multiple third-party pricing services to estimate the fair value of senior and subordinated notes. The pricing services utilize pricing models that incorporate available trade, bid and other market information. The spread assumptions and relevant credit information are also incorporated into the pricing models. Senior and subordinated notes are generally classified as Level 2.

Federal Funds Purchased and Securities Loaned or Sold under Agreements to Repurchase

The federal funds purchased and securities loaned or sold under agreements to repurchase are mainly overnight secured lending transactions. They are classified as Level 2 since their fair value estimates use observable market inputs.

Other Borrowings

Other borrowings primarily consist of FHLB advances. The fair value of FHLB advances is determined based on discounted expected cash flows using discount rates consistent with current market rates for FHLB advances with similar remaining terms. They are classified as Level 2.

Interest Payable

Interest payable is classified as Level 2, as its fair value estimate is based on observable market inputs.

The determination of the leveling of financial instruments in the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the observable or unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable inputs are considered significant, the instrument is classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. During 2016, we had minimal movements between Levels 1 and 2.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of December 31, 2016 and 2015:

Table 17.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis



	December 31, 2016
	Fair Value Measurements Using
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	5,065	$	0	$	0	$	5,065
RMBS	0		28,731		518		29,249
CMBS	0		4,937		51		4,988
Other ABS	0		714		0		714
Other securities	295		417		9		721
Total securities available for sale	5,360		34,799		578		40,737
Other assets:
Derivative assets⁽¹⁾⁽²⁾	7		1,440		47		1,494
Other⁽³⁾	219		0		281		500
Total assets	$	5,586	$	36,239	$	906	$	42,731
Liabilities:
Other liabilities:
Derivative liabilities⁽¹⁾⁽²⁾	$	12	$	1,397	$	29	$	1,438
Total liabilities	$	12	$	1,397	$	29	$	1,438



	December 31, 2015
	Fair Value Measurements Using
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	4,660	$	0	$	0	$	4,660
RMBS	0		26,807		504		27,311
CMBS	0		5,282		97		5,379
Other ABS	0		1,340		0		1,340
Other securities	355		2		14		371
Total securities available for sale	5,015		33,431		615		39,061
Other assets:
Derivative assets⁽¹⁾⁽²⁾	2		1,459		57		1,518
Other⁽³⁾	183		0		279		462
Total assets	$	5,200	$	34,890	$	951	$	41,041
Liabilities:
Other liabilities:
Derivative liabilities⁽¹⁾⁽²⁾	$	2	$	491	$	27	$	520
Total liabilities	$	2	$	491	$	27	$	520

__________

⁽¹⁾

The balances represent gross derivative amounts and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty. The net derivative assets were $955 million and $986 million, and the net derivative liabilities were $1.1 billion and $377 million as of December 31, 2016 and 2015, respectively. See “Note 10—Derivative Instruments and Hedging Activities” for further information, including further disaggregation of the balance composition.

⁽²⁾

Does not reflect $5 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of December 31, 2016 and 2015, respectively. Non-performance risk is included in the derivative assets and liabilities, which are part of other assets and liabilities on the consolidated balance sheets and offset through non-interest income in the consolidated statements of income.


⁽³⁾	Other includes consumer MSRs of $80 million and $68 million, retained interests in securitizations of $201 million and $211 million and deferred compensation plan assets of $219 million and $183 million as of December 31, 2016 and 2015, respectively.

Level 3 Recurring Fair Value Rollforward

The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015. When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period.

Table 17.2: Level 3 Recurring Fair Value Rollforward



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2016
				Total Gains (Losses) (Realized/Unrealized)																							Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2016⁽³⁾
				Total Gains (Losses) (Realized/Unrealized)
(Dollars in millions)	Balance, January 1, 2016			Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales		Issuances			Settlements			Transfers Into Level 3⁽²⁾		Transfers Out of Level 3⁽²⁾			Balance, December 31, 2016
Assets:
Securities available for sale:
RMBS	$	504		$	31		$	9	$	110	$	0	$	0		$	(98	)	$	380	$	(418	)	$	518		$	32
CMBS	97			0			0		266		0		0			(14		)	64		(362		)	51			0
Other ABS	0			0			0		30		0		0			0			0		(30		)	0			0
Other securities	14			(9		)	0		14		0		0			(10		)	0		0			9			0
Total securities available for sale	615			22			9		420		0		0			(122		)	444		(810		)	578			32
Other assets:
Derivative assets⁽⁴⁾	57			12			0		0		0		69			(73		)	0		(18		)	47			12
Consumer MSRs	68			(5		)	0		0		0		23			(6		)	0		0			80			(5		)
Retained interest in securitizations	211			(10		)	0		0		0		0			0			0		0			201			(10		)
Liabilities:
Other liabilities:
Derivative liabilities⁽⁴⁾	$	(27	)	$	(17	)	$	0	$	0	$	0	$	(33	)	$	40		$	0	$	8		$	(29	)	$	(17	)



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2015
				Total Gains (Losses) (Realized/Unrealized)																									Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2015⁽³⁾
				Total Gains (Losses) (Realized/Unrealized)
(Dollars in millions)	Balance, January 1, 2015			Included in Net Income⁽¹⁾			Included in OCI			Purchases		Sales			Issuances			Settlements			Transfers Into Level 3⁽²⁾		Transfers Out of Level 3⁽²⁾			Balance, December 31, 2015
Assets:
Securities available for sale:
Corporate debt securities guaranteed by U.S. government agencies	$	333		$	(1	)	$	6		$	0	$	(226	)	$	0		$	(12	)	$	0	$	(100	)	$	0		$	0
RMBS	561			35			(3		)	0		0			0			(63		)	343		(369		)	504			36
CMBS	228			0			(1		)	138		0			0			(52		)	0		(216		)	97			0
Other ABS	65			1			(2		)	0		(20		)	0			0			0		(44		)	0			0
Other securities	18			0			0			4		0			0			(8		)	0		0			14			0
Total securities available for sale	1,205			35			0			142		(246		)	0			(135		)	343		(729		)	615			36
Other assets:
Derivative assets⁽⁴⁾	66			14			0			0		0			49			(59		)	0		(13		)	57			14
Consumer MSRs	53			(1		)	0			0		0			22			(6		)	0		0			68			(1		)
Retained interest in securitizations	221			(10		)	0			0		0			0			0			0		0			211			(10		)
Liabilities:
Other liabilities:
Derivative liabilities⁽⁴⁾	$	(43	)	$	(9	)	$	0		$	0	$	0		$	(20	)	$	36		$	0	$	9		$	(27	)	$	(9	)



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2014
				Total Gains (Losses) (Realized/Unrealized)																								Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2014⁽³⁾
				Total Gains (Losses) (Realized/Unrealized)
(Dollars in millions)	Balance, January 1, 2014			Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales			Issuances			Settlements			Transfers Into Level 3⁽²⁾		Transfers Out of Level 3⁽²⁾			Balance, December 31, 2014
Assets:
Securities available for sale:
Corporate debt securities guaranteed by U.S. government agencies	$	927		$	(5	)	$	20	$	0	$	(248	)	$	0		$	(63	)	$	64	$	(362	)	$	333		$	0
RMBS	1,304			65			39		1,022		0			0			(171		)	259		(1,957		)	561			64
CMBS	739			0			3		192		0			0			(75		)	66		(697		)	228			0
Other ABS	343			5			12		0		0			0			(3		)	75		(367		)	65			5
Other securities	17			(1		)	0		0		0			0			(8		)	10		0			18			0
Total securities available for sale	3,330			64			74		1,214		(248		)	0			(320		)	474		(3,383		)	1,205			69
Other assets:
Derivative assets⁽⁴⁾	50			20			0		0		0			20			(21		)	0		(3		)	66			19
Consumer MSRs	69			(27		)	0		0		0			15			(4		)	0		0			53			(27		)
Retained interest in securitization	199			22			0		0		0			0			0			0		0			221			22
Liabilities:
Other liabilities:
Derivative liabilities⁽⁴⁾	$	(38	)	$	(20	)	$	0	$	0	$	0		$	(15	)	$	29		$	0	$	1		$	(43	)	$	(20	)

__________


⁽¹⁾	Gains (losses) related to Level 3 Consumer MSRs, derivative assets and derivative liabilities, and retained interests in securitizations are reported in other non-interest income, which is a component of non-interest income, in our consolidated statements of income.


⁽²⁾	For the years ended December 31, 2016, 2015 and 2014, the transfers into Level 3 were primarily driven by less consistency among vendor pricing on individual securities, while the transfers out of Level 3 were primarily driven by greater consistency among multiple pricing sources.


⁽³⁾	The amount presented for unrealized gains (losses) for assets still held as of the reporting date primarily represents impairments of securities available for sale, accretion on certain fixed maturity securities, changes in fair value of derivative instruments and mortgage servicing rights transactions.


⁽⁴⁾	All Level 3 derivative assets and liabilities are presented on a gross basis and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty.

Significant Level 3 Fair Value Asset and Liability Input Sensitivity

Changes in unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.

Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments on a recurring basis. We utilize multiple third-party pricing services to obtain fair value for our securities. Several of our third-party pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other third-party pricing services are able to provide unobservable input information for all securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation models.

Table 17.3: Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at December 31,
2016

Significant

Valuation

Techniques

Significant

Unobservable

Inputs

Range

Weighted

Average

Assets:

Securities available for sale:

RMBS

518

Discounted cash flows (3rd party pricing)

Yield
Constant prepayment rate
Default rate
Loss severity

0-15%
0-30%
0-16%
9-87%

5%
4%
4%
57%

CMBS

Discounted cash flows (3rd party pricing)

Yield
Constant prepayment rate

2%
0%

Other securities

Discounted cash flows

Yield

1-2%

Other assets:

Derivative assets⁽¹⁾

Discounted cash flows

Swap rates

Consumer MSRs

Discounted cash flows

Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)

8-20%
15%
580-1,500 bps
$75-$100

15%
15%
636 bps
$76

Retained interests in securitization⁽²⁾

201

Discounted cash flows

Life of receivables (months)
Constant prepayment rate
Discount rate
Default rate
Loss severity

6-87
2-11%
4-11%
1-6%
7-102%

N/A

Liabilities:

Derivative liabilities⁽¹⁾

Discounted cash flows

Swap rates

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at

December 31,

2015

Significant

Valuation

Techniques

Significant

Unobservable

Inputs

Range

Weighted

Average

Assets:

Securities available for sale:

RMBS

504

Discounted cash flows (3rd party pricing)

Yield
Constant prepayment rate
Default rate
Loss severity

0-12%
0-28%
0-8%
16-85%

6%
4%
4%
55%

CMBS

Discounted cash flows (3rd party pricing)

Yield
Constant prepayment rate

2-3%
0-15%

3%
9%

Other securities

Discounted cash flows

Yield

Other assets:

Derivative assets⁽¹⁾

Discounted cash flows

Swap rates

Consumer MSRs

Discounted cash flows

Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)

11-18%
12%
435-1,500 bps
$93-$201

16%
12%
474 bps
$98

Retained interests in securitization⁽²⁾

211

Discounted cash flows

Life of receivables (months) Constant prepayment rate
Discount rate
Default rate
Loss severity

16-75
1-13%
4-9%
2-6%
15-94%

N/A

Liabilities:

Derivative liabilities⁽¹⁾

Discounted cash flows

Swap rates

__________


⁽¹⁾	All Level 3 derivative assets and liabilities are presented on a gross basis and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty.


⁽²⁾	Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).

The following table presents the carrying amount of the assets measured at fair value on a nonrecurring basis and still held as of December 31, 2016 and 2015, and for which a nonrecurring fair value measurement was recorded during the years then ended:

Table 17.4: Nonrecurring Fair Value Measurements Related to Assets Still Held at Period End



	December 31, 2016
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3		Total
Loans held for investment	$	0	$	587	$	587
Loans held for sale	157		0		157
Other assets⁽¹⁾	0		83		83
Total	$	157	$	670	$	827



	December 31, 2015
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3		Total
Loans held for investment	$	0	$	362	$	362
Loans held for sale	149		0		149
Other assets⁽¹⁾	0		92		92
Total	$	149	$	454	$	603

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⁽¹⁾	Other assets includes foreclosed property and repossessed assets of $43 million and long-lived assets held for sale of $40 million as of December 31, 2016, compared to foreclosed property and repossessed assets of $54 million and long-lived assets held for sale of $38 million as of December 31, 2015.

In the above table, loans held for investment primarily include nonperforming loans for which specific reserves or charge-offs have been recognized. These loans are classified as Level 3, as they are valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. Collateral fair value sources include the appraisal value obtained from independent appraisers, broker pricing opinions or other available market information. The non-recoverable rate ranged from 0% to 73%, with a weighted average of 16%, and from 9% to 73%, with a weighted average of 20%, as of December 31, 2016 and 2015, respectively. The fair value of the other assets classified as Level 3 is determined based on appraisal value or listing price which involves significant judgment; the significant unobservable inputs and related quantitative information are not meaningful to disclose as they vary significantly across properties and collateral.

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at December 31, 2016, 2015 and 2014:

Table 17.5: Nonrecurring Fair Value Measurements Included in Earnings Related to Assets Still Held at Period End



	Total Gains (Losses)
	Year Ended December 31,
(Dollars in millions)	2016			2015			2014
Loans held for investment	$	(230	)	$	(80	)	$	(24	)
Loans held for sale	(2		)	(1		)	0
Other assets⁽¹⁾	(19		)	(45		)	(12		)
Total	$	(251	)	$	(126	)	$	(36	)

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⁽¹⁾	Other assets includes losses related to foreclosed property, repossessed assets and long-lived assets held for sale.

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured on our consolidated balance sheets at fair value as of December 31, 2016 and December 31, 2015.

Table 17.6: Fair Value of Financial Instruments



	December 31, 2016
	Carrying Amount		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	9,976	$	9,976	$	4,185	$	5,791	$	0
Restricted cash for securitization investors	2,517		2,517		2,517		0		0
Securities held to maturity	25,712		26,196		199		25,962		35
Net loans held for investment	239,083		242,935		0		0		242,935
Loans held for sale	1,043		1,038		0		1,038		0
Interest receivable	1,351		1,351		0		1,351		0
Other investments⁽¹⁾	2,029		2,029		0		2,020		9
Financial liabilities:
Deposits	$	236,768	$	237,082	$	25,502	$	211,580	$	0
Securitized debt obligations	18,826		18,920		0		18,920		0
Senior and subordinated notes	23,431		23,774		0		23,774		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	992		992		0		992		0
Other borrowings	17,211		17,180		0		17,180		0
Interest payable	327		327		0		327		0



	December 31, 2015
	Carrying Amount		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	8,023	$	8,023	$	8,023	$	0	$	0
Restricted cash for securitization investors	1,017		1,017		1,017		0		0
Securities held to maturity	24,619		25,317		198		25,068		51
Net loans held for investment	224,721		222,007		0		0		222,007
Loans held for sale	904		933		0		860		73
Interest receivable	1,189		1,189		0		1,189		0
Other investments⁽¹⁾	2,060		2,060		0		2,060		0
Financial liabilities:
Deposits	$	217,721	$	210,922	$	25,847	$	15,848	$	169,227
Securitized debt obligations	16,166		16,225		0		16,225		0
Senior and subordinated notes	21,837		22,062		0		22,062		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	981		981		981		0		0
Other borrowings	20,131		20,134		0		20,134		0
Interest payable	299		299		0		299		0

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⁽¹⁾	Other investments includes FHLB, Federal Reserve stock and cost method investments. These investments are included in other assets on our consolidated balance sheets.