Fair Value Measurement

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurement

NOTE 11—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 Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for 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.

The determination and classification 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. For additional information on the valuation techniques used in estimating the fair value of our financial assets and liabilities on a recurring basis, see “Note 16—Fair Value Measurement” in our 2020 Form 10-K.

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 June 30, 2021 and December 31, 2020.

Table 11.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis

	June 30, 2021
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	9,231	$	0	$	0	—		$	9,231
RMBS	0		78,033		289		—		78,322
CMBS	0		11,078		9		—		11,087
Other securities	171		2,955		0		—		3,126
Total securities available for sale	9,402		92,066		298		—		101,766
Loans held for sale	0		371		0		—		371
Other assets:
Derivative assets(2)	602		2,985		129		$	(964)	2,752
Other(3)	496		2		46		0		544
Total assets	$	10,500	$	95,424	$	473	$	(964)	$	105,433
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	1,144	$	1,156	$	110	$	(850)	$	1,560
Total liabilities	$	1,144	$	1,156	$	110	$	(850)	$	1,560

	December 31, 2020
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	9,318	$	0	$	0	—		$	9,318
RMBS	0		76,375		328		—		76,703
CMBS	0		11,624		111		—		11,735
Other securities	142		2,547		0		—		2,689
Total securities available for sale	9,460		90,546		439		—		100,445
Loans held for sale	0		596		0		—		596
Other assets:
Derivative assets(2)	268		3,006		141		$	(1,148)	2,267
Other(3)	430		552		55		—		1,037
Total assets	$	10,158	$	94,700	$	635	$	(1,148)	$	104,345
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	271	$	1,137	$	110	$	(739)	$	779
Total liabilities	$	271	$	1,137	$	110	$	(739)	$	779

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(1)Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty. See “Note 8—Derivative Instruments and Hedging Activities” for additional information.

(2)Does not reflect $23 million and $31 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of June 30, 2021 and December 31, 2020, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

(3)As of June 30, 2021 and December 31, 2020, other includes retained interests in securitizations of $46 million and $55 million, deferred compensation plan assets of $472 million and $414 million, and equity securities of $26 million and $568 million including unrealized gains of $24 million and $535 million, 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 three and six months ended June 30, 2021 and 2020. Generally, transfers into Level 3 were primarily driven by the usage of unobservable assumptions in the pricing of these financial instruments as evidenced by wider pricing variations among pricing vendors and transfers out of Level 3 were primarily driven by the usage of assumptions corroborated by market observable information as evidenced by tighter pricing among multiple pricing sources.

Table 11.2: Level 3 Recurring Fair Value Rollforward

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30, 2021
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2021(1)
(Dollars in millions)	Balance, April 1, 2021		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2021
Securities available for sale:(2)
RMBS	$	326	$	4	$	2	$	0	$	0	$	0	$	(25)	$	45	$	(63)	$	289	$	4
CMBS	10		0		0		0		0		0		0		0		(1)		9		0
Total securities available for sale	336		4		2		0		0		0		(25)		45		(64)		298		4
Other assets:
Retained interests in securitizations	50		(4)		0		0		0		0		0		0		0		46		(4)
Net derivative assets (liabilities)(4)	34		11		0		0		0		(16)		(15)		6		(1)		19		11

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Six Months Ended June 30, 2021
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2021(1)
(Dollars in millions)	Balance, January 1, 2021		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2021
Securities available for sale:(2)
RMBS	$	328	$	11	$	4	$	0	$	0	$	0	$	(51)	$	84	$	(87)	$	289	$	8
CMBS	111		0		(2)		0		0		0		(6)		0		(94)		9		0
Total securities available for sale	439		11		2		0		0		0		(57)		84		(181)		298		8
Other assets:
Retained interests in securitizations	55		(9)		0		0		0		0		0		0		0		46		(9)
Net derivative assets (liabilities)(4)	31		(10)		0		0		0		22		(29)		6		(1)		19		8

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30, 2020
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(1)
(Dollars in millions)	Balance, April 1, 2020		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2020
Securities available for sale:(2)
RMBS	$	373	$	6	$	29	$	0	$	0	$	0	$	(16)	$	131	$	(49)	$	474	$	7
CMBS	36		0		(1)		0		0		0		(3)		250		0		282		(3)
Total securities available for sale	409		6		28		0		0		0		(19)		381		(49)		756		4
Other assets:
Retained interests in securitizations	59		(3)		0		0		0		0		0		0		0		56		(3)
Net derivative assets (liabilities)(4)	66		(8)		0		0		0		2		(26)		0		0		34		0

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Six Months Ended June 30, 2020
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(1)
(Dollars in millions)	Balance, January 1, 2020		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, June 30, 2020
Securities available for sale:(2)(3)
RMBS	$	433	$	9	$	(24)	$	0	$	0	$	0	$	(33)	$	140	$	(51)	$	474	$	10
CMBS	13		0		(1)		0		0		0		(3)		273		0		282		(3)
Total securities available for sale	446		9		(25)		0		0		0		(36)		413		(51)		756		7
Other assets:
Retained interests in securitizations	66		(10)		0		0		0		0		0		0		0		56		(10)
Net derivative assets (liabilities)(4)	26		12		0		0		0		26		(28)		0		(2)		34		18

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(1)Realized gains (losses) on securities available for sale are included in net securities gains (losses) and retained interests in securitizations are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of net interest income or non-interest income in our consolidated statements of income.

(2)For the three and six months ended June 30, 2021, included in OCI related to Level 3 securities available for sale still held as of June 30, 2021 were net unrealized losses of $1 million and net unrealized gains of $2 million, respectively. For the three and six months ended June 30, 2020, included in OCI related to Level 3 securities available for sale still held as of June 30, 2020 were net unrealized gains of $36 million and net unrealized losses of $23 million, respectively.

(3)The fair value of RMBS as of January 1, 2020 includes a cumulative adjustment of $4 million from the adoption of the CECL standard.

(4)Includes derivative assets and liabilities of $129 million and $110 million, respectively, as of June 30, 2021 and $151 million and $117 million, respectively, as of June 30, 2020.

Significant Level 3 Fair Value Asset and Liability Inputs

Generally, uncertainties in fair value measurements of financial instruments, such as 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 vendor pricing services to obtain fair value for our securities. Several of our vendor pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other vendor 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 11.3: Quantitative Information about Level 3 Fair Value Measurements

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)	Fair Value at June 30, 2021		Significant Valuation Techniques	Significant Unobservable Inputs	Range	Weighted Average(1)
Securities available for sale:
RMBS	$	289	Discounted cash flows (vendor pricing)	Yield Voluntary prepayment rate Default rate Loss severity	1-19% 5-20% 1-11% 30-100%	3% 11% 2% 68%
CMBS	9		Discounted cash flows (vendor pricing)	Yield	0-2%	1%
Other assets:
Retained interests in securitizations(2)	46		Discounted cash flows	Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity	33-40 9-15% 2-11% 2-4% 55-151%	N/A
Net derivative assets (liabilities)	19		Discounted cash flows	Swap rates	1-2%	1%

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)	Fair Value at December 31, 2020		Significant Valuation Techniques	Significant Unobservable Inputs	Range	Weighted Average(1)
Securities available for sale:
RMBS	$	328	Discounted cash flows (vendor pricing)	Yield Voluntary prepayment rate Default rate Loss severity	2-12% 8-15% 0-11% 30-100%	3% 10% 2% 73%
CMBS	111		Discounted cash flows (vendor pricing)	Yield	1-3%	2%
Other assets:
Retained interests in securitizations(2)	55		Discounted cash flows	Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity	37-52 3-13% 2-12% 3-3% 55-70%	N/A
Net derivative assets (liabilities)	31		Discounted cash flows	Swap rates	1%	1%

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(1)Weighted averages are calculated by using the product of the input multiplied by the relative fair value of the instruments.

(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 value of the assets measured at fair value on a nonrecurring basis and still held as of June 30, 2021 and December 31, 2020, and for which a nonrecurring fair value measurement was recorded during the six and twelve months then ended.

Table 11.4: Nonrecurring Fair Value Measurements

	June 30, 2021
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	204	$	204
Other assets(1)	0		177		177
Total	$	0	$	381	$	381

	December 31, 2020
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	305	$	305
Other assets(1)	0		175		175
Total	$	0	$	480	$	480

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(1)As of June 30, 2021, other assets included equity method investments subject to impairment of $56 million, investments accounted for under measurement alternative of $13 million, repossessed assets of $31 million and long-lived assets held for sale of $77 million. As of December 31, 2020, other assets included equity investments accounted for under the measurement alternative of $25 million, repossessed assets of $42 million and long-lived assets held for sale of $108 million.

In the above table, loans held for investment are generally 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. The non-recoverable rate ranged from 0% to 100%, with a weighted average of 23%, and from 0% to 89%, with a weighted average of 14%, as of June 30, 2021 and December 31, 2020, respectively. The weighted average non-recoverable rate is calculated based on the estimated market value of the underlying collateral. The significant unobservable inputs and related quantitative information related to fair value of the other assets 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 June 30, 2021 and December 31, 2020.

Table 11.5: Nonrecurring Fair Value Measurements Included in Earnings

	Total Gains (Losses)
	Six Months Ended June 30,
(Dollars in millions)	2021		2020
Loans held for investment	$	(97)	$	(253)
Other assets(1)	(61)		(22)
Total	$	(158)	$	(275)

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(1)Other assets include fair value adjustments related to repossessed assets, long-lived assets held for sale and equity investments accounted for under the measurement alternative.

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of June 30, 2021 and December 31, 2020.

Table 11.6: Fair Value of Financial Instruments

	June 30, 2021
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)					Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	34,846	$	34,846	$	5,312	$	29,534	$	0
Restricted cash for securitization investors	242		242		242		0		0
Net loans held for investment	237,251		242,812		0		0		242,812
Loans held for sale	6,151		6,385		0		6,385		0
Interest receivable	1,372		1,372		0		1,372		0
Other investments(1)	1,344		1,344		0		1,344		0
Financial liabilities:
Deposits with defined maturities	22,225		22,469		0		22,469		0
Securitized debt obligations	10,561		10,717		0		10,717		0
Senior and subordinated notes	24,878		25,724		0		25,724		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	845		845		0		845		0
Interest payable	301		301		0		301		0

	December 31, 2020
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)					Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	40,509	$	40,509	$	4,708	$	35,801	$	0
Restricted cash for securitization investors	262		262		262		0		0
Net loans held for investment	236,060		244,701		0		0		244,701
Loans held for sale	2,114		2,214		0		2,214		0
Interest receivable	1,471		1,471		0		1,471		0
Other investments(1)	1,341		1,341		0		1,341		0
Financial liabilities:
Deposits with defined maturities	32,746		33,111		0		33,111		0
Securitized debt obligations	12,414		12,584		0		12,584		0
Senior and subordinated notes	27,382		28,282		0		28,282		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	668		668		0		668		0
Interest payable	352		352		0		352		0

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