XML 30 R19.htm IDEA: XBRL DOCUMENT v3.22.2
Fair Value Measurement
6 Months Ended
Jun. 30, 2022
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 (“DCF”) 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 2021 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, 2022 and December 31, 2021.
Table 11.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2022
Fair Value Measurements Using
Netting Adjustments(1)
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Securities available for sale:
U.S. Treasury securities$8,624 $0 $0 — $8,624 
RMBS0 65,287 240 — 65,527 
CMBS0 7,561 13 — 7,574 
Other securities191 1,106 0 — 1,297 
Total securities available for sale8,815 73,954 253 — 83,022 
Loans held for sale0 767 0 — 767 
Other assets:
Derivative assets(2)
792 3,577 131 $(1,067)3,433 
Other(3)
441 3 37 — 481 
Total assets$10,048 $78,301 $421 $(1,067)$87,703 
Liabilities:
Other liabilities:
Derivative liabilities(2)
$1,416 $3,104 $143 $(1,395)$3,268 
Total liabilities$1,416 $3,104 $143 $(1,395)$3,268 
December 31, 2021
Fair Value Measurements Using
Netting Adjustments(1)
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Securities available for sale:
U.S. Treasury securities$9,442 $$— $9,442 
RMBS73,358 258 — 73,616 
CMBS9,360 — 9,369 
Other securities206 2,628 — 2,834 
Total securities available for sale9,648 85,346 267 — 95,261 
Loans held for sale1,026 — 1,026 
Other assets:
Derivative assets(2)
406 2,200 84 $(542)2,148 
Other(3)
526 41 — 573 
Total assets$10,580 $88,578 $392 $(542)$99,008 
Liabilities:
Other liabilities:
Derivative liabilities(2)
$838 $965 $65 $(544)$1,324 
Total liabilities$838 $965 $65 $(544)$1,324 
__________
(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 $8 million and $11 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of June 30, 2022 and December 31, 2021, 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 recorded through non-interest income in the consolidated statements of income.
(3)As of June 30, 2022 and December 31, 2021, other includes retained interests in securitizations of $37 million and $41 million, deferred compensation plan assets of $432 million and $490 million, and equity securities of $12 million (including unrealized loss of $19 million) and $42 million (including unrealized loss of $36 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, 2022 and 2021. 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, 2022
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2022(1)
(Dollars in millions)Balance, April 1, 2022
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3
Transfers
Out of
Level 3
Balance, June 30, 2022
Securities available for sale:(2)
RMBS$211 $3 $(8)$0 $0 $0 $(15)$72 $(23)$240 $2 
CMBS21 0 (1)0 0 0 (4)0 (3)13 0 
Total securities available for sale232 3 (9)0 0 0 (19)72 (26)253 2 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended June 30, 2022
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2022(1)
(Dollars in millions)Balance, April 1, 2022
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3
Transfers
Out of
Level 3
Balance, June 30, 2022
Other assets:
Retained interests in securitizations39 (2)0 0 0 0 0 0 0 37 (2)
Net derivative assets (liabilities)(3)
22 (46)0 0 0 8 4 0 0 (12)(18)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Six Months Ended June 30, 2022
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2022(1)
(Dollars in millions)Balance, January 1, 2022
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3
Transfers
Out of
Level 3
Balance, June 30, 2022
Securities available for sale:(2)
RMBS$258 $13 $(20)$0 $0 $0 $(43)$84 $(52)$240 $5 
CMBS0 (1)0 0 0 (5)13 (3)13 (1)
Total securities available for sale267 13 (21)0 0 0 (48)97 (55)253 4 
Other assets:
Retained interests in securitizations41 (4)0 0 0 0 0 0 0 37 (4)
Net derivative assets (liabilities)(3)
19 (41)0 0 0 36 2 (28)0 (12)(38)
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 OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3
Transfers
Out of
Level 3
Balance, June 30, 2021
Securities available for sale:(2)
RMBS$326 $$$$$$(25)$45 $(63)$289 $
CMBS10 (1)
Total securities available for sale336 (25)45 (64)298 
Other assets:
Retained interests in securitizations50 (4)46 (4)
Net derivative assets (liabilities)(3)
34 11 (16)(15)(1)19 11 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Six Months Ended June 30, 2021
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2021(1)
(Dollars in millions)Balance, January 1, 2021
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3
Transfers
Out of
Level 3
Balance, June 30, 2021
Securities available for sale:(2)
RMBS$328 $11 $$$$$(51)$84 $(87)$289 $
CMBS111 (2)(6)(94)
Total securities available for sale439 11 (57)84 (181)298 
Other assets:
Retained interests in securitizations55 (9)46 (9)
Net derivative assets (liabilities)(3)
31 (10)22 (29)(1)19 
_________
(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, 2022 included in OCI related to Level 3 securities available for sale still held as of June 30, 2022 were net unrealized losses of $11 million and $20 million . 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.
(3)Includes derivative assets and liabilities of $131 million and $143 million, respectively, as of June 30, 2022 and $129 million and $110 million, respectively, as of June 30, 2021.
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 or 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, and would lead to a decrease in the fair value measurement.
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,
2022
Significant
Valuation
Techniques
Significant
Unobservable
Inputs
Range
Weighted
Average(1)
Securities available for sale:
RMBS$240 Discounted cash flows (vendor pricing)Yield
Voluntary prepayment rate
Default rate
Loss severity
0-14%
6-25%
0-11%
30-80%
5%
10%
2%
61%
CMBS13 Discounted cash flows (vendor pricing)Yield
2-4%
4%
Other assets:
Retained interests in securitizations(2)
37 Discounted cash flowsLife of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
30-37
9-18%
4-8%
1-3%
80-291%
N/A
Net derivative assets (liabilities)(12)Discounted cash flowsSwap rates
3%
3%
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)Fair Value at
December 31,
2021
Significant
Valuation
Techniques
Significant
Unobservable
Inputs
Range
Weighted
Average(1)
Securities available for sale:
RMBS$258 Discounted cash flows (vendor pricing)Yield
Voluntary prepayment rate
Default rate
Loss severity
0-21%
5-40%
1-11%
30-100%
3%
11%
2%
65%
CMBSDiscounted cash flows (vendor pricing)Yield
1-2%
1%
Other assets:
Retained interests in securitizations(2)
41 Discounted cash flowsLife of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
29-36
9-18%
2-8%
3-4%
72-151%
N/A
Net derivative assets (liabilities)19 Discounted cash flowsSwap rates
1-2%
2%
__________
(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, 2022 and December 31, 2021, 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, 2022
Estimated Fair Value HierarchyTotal
(Dollars in millions)Level 2Level 3
Loans held for investment$0 $205 $205 
Loans held for sale91 0 91 
Other assets(1)
0 91 91 
Total$91 $296 $387 
December 31, 2021
Estimated Fair Value HierarchyTotal
(Dollars in millions)Level 2Level 3
Loans held for investment$$194 $194 
Loans held for sale118 118 
Other assets(1)
325 325 
Total$118 $519 $637 
__________
(1)As of June 30, 2022, other assets included investments accounted for under measurement alternative of $1 million, repossessed assets of $52 million and long-lived assets held for sale of $38 million. As of December 31, 2021, other assets included equity method investments of $50 million, investments accounted for under measurement alternative of $29 million, repossessed assets of $40 million and long-lived assets held for sale of $206 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 20%, and from 0% to 100%, with a weighted average of 13%, as of June 30, 2022 and December 31, 2021, 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, 2022 and 2021.
Table 11.5: Nonrecurring Fair Value Measurements Included in Earnings
Total Gains (Losses)
Six Months Ended June 30,
(Dollars in millions)20222021
Loans held for investment$31 $(97)
Loans held for sale(6)
Other assets(1)
(28)(61)
Total$(3)$(158)
__________
(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, 2022 and December 31, 2021.
Table 11.6: Fair Value of Financial Instruments
June 30, 2022
Carrying
Value
Estimated
Fair Value
Estimated Fair Value Hierarchy
(Dollars in millions)Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$21,553 $21,553 $4,825 $16,728 $0 
Restricted cash for securitization investors697 697 697 0 0 
Net loans held for investment284,893 287,254 0 0 287,254 
Loans held for sale108 110 0 110 0 
Interest receivable1,611 1,611 0 1,611 0 
Other investments(1)
1,735 1,735 0 1,735 0 
Financial liabilities:
Deposits with defined maturities22,225 22,026 0 22,026 0 
Securitized debt obligations17,466 17,446 0 17,446 0 
Senior and subordinated notes30,489 30,152 0 30,152 0 
Federal funds purchased and securities loaned or sold under agreements to repurchase440 440 0 440 0 
Other borrowings(2)
10,500 10,501 0 10,501 0 
Interest payable333 333 0 333 0 
 December 31, 2021
Carrying
Value
Estimated
Fair Value
Estimated Fair Value Hierarchy
(Dollars in millions)Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$21,746 $21,746 $4,164 $17,582 $
Restricted cash for securitization investors308 308 308 
Net loans held for investment265,910 270,508 270,508 
Loans held for sale4,862 5,091 5,091 
Interest receivable1,460 1,460 1,460 
Other investments(1)
1,344 1,344 1,344 
Financial liabilities:
Deposits with defined maturities17,923 18,062 18,062 
Securitized debt obligations14,994 15,122 15,122 
Senior and subordinated notes27,219 27,842 27,842 
Federal funds purchased and securities loaned or sold under agreements to repurchase820 820 820 
Interest payable281 281 281 
__________
(1)Other investments include FHLB and Federal Reserve stock. These investments are included in other assets on our consolidated balance sheets.
(2)Other borrowings exclude capital lease obligations.