Fair Value Measurement and Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Financial Assets and Financial Liabilities Measured at Fair Value on Recurring Basis

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017, by major category and by valuation hierarchy level.



	June 30, 2018
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment⁽¹⁾			Fair Value
Assets
Trading account assets⁽²⁾:
U.S. Treasury securities	$	—		$	2,773		$	—		$	—		$	2,773
U.S. government-sponsored agency securities	—			115			—			—			115
State and municipal securities	—			12			—			—			12
Commercial paper	—			31			—			—			31
Corporate bonds	—			1,410			—			—			1,410
Asset-backed securities	—			318			—			—			318
Mortgage-backed securities	—			6,978			—			—			6,978
Equities	212			—			—			—			212
Interest rate derivative contracts	9			459			1			(136		)	333
Commodity derivative contracts	—			43			—			(34		)	9
Foreign exchange derivative contracts	—			238			—			(114		)	124
Equity derivative contracts	3			—			49			(47		)	5
Total trading account assets	224			12,377			50			(331		)	12,320
Securities available for sale⁽³⁾:
Asset Liability Management securities:
U.S. Treasury	—			3,367			—			—			3,367
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			7,792			—			—			7,792
Privately issued	—			874			—			—			874
Privately issued - commercial mortgage-backed securities	—			944			—			—			944
Collateralized loan obligations	—			1,487			—			—			1,487
Other	—			5			—			—			5
Other debt securities:
Direct bank purchase bonds	—			—			1,399			—			1,399
Other	—			53			96			—			149
Total securities available for sale	—			14,522			1,495			—			16,017
Other assets:
Mortgage servicing rights⁽²⁾	—			—			148			—			148
Interest rate hedging contracts⁽³⁾	—			4			—			—			4
Other derivative contracts⁽²⁾	—			—			1			—			1
Equity securities⁽²⁾	10			—			—			—			10
Total other assets	10			4			149			—			163
Total assets	$	234		$	26,903		$	1,694		$	(331	)	$	28,500
Percentage of total	1		%	94		%	6		%	(1		)%	100		%
Percentage of total Company assets	—		%	17		%	1		%	—		%	18		%
Liabilities
Trading account liabilities⁽²⁾:
Securities sold, not yet purchased:
U.S. Treasury	$	—		$	3,488		$	—		$	—		$	3,488
Commercial paper	—			35			—			—			35
Corporate bonds	—			779			—			—			779
Equities	101			—			—			—			101
Trading derivatives:
Interest rate derivative contracts	37			651			—			(243		)	445
Commodity derivative contracts	—			32			—			(23		)	9
Foreign exchange derivative contracts	1			139			—			(58		)	82
Equity derivative contracts	3			—			49			—			52
Total trading account liabilities	142			5,124			49			(324		)	4,991
Other liabilities:
FDIC clawback liability⁽²⁾	—			—			113			—			113
Other derivative contracts⁽²⁾	—			16			6			(12		)	10
Total other liabilities	—			16			119			(12		)	123
Total liabilities	$	142		$	5,140		$	168		$	(336	)	$	5,114
Percentage of total	3		%	101		%	3		%	(7		)%	100		%
Percentage of total Company liabilities	—		%	4		%	—		%	—		%	4		%


(1)	Amounts represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net settle all contracts.


(2)	Fair value through net income.


(3)	Fair value through other comprehensive income.



	December 31, 2017
(Dollars in millions)	Level 1			Level 2			Level 3			Netting Adjustment⁽¹⁾			Fair Value
Assets
Trading account assets⁽²⁾:
U.S. Treasury securities	$	—		$	1,926		$	—		$	—		$	1,926
U.S. government-sponsored agency securities	—			118			—			—			118
State and municipal securities	—			11			—			—			11
Commercial paper	—			7			—			—			7
Other sovereign government obligations	—			8			—			—			8
Corporate bonds	—			1,054			—			—			1,054
Asset-backed securities	—			199			—			—			199
Mortgage-backed securities	—			6,339			—			—			6,339
Equities	193			—			—			—			193
Interest rate derivative contracts	7			870			1			(353		)	525
Commodity derivative contracts	—			50			—			(49		)	1
Foreign exchange derivative contracts	—			249			1			(68		)	182
Equity derivative contracts	2			—			137			(135		)	4
Total trading account assets	202			10,831			139			(605		)	10,567
Securities available for sale⁽³⁾:
Asset Liability Management securities:
U.S. Treasury	—			3,252			—			—			3,252
Residential mortgage-backed securities:
U.S government and government-sponsored agencies	—			9,208			—			—			9,208
Privately issued	—			694			—			—			694
Privately issued - commercial mortgage-backed securities	—			822			—			—			822
Collateralized loan obligations	—			1,905			—			—			1,905
Other	—			5			—			—			5
Other debt securities:
Direct bank purchase bonds	—			—			1,503			—			1,503
Other	—			68			96			—			164
Equity securities	10			—			—			—			10
Total securities available for sale	10			15,954			1,599			—			17,563
Other assets:
Mortgage servicing rights⁽²⁾	—			—			64			—			64
Interest rate hedging contracts⁽³⁾	—			2			—			—			2
Other derivative contracts⁽²⁾	—			2			1			(2		)	1
Total other assets	—			4			65			(2		)	67
Total assets	$	212		$	26,789		$	1,803		$	(607	)	$	28,197
Percentage of total	1		%	95		%	6		%	(2		)%	100		%
Percentage of total Company assets	—		%	17		%	1		%	—		%	18		%
Liabilities
Trading account liabilities⁽²⁾:
Securities sold, not yet purchased:
U.S. Treasury	$	—		$	2,709		$	—		$	—		$	2,709
Other sovereign government obligations	—			7			—			—			7
Corporate bonds	—			348			—			—			348
Equities	35			—			—			—			35
Trading derivatives:
Interest rate derivative contracts	3			643			—			(382		)	264
Commodity derivative contracts	—			33			—			(20		)	13
Foreign exchange derivative contracts	1			144			1			(66		)	80
Equity derivative contracts	7			—			137			—			144
Total trading account liabilities	46			3,884			138			(468		)	3,600
Other liabilities:
FDIC clawback liability⁽²⁾	—			—			113			—			113
Interest rate hedging contracts⁽³⁾	—			149			—			(149		)	—
Other derivative contracts⁽²⁾	—			3			6			(3		)	6
Total other liabilities	—			152			119			(152		)	119
Total liabilities	$	46		$	4,036		$	257		$	(620	)	$	3,719
Percentage of total	1		%	109		%	7		%	(17		)%	100		%
Percentage of total Company liabilities	—		%	3		%	—		%	—		%	3		%


(1)	Amounts represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net settle all contracts.


(2)	Fair value through net income.


(3)	Fair value through other comprehensive income.

Reconciliation of Assets and Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs

The following tables present a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2018 and 2017. Level 3 available for sale securities at June 30, 2018 and 2017 primarily consist of direct bank purchase bonds. The Company’s policy is to recognize transfers in and out of Level 1, 2 and 3 as of the end of a reporting period.



	For the Three Months Ended
	June 30, 2018														June 30, 2017
(Dollars in millions)	Trading Assets			Securities Available for Sale			Other Assets		Trading Liabilities			Other Liabilities			Trading Assets			Securities Available for Sale			Other Assets			Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	55		$	1,506		$	106	$	(54	)	$	(119	)	$	172		$	1,569		$	35		$	(168	)	$	(119	)
Total gains (losses) (realized/unrealized):
Included in income before taxes	4			—			2		(4		)	—			11			—			(2		)	(12		)	1
Included in other comprehensive income	—			(1		)	—		—			—			—			9			—			—			—
Purchases/additions	—			1			41		—			—			—			1			16			—			—
Settlements	(9		)	(11		)	—		9			—			(12		)	(7		)	—			11			—
Asset (liability) balance, end of period	$	50		$	1,495		$	149	$	(49	)	$	(119	)	$	171		$	1,572		$	49		$	(169	)	$	(118	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	4		$	—		$	2	$	(4	)	$	—		$	11		$	—		$	(2	)	$	(12	)	$	1




	For the Six Months Ended
	June 30, 2018														June 30, 2017
(Dollars in millions)	Trading Assets			Securities Available for Sale			Other Assets		Trading Liabilities			Other Liabilities			Trading Assets			Securities Available for Sale			Other Assets			Trading Liabilities			Other Liabilities
Asset (liability) balance, beginning of period	$	139		$	1,600		$	65	$	(138	)	$	(119	)	$	168		$	1,638		$	24		$	(166	)	$	(121	)
Total gains (losses) (realized/unrealized):
Included in income before taxes	(6		)	—			9		6			—			41			—			(2		)	(40		)	3
Included in other comprehensive income	—			(17		)	—		—			—			—			12			—			—			—
Purchases/additions	—			73			75		—			—			—			2			27			—			—
Settlements	(83		)	(161		)	—		83			—			(38		)	(80		)	—			37			—
Asset (liability) balance, end of period	$	50		$	1,495		$	149	$	(49	)	$	(119	)	$	171		$	1,572		$	49		$	(169	)	$	(118	)
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period	$	(6	)	$	—		$	9	$	6		$	—		$	41		$	—		$	(2	)	$	(40	)	$	3

Significant Unobservable Inputs Level 3 Assets and Liabilities

The following table presents information about significant unobservable inputs related to the Company’s significant Level 3 assets and liabilities at June 30, 2018.



	June 30, 2018
(Dollars in millions)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input(s)	Range of Inputs		Weighted Average
Securities available for sale:
Direct bank purchase bonds	$	1,399	Return on equity	Market-required return on capital	8.0 - 10.0	%	9.5	%
				Probability of default	0.0 - 25.0	%	0.3	%
				Loss severity	10.0 - 60.0	%	25.3	%

Financial Assets Measured at Fair Value on Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the three and six months ended June 30, 2018 and 2017 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the fair value of such assets by the level of valuation assumptions used to determine each fair value adjustment.



	June 30, 2018								Gain (Loss) For the Three Months Ended June 30, 2018			Gain (Loss) For the Six Months Ended June 30, 2018
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gain (Loss) For the Three Months Ended June 30, 2018			Gain (Loss) For the Six Months Ended June 30, 2018
Loans held for investment
Impaired loans	$	122	$	—	$	—	$	122	$	(13	)	$	(14	)
Other assets
Software	—		—		—		—		—			(2		)
Private equity investments	10		—		—		10		—			(2		)
Renewable energy investment	2		—		—		2		(2		)	(2		)
Consolidated LIHC VIE	54		—		—		54		(8		)	(8		)
Total	$	188	$	—	$	—	$	188	$	(23	)	$	(28	)



	June 30, 2017								Gain (Loss) For the Three Months Ended June 30, 2017			Gain (Loss) For the Six Months Ended June 30, 2017
(Dollars in millions)	Fair Value		Level 1		Level 2		Level 3		Gain (Loss) For the Three Months Ended June 30, 2017			Gain (Loss) For the Six Months Ended June 30, 2017
Loans held for investment
Impaired loans	$	124	$	—	$	—	$	124	$	(5	)	$	(21	)
Other assets
Software	—		—		—		—		—			(3		)
Loans held for sale	7		—		—		7		—			(2		)
Renewable energy investment	—		—		—		—		—			2
Consolidated LIHC VIE	91		—		—		91		(8		)	(8		)
Total	$	222	$	—	$	—	$	222	$	(13	)	$	(32	)

Carrying Amount and Estimated Fair Value of Financial Instruments

The tables below present the carrying amount and estimated fair value of certain financial instruments, all of which are accounted for at amortized cost, classified by valuation hierarchy level as of June 30, 2018 and as of December 31, 2017.



	June 30, 2018
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	6,725	$	6,725	$	6,725	$	—	$	—
Securities borrowed or purchased under resale agreements	20,048		20,048		—		20,048		—
Securities held to maturity	10,997		10,729		—		10,729		—
Loans held for investment⁽¹⁾	80,371		80,343		—		—		80,343
Other assets	65		65		65		—		—
Liabilities
Time deposits	$	6,978	$	7,006	$	—	$	7,006	$	—
Securities loaned or sold under repurchase agreements	25,579		25,579		—		25,579		—
Commercial paper and other short-term borrowings	9,764		9,764		—		9,764		—
Long-term debt	14,192		14,167		—		14,167		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	155	$	223	$	—	$	—	$	223


(1)	Excludes lease financing. The carrying amount is net of the allowance for loan losses.



	December 31, 2017
(Dollars in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	3,392	$	3,392	$	3,392	$	—	$	—
Securities borrowed or purchased under resale agreements	20,894		20,894		—		20,894		—
Securities held to maturity	9,885		9,799		—		9,799		—
Loans held for investment⁽¹⁾	78,023		79,051		—		—		79,051
Liabilities
Deposits	$	84,787	$	84,743	$	—	$	84,743	$	—
Securities loaned or sold under repurchase agreements	26,437		26,437		—		26,437		—
Commercial paper and other short-term borrowings	7,066		7,066		—		7,066		—
Long-term debt	12,162		12,162		—		12,162		—
Off-Balance Sheet Instruments
Commitments to extend credit and standby and commercial letters of credit	$	174	$	174	$	—	$	—	$	174


(1)	Excludes lease financing. The carrying amount is net of the allowance for loan losses.