FAIR VALUE MEASUREMENTS

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.

Refer to Note 1 for further information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.

ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS

The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 and 2015.



(in millions)	Total		Level 1		Level 2		Level 3
December 31, 2016
Trading securities:
Deferred compensation plan assets	$	87	$	87	$	—	$	—
Equity and other non-debt securities	1		1		—		—
Total trading securities	88		88		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,779		2,779		—		—
Residential mortgage-backed securities (a)	7,872		—		7,872		—
State and municipal securities	7		—		—		7		(b)
Equity and other non-debt securities	129		82		—		47		(b)
Total investment securities available-for-sale	10,787		2,861		7,872		54
Derivative assets:
Interest rate contracts	223		—		212		11
Energy derivative contracts	146		—		146		—
Foreign exchange contracts	38		—		38		—
Warrants	3		—		—		3
Total derivative assets	410		—		396		14
Total assets at fair value	$	11,285	$	2,949	$	8,268	$	68
Derivative liabilities:
Interest rate contracts	$	81	$	—	$	81	$	—
Energy derivative contracts	144		—		144		—
Foreign exchange contracts	29		—		29		—
Total derivative liabilities	254		—		254		—
Deferred compensation plan liabilities	87		87		—		—
Total liabilities at fair value	$	341	$	87	$	254	$	—


(a)	Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Auction-rate securities.



(in millions)	Total		Level 1		Level 2		Level 3
December 31, 2015
Trading securities:
Deferred compensation plan assets	$	89	$	89	$	—	$	—
Equity and other non-debt securities	3		3		—		—
Total trading securities	92		92		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,763		2,763		—		—
Residential mortgage-backed securities (a)	7,545		—		7,545		—
State and municipal securities	9		—		—		9		(b)
Corporate debt securities	1		—		—		1		(b)
Equity and other non-debt securities	201		134		—		67		(b)
Total investment securities available-for-sale	10,519		2,897		7,545		77
Derivative assets:
Interest rate contracts	286		—		277		9
Energy derivative contracts	475		—		475		—
Foreign exchange contracts	57		—		57		—
Warrants	2		—		—		2
Total derivative assets	820		—		809		11
Total assets at fair value	$	11,431	$	2,989	$	8,354	$	88
Derivative liabilities:
Interest rate contracts	$	92	$	—	$	92	$	—
Energy derivative contracts	472		—		472		—
Foreign exchange contracts	46		—		46		—
Total derivative liabilities	610		—		610		—
Deferred compensation plan liabilities	89		89		—		—
Total liabilities at fair value	$	699	$	89	$	610	$	—


(a)	Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


(b)	Auction-rate securities.

There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during the years ended December 31, 2016 and 2015.

The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2016 and 2015.



			Net Realized/Unrealized Gains (Losses) (Pretax)
			Net Realized/Unrealized Gains (Losses) (Pretax)
	Balance at Beginning of Period		Recorded in Earnings								Recorded in Other Comprehensive Income									Balance at End of Period

(in millions)			Realized				Unrealized								Redemptions		Sales
Year Ended December 31, 2016
Investment securities available-for-sale:
State and municipal securities (a)	$	9	$	—			$	—			$	—			(2	)	$	—		$	7
Corporate debt securities (a)	1		—				—				—				(1	)	—			—
Equity and other non-debt securities (a)	67		—				—				(1		)	(c)	(19	)	—			47
Total investment securities available-for-sale	77		—				—				(1		)	(c)	(22	)	—			54
Derivative assets:
Interest rate contracts	9		—				2			(b)	—				—		—			11
Warrants	2		6			(b)	1			(b)	—				—		(6		)	3
Year Ended December 31, 2015
Investment securities available-for-sale:
State and municipal securities (a)	$	23	$	—			$	—			$	—			(14	)	$	—		$	9
Corporate debt securities (a)	1		—				—				—				—		—			1
Equity and other non-debt securities (a)	112		(2		)	(d)	—				1			(c)	(44	)	—			67
Total investment securities available-for-sale	136		(2		)	(d)	—				1			(c)	(58	)	—			77
Derivative assets:
Interest rate contracts	—		—				9			(b)	—				—		—			9
Warrants	4		6			(b)	(1		)	(b)	—				—		(7		)	2


(a)	Auction-rate securities.


(b)	Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of income.


(c)	Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income (loss).


(d)	Realized and unrealized gains and losses due to changes in fair value recorded in "net securities losses" on the consolidated statements of income.

ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS

The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value, and were recognized at fair value since it was less than cost at the end of the period.

The following table presents assets recorded at fair value on a nonrecurring basis at December 31, 2016 and 2015. No liabilities were recorded at fair value on a nonrecurring basis at December 31, 2016 and 2015.



(in millions)	Total		Level 2		Level 3
December 31, 2016
Loans:
Commercial	$	256	$	—	$	256
Commercial mortgage	15		—		15
International	11		—		11
Total loans	282		—		282
Other real estate	1		—		1
Total assets at fair value	$	283	$	—	$	283
December 31, 2015
Loans held-for-sale:
Commercial	$	8	$	8	$	—
Loans:
Commercial	134		—		134
Commercial mortgage	11		—		11
International	8		—		8
Total loans	153		—		153
Other real estate	2		—		2
Total assets at fair value excluding investments recorded at net asset value	163		8		155
Other investments recorded at net asset value:
Nonmarketable equity securities (a)	1
Total assets at fair value	$	164


(a)	Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 2016 and 2015 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs, although they are used in the determination of fair value.

The following table presents quantitative information related to the significant unobservable inputs utilized in the Corporation's Level 3 recurring fair value measurement as of December 31, 2016 and December 31, 2015. The Corporation's Level 3 recurring fair value measurements include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model. The inputs in the table below reflect management's expectation of continued illiquidity in the secondary auction-rate securities market due to a lack of market activity for the issuers remaining in the portfolio, a lack of market incentives for issuer redemptions, and the expectation for a continuing low interest rate environment. The December 31, 2016 workout periods reflect management's expectation of the pace at which short-term interest rates could rise.



			Discounted Cash Flow Model
			Unobservable Input
	Fair Value (in millions)		Discount Rate	Workout Period (in years)
December 31, 2016
State and municipal securities (a)	$	7	4% - 6%	1 - 2
Equity and other non-debt securities (a)	47		7% - 9%	1 - 2
December 31, 2015
State and municipal securities (a)	$	9	3% - 8%	1 - 2
Equity and other non-debt securities (a)	67		4% - 9%	1


(a)	Auction-rate securities.

ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS

The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows:



	Carrying Amount			Estimated Fair Value
(in millions)				Total			Level 1		Level 2		Level 3
December 31, 2016
Assets
Cash and due from banks	$	1,249		$	1,249		$	1,249	$	—	$	—
Interest-bearing deposits with banks	5,969			5,969			5,969		—		—
Investment securities held-to-maturity	1,582			1,576			—		1,576		—
Loans held-for-sale	4			4			—		4		—
Total loans, net of allowance for loan losses (a)	48,358			48,250			—		—		48,250
Customers’ liability on acceptances outstanding	5			5			5		—		—
Restricted equity investments	207			207			207		—		—
Nonmarketable equity securities (b)	11			16
Liabilities
Demand deposits (noninterest-bearing)	31,540			31,540			—		31,540		—
Interest-bearing deposits	24,639			24,639			—		24,639		—
Customer certificates of deposit	2,806			2,731			—		2,731		—
Total deposits	58,985			58,910			—		58,910		—
Short-term borrowings	25			25			25		—		—
Acceptances outstanding	5			5			5		—		—
Medium- and long-term debt	5,160			5,132			—		5,132		—
Credit-related financial instruments	(73		)	(73		)	—		—		(73		)
December 31, 2015
Assets
Cash and due from banks	$	1,157		$	1,157		$	1,157	$	—	$	—
Interest-bearing deposits with banks	4,990			4,990			4,990		—		—
Investment securities held-to-maturity	1,981			1,973			—		1,973		—
Loans held-for-sale (c)	21			21			—		21		—
Total loans, net of allowance for loan losses (a)	48,450			48,269			—		—		48,269
Customers’ liability on acceptances outstanding	5			5			5		—		—
Restricted equity investments	92			92			92		—		—
Nonmarketable equity securities (b) (d)	10			18
Liabilities
Demand deposits (noninterest-bearing)	30,839			30,839			—		30,839		—
Interest-bearing deposits	25,462			25,462			—		25,462		—
Customer certificates of deposit	3,552			3,536			—		3,536		—
Total deposits	59,853			59,837			—		59,837		—
Short-term borrowings	23			23			23		—		—
Acceptances outstanding	5			5			5		—		—
Medium- and long-term debt	3,058			3,032			—		3,032		—
Credit-related financial instruments	(83		)	(83		)	—		—		(83		)


(a)	Included $282 million and $153 million of impaired loans recorded at fair value on a nonrecurring basis at December 31, 2016 and 2015, respectively.


(b)	Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.


(c)	Included $8 million impaired loans held-for-sale recorded at fair value on a nonrecurring basis at December 31, 2015.


(d)	Included $1 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at December 31, 2015.