Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Bancorp measures certain financial assets and liabilities at fair value in accordance with U.S. GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. For more information regarding the fair value hierarchy, refer to Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of:

	Fair Value Measurements Using
June 30, 2020 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$	78	—	—	78
Obligations of states and political subdivisions securities	—		17	—	17
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		13,909	—	13,909
Agency commercial mortgage-backed securities	—		17,891	—	17,891
Non-agency commercial mortgage-backed securities	—		3,441	—	3,441
Asset-backed securities and other debt securities	—		2,715	—	2,715
Available-for-sale debt and other securities(a)	78		37,973	—	38,051
Trading debt securities:
U.S. Treasury and federal agency securities	68		26	—	94
Obligations of states and political subdivisions securities	—		22	—	22
Agency residential mortgage-backed securities	—		42	—	42
Asset-backed securities and other debt securities	—		368	—	368
Trading debt securities	68		458	—	526
Equity securities	263		10	—	273
Residential mortgage loans held for sale	—		840	—	840
Residential mortgage loans(b)	—		—	185	185
Commercial loans held for sale	—		15	—	15
Servicing rights	—		—	676	676
Derivative assets:
Interest rate contracts	4		2,694	98	2,796
Foreign exchange contracts	—		212	—	212
Commodity contracts	114		468	—	582
Derivative assets(c)	118		3,374	98	3,590
Total assets	$	527	42,670	959	44,156
Liabilities:
Derivative liabilities:
Interest rate contracts	$	19	310	9	338
Foreign exchange contracts	—		171	—	171
Equity contracts	—		—	183	183
Commodity contracts	29		573	—	602
Derivative liabilities(d)	48		1,054	192	1,294
Short positions:
U.S. Treasury and federal agency securities	109		—	—	109
Asset-backed securities and other debt securities	—		204	—	204
Short positions(d)	109		204	—	313
Total liabilities	$	157	1,258	192	1,607

(a)Excludes FHLB, FRB and DTCC restricted stock holdings totaling $68, $478 and $2, respectively, at June 30, 2020.

(b)Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.

(c)Included in other assets in the Condensed Consolidated Balance Sheets.

(d)Included in other liabilities in the Condensed Consolidated Balance Sheets.

	Fair Value Measurements Using
December 31, 2019 ($ in millions)	Level 1		Level 2	Level 3	Total Fair Value
Assets:
Available-for-sale debt and other securities:
U.S. Treasury and federal agency securities	$	75	—	—	75
Obligations of states and political subdivisions securities	—		18	—	18
Mortgage-backed securities:
Agency residential mortgage-backed securities	—		14,115	—	14,115
Agency commercial mortgage-backed securities	—		15,693	—	15,693
Non-agency commercial mortgage-backed securities	—		3,365	—	3,365
Asset-backed securities and other debt securities	—		2,206	—	2,206
Available-for-sale debt and other securities(a)	75		35,397	—	35,472
Trading debt securities:
U.S. Treasury and federal agency securities	2		—	—	2
Obligations of states and political subdivisions securities	—		9	—	9
Agency residential mortgage-backed securities	—		55	—	55
Asset-backed securities and other debt securities	—		231	—	231
Trading debt securities	2		295	—	297
Equity securities	554		10	—	564
Residential mortgage loans held for sale	—		1,264	—	1,264
Residential mortgage loans(b)	—		—	183	183
Servicing rights	—		—	993	993
Derivative assets:
Interest rate contracts	1		1,218	18	1,237
Foreign exchange contracts	—		165	—	165
Commodity contracts	37		234	—	271
Derivative assets(c)	38		1,617	18	1,673
Total assets	$	669	38,583	1,194	40,446
Liabilities:
Derivative liabilities:
Interest rate contracts	$	5	144	8	157
Foreign exchange contracts	—		151	—	151
Equity contracts	—		—	163	163
Commodity contracts	17		253	—	270
Derivative liabilities(d)	22		548	171	741
Short positions:
U.S. Treasury and federal agency securities	49		—	—	49
Asset-backed securities and other debt securities	—		100	—	100
Short positions(d)	49		100	—	149
Total liabilities	$	71	648	171	890

(a)Excludes FHLB, FRB and DTCC restricted stock holdings totaling $76, $478 and $2, respectively, at December 31, 2019.

(b)Includes residential mortgage loans originated as held for sale and subsequently transferred to held for investment.

(c)Included in other assets in the Condensed Consolidated Balance Sheets.

(d)Included in other liabilities in the Condensed Consolidated Balance Sheets.

The following is a description of the valuation methodologies used for significant instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-sale debt and other securities, trading debt securities and equity securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities and equity securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs. Level 2 securities may include federal agency securities, obligations of states and political subdivisions securities, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities, asset-backed securities and other debt securities and equity securities. These securities are generally valued using a market approach based on observable prices of securities with similar characteristics.

Residential mortgage loans held for sale

For residential mortgage loans held for sale for which the fair value election has been made, fair value is estimated based upon mortgage-backed securities prices and spreads to those prices or, for certain ARM loans, DCF models that may incorporate the anticipated portfolio composition, credit spreads of asset-backed securities with similar collateral and market conditions. The anticipated portfolio composition includes the effect of interest rate spreads and discount rates due to loan characteristics such as the state in which the loan was originated, the loan amount and the ARM margin. Residential mortgage loans held for sale that are valued based on mortgage-backed securities prices are classified within Level 2 of the valuation hierarchy as the valuation is based on external pricing for similar instruments. ARM loans classified as held for sale are also classified within Level 2 of the valuation hierarchy due to the use of observable inputs in the DCF model. These observable inputs include interest rate spreads from agency mortgage-backed securities market rates and observable discount rates.

Residential mortgage loans

Residential mortgage loans held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair value hierarchy. For residential mortgage loans for which the fair value election has been made, and that are reclassified from held for sale to held for investment, the fair value estimation is based on mortgage-backed securities prices, interest rate risk and an internally developed credit component. Therefore, these loans are classified within Level 3 of the valuation hierarchy. An adverse change in the loss rate or severity assumption would result in a decrease in fair value of the related loan.

Commercial loans held for sale

For commercial loans held for sale for which the fair value election has been made, fair value is estimated based upon quoted prices of identical or similar assets in an active market. These loans are generally valued using a market approach based on observable prices and are classified within Level 2 of the valuation hierarchy.

Servicing rights

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Bancorp estimates the fair value of MSRs using internal OAS models with certain unobservable inputs, primarily prepayment speed assumptions, OAS and weighted-average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 14 for further information on the assumptions used in the valuation of the Bancorp’s MSRs.

Derivatives

Exchange-traded derivatives valued using quoted prices and certain over-the-counter derivatives valued using active bids are classified within Level 1 of the valuation hierarchy. Most of the Bancorp’s derivative contracts are valued using DCF or other models that incorporate current market interest rates, credit spreads assigned to the derivative counterparties and other market parameters and, therefore, are classified within Level 2 of the valuation hierarchy. Such derivatives include basic and structured interest rate, foreign exchange and commodity swaps and options. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy. At June 30, 2020 and December 31, 2019, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a total return swap associated with the Bancorp’s sale of Visa, Inc. Class B Shares. Level 3 derivatives also include IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

Under the terms of the total return swap, the Bancorp will make or receive payments based on subsequent changes in the conversion rate of the Visa, Inc. Class B Shares into Class A Shares. Additionally, the Bancorp will make a quarterly payment based on Visa’s stock price and the conversion rate of the Visa, Inc. Class B Shares into Class A Shares until the date on which the Covered Litigation is settled. The fair value of the total return swap was calculated using a DCF model based on unobservable inputs consisting of management’s estimate of the probability of certain litigation scenarios, the timing of the resolution of the Covered Litigation and Visa litigation loss estimates in excess, or shortfall, of the Bancorp’s proportional share of escrow funds.

An increase in the loss estimate or a delay in the resolution of the Covered Litigation would result in an increase in the fair value of the derivative liability; conversely, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in the fair value of the derivative liability.

The net asset fair value of the IRLCs at June 30, 2020 was $91 million. Immediate decreases in current interest rates of 25 bps and 50 bps would result in increases in the fair value of the IRLCs of approximately $13 million and $24 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in decreases in the fair value of the IRLCs of approximately $17 million and $35 million, respectively. The decrease in fair value of IRLCs due to immediate 10% and 20% adverse changes in the assumed loan closing rates would be approximately $9 million and $18 million, respectively, and the increase in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would be approximately $9 million and $18 million, respectively. These sensitivities are hypothetical and should be used with caution, as changes in fair value based on a variation in assumptions typically cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.

Short positions

Where quoted prices are available in an active market, short positions are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or DCFs and therefore are classified within Level 2 of the valuation hierarchy. Level 2 securities may include agency residential mortgage-backed securities and asset-backed and other debt securities.

The following tables are a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the three months ended June 30, 2020 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	185	685	61	(171)	760
Total (losses) gains (realized/unrealized):(d)
Included in earnings	(2)		(70)	83	(29)	(18)
Purchases/originations	—		61	5	—	66
Settlements	(20)		—	(60)	17	(63)
Transfers into Level 3(b)	22		—	—	—	22
Balance, end of period	$	185	676	89	(183)	767
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at June 30, 2020(c)	$	(2)	(23)	85	(29)	31

(a)Net interest rate derivatives include derivative assets and liabilities of $98 and $9, respectively, as of June 30, 2020.

(b)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

(c)Includes interest income and expense.

(d)There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at June 30, 2020.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the three months ended June 30, 2019 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	190	1,141	2	(143)	1,190
Total (losses) gains (realized/unrealized):
Included in earnings	(1)		(161)	34	(22)	(150)
Purchases/originations	—		59	—	—	59
Settlements	(8)		—	(31)	14	(25)
Transfers into Level 3(b)	11		—	—	—	11
Balance, end of period	$	192	1,039	5	(151)	1,085
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at June 30, 2019(c)	$	(1)	(127)	14	(22)	(136)

(a)Net interest rate derivatives include derivative assets and liabilities of $14 and $9, respectively, as of June 30, 2019.

(b)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

(c)Includes interest income and expense.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the six months ended June 30, 2020 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	183	993	10	(163)	1,023
Total (losses) gains (realized/unrealized):(d)
Included in earnings	2		(448)	186	(51)	(311)
Purchases/originations	—		131	4	—	135
Settlements	(29)		—	(111)	31	(109)
Transfers into Level 3(b)	29		—	—	—	29
Balance, end of period	$	185	676	89	(183)	767
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at June 30, 2020(c)	$	2	(331)	93	(51)	(287)

(a)Net interest rate derivatives include derivative assets and liabilities of $98 and $9, respectively, as of June 30, 2020.

(b)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

(c)Includes interest income and expense.

(d)There were no unrealized gains or losses for the period included in other comprehensive income for instruments still held at June 30, 2020.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
For the six months ended June 30, 2019 ($ in millions)	Residential Mortgage Loans		Servicing Rights	Interest Rate Derivatives, Net(a)	Equity Derivatives	Total Fair Value
Balance, beginning of period	$	179	938	(1)	(125)	991
Total (losses) gains (realized/unrealized):
Included in earnings	(1)		(245)	58	(52)	(240)
Purchases/originations	—		346	(1)	—	345
Settlements	(12)		—	(51)	26	(37)
Transfers into Level 3(b)	26		—	—	—	26
Balance, end of period	$	192	1,039	5	(151)	1,085
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at June 30, 2019(c)	$	(1)	(196)	25	(52)	(224)

(a)Net interest rate derivatives include derivative assets and liabilities of $14 and $9, respectively, as of June 30, 2019.

(b)Includes certain residential mortgage loans originated as held for sale that were transferred to held for investment.

(c)Includes interest income and expense.

The total gains and losses included in earnings for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were recorded in the Condensed Consolidated Statements of Income as follows:

	For the three months ended June 30,			For the six months ended June 30,
($ in millions)	2020		2019	2020	2019
Mortgage banking net revenue	$	10	(129)	(261)	(189)
Commercial banking revenue	1		1	1	1
Other noninterest income	(29)		(22)	(51)	(52)
Total losses	$	(18)	(150)	(311)	(240)

The total gains and losses included in earnings attributable to changes in unrealized gains and losses related to Level 3 assets and liabilities still held at June 30, 2020 and 2019 were recorded in the Condensed Consolidated Statements of Income as follows:

	For the three months ended June 30,			For the six months ended June 30,
($ in millions)	2020		2019	2020	2019
Mortgage banking net revenue	$	59	(115)	(237)	(173)
Commercial banking revenue	1		1	1	1
Other noninterest income	(29)		(22)	(51)	(52)
Total (losses) gains	$	31	(136)	(287)	(224)

The following tables present information as of June 30, 2020 and 2019 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured at fair value on a recurring basis:

As of June 30, 2020 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	185	Loss rate model	Interest rate risk factor	(7.4)	-	11.6%		0.7	%	(a)
				Credit risk factor	—	-	26.4%		0.4	%	(a)
								(Fixed)	20.1	%	(b)
Servicing rights	676		DCF	Prepayment speed	0.5	-	99.6%	(Adjustable)	23.4	%	(b)
								(Fixed)	784		(b)
				OAS (bps)	536	-	1,386	(Adjustable)	934		(b)
IRLCs, net	91		DCF	Loan closing rates	7.2	-	97.2%		65.7	%	(c)
Swap associated with the sale of Visa, Inc. Class B Shares	(183)		DCF	Timing of the resolution of the Covered Litigation	Q3 2022	-	Q2 2024	Q1 2023			(d)

(a)Unobservable inputs were weighted by the relative carrying value of the instruments.

(b)Unobservable inputs were weighted by the relative unpaid principal balance of the instruments.

(c)Unobservable inputs were weighted by the relative notional amount of the instruments.

(d)Unobservable inputs were weighted by the probability of the final funding date of the instruments.

As of June 30, 2019 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range of Inputs			Weighted-Average
Residential mortgage loans	$	192	Loss rate model	Interest rate risk factor	(9.5)	-	5.3 %		(0.2)	%
				Credit risk factor	—	-	34.5 %		0.6	%
								(Fixed)	13.2	%
Servicing rights	1,039		DCF	Prepayment speed	1	-	97.0 %	(Adjustable)	23.5	%
								(Fixed)	561
				OAS (bps)	441	-	1,513	(Adjustable)	909
IRLCs, net	14		DCF	Loan closing rates	6.6	-	96.6 %		78.4	%
Swap associated with the sale of Visa, Inc. Class B Shares	(151)		DCF	Timing of the resolution of the Covered Litigation	Q2 2021	-	Q4 2023	Q1 2022

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The following tables provide the fair value hierarchy and carrying amount of all assets that were held as of June 30, 2020 and 2019, and for which a nonrecurring fair value adjustment was recorded during the three and six months ended June 30, 2020 and 2019, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.

	Fair Value Measurements Using					Total (Losses) Gains
As of June 30, 2020 ($ in millions)	Level 1		Level 2	Level 3	Total	For the three months ended June 30, 2020	For the six months ended June 30, 2020
Commercial loans held for sale	$	—	37	17	54	(1)	(4)
Commercial and industrial loans	—		—	501	501	(107)	(143)
Commercial mortgage loans	—		—	57	57	(4)	(33)
Commercial leases	—		—	11	11	(7)	(16)
Consumer loans	—		—	186	186	2	3
OREO	—		—	18	18	(1)	(6)
Bank premises and equipment	—		—	14	14	(12)	(14)
Operating lease equipment	—		—	10	10	—	(3)
Private equity investments	—		—	70	70	—	(9)
Total	$	—	37	884	921	(130)	(225)

	Fair Value Measurements Using					Total (Losses) Gains
As of June 30, 2019 ($ in millions)	Level 1		Level 2	Level 3	Total	For the three months ended June 30, 2019	For the six months ended June 30, 2019
Commercial and industrial loans	$	—	—	140	140	(14)	(34)
Commercial mortgage loans	—		—	11	11	1	1
Commercial leases	—		—	15	15	(11)	(12)
OREO	—		—	13	13	(1)	(3)
Bank premises and equipment	—		—	27	27	(2)	(22)
Private equity investments	—		17	2	19	4	6
Total	$	—	17	208	225	(23)	(64)

The following tables present information as of June 30, 2020 and 2019 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured on a nonrecurring basis:

As of June 30, 2020 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	16	Comparable company analysis	Market comparable transactions	NM	NM
	1		Appraised value	Appraised value	NM	NM
Commercial and industrial loans	501		Appraised value	Collateral value	NM	NM
Commercial mortgage loans	57		Appraised value	Collateral value	NM	NM
Commercial leases	11		Appraised value	Collateral value	NM	NM
Consumer loans	186		Appraised value	Collateral value	NM	NM
OREO	18		Appraised value	Appraised value	NM	NM
Bank premises and equipment	14		Appraised value	Appraised value	NM	NM
Operating lease equipment	10		Appraised value	Appraised value	NM	NM
Private equity investments	70		Comparable company analysis	Market comparable transactions	NM	NM

As of June 30, 2019 ($ in millions)
Financial Instrument	Fair Value		Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial and industrial loans	$	140	Appraised value	Collateral value	NM	NM
Commercial mortgage loans	11		Appraised value	Collateral value	NM	NM
Commercial leases	15		Appraised value	Collateral value	NM	NM
OREO	13		Appraised value	Appraised value	NM	NM
Bank premises and equipment	27		Appraised value	Appraised value	NM	NM
Private equity investments	2		Comparable company analysis	Market comparable transactions	NM	NM

Commercial loans held for sale

The Bancorp estimated the fair value of certain commercial loans held for sale as of June 30, 2020, resulting in fair value adjustments totaling $1 million and $4 million during the three and six months ended June 30, 2020, respectively. These valuations were based either on quoted prices for similar assets in active markets (Level 2 of the valuation hierarchy) or by applying unobservable inputs such as an estimated market discount to the unpaid principal balance of the loans or the appraised values of the assets (Level 3 of the valuation hierarchy). The Bancorp recognized an immaterial amount of gains on the sale of certain commercial loans held for sale during both the three and six months ended June 30, 2020.

Portfolio loans and leases

During the three and six months ended June 30, 2020 and 2019, the Bancorp recorded nonrecurring impairment adjustments to certain collateral-dependent portfolio loans and leases. When the loan is collateral-dependent, the fair value of the loan is generally based on the fair value less cost to sell of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The fair values and recognized impairment losses are reflected in the previous tables.

OREO

During the three and six months ended June 30, 2020 and 2019, the Bancorp recorded nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO and measured at the lower of carrying amount or fair value. These nonrecurring losses

were primarily due to declines in real estate values of the properties recorded in OREO. These losses include an immaterial amount and $2 million in losses, respectively, recorded as charge-offs on new OREO properties transferred from loans, during both the three and six months ended June 30, 2020 compared to an immaterial amount and $1 million in losses during the three and six months ended June 30, 2019, respectively. These losses also included $1 million and $4 million for the three and six months ended June 30, 2020, respectively, and $1 million and $2 million for the three and six months ended June 30, 2019, respectively, recorded as negative fair value adjustments on OREO in other noninterest expense in the Condensed Consolidated Statements of Income subsequent to their transfer from loans. As discussed in the following paragraphs, the fair value amounts are generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. The previous tables reflect the fair value measurements of the properties before deducting the estimated costs to sell.

The Real Estate Valuation department reviews the BPO data and internal market information to determine the initial charge-off on residential real estate loans transferred to OREO. Once the foreclosure process is completed, the Bancorp performs an interior inspection to update the initial fair value of the property. These properties are reviewed at least every 30 days after the initial interior inspections are completed. The Asset Manager receives a monthly status report for each property, which includes the number of showings, recently sold properties, current comparable listings and overall market conditions.

Bank premises and equipment

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. These properties were written down to their lower of cost or market values. At least annually thereafter, the Bancorp will review these properties for market fluctuations. The fair value amounts were generally based on appraisals of the property values, resulting in a classification within Level 3 of the valuation hierarchy. For further information on bank premises and equipment, refer to Note 8.

Operating lease equipment

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. When evaluating whether an individual asset is impaired, the Bancorp considers the current fair value of the asset, the changes in overall market demand for the asset and the rate of change in advancements associated with technological improvements that impact the demand for the specific asset under review. As part of this ongoing assessment, the Bancorp determined that the carrying values of certain operating lease equipment were not recoverable and, as a result, the Bancorp recorded an impairment loss equal to the amount by which the carrying value of the assets exceeded the fair value. The fair value amounts were generally based on appraised values of the assets, resulting in a classification within Level 3 of the valuation hierarchy.

Private equity investments

The Bancorp accounts for its private equity investments using the measurement alternative to fair value, except for those accounted for under the equity method of accounting. Under the measurement alternative, the Bancorp carries each investment at its cost basis minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Bancorp did not recognize gains resulting from observable price changes during the three and six months ended June 30, 2020 and recognized gains of $6 million and $11 million, respectively, resulting from observable price changes during the three and six months ended June 30, 2019. The carrying value of the Bancorp’s private equity investments still held as of June 30, 2020 includes a cumulative $47 million of positive adjustments as a result of observable price changes since January 1, 2018. Because these adjustments are based on observable transactions in inactive markets, they are classified in Level 2 of the fair value hierarchy.

For private equity investments which are accounted for using the measurement alternative to fair value, the Bancorp qualitatively evaluates each investment quarterly to determine if impairment may exist. If necessary, the Bancorp then measures impairment by estimating the value of its investment and comparing that to the investment’s carrying value, whether or not the Bancorp considers the impairment to be temporary. These valuations are typically developed using a DCF method, but other methods may be used if more appropriate for the circumstances. These valuations are based on unobservable inputs and therefore are classified in Level 3 of the fair value hierarchy. The Bancorp recognized impairment of zero and $9 million for the three and six months ended June 30, 2020, respectively, compared to $2 million and $5 million for the three and six months ended June 30, 2019, respectively. The carrying value of the Bancorp’s private equity investments still held as of June 30, 2020 includes a cumulative $26 million of impairment charges recognized since adoption of the measurement alternative to fair value on January 1, 2018.

Fair Value Option

The Bancorp elected to measure certain residential mortgage and commercial loans held for sale under the fair value option as allowed under U.S. GAAP. Electing to measure residential mortgage loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. Electing to measure certain commercial loans held for sale at fair value reduces certain timing differences and better reflects changes in fair value of these assets that are expected to be sold in the short term. Management’s intent to sell residential mortgage or commercial loans classified as held for sale may change over time due to such factors as changes in the overall liquidity in markets or changes in characteristics specific to certain loans

held for sale. Consequently, these loans may be reclassified to loans held for investment and maintained in the Bancorp’s loan portfolio. In such cases, the loans will continue to be measured at fair value.

Fair value changes recognized in earnings for residential mortgage loans held at June 30, 2020 and 2019 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $45 million and $36 million, respectively. These gains are reported in mortgage banking net revenue in the Condensed Consolidated Statements of Income. Fair value changes recognized in earnings for commercial loans held at both June 30, 2020 and 2019 for which the fair value option was elected included gains of an immaterial amount. These gains are reported in commercial banking revenue in the Condensed Consolidated Statements of Income.

Valuation adjustments related to instrument-specific credit risk for residential mortgage loans measured at fair value negatively impacted the fair value of those loans by $1 million at both June 30, 2020 and December 31, 2019. Valuation adjustments related to instrument-specific credit risk for commercial loans measured at fair value were zero at June 30, 2020. Interest on loans measured at fair value is accrued as it is earned using the effective interest method and is reported as interest income in the Condensed Consolidated Statements of Income.

The following table summarizes the difference between the fair value and the unpaid principal balance for residential mortgage and commercial loans measured at fair value as of:

June 30, 2020 ($ in millions)	Aggregate Fair Value		Aggregate Unpaid Principal Balance	Difference
Residential mortgage loans measured at fair value	$	1,025	980	45
Past due loans of 90 days or more	3		3	—
Nonaccrual loans	1		1	—
Commercial loans measured at fair value	15		15	—
December 31, 2019
Residential mortgage loans measured at fair value	$	1,447	1,410	37
Past due loans of 90 days or more	2		2	—
Nonaccrual loans	1		1	—

Fair Value of Certain Financial Instruments

The following tables summarize the carrying amounts and estimated fair values for certain financial instruments, excluding financial instruments measured at fair value on a recurring basis:

	Net Carrying Amount		Fair Value Measurements Using			Total Fair Value
As of June 30, 2020 ($ in millions)			Level 1	Level 2	Level 3
Financial assets:
Cash and due from banks	$	3,221	3,221	—	—	3,221
Other short-term investments	28,243		28,243	—	—	28,243
Other securities	548		—	548	—	548
Held-to-maturity securities	16		—	—	16	16
Loans and leases held for sale	57		—	—	57	57
Portfolio loans and leases:
Commercial and industrial loans	54,672		—	—	54,431	54,431
Commercial mortgage loans	10,860		—	—	10,713	10,713
Commercial construction loans	5,381		—	—	5,538	5,538
Commercial leases	3,019		—	—	2,796	2,796
Residential mortgage loans	15,945		—	—	17,551	17,551
Home equity	5,442		—	—	5,895	5,895
Indirect secured consumer loans	12,224		—	—	12,168	12,168
Credit card	1,884		—	—	2,034	2,034
Other consumer loans	2,745		—	—	2,962	2,962
Total portfolio loans and leases, net	$	112,172	—	—	114,088	114,088
Financial liabilities:
Deposits	$	156,946	—	156,959	—	156,959
Federal funds purchased	262		262	—	—	262
Other short-term borrowings	1,285		—	1,285	—	1,285
Long-term debt	16,327		16,829	965	—	17,794

	Net Carrying Amount		Fair Value Measurements Using			Total Fair Value
As of December 31, 2019 ($ in millions)			Level 1	Level 2	Level 3
Financial assets:
Cash and due from banks	$	3,278	3,278	—	—	3,278
Other short-term investments	1,950		1,950	—	—	1,950
Other securities	556		—	556	—	556
Held-to-maturity securities	17		—	—	17	17
Loans and leases held for sale	136		—	—	136	136
Portfolio loans and leases:
Commercial and industrial loans	49,981		—	—	51,128	51,128
Commercial mortgage loans	10,876		—	—	10,823	10,823
Commercial construction loans	5,045		—	—	5,249	5,249
Commercial leases	3,346		—	—	3,133	3,133
Residential mortgage loans	16,468		—	—	17,509	17,509
Home equity	6,046		—	—	6,315	6,315
Indirect secured consumer loans	11,485		—	—	11,331	11,331
Credit card	2,364		—	—	2,774	2,774
Other consumer loans	2,683		—	—	2,866	2,866
Unallocated ALLL	(121)		—	—	—	—
Total portfolio loans and leases, net	$	108,173	—	—	111,128	111,128
Financial liabilities:
Deposits	$	127,062	—	127,059	—	127,059
Federal funds purchased	260		260	—	—	260
Other short-term borrowings	1,011		—	1,011	—	1,011
Long-term debt	14,970		15,244	700	—	15,944