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, see Note 1 in the Bancorp's Form 10-K for the year ended December 31, 2012.

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, including residential mortgage loans held for sale for which the Bancorp has elected the fair value option as of:

	Fair Value Measurements Using
June 30, 2013 ($ in millions)		Level 1^(c)	Level 2^(c)	Level 3	Total Fair Value
Assets:
Available-for-sale securities:
U.S. Treasury and government agencies	$	26	-	-	26
U.S. Government sponsored agencies		-	1,758	-	1,758
Obligations of states and political subdivisions		-	205	-	205
Agency mortgage-backed securities		-	9,663	-	9,663
Other bonds, notes and debentures		-	3,548	-	3,548
Other securities^(a)		86	56	-	142
Available-for-sale securities^(a)		112	15,230	-	15,342

Trading securities:
U.S. Government sponsored agencies		-	18	-	18
Obligations of states and political subdivisions		-	10	1	11
Agency mortgage-backed securities		-	7	-	7
Other bonds, notes and debentures		-	11	-	11
Other securities		172	-	-	172
Trading securities		172	46	1	219

Residential mortgage loans held for sale		-	2,113	-	2,113
Residential mortgage loans^(b)		-	-	83	83
Derivative assets:
Interest rate contracts		185	984	7	1,176
Foreign exchange contracts		-	257	-	257
Equity contracts		-	-	287	287
Commodity contracts		8	90	-	98
Derivative assets		193	1,331	294	1,818
Total assets	$	477	18,720	378	19,575

Liabilities:
Derivative liabilities:
Interest rate contracts	$	26	457	37	520
Foreign exchange contracts		-	215	-	215
Equity contracts		-	-	37	37
Commodity contracts		18	81	-	99
Derivative liabilities		44	753	74	871

Short positions		18	3	-	21
Total liabilities	$	62	756	74	892


	Fair Value Measurements Using
December 31, 2012 ($ in millions)		Level 1^(c)	Level 2^(c)	Level 3	Total Fair Value
Assets:
Available-for-sale securities:
U.S. Treasury and Government agencies	$	41	-	-	41
U.S. Government sponsored agencies		-	1,911	-	1,911
Obligations of states and political subdivisions		-	212	-	212
Agency mortgage-backed securities		-	8,730	-	8,730
Other bonds, notes and debentures		-	3,277	-	3,277
Other securities^(a)		79	113	-	192
Available-for-sale securities^(a)		120	14,243	-	14,363

Trading securities:
U.S. Treasury and Government agencies		1	-	-	1
U.S. Government sponsored agencies		-	6	-	6
Obligations of states and political subdivisions		-	16	1	17
Agency mortgage-backed securities		-	7	-	7
Other bonds, notes and debentures		-	15	-	15
Other securities		161	-	-	161
Trading securities		162	44	1	207

Residential mortgage loans held for sale		-	2,856	-	2,856
Residential mortgage loans^(b)		-	-	76	76
Derivative assets:
Interest rate contracts		2	1,445	60	1,507
Foreign exchange contracts		-	201	-	201
Equity contracts		-	-	177	177
Commodity contracts		-	87	-	87
Derivative assets		2	1,733	237	1,972
Total assets	$	284	18,876	314	19,474

Liabilities:
Derivative liabilities:
Interest rate contracts	$	14	600	3	617
Foreign exchange contracts		-	183	-	183
Equity contracts		-	-	33	33
Commodity contracts		-	82	-	82
Derivative liabilities		14	865	36	915

Short positions		8	2	-	10
Total liabilities	$	22	867	36	925

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.

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which are classified within Level 2 of the valuation hierarchy, include agency and non-agency mortgage-backed securities, other asset-backed securities, obligations of U.S. Government sponsored agencies, and corporate and municipal bonds. Corporate bonds are included in other bonds, notes and debentures in the previous table. Agency mortgage-backed securities, obligations of U.S. Government sponsored agencies, and corporate and municipal bonds are generally valued using a market approach based on observable prices of securities with similar characteristics.

Non-agency mortgage-backed securities and other asset-backed securities, which are included in other bonds, notes and debentures, are generally valued using an income approach based on discounted cash flows, incorporating prepayment speeds, performance of underlying collateral and specific tranche-level attributes. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

For residential mortgage loans held for sale, 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 held for sale that are reclassified to held for investment are transferred from Level 2 to Level 3 of the fair value hierarchy. It is the Bancorp's policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

For residential mortgage loans 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. The Secondary Marketing Department, which reports to the Bancorp's Chief Operating Officer, in conjunction with the Consumer Credit Risk Department, which reports to the Bancorp's Chief Risk Officer, are responsible for determining the valuation methodology for residential mortgage loans held for investment. The Secondary Marketing Department reviews loss severity assumptions quarterly to determine if adjustments are necessary based on decreases in observable housing market data. This group also reviews trades in comparable benchmark securities and adjusts the values of loans as necessary. Consumer Credit Risk is responsible for the credit component of the fair value which is based on internally developed loss rate models that take into account historical loss rates and loss severities based on underlying collateral values.

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 discounted cash flow 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 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, 2013 and December 31, 2012, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of warrants associated with the sale of the Bancorp's 51% interest in Vantiv Holding, LLC to Advent International and a total return swap associated with the Bancorp's sale of Visa, Inc. Class B shares. Level 3 derivatives also include interest rate lock commitments, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

The warrants allow the Bancorp to purchase approximately 20 million incremental nonvoting units in Vantiv Holding, LLC under certain defined conditions involving change of control. The fair value of the warrants is calculated in conjunction with a third party valuation provider by applying Black-Scholes option valuation models using probability weighted scenarios which contain the following inputs: Vantiv, Inc. stock price, strike price per the Warrant Agreement and several unobservable inputs, such as expected term, expected volatility and expected dividend rate.

For the warrants, an increase in the expected term (years) and the expected volatility assumptions would result in an increase in the fair value; correspondingly, a decrease in these assumptions would result in a decrease in the fair value. The Accounting and Treasury Departments, both of which report to the Bancorp's Chief Financial Officer, determined the valuation methodology for the warrants. Accounting and Treasury review changes in fair value on a quarterly basis for reasonableness based on changes in historical and implied volatilities, expected terms, probability weightings of the related scenarios, and other assumptions.

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 discounted cash flow 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 fair value; correspondingly, a decrease in the loss estimate or an acceleration of the resolution of the Covered Litigation would result in a decrease in fair value. The Accounting and Treasury Departments determined the valuation methodology for the total return swap. Accounting and Treasury review the changes in fair value on a quarterly basis for reasonableness based on Visa stock price changes, litigation contingencies, and escrow funding.

The net fair value liability of the interest rate lock commitments at June 30, 2013 was $28 million. Immediate decreases in current interest rates of 25 bps and 50 bps would result in changes in the fair value of the interest rate lock commitments of approximately $31 million and $59 million, respectively. Immediate increases of current interest rates of 25 bps and 50 bps would result in changes in the fair value of the interest rate lock commitments of approximately $32 million and $64 million, respectively. The change in fair value of interest rate lock commitments due to immediate 10% and 20% adverse changes in the assumed loan closing rates would be approximately $3 million and $6 million, respectively, and the change in fair value due to immediate 10% and 20% favorable changes in the assumed loan closing rates would be approximately $3 million and $6 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.

The Secondary Marketing Department and the Consumer Line of Business Finance Department, which reports to the Bancorp's Chief Financial Officer, are responsible for determining the valuation methodology for IRLCs. Secondary Marketing, in conjunction with a third party valuation provider, periodically review loan closing rate assumptions and recent loan sales to determine if adjustments are needed for current market conditions not reflected in historical data.

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)
			Residential	Interest Rate	Equity
For the three months ended June 30, 2013		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	81	48	174		304
Total gains or losses (realized/unrealized):
Included in earnings		-	(2)	(57)	71		12
Settlements		-	(4)	(21)	5		(20)
Transfers into Level 3^(b)		-	8	-	-		8
Ending balance	$	1	83	(30)	250		304
The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at June 30, 2013^(c)	$	-	(2)	(27)	71		42


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the three months ended June 30, 2012		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	67	17	135		220
Total gains or losses (realized/unrealized):
Included in earnings		-	0	125	45		170
Settlements		-	(3)	(88)	4		(87)
Transfers into Level 3^(b)		-	12	-	-		12
Ending balance	$	1	76	54	184		315
The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at June 30, 2012^(c)	$	-	0	54	45		99

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the six months ended June 30, 2013		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	76	57	144		278
Total gains or losses (realized/unrealized):
Included in earnings		-	(1)	(1)	98		96
Settlements		-	(7)	(86)	8		(85)
Transfers into Level 3^(b)		-	15	-	-		15
Ending balance	$	1	83	(30)	250		304
The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at June 30, 2013^(c)	$	-	(1)	23	98		120


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the six months ended June 30, 2012		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	65	32	32	$	130
Total gains or losses (realized/unrealized):
Included in earnings		-	-	175	74		249
Settlements		-	(6)	(153)	78		(81)
Transfers into Level 3^(b)		-	17	-	-		17
Ending balance	$	1	76	54	184	$	315
The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at June 30, 2012^(c)	$	-	-	71	74	$	145

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		For the six months
		ended June 30,		ended June 30,
($ in millions)		2013	2012	2013	2012
Mortgage banking net revenue	$	(59)	125	(2)	175
Other noninterest income		71	45	98	74
Total gains	$	12	170	96	249

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, 2013 and 2012 were recorded in the Condensed Consolidated Statements of Income as follows:

		For the three months		For the six months
		ended June 30,		ended June 30,
($ in millions)		2013	2012	2013	2012
Mortgage banking net revenue	$	(29)	54	22	71
Other noninterest income		71	45	98	74
Total gains	$	42	99	120	145

The following tables present information as of June 30, 2013 and 2012 about significant unobservable inputs related to the Bancorp’s material categories of Level 3 financial assets and liabilities measured on a recurring basis:

As of June 30, 2013 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	83	Loss rate model	Interest rate risk factor	(22.1) - 45.6%	3.8%
				Credit risk factor	0 - 67.0%	3.3%
IRLCs, net		(28)	Discounted cash flow	Loan closing rates	9.9 - 95.0%	63.0%
Stock warrants associated with Vantiv		287	Black-Scholes option	Expected term (years)	2.00 - 16.0	5.1
Holding, LLC			valuation model	Expected volatility^(a)	23.8 - 34.7%	28.9%
				Expected dividend rate	-	-
Swap associated with the sale of Visa, Inc.		(37)	Discounted cash flow	Timing of the resolution	3/31/2014 -	NM
Class B shares				of the Covered Litigation	3/31/2017

As of June 30, 2012 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	76	Loss rate model	Interest rate risk factor	(90.8) - 16.5%	5.5%
				Credit risk factor	2.2 - 68.4%	4.4%
IRLCs, net		54	Discounted cash flow	Loan closing rates	9.9 - 86.9%	54.0%
Stock warrants associated with Vantiv		213	Black-Scholes option	Expected term (years)	1.75 - 17.0	4.8
Holding, LLC			valuation model	Expected volatility^(a)	29.0 - 41.2%	35.4%
				Expected dividend rate	-	-
Swap associated with the sale of Visa, Inc.		(29)	Discounted cash flow	Timing of the resolution	6/30/13 -	NM
Class B shares				of the Covered Litigation	6/30/15

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 represent those assets that were subject to fair value adjustments during the quarters ended June 30, 2013 and 2012 and still held as of the end of the period, 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	Total (Losses) Gains
						For the three months	For the six months
As of June 30, 2013 ($ in millions)		Level 1	Level 2	Level 3	Total	ended June 30, 2013	ended June 30, 2013
Commercial loans held for sale^(a)	$	-	-	2	2	(1)	(5)
Commercial and industrial loans		-	-	83	83	(25)	(31)
Commercial mortgage loans		-	-	35	35	(8)	(25)
Commercial construction loans		-	-	8	8	(2)	(2)
MSRs		-	-	894	894	102	151
OREO property		-	-	112	112	(7)	(29)
Total	$	-	-	1,134	1,134	59	59


		Fair Value Measurements Using				Total Losses	Total Losses
						For the three months	For the six months
As of June 30, 2012 ($ in millions)		Level 1	Level 2	Level 3	Total	ended June 30, 2012	ended June 30, 2012
Commercial loans held for sale^(a)	$	-	-	8	8	(5)	(6)
Commercial and industrial loans		-	-	77	77	(25)	(56)
Commercial mortgage loans		-	-	95	95	(16)	(29)
Commercial construction loans		-	-	26	26	(5)	(16)
MSRs		-	-	736	736	(60)	(49)
OREO property		-	-	134	134	(22)	(45)
Total	$	-	-	1,076	1,076	(133)	(201)

The following tables present information as of June 30, 2013 and 2012 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, 2013 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	2	Appraised value	Appraised value	NM	NM
				Cost to sell	NM	10.0%
Commercial and industrial loans		83	Appraised value	Default rates	100%	NM
				Collateral value	NM	NM
Commercial mortgage loans		35	Appraised value	Default rates	100%	NM
				Collateral value	NM	NM
Commercial construction loans		8	Appraised value	Default rates	100%	NM
				Collateral value	NM	NM
Mortgage servicing rights		894	Discounted cash flow	Prepayment speed	0 - 100%	(Fixed) 11.8% (Adjustable) 25.9%
				Discount rates	9.4 - 18.0%	(Fixed) 10.4% (Adjustable) 11.6%
OREO property		112	Appraised value	Appraised value	NM	NM

As of June 30, 2012 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	8	Discounted cash flow	Appraised value	NM	NM
				Cost to sell	NM	10.0%
Commercial and industrial loans		77	Discounted cash flow	Default rates	100%	NM
				Collateral value	NM	NM
Commercial mortgage loans		95	Discounted cash flow	Default rates	100%	NM
				Collateral value	NM	NM
Commercial construction loans		26	Discounted cash flow	Default rates	100%	NM
				Collateral value	NM	NM
Mortgage servicing rights		736	Discounted cash flow	Prepayment speed	0 - 100%	(Fixed) 15.2% (Adjustable) 27.1%
				Discount rates	9.4 - 18.0%	(Fixed) 10.6% (Adjustable) 11.7%
OREO property		134	Appraised value	Appraised value	NM	NM

The Bancorp transferred $2 million and $5 million of commercial loans from the portfolio to loans held for sale that upon transfer were measured at fair value during the three and six months ended June 30, 2013, respectively. These loans had immaterial fair value adjustments during the three months ended June 30, 2013 and $4 million during the six months ended June 30, 2013 and were generally based on appraisals of the underlying collateral. Additionally, there were fair value adjustments on existing loans held for sale of $1 million for the three and six months ended June 30, 2013. The fair value adjustments are also based on appraisals of the underlying collateral and were therefore classified within Level 3 of the valuation hierarchy. An adverse change in the fair value of the underlying collateral would result in a decrease in the fair value measurement. The Accounting Department determines the procedures for valuation of commercial HFS loans which may include a comparison to recently executed transactions of similar type loans. A monthly review of the portfolio is performed for reasonableness. Quarterly, appraisals approaching a year-old are updated and the Real Estate Valuation group, which reports to the Chief Credit Officer, in conjunction with the Commercial Line of Business review the third party appraisals for reasonableness. Additionally, the Commercial Line of Business Finance Department, which reports to the Bancorp Chief Financial Officer, in conjunction with Accounting review all loan appraisal values, carry values and vintages.

During the three and six months ended June 30, 2013 and 2012, the Bancorp recorded nonrecurring impairment adjustments to certain commercial and industrial, commercial mortgage and commercial construction loans held for investment. Larger commercial loans included within aggregate borrower relationship balances exceeding $1 million that exhibit probable or observed credit weaknesses are subject to individual review for impairment. The Bancorp considers the current value of collateral, credit quality of any guarantees, the guarantor's liquidity and willingness to cooperate, the loan structure and other factors when evaluating whether an individual loan is impaired. When the loan is collateral dependent, the fair value of the loan is generally based on the fair value of the underlying collateral supporting the loan and therefore these loans were classified within Level 3 of the valuation hierarchy. An adverse change in the fair value of the underlying collateral would result in a decrease in the fair value measurement. 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 table. Commercial Credit Risk, which reports to the Chief Risk Officer, is responsible for preparing and reviewing the fair value estimates for commercial loans held for investment.

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 discounted cash flow models with certain unobservable inputs, primarily prepayment speed assumptions, discount rates and weighted average lives, resulting in a classification within Level 3 of the valuation hierarchy. Refer to Note 9 for further information on the assumptions used in the valuation of the Bancorp's MSRs. The Secondary Marketing Department and Treasury Department are responsible for determining the valuation methodology for MSRs. Representatives from Secondary Marketing, Treasury, Accounting and Risk Management are responsible for reviewing key assumptions used in the internal discounted cash flow model. Two external valuations of the MSR portfolio are obtained from third parties that use valuation models in order to assess the reasonableness of the internal discounted cash flow model. Additionally, the Bancorp participates in peer surveys that provide additional confirmation of the reasonableness of key assumptions utilized in the MSR valuation process and the resulting MSR prices.

During the three and six months ended June 30, 2013 and 2012, 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 are primarily due to declines in real estate values of the properties recorded in OREO. These losses include $2 million and $15 million in losses, recorded as charge-offs, on new OREO properties transferred from loans during the three and six months ended June 30, 2013, respectively, and $3 million and $9 million for the three and six months ended June 30, 2012, respectively. These losses also include $5 million and $14 million in losses for the three and six months ended June 30, 2013, respectively, and $19 million and $36 million in losses for the three and six months ended June 30, 2012, respectively, recorded in other noninterest income, attributable to fair value adjustments on OREO properties 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, which reports to the Chief Credit Officer, is solely responsible for managing the appraisal process and evaluating the appraisal for all for commercial properties transferred to OREO. All appraisals on commercial OREO properties are updated on at least an annual basis.

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.

The Bancorp elected to measure certain residential mortgage 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. Management's intent to sell residential mortgage 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 the three and six months ended June 30, 2013 for instruments held at June 30, 2013 for which the fair value option was elected as well as the changes in fair value of the underlying IRLCs, included an immaterial amount of gains. Additionally, fair value changes recognized in earnings for the three and six months ended June 30, 2013 for instruments for which the fair value option was elected but are no longer held by the Bancorp at June 30, 2013 included gains of $86 million and $323 million, respectively. Fair value changes recognized in earnings for the three and six months ended June 30, 2012 for instruments held at June 30, 2012 for which the fair value option was elected as well as the changes in fair value of the underlying IRLCs included gains of $97 million. Additionally, fair value changes recognized in earnings for the three and six months ended June 30, 2012 for instruments for which the fair value option was elected but are no longer held by the Bancorp at June 30, 2012 included gains of $109 million and $267 million, respectively. These gains and losses are reported in mortgage banking net 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 $3 million at June 30, 2013 and December 31, 2012. Interest on residential mortgage 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 principal balance for residential mortgage loans measured at fair value as of:

		Aggregate	Aggregate Unpaid
($ in millions)		Fair Value	Principal Balance	Difference
June 30, 2013
Residential mortgage loans measured at fair value	$	2,196	2,196	-
Past due loans of 90 days or more		3	3	-
Nonaccrual loans		1	1	-

December 31, 2012
Residential mortgage loans measured at fair value		2,932	2,775	157
Past due loans of 90 days or more		3	4	(1)
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	Fair Value Measurements Using			Total
As of June 30, 2013 ($ in millions)		Amount	Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	2,390	2,390	-	-	2,390
Other securities		845	-	845	-	845
Held-to-maturity securities		274	-	-	274	274
Other short-term investments		1,109	1,109	-	-	1,109
Loans held for sale		35	-	-	35	35
Portfolio loans and leases:
Commercial and industrial loans		37,039	-	-	38,882	38,882
Commercial mortgage loans		8,165	-	-	7,680	7,680
Commercial construction loans		727	-	-	608	608
Commercial leases		3,506	-	-	3,279	3,279
Residential mortgage loans^(a)		12,116	-	-	11,427	11,427
Home equity		9,411	-	-	9,340	9,340
Automobile loans		11,989	-	-	11,819	11,819
Credit card		2,031	-	-	2,172	2,172
Other consumer loans and leases		334	-	-	348	348
Unallocated allowance for loan and lease losses		(104)	-	-	-	-
Total portfolio loans and leases, net^(a)	$	85,214	-	-	85,555	85,555
Financial liabilities:
Deposits		93,454	-	93,503	-	93,503
Federal funds purchased		636	636	-	-	636
Other short-term borrowings		2,112	-	2,112	-	2,112
Long-term debt		6,940	6,710	680	-	7,390

		Net Carrying	Fair Value Measurements Using
As of December 31, 2012 ($ in millions)		Amount	Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	2,441	2,441	-	-	2,441
Other securities		844	-	844	-	844
Held-to-maturity securities		284	-	-	284	284
Other short-term investments		2,421	2,421	-	-	2,421
Loans held for sale		83	-	-	83	83
Portfolio loans and leases:
Commercial and industrial loans		35,236	-	-	36,496	36,496
Commercial mortgage loans		8,770	-	-	8,020	8,020
Commercial construction loans		665	-	-	505	505
Commercial leases		3,481	-	-	3,310	3,310
Residential mortgage loans^(a)		11,712	-	-	11,532	11,532
Home equity		9,875	-	-	9,798	9,798
Automobile loans		11,944	-	-	12,076	12,076
Credit card		2,010	-	-	2,139	2,139
Other consumer loans and leases		270	-	-	288	288
Unallocated allowance for loan and lease losses		(111)	-	-	-	-
Total portfolio loans and leases, net^(a)	$	83,852	-	-	84,164	84,164
Financial liabilities:
Deposits		89,517	-	89,592	-	89,592
Federal funds purchased		901	901	-	-	901
Other short-term borrowings		6,280	-	6,280	-	6,280
Long-term debt		7,085	6,925	884	-	7,809

Cash and due from banks, other securities, other short-term investments, deposits, federal funds purchased and other short-term borrowings

For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value. Those financial instruments include cash and due from banks, FHLB and FRB restricted stock, other short-term investments, certain deposits (demand, interest checking, savings, money market and foreign office deposits), and federal funds purchased. Fair values for other time deposits, certificates of deposit $100,000 and over and other short-term borrowings were estimated using a discounted cash flow calculation that applied prevailing LIBOR/swap interest rates for the same maturities.

The Bancorp's held-to-maturity securities are primarily composed of instruments that provide income tax credits as the economic return on the investment. The fair value of these instruments is estimated based on current U.S. Treasury tax credit rates.

Fair values for commercial loans held for sale were valued based on executable bids when available, or on discounted cash flow models incorporating appraisals of the underlying collateral, as well as assumptions about investor return requirements and amounts and timing of expected cash flows. Fair values for other consumer loans held for sale are based on contractual values upon which the loans may be sold to a third party, and approximate their carrying value.

Fair values were estimated by discounting future cash flows using the current market rates of loans to borrowers with similar credit characteristics and similar remaining maturities.

Fair value of long-term debt was based on quoted market prices, when available, or a discounted cash flow calculation using LIBOR/swap interest rates and, in some cases, a spread for new issuances with similar terms.