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 and how the Bancorp measures fair value, refer to Note 1.

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
December 31, 2014 ($ in millions)		Level 1^(c)	Level 2^(c)	Level 3	Total Fair Value
Assets:
Available-for-sale and other securities:
U.S. Treasury and federal agencies	$	25	1,607	-	1,632
Obligations of states and political subdivisions		-	192	-	192
Mortgage-backed securities
Agency residential mortgage-backed securities		-	12,404	-	12,404
Agency commercial mortgage-backed securities		-	4,565	-	4,565
Non-agency commercial mortgage-backed securities		-	1,550	-	1,550
Asset-backed securities and other debt securities		-	1,362	-	1,362
Equity securities^(a)		84	19	-	103
Available-for-sale and other securities^(a)		109	21,699	-	21,808

Trading securities:
U.S. Treasury and federal agencies		-	14	-	14
Obligations of states and political subdivisions		-	8	-	8
Mortgage-backed securities
Agency residential mortgage-backed securities		-	9	-	9
Asset-backed securities and other debt securities		-	13	-	13
Equity securities		316	-	-	316
Trading securities		316	44	-	360

Residential mortgage loans held for sale		-	561	-	561
Residential mortgage loans^(b)		-	-	108	108
Derivative assets:
Interest rate contracts		-	888	12	900
Foreign exchange contracts		-	417	-	417
Equity contracts		-	-	415	415
Commodity contracts		68	280	-	348
Derivative assets		68	1,585	427	2,080
Total assets	$	493	23,889	535	24,917

Liabilities:
Derivative liabilities:
Interest rate contracts	$	6	276	2	284
Foreign exchange contracts		-	372	-	372
Equity contracts		-	-	49	49
Commodity contracts		58	280	-	338
Derivative liabilities		64	928	51	1,043

Short positions		16	5	-	21
Total liabilities	$	80	933	51	1,064

	Fair Value Measurements Using
December 31, 2013 ($ in millions)		Level 1^(c)	Level 2^(c)	Level 3	Total Fair Value
Assets:
Available-for-sale and other securities:
U.S. Treasury and federal agencies	$	26	1,644	-	1,670
Obligations of states and political subdivisions		-	192	-	192
Mortgage-backed securities:
Agency residential mortgage-backed securities		-	12,284	-	12,284
Non-agency commercial mortgage-backed securities		-	1,395	-	1,395
Asset-backed securities and other debt securities		-	2,187	-	2,187
Equity securities^(a)		89	29	-	118
Available-for-sale and other securities^(a)		115	17,731	-	17,846

Trading securities:
U.S. Treasury and federal agencies		1	4	-	5
Obligations of states and political subdivisions		-	12	1	13
Mortgage-backed securities:
Agency residential mortgage-backed securities		-	3	-	3
Asset-backed securities and other debt securities		-	7	-	7
Equity securities		315	-	-	315
Trading securities		316	26	1	343

Residential mortgage loans held for sale		-	890	-	890
Residential mortgage loans^(b)		-	-	92	92
Derivative assets:
Interest rate contracts		13	802	12	827
Foreign exchange contracts		-	276	-	276
Equity contracts		-	-	384	384
Commodity contracts		18	48	-	66
Derivative assets		31	1,126	396	1,553
Total assets	$	462	19,773	489	20,724

Liabilities:
Derivative liabilities:
Interest rate contracts	$	1	384	4	389
Foreign exchange contracts		-	252	-	252
Equity contracts		-	-	48	48
Commodity contracts		9	56	-	65
Derivative liabilities		10	692	52	754

Short positions		4	4	-	8
Total liabilities	$	14	696	52	762

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 DCFs. Examples of such instruments, which are classified within Level 2 of the valuation hierarchy, include federal agencies, obligations of states and political subdivisions, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities. Corporate bonds are included in asset-backed securities and other debt securities in the previous table. Federal agencies, obligations of states and political subdivisions, agency residential mortgage-backed securities, agency and non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities are generally valued using a market approach based on observable prices of securities with similar characteristics.

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 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 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 December 31, 2014 and 2013, derivatives classified as Level 3, which are valued using models containing unobservable inputs, consisted primarily of a warrant associated with the initial 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 IRLCs, which utilize internally generated loan closing rate assumptions as a significant unobservable input in the valuation process.

The warrant allows the Bancorp to purchase approximately 20 million incremental nonvoting units in Vantiv Holding, LLC at an exercise price of $15.98 per unit and requires settlement under certain defined conditions involving change of control. The fair value of the warrant 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 warrant, an increase in the expected term (years) and the expected volatility assumptions would result in an increase in the fair value; conversely, 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 warrant. 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 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 fair value; conversely, 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 asset of the IRLCs at December 31, 2014 was $12 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 $5 million and $9 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 $5 million and $11 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 $1 million and $2 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 $1 million and $2 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 year ended December 31, 2014	Trading		Mortgage	Derivatives,	Derivatives,	Total
($ in millions)	Securities		Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	92	8	336	$	437
Total gains or losses (realized/unrealized):
Included in earnings		-	4	125	(7)		122
Purchases		-	-	(1)	-		(1)
Sales		(1)	-	-	-		(1)
Settlements		-	(17)	(122)	37		(102)
Transfers into Level 3^(b)		-	29	-	-		29
Ending balance	$	-	108	10	366	$	484
The amount of total gains (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at December 31, 2014^(c)	$	-	4	13	(7)	$	10

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the year ended December 31, 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)	59	175		233
Purchases		-	-	(2)	-		(2)
Settlements		-	(17)	(106)	17		(106)
Transfers into Level 3^(b)		-	34	-	-		34
Ending balance	$	1	92	8	336	$	437
The amount of total gains (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at December 31, 2013^(c)	$	-	(1)	11	175	$	185

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the year ended December 31, 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		-	-	418	22		440
Settlements		-	(15)	(393)	90		(318)
Transfers into Level 3^(b)		-	26	-	-		26
Ending balance	$	1	76	57	144	$	278
The amount of total gains for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at December 31, 2012^(c)	$	-	-	233	22	$	255

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 Consolidated Statements of Income as follows:

($ in millions)		2014	2013	2012
Mortgage banking net revenue	$	127	57	418
Corporate banking revenue		2	1	1
Other noninterest income		(7)	175	21
Total gains	$	122	233	440

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 December 31, 2014, 2013 and 2012 were recorded in the Consolidated Statements of Income as follows:

($ in millions)		2014	2013	2012
Mortgage banking net revenue	$	16	10	233
Corporate banking revenue		1	-	1
Other noninterest income		(7)	175	21
Total gains	$	10	185	255

The following tables present information as of December 31, 2014 and 2013 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 December 31, 2014 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	108	Loss rate model	Interest rate risk factor	(7.2) - 17.7%	5.0%
				Credit risk factor	0 - 46.6%	1.8%
IRLCs, net		12	Discounted cash flow	Loan closing rates	8.8 - 86.7%	65.2%
Stock warrant associated with Vantiv Holding, LLC		415	Black-Scholes option	Expected term (years)	2.0 - 14.5	6.0
			valuation model	Expected volatility^(a)	22.9 - 32.2%	26.5%
				Expected dividend rate	-	-
Swap associated with the sale of Visa, Inc.		(49)	Discounted cash flow	Timing of the resolution	12/31/2015 -	NM
Class B shares				of the Covered Litigation	6/30/2020


As of December 31, 2013 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	92	Loss rate model	Interest rate risk factor	(23.7) - 16.5%	2.3%
				Credit risk factor	0 - 63.4%	2.6%
IRLCs, net		11	Discounted cash flow	Loan closing rates	14.9 - 98.7%	68.5%
Stock warrant associated with Vantiv Holding, LLC		384	Black-Scholes option	Expected term (years)	2.0 - 15.5	5.1
			valuation model	Expected volatility^(a)	18.5 - 33.2%	25.4%
				Expected dividend rate	-	-
Swap associated with the sale of Visa, Inc.		(48)	Discounted cash flow	Timing of the resolution	12/31/2014 -	NM
Class B shares				of the Covered Litigation	12/31/2019

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 December 31, 2014 and 2013, and for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2014 and 2013, 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
As of December 31, 2014 ($ in millions)		Level 1	Level 2	Level 3	Total	2014
Commercial loans held for sale^(a)	$	-	-	33	33	(12)
Residential mortgage loans held for sale		-	-	554	554	(87)
Commercial and industrial loans		-	-	456	456	(382)
Commercial mortgage loans		-	-	110	110	(36)
Commercial construction loans		-	-	23	23	(1)
MSRs		-	-	856	856	(65)
OREO		-	-	90	90	(26)
Bank premises				22	22	(20)
Total	$	-	-	2,144	2,144	(629)

		Fair Value Measurements Using				Total Losses
As of December 31, 2013 ($ in millions)		Level 1	Level 2	Level 3	Total	2013
Commercial loans held for sale^(a)	$	-	-	3	3	(7)
Commercial and industrial loans		-	-	443	443	(281)
Commercial mortgage loans		-	-	61	61	(41)
Commercial construction loans		-	-	16	16	(10)
MSRs		-	-	967	967	192
OREO		-	-	87	87	(45)
Bank premises		-	-	8	8	(6)
Private equity investment funds		-	-	181	181	(4)
Total	$	-	-	1,766	1,766	(202)

The following tables present information as of December 31, 2014 and 2013 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 December 31, 2014 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	33	Appraised value	Appraised value	NM	NM
				Cost to sell	NM	10.0%
Residential mortgage loans held for sale		554	Comparable transactions	Estimated sales proceeds from	NM	15.0%
				comparable transactions
Commercial and industrial loans		456	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		110	Appraised value	Collateral value	NM	NM
Commercial construction loans		23	Appraised value	Collateral value	NM	NM
MSRs		856	Discounted cash flow	Prepayment speed	0 - 100%	(Fixed) 12.0% (Adjustable) 26.2%
				Discount rates	9.6 - 13.2%	(Fixed) 9.9% (Adjustable) 11.8%
OREO		90	Appraised value	Appraised value	NM	NM
Bank Premises		22	Appraised value	Appraised value	NM	NM


As of December 31, 2013 ($ in millions)
				Significant Unobservable	Ranges of
Financial Instrument		Fair Value	Valuation Technique	Inputs	Inputs	Weighted-Average
Commercial loans held for sale	$	3	Appraised value	Appraised value	NM	NM
				Cost to sell	NM	10.0%
Commercial and industrial loans		443	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		61	Appraised value	Collateral value	NM	NM
Commercial construction loans		16	Appraised value	Collateral value	NM	NM
MSRs		967	Discounted cash flow	Prepayment speed	0 - 100%	(Fixed) 10.3% (Adjustable) 25.6%
				Discount rates	9.4 - 18.0%	(Fixed) 10.4% (Adjustable) 11.6%
OREO		87	Appraised value	Appraised value	NM	NM
Bank premises		8	Appraised value	Appraised value	NM	NM
Private equity investment funds		44^(a)	Liquidity discount applied
			to fund's net asset value	Liquidity discount	0-18.0%	3.0%

During 2014 and 2013, the Bancorp transferred $28 million and $5 million, respectively, of commercial loans from the portfolio to loans held for sale that upon transfer were measured at lower of cost or fair value. These loans had fair value adjustments in 2014 and 2013 totaling $10 million and $4 million, respectively, and were generally based on appraisals of the underlying collateral and were therefore, classified within Level 3 of the valuation hierarchy. Additionally, during 2014 and 2013 there were fair value adjustments on existing commercial loans held for sale of $2 million and $3 million, respectively. The fair value adjustments were 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 Risk 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, carrying values and vintages.

During 2014, the Bancorp transferred $720 million of restructured residential mortgage loans from the portfolio to loans held for sale that upon transfer were measured at lower of cost or fair value using significant unobservable inputs. These loans had fair value adjustments in 2014 totaling $87 million. The fair value adjustments were based on estimated third-party valuations utilizing recent sales data from similar transactions. Broker opinion statements were also obtained as additional evidence to support the third-party valuations. The Treasury Department worked with the third-party advisor to estimate the fair value adjustments. The discounts taken were intended to represent the perspective of a market participant, considering among other things, required investor returns which include liquidity discounts reflected in similar bulk transactions. An adverse change in the fair value of the underlying collateral would result in a decrease in the fair value measurement.

During 2014 and 2013, 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. In cases where the carrying value exceeds the fair value, an impairment loss is recognized.

An adverse change in the fair value of the underlying collateral would result in a decrease in the fair value measurement. 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.

Mortgage interest rates decreased during the year ended December 31, 2014 and the Bancorp recognized temporary impairment in certain classes of the MSR portfolio and the carrying value was adjusted to the fair value. The Bancorp recognized a recovery of temporary impairment on servicing rights during the year ended December 31, 2013. 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 DCF 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 11 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 DCF 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 DCF 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 2014 and 2013, 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. For the years ended December 31, 2014 and 2013, these losses include $12 million and $19 million, respectively, recorded as charge-offs, on new OREO properties transferred from loans during the respective periods and $14 million and $26 million, respectively, recorded as negative fair value adjustments on OREO in other noninterest 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, which reports to the Chief Risk Officer, is solely responsible for managing the appraisal process and evaluating the appraisal for all 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 monitors consumer preferences for banking interactions and related customer behavior patterns in an effort to ensure that its retail distribution network is both responsive to such trends and efficient. As part of this ongoing assessment, the Bancorp determined that certain components of its Bank Premises would no longer be held for or used for their intended purposes and therefore these properties were written down to their lower of cost or market value. 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, refer to Note 7.

The Volcker Rule, was approved by the respective federal agencies on December 10, 2013 and prohibits the Bancorp from retaining an interest in certain of its private equity fund investments. Therefore, while the Bancorp has not approved a formal plan to sell any of the private equity funds, the Bancorp has determined that it may be forced to sell certain of these funds prior to their scheduled redemption dates to comply with the Volcker Rule conformance period. As a result, the Bancorp has performed nonrecurring fair value measurements on a fund by fund basis to determine whether OTTI exists. The Bancorp estimated the fair value of a fund by using the net asset value reported by the fund manager, and in some cases, applying an estimated market discount to the reported net asset value of the fund. Because the length of time until the investment will become redeemable is generally not certain, these funds were classified within Level 3 of the valuation hierarchy. The Bancorp recognized $4 million of OTTI on its investments in private equity funds during 2013. The Bancorp recognized no OTTI on its investments in private equity funds during 2014. An adverse change in the reported net asset values or estimated market discounts where applicable, would result in a decrease in the fair value estimate. In cases where the carrying value exceeds the fair value, an impairment loss is recognized. The Bancorp's private equity department, which reports to the Chief Operating Officer, in conjunction with Accounting, is responsible for preparing and reviewing the fair value estimates.

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 instruments held at December 31, 2014 and 2013 for which the fair value option was elected as well as the changes in fair value of the underlying IRLCs, included gains of $26 million and $20 million, respectively. These gains are reported in mortgage banking net revenue in the 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 $2 million at both December 31, 2014 and 2013. 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 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
December 31, 2014
Residential mortgage loans measured at fair value	$	669	643	26
Past due loans of 90 days or more		2	2	-
Nonaccrual loans		3	3	-

December 31, 2013
Residential mortgage loans measured at fair value	$	982	962	20
Past due loans of 90 days or more		1	2	(1)
Nonaccrual loans		2	2	-

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 December 31, 2014 ($ in millions)		Amount	Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	3,091	3,091	-	-	3,091
Other securities		600	-	600	-	600
Held-to-maturity securities		187	-	-	187	187
Other short-term investments		7,914	7,914	-	-	7,914
Loans held for sale		700	-	-	700	700
Portfolio loans and leases:
Commercial and industrial loans		40,092	-	-	40,781	40,781
Commercial mortgage loans		7,259	-	-	6,878	6,878
Commercial construction loans		2,052	-	-	1,735	1,735
Commercial leases		3,675	-	-	3,426	3,426
Residential mortgage loans		12,177	-	-	12,249	12,249
Home equity		8,799	-	-	9,224	9,224
Automobile loans		12,004	-	-	11,748	11,748
Credit card		2,297	-	-	2,586	2,586
Other consumer loans and leases		405	-	-	414	414
Unallocated allowance for loan and lease losses		(106)	-	-	-	-
Total portfolio loans and leases, net		88,654	-	-	89,041	89,041
Financial liabilities:
Deposits		101,712	-	101,715	-	101,715
Federal funds purchased		144	144	-	-	144
Other short-term borrowings		1,556	-	1,561	-	1,561
Long-term debt		14,967	14,993	655	-	15,648

		Net Carrying	Fair Value Measurements Using			Total
As of December 31, 2013 ($ in millions)		Amount	Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	3,178	3,178	-	-	3,178
Other securities		751	-	751	-	751
Held-to-maturity securities		208	-	-	208	208
Other short-term investments		5,116	5,116	-	-	5,116
Loans held for sale		54	-	-	54	54
Portfolio loans and leases:
Commercial and industrial loans		38,549	-	-	39,804	39,804
Commercial mortgage loans		7,854	-	-	7,430	7,430
Commercial construction loans		1,013	-	-	856	856
Commercial leases		3,572	-	-	3,261	3,261
Residential mortgage loans		12,399	-	-	11,541	11,541
Home equity		9,152	-	-	9,181	9,181
Automobile loans		11,961	-	-	11,748	11,748
Credit card		2,202	-	-	2,380	2,380
Other consumer loans and leases		348	-	-	361	361
Unallocated allowance for loan and lease losses		(110)	-	-	-	-
Total portfolio loans and leases, net		86,940	-	-	86,562	86,562
Financial liabilities:
Deposits		99,275	-	99,288	-	99,288
Federal funds purchased		284	284	-	-	284
Other short-term borrowings		1,380	-	1,380	-	1,380
Long-term debt		9,633	9,645	577	-	10,222

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), federal funds purchased, and other short-term borrowings excluding FHLB borrowings. Fair values for other time deposits, certificates of deposit $100,000 and over and FHLB borrowings were estimated using a DCF calculation that applies prevailing LIBOR/swap interest rates and a spread for new issuances with similar terms.

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 DCF 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 residential mortgage loans held for sale were valued based on estimated third-party valuations utilizing recent sales data from similar transactions. Broker opinion statements were also obtained as additional evidence to support the third-party valuations. Fair values for other consumer loans held for sale were 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, similar remaining maturities, prepayment speeds and loss severities.

Fair value of long-term debt was based on quoted market prices, when available, or a DCF calculation using LIBOR/swap interest rates and, in some cases, Fifth Third credit and/or debt instrument spreads for new issuances with similar terms.