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 in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2014.

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
September 30, 2015 ($ 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 securities	$	25	1,098	-	1,123
Obligations of states and political subdivisions securities		-	142	-	142
Mortgage-backed securities:
Agency residential mortgage-backed securities		-	14,879	-	14,879
Agency commercial mortgage-backed securities		-	7,838	-	7,838
Non-agency commercial mortgage-backed securities		-	2,757	-	2,757
Asset-backed securities and other debt securities		-	1,356	-	1,356
Equity securities^(a)		82	19	-	101
Available-for-sale and other securities^(a)		107	28,089	-	28,196
Trading securities:
U.S. Treasury and federal agencies securities		-	8	-	8
Obligations of states and political subdivisions securities		-	18	-	18
Mortgage-backed securities:
Agency residential mortgage-backed securities		-	5	-	5
Non-agency residential mortgage-backed securities		-	1	-	1
Asset-backed securities and other debt securities		-	11	-	11
Equity securities		331	-	-	331
Trading securities		331	43	-	374
Residential mortgage loans held for sale		-	617	-	617
Residential mortgage loans^(b)		-	-	173	173
Derivative assets:
Interest rate contracts		1	1,129	19	1,149
Foreign exchange contracts		-	464	-	464
Equity contracts		-	-	630	630
Commodity contracts		65	244	-	309
Derivative assets		66	1,837	649	2,552
Total assets	$	504	30,586	822	31,912
Liabilities:
Derivative liabilities:
Interest rate contracts	$	10	366	3	379
Foreign exchange contracts		-	409	-	409
Equity contracts		-	-	58	58
Commodity contracts		37	262	-	299
Derivative liabilities		47	1,037	61	1,145
Short positions		13	4	-	17
Total liabilities	$	60	1,041	61	1,162

	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 securities	$	25	1,607	-	1,632
Obligations of states and political subdivisions securities		-	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 securities		-	14	-	14
Obligations of states and political subdivisions securities		-	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

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 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. 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 September 30, 2015 and December 31, 2014, 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 and expected volatility.

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 September 30, 2015 was $19 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 $7 million and $14 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 $8 million and $16 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 $2 million and $4 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 $2 million and $4 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 Consumer Line of Business Finance department, which reports to the Bancorp's Chief Financial Officer, and the aforementioned Secondary Marketing department 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 September 30, 2015		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	-	178	10	445		633
Total gains (realized/unrealized):
Included in earnings		-	1	38	122		161
Settlements		-	(8)	(32)	5		(35)
Transfers into Level 3^(b)		-	2	-	-		2
Ending balance	$	-	173	16	572		761
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 September 30, 2015^(c)	$	-	1	19	122		142

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the three months ended September 30, 2014		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	1	99	15	358		473
Total gains or losses (realized/unrealized):
Included in earnings		-	1	18	(57)		(38)
Settlements		-	(3)	(26)	4		(25)
Transfers into Level 3^(b)		-	12	-	-		12
Ending balance	$	1	109	7	305		422
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 September 30, 2014^(c)	$	-	1	10	(57)		(46)

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the nine months ended September 30, 2015		Trading	Mortgage	Derivatives,	Derivatives,	Total
($ in millions)		Securities	Loans	Net^(a)	Net^(a)	Fair Value
Beginning balance	$	-	108	10	366		484
Total gains (realized/unrealized):
Included in earnings		-	2	90	188		280
Purchases		-	-	(1)	-		(1)
Settlements		-	(23)	(83)	18		(88)
Transfers into Level 3^(b)		-	86	-	-		86
Ending balance	$	-	173	16	572		761
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 September 30, 2015^(c)	$	-	2	20	188		210


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Residential	Interest Rate	Equity
For the nine months ended September 30, 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		-	3	94	(45)		52
Settlements		-	(10)	(95)	14		(91)
Transfers into Level 3^(b)		-	24	-	-		24
Ending balance	$	1	109	7	305		422
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 September 30, 2014^(c)	$	-	3	10	(45)		(32)

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		For the nine months ended
		September 30,		September 30,
($ in millions)		2015	2014	2015	2014
Mortgage banking net revenue	$	39	19	91	96
Corporate banking revenue		-	-	1	1
Other noninterest income		122	(57)	188	(45)
Total gains (losses)	$	161	(38)	280	52


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 September 30, 2015 and 2014 were recorded in the Condensed Consolidated Statements of Income as follows:

		For the three months ended		For the nine months ended
		September 30,		September 30,
($ in millions)		2015	2014	2015	2014
Mortgage banking net revenue	$	20	11	21	13
Corporate banking revenue		-	-	1	-
Other noninterest income		122	(57)	188	(45)
Total gains (losses)	$	142	(46)	210	(32)

The following tables present information as of September 30, 2015 and 2014 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 September 30, 2015 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	173	Loss rate model	Interest rate risk factor	(8.0) - 16.3%	4.0%
				Credit risk factor	0 - 80.5%	0.9%
IRLCs, net		19	Discounted cash flow	Loan closing rates	14.9 - 87.6%	61.3%
Stock warrant associated with Vantiv		630	Black-Scholes option	Expected term (years)	2.0 - 13.8	5.9
Holding, LLC			valuation model	Expected volatility^(a)	22.7 - 32.4%	26.7%
Swap associated with the sale of Visa, Inc.		(58)	Discounted cash flow	Timing of the resolution	12/31/16 -	NM
Class B shares				of the Covered Litigation	3/31/2021

As of September 30, 2014 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Residential mortgage loans	$	109	Loss rate model	Interest rate risk factor	(11.0) - 18.5%	4.5%
				Credit risk factor	0 - 58.6%	1.7%
IRLCs, net		10	Discounted cash flow	Loan closing rates	4.0 - 95.0%	65.0%
Stock warrant associated with Vantiv		358	Black-Scholes option	Expected term (years)	2.0 - 14.8	6.0
Holding, LLC			valuation model	Expected volatility^(a)	23.0 - 32.0%	26.6%
Swap associated with the sale of Visa, Inc.		(53)	Discounted cash flow	Timing of the resolution	6/30/2015-	NM
Class B shares				of the Covered Litigation	12/31/2019
				Proportional share of	$17	$17
				litigation loss estimate in
				excess of escrow funds

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 September 30, 2015 and 2014 and for which a nonrecurring fair value adjustment was recorded during the three and nine months ended September 30, 2015 and 2014, 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	Total (Losses) Gains
						For the three months	For the nine months
As of September 30, 2015 ($ in millions)		Level 1	Level 2	Level 3	Total	ended September 30, 2015	ended September 30, 2015
Commercial loans held for sale	$	-	-	14	14	-	3
Residential mortgage loans held for sale		-	-	96	96	-	(2)
Automobile loans held for sale		-	-	2	2	-	-
Credit cards held for sale		-	-	4	4	(1)	(1)
Commercial and industrial loans		-	-	290	290	(57)	(98)
Commercial mortgage loans		-	-	112	112	(19)	(36)
Commercial construction loans		-	-	9	9	(2)	(2)
Residential mortgage loans		-	-	55	55	-	(1)
MSRs		-	-	756	756	(77)	(38)
OREO		-	-	64	64	(3)	(16)
Bank premises and equipment		-	-	79	79	(1)	(102)
Operating lease equipment		-	-	53	53	(2)	(36)
Total	$	-	-	1,534	1,534	(162)	(329)



		Fair Value Measurements Using				Total (Losses) Gains	Total Losses
						For the three months	For the nine months
As of September 30, 2014 ($ in millions)		Level 1	Level 2	Level 3	Total	ended September 30, 2014	ended September 30, 2014
Commercial loans held for sale	$	-	-	25	25	(5)	(7)
Commercial and industrial loans		-	-	387	387	(135)	(259)
Commercial mortgage loans		-	-	49	49	(8)	(25)
Commercial construction loans		-	-	4	4	-	-
MSRs		-	-	933	933	21	(7)
OREO		-	-	77	77	(3)	(22)
Bank premises and equipment		-	-	4	4	-	(18)
Total	$	-	-	1,479	1,479	(130)	(338)

The following tables present information as of September 30, 2015 and 2014 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 September 30, 2015 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	14	Discounted cash flow	Discount spread	NM	4.4%

Residential mortgage loans held for sale		96	Loss rate model	Interest rate risk factor	(7.5)-0.1%	(1.6)%
				Credit risk factor	NM	0.1%
Automobile loans held for sale		2	Discounted cash flow	Discount spread	NM	3.1%
Credit cards held for sale		4	Comparable transactions	Estimated sales proceeds from	NM	NM
				comparable transactions
Commercial and industrial loans		290	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		112	Appraised value	Collateral value	NM	NM
Commercial construction loans		9	Appraised value	Collateral value	NM	NM
Commercial leases		-	Appraised value	Collateral value	NM	NM
Residential mortgage loans		55	Appraised value	Appraised value	NM	NM
MSRs		756	Discounted cash flow	Prepayment speed	1.0 - 100%	(Fixed) 11.7% (Adjustable) 32.7%
				OAS spread (bps)	304-1,525	(Fixed) 706 (Adjustable) 668
OREO		64	Appraised value	Appraised value	NM	NM
Bank premises		79	Appraised value	Appraised value	NM	NM
Operating lease equipment		53	Appraised value	Appraised value	NM	NM

As of September 30, 2014 ($ in millions)
Financial Instrument		Fair Value	Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted-Average
Commercial loans held for sale	$	25	Appraised value	Appraised value	NM	NM
				Cost to sell	NM	10.0%
Commercial and industrial loans		387	Appraised value	Collateral value	NM	NM
Commercial mortgage loans		49	Appraised value	Collateral value	NM	NM
Commercial construction loans		4	Appraised value	Collateral value	NM	NM
Commercial leases		-	Appraised value	Collateral value	NM	NM
MSRs		933	Discounted cash flow	Prepayment speed	0 - 100%	(Fixed) 10.8% (Adjustable) 26.0%
				Discount rates	9.6 - 13.2%	(Fixed) 9.9% (Adjustable) 11.8%
OREO		77	Appraised value	Appraised value	NM	NM
Bank premises		4	Appraised value	Appraised value	NM	NM

The Bancorp transferred an immaterial amount and $26 million of commercial loans from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value during the three and nine months ended September 30, 2015, respectively. The Bancorp transferred $8 million and $10 million of commercial loans from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value during the three and nine months ended September 30, 2014, respectively. There was an immaterial amount and $1 million in fair value adjustments taken on these loans for the three and nine months ended September 30, 2015, respectively. These loans had $4 million in fair value adjustments during the three months ended September 30, 2014 and $5 million during the nine months ended September 30, 2014. The fair value adjustments were generally based on either appraisals of the underlying collateral or 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 and were, therefore, classified within Level 3 of the valuation hierarchy. Additionally, fair value adjustments on existing loans held for sale were immaterial and $1 million for the three and nine months ended September 30, 2015, respectively, and $1 million and $2 million for the three and nine months ended September 30, 2014, respectively. The fair value adjustments were also based on appraisals of the underlying collateral. The Bancorp recognized an immaterial amount of gains on sale during both the three months ended September 30, 2015 and 2014. The Bancorp recognized $5 million and $1 million in gains on the sale of certain commercial loans held for sale during the nine months ended September 30, 2015 and 2014, respectively.

The Accounting department determines the procedures for the valuation of commercial loans held for sale using appraised value 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 Bancorp's 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's Chief Financial Officer, in conjunction with Accounting review all loan appraisal values, carry values and vintages. The Treasury department, which reports to the Bancorp's Chief Financial Officer, is responsible for the estimate of fair value adjustments when a discounted future cash flow valuation technique is employed.

During the three months ended September 30, 2015, the Bancorp did not transfer any residential mortgage loans from the portfolio to loans held for sale. During the nine months ended September 30, 2015, the Bancorp transferred $233 million of residential mortgage loans from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value using significant unobservable inputs. Fair values were estimated based on mortgage-backed securities prices, interest rate risk and an internally developed credit component. These loans had an immaterial amount and $1 million, respectively, of fair value adjustments during the three and nine months ended September 30, 2015. 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.

During the three months ended September 30, 2015, the Bancorp did not transfer any automobile loans from the portfolio to loans held for sale. During the nine months ended September 30, 2015, the Bancorp transferred $5 million of automobile loans from the portfolio to loans held for sale that upon transfer were measured at the lower of cost or fair value using significant unobservable inputs. 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. These loans had an immaterial amount of fair value adjustments for both the three and nine months ended September 30, 2015. The Treasury department, which reports to the Bancorp's Chief Financial Officer, is responsible for the estimate of fair value adjustments.

During both the three and nine months ended September 30, 2015, the Bancorp transferred $102 million of credit cards from the portfolio to loans held for sale that upon transfer were measured at lower of cost or fair value using significant unobservable inputs. Fair values were estimated based on recent sales data from similar transactions. These loans had fair value adjustments of $1 million for both the three and nine months ended September 30, 2015. The Consumer Credit Risk department, which reports to the Bancorp's Chief Risk Officer, in conjunction with the Accounting Department, which reports to the Bancorp's Chief Financial Officer, are responsible for the estimate of fair value adjustments.

During the three and nine months ended September 30, 2015 and 2014, the Bancorp recorded nonrecurring impairment adjustments to certain commercial and industrial loans, commercial mortgage loans 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. The fair values and recognized impairment losses are reflected in the previous table. Commercial Credit Risk, which reports to the Bancorp's Chief Risk Officer, is responsible for preparing and reviewing the fair value estimates for commercial loans held for investment.

During the three months ended March 31, 2015, the Bancorp transferred approximately $55 million of restructured residential mortgage loans from held for sale to the portfolio as the Bancorp no longer had the intent to sell the loans. Upon transfer, the Bancorp recognized a nonrecurring fair value adjustment of $1 million on these loans, which had previously been transferred to held for sale in the fourth quarter of 2014.

Mortgage interest rates decreased during the three and nine months ended September 30, 2015 and during the nine months ended September 30, 2014 and the Bancorp recognized temporary impairment in certain classes of the MSR portfolio and the carrying value was adjusted to fair value. The Bancorp recognized a recovery of temporary impairment on servicing rights during the three months ended September 30, 2014. 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 12 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 OAS 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 OAS 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 nine months ended September 30, 2015 and 2014, 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 $2 million and $10 million in losses, recorded as charge-offs, on new OREO properties transferred from loans during the three and nine months ended September 30, 2015, respectively, and $3 million and $9 million for the three and nine months ended September 30, 2014, respectively. These losses also include $1 million and $6 million in losses for the three and nine months ended September 30, 2015, respectively, and an immaterial amount and $13 million in losses for the three and nine months ended September 30, 2014, respectively, recorded as negative fair value adjustments on OREO in other noninterest income 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, which reports to the Bancorp's Chief Risk Officer, is solely responsible for managing the appraisal process and evaluating the appraisal 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 monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency, competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the Bancorp may determine that it is no longer fully committed to maintaining full-service branches at certain of its existing banking center locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of land which had previously been held for future branch expansion. On June 16, 2015, the Bancorp's Board of Directors authorized management to pursue a plan to further develop its distribution strategy, including a plan to consolidate and/or sell 105 branch locations and to sell an additional 31 parcels of undeveloped land that had been acquired by the Bancorp for further branch expansion.

On September 3, 2015, the Bancorp announced the decision to enter into an agreement to sell branch banking locations, retail accounts, certain private banking deposits and related loan relationships in the Pittsburgh MSA to First National Bank of Pennsylvania. On September 30, 2015, the Bancorp announced the decision to enter into an agreement to sell its retail operations, including retail accounts, certain private banking deposits and related loan relationships in the St. Louis MSA to Great Southern Bank. Both transactions are part of the Branch Consolidation and Sales Plan and are expected to close in the first half of 2016, subject to regulatory review and approval.

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. Corporate Facilities, which reports to the Bancorp's Chief Administrative Officer, in conjunction with Accounting are responsible for preparing and reviewing the fair value estimates for bank premises. For further information on bank premises and equipment, refer to Note 7.

During the three and nine months ended September 30, 2015, the Bancorp recorded nonrecurring impairment adjustments to certain operating lease equipment. 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. The Commercial Leasing department, which reports to the Bancorp's Chief Operating Officer, is responsible for preparing and reviewing the fair value estimates for operating lease equipment. Refer to Note 8 for further information on the impairment charge related to certain operating lease equipment.

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 September 30, 2015 and 2014 for which the fair value option was elected, as well as the changes in fair value of the underlying IRLCs, included gains of $32 million for both the three and nine months ended September 30, 2015 and gains of $23 million for both the three and nine months ended September 30, 2014. These gains 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 $2 million at both September 30, 2015 and December 31, 2014. 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
September 30, 2015
Residential mortgage loans measured at fair value	$	790	758	32
Past due loans of 90 days or more		2	2	-
Nonaccrual loans		2	2	-
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	-

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 September 30, 2015 ($ in millions)		Amount	Level 1	Level 2	Level 3	Fair Value
Financial assets:
Cash and due from banks	$	2,455	2,455	-	-	2,455
Other securities		603	-	603	-	603
Held-to-maturity securities		157	-	-	157	157
Other short-term investments		1,994	1,994	-	-	1,994
Loans held for sale		377	-	-	377	377
Portfolio loans and leases:
Commercial and industrial loans		42,315	-	-	42,845	42,845
Commercial mortgage loans		6,936	-	-	6,731	6,731
Commercial construction loans		3,076	-	-	2,801	2,801
Commercial leases		3,853	-	-	3,620	3,620
Residential mortgage loans		13,121	-	-	13,752	13,752
Home equity		8,357	-	-	9,261	9,261
Automobile loans		11,785	-	-	11,593	11,593
Credit card		2,133	-	-	2,486	2,486
Other consumer loans and leases		678	-	-	677	677
Unallocated ALLL		(114)	-	-	-	-
Total portfolio loans and leases, net	$	92,140	-	-	93,766	93,766
Financial liabilities:
Deposits	$	100,893	-	100,929	-	100,929
Federal funds purchased		132	132	-	-	132
Other short-term borrowings		4,904	-	4,905	-	4,905
Long-term debt		15,527	15,464	655	-	16,119

		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 ALLL		(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

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 $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. The Bancorp estimates fair values at the transaction level whenever possible. For certain products with a large number of homogenous transactions, the Bancorp employs a pool approach. This approach involves stratifying and sorting the entire population of transactions into a smaller number of pools with like characteristics. Characteristics may include maturity date, coupon, origination date and principal amortization method.

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.