Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2015

Valuation Assumption Ranges for Level 3 Available-for-Sale Investment Securities

The following table shows the significant valuation assumption ranges for Level 3 available-for-sale investment securities at September 30, 2015:


	Minimum			Maximum			Average
Residential Prime Non-Agency Mortgage-Backed Securities (a)
Estimated lifetime prepayment rates		5	%		20	%		14	%
Lifetime probability of default rates		–			7			4
Lifetime loss severity rates		15			60			33
Discount margin		1			5			3
Residential Non-Prime Non-Agency Mortgage-Backed Securities (b)
Estimated lifetime prepayment rates		3	%		12	%		7	%
Lifetime probability of default rates		4			12			7
Lifetime loss severity rates		20			75			53
Discount margin		1			6			2
Other Asset-Backed Securities
Estimated lifetime prepayment rates		6	%		6	%		6	%
Lifetime probability of default rates		5			5			5
Lifetime loss severity rates		40			40			40
Discount margin		6			6			6

(a)

Prime securities are those designated as such by the issuer at origination. When an issuer designation is unavailable, the Company determines at acquisition date the categorization based on asset pool characteristics (such as weighted-average credit score, loan-to-value, loan type, prevalence of low documentation loans) and deal performance (such as pool delinquencies and security market spreads).

(b)

Includes all securities not meeting the conditions to be designated as prime.

Valuation Assumption Ranges for MSRs

The following table shows the significant valuation assumption ranges for MSRs at September 30, 2015:


	Minimum			Maximum			Average
Expected prepayment		11	%		20	%		12	%
Discount rate		9			13			10

Valuation Assumption Ranges for Derivative Commitments

The following table shows the significant valuation assumption ranges for the Company’s derivative commitments to purchase and originate mortgage loans at September 30, 2015:


	Minimum			Maximum			Average
Expected loan close rate		25	%		100	%		75	%
Inherent MSR value (basis points per loan)		47			193			116

Balances of Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table summarizes the balances of assets and liabilities measured at fair value on a recurring basis:


(Dollars in Millions)	Level 1		Level 2		Level 3		Netting			Total
September 30, 2015
Available-for-sale securities
U.S. Treasury and agencies	$	1,971	$	903	$	–	$	–		$	2,874
Mortgage-backed securities
Residential
Agency		–		49,895		–		–			49,895
Non-agency
Prime (a)		–		–		338		–			338
Non-prime (b)		–		–		251		–			251
Commercial
Agency		–		72		–		–			72
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		20		–		–			20
Other		–		543		56		–			599
Obligations of state and political subdivisions		–		5,302		–		–			5,302
Corporate debt securities		101		506		9		–			616
Perpetual preferred securities		55		116		–		–			171
Other investments		233		25		–		–			258
Total available-for-sale		2,360		57,382		654		–			60,396
Mortgage loans held for sale		–		4,429		–		–			4,429
Mortgage servicing rights		–		–		2,397		–			2,397
Derivative assets		2		1,921		807		(932	)		1,798
Other assets		109		785		–		–			894
Total	$	2,471	$	64,517	$	3,858	$	(932	)	$	69,914
Derivative liabilities	$	–	$	2,698	$	124	$	(1,445	)	$	1,377
Short-term borrowings (c)		154		692		–		–			846
Total	$	154	$	3,390	$	124	$	(1,445	)	$	2,223
December 31, 2014
Available-for-sale securities
U.S. Treasury and agencies	$	1,351	$	1,281	$	–	$	–		$	2,632
Mortgage-backed securities
Residential
Agency		–		45,017		–		–			45,017
Non-agency
Prime (a)		–		–		405		–			405
Non-prime (b)		–		–		280		–			280
Commercial
Agency		–		115		–		–			115
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		22		–		–			22
Other		–		557		62		–			619
Obligations of state and political subdivisions		–		5,868		–		–			5,868
Obligations of foreign governments		–		6		–		–			6
Corporate debt securities		101		504		9		–			614
Perpetual preferred securities		55		162		–		–			217
Other investments		251		23		–		–			274
Total available-for-sale		1,758		53,555		756		–			56,069
Mortgage loans held for sale		–		4,774		–		–			4,774
Mortgage servicing rights		–		–		2,338		–			2,338
Derivative assets		–		1,408		660		(870	)		1,198
Other assets		231		641		–		–			872
Total	$	1,989	$	60,378	$	3,754	$	(870	)	$	65,251
Derivative liabilities	$	–	$	2,103	$	86	$	(1,317	)	$	872
Short-term borrowings (c)		101		608		–		–			709
Total	$	101	$	2,711	$	86	$	(1,317	)	$	1,581

(a)

(b)

Includes all securities not meeting the conditions to be designated as prime.

(c)

Represents the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.

Changes in Fair Value for All Assets and Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3)

The following table presents the changes in fair value for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30:


(Dollars in Millions)	Beginning of Period Balance		Net Gains (Losses) Included in Net Income			Net Gains (Losses) Included in Other Comprehensive Income (Loss)			Purchases		Sales			Principal Payments			Issuances			Settlements			End of Period Balance		Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at End of Period
2015
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	363	$	–		$	–		$	–	$	–		$	(25	)	$	–		$	–		$	338	$	–
Non-prime (b)		262		(1	)		1			–		–			(11	)		–			–			251		1
Asset-backed securities
Other		58		2			(1	)		–		–			(3	)		–			–			56		(1	)
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		692		1	(c)		–	(f)		–		–			(39	)		–			–			654		–
Mortgage servicing rights		2,481		(273	) (d)		–			7		–			–			182	(g)		–			2,397		(273	) (d)
Net derivative assets and liabilities		478		426	(e)		–			–		(2	)		–			–			(219	)		683		231	(h)
2014
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	447	$	–		$	2		$	–	$	–		$	(23	)	$	–		$	–		$	426	$	2
Non-prime (b)		286		–			6			–		–			(8	)		–			–			284		6
Asset-backed securities
Other		66		–			–			–		–			(2	)		–			–			64		–
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		808		–			8	(f)		–		–			(33	)		–			–			783		8
Mortgage servicing rights		2,412		(61	) (d)		–			1		–			–			109	(g)		–			2,461		(61	) (d)
Net derivative assets and liabilities		558		95	(i)		–			–		(1	)		–			–			(187	)		465		(15	) (j)

(a)

(b)

Includes all securities not meeting the conditions to be designated as prime.

(c)

Included in interest income.

(d)

Included in mortgage banking revenue.

(e)

Approximately $274 million included in other noninterest income and $152 million included in mortgage banking revenue.

(f)

Included in changes in unrealized gains and losses on securities available-for-sale.

(g)

Represents MSRs capitalized during the period.

(h)

Approximately $159 million included in other noninterest income and $72 million included in mortgage banking revenue.

(i)

Approximately $7 million included in other noninterest income and $88 million included in mortgage banking revenue.

(j)

Approximately $(65) million included in other noninterest income and $50 million included in mortgage banking revenue.


(Dollars in Millions)	Beginning of Period Balance		Net Gains (Losses) Included in Net Income			Net Gains (Losses) Included in Other Comprehensive Income (Loss)			Purchases		Sales			Principal Payments			Issuances			Settlements			End of Period Balance		Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at End of Period
2015
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	405	$	–		$	(2	)	$	–	$	–		$	(65	)	$	–		$	–		$	338	$	(2	)
Non-prime (b)		280		(1	)		1			–		–			(29	)		–			–			251		1
Asset-backed securities
Other		62		4			(1	)		–		–			(9	)		–			–			56		(1	)
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		756		3	(c)		(2	) (f)		–		–			(103	)		–			–			654		(2	)
Mortgage servicing rights		2,338		(454	) (d)		–			22		–			–			491	(g)		–			2,397		(454	) (d)
Net derivative assets and liabilities		574		725	(e)		–			–		(7	)		–			–			(609	)		683		203	(h)
2014
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	478	$	–		$	14		$	–	$	–		$	(66	)	$	–		$	–		$	426	$	14
Non-prime (b)		297		(4	)		14			–		–			(23	)		–			–			284		14
Asset-backed securities
Other		63		2			1			4		–			(6	)		–			–			64		1
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		847		(2	) (i)		29	(f)		4		–			(95	)		–			–			783		29
Mortgage servicing rights		2,680		(345	) (d)		–			3		(141	)		–			264	(g)		–			2,461		(345	) (d)
Net derivative assets and liabilities		445		568	(j)		–			1		(1	)		–			–			(548	)		465		80	(k)

(a)

(b)

Includes all securities not meeting the conditions to be designated as prime.

(c)

Included in interest income.

(d)

Included in mortgage banking revenue.

(e)

Approximately $360 million included in other noninterest income and $365 million included in mortgage banking revenue.

(f)

Included in changes in unrealized gains and losses on securities available-for-sale.

(g)

Represents MSRs capitalized during the period.

(h)

Approximately $131 million included in other noninterest income and $72 million included in mortgage banking revenue.

(i)

Included in securities gains (losses).

(j)

Approximately $215 million included in other noninterest income and $353 million included in mortgage banking revenue.

(k)

Approximately $30 million included in other noninterest income and $50 million included in mortgage banking revenue.

Adjusted Carrying Values for Assets Measured at Fair Value on Nonrecurring Basis

The following table summarizes the balances as of the measurement date of assets measured at fair value on a nonrecurring basis, and still held as of the reporting date:


	September 30, 2015								December 31, 2014
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level1		Level 2		Level 3		Total
Loans (a)	$	–	$	–	$	112	$	112	$	–	$	–	$	77	$	77
Other assets (b)		–		–		47		47		–		–		90		90

(a)

Represents the carrying value of loans for which adjustments were based on the fair value of the collateral, excluding loans fully charged-off.

(b)

Primarily represents the fair value of foreclosed properties that were measured at fair value based on an appraisal or broker price opinion of the collateral subsequent to their initial acquisition.

Losses Recognized Related to Nonrecurring Fair Value Measurements of Individual Assets or Portfolios

The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in Millions)	2015		2014		2015		2014
Loans (a)	$	99	$	21	$	139	$	68
Other assets (b)		10		17		29		51

(a)

Represents write-downs of student loans held for sale based on non-binding quoted prices received for the portfolio, that were subsequently transferred to loans, and write-downs of loans which were based on the fair value of the collateral, excluding loans fully charged-off.

(b)

Primarily represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

Differences Between Aggregate Fair Value Carrying Amount of MLHFS for which Fair Value Option has been Elected and Aggregate Unpaid Principal Amount Contractually Obligated to Receive at Maturity

The following table summarizes the differences between the aggregate fair value carrying amount of MLHFS for which the fair value option has been elected and the aggregate unpaid principal amount that the Company is contractually obligated to receive at maturity:


	September 30, 2015							December 31, 2014
(Dollars in Millions)	Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal			Fair Value Carrying Amount		Aggregate Unpaid Principal		Carrying Amount Over (Under) Unpaid Principal
Total loans	$	4,429	$	4,266	$	163		$	4,774	$	4,582	$	192
Nonaccrual loans		5		8		(3	)		6		9		(3	)
Loans 90 days or more past due		1		1		–			1		1		–

Estimated Fair Values of Financial Instruments

The estimated fair values of the Company’s financial instruments are shown in the table below:


	September 30, 2015										December 31, 2014
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
(Dollars in Millions)	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from banks	$	10,450	$	10,450	$	–	$	–	$	10,450	$	10,654	$	10,654	$	–	$	–	$	10,654
Federal funds sold and securities purchased under resale agreements		233		–		233		–		233		118		–		118		–		118
Investment securities held-to-maturity		44,690		2,312		42,658		81		45,051		44,974		1,928		43,124		88		45,140
Loans held for sale (a)		43		–		–		43		43		18		–		–		18		18
Loans (b)		250,714		–		–		252,464		252,464		243,735		–		–		245,424		245,424
Other financial instruments		2,262		–		921		1,349		2,270		2,187		–		924		1,269		2,193
Financial Liabilities
Deposits		295,264		–		295,235		–		295,235		282,733		–		282,708		–		282,708
Short-term borrowings (c)		26,069		–		25,851		–		25,851		29,184		–		28,973		–		28,973
Long-term debt		32,504		–		33,021		–		33,021		32,260		–		32,659		–		32,659
Other liabilities		1,442		–		–		1,442		1,442		1,231		–		–		1,231		1,231

(a)

Excludes mortgages held for sale for which the fair value option under applicable accounting guidance was elected.

(b)

Excludes loans measured at fair value on a nonrecurring basis.

(c)

Excludes the Company’s obligation on securities sold short required to be accounted for at fair value per applicable accounting guidance.