Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

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, 2016:


	Minimum			Maximum			Average
Residential Prime Non-Agency Mortgage-Backed Securities (a)
Estimated lifetime prepayment rates		6	%		19	%		14	%
Lifetime probability of default rates		–			6			4
Lifetime loss severity rates		15			65			35
Discount margin		2			6			4
Residential Non-Prime Non-Agency Mortgage-Backed Securities (b)
Estimated lifetime prepayment rates		3	%		15	%		8	%
Lifetime probability of default rates		4			12			7
Lifetime loss severity rates		15			75			51
Discount margin		2			10			4
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, 2016:


	Minimum			Maximum			Average
Expected prepayment		12	%		20	%		15	%
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, 2016:


	Minimum			Maximum			Average
Expected loan close rate		17	%		99	%		77	%
Inherent MSR value (basis points per loan)		46			192			112

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, 2016
Available-for-sale securities
U.S. Treasury and agencies	$	13,820	$	810	$	–	$	–		$	14,630
Mortgage-backed securities
Residential
Agency		–		45,433		–		–			45,433
Non-agency
Prime (a)		–		–		259		–			259
Non-prime (b)		–		–		206		–			206
Commercial
Agency		–		16		–		–			16
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		13		–		–			13
Other		–		522		2		–			524
Obligations of state and political subdivisions		–		5,376		–		–			5,376
Corporate debt securities		52		518		9		–			579
Perpetual preferred securities		27		26		–		–			53
Other investments		36		30		–		–			66
Total available-for-sale		13,935		52,744		476		–			67,155
Mortgage loans held for sale		–		5,572		–		–			5,572
Mortgage servicing rights		–		–		2,131		–			2,131
Derivative assets		1		2,578		1,106		(746	)		2,939
Other assets		176		1,490		–		–			1,666
Total	$	14,112	$	62,384	$	3,713	$	(746	)	$	79,463
Derivative liabilities	$	–	$	3,678	$	175	$	(1,485	)	$	2,368
Short-term borrowings (c)		210		898		–		–			1,108
Total	$	210	$	4,576	$	175	$	(1,485	)	$	3,476
December 31, 2015
Available-for-sale securities
U.S. Treasury and agencies	$	3,708	$	888	$	–	$	–		$	4,596
Mortgage-backed securities
Residential
Agency		–		50,076		–		–			50,076
Non-agency
Prime (a)		–		–		318		–			318
Non-prime (b)		–		–		240		–			240
Commercial
Agency		–		52		–		–			52
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		19		–		–			19
Other		–		539		2		–			541
Obligations of state and political subdivisions		–		5,316		–		–			5,316
Corporate debt securities		102		499		9		–			610
Perpetual preferred securities		48		113		–		–			161
Other investments		40		28		–		–			68
Total available-for-sale		3,898		57,530		569		–			61,997
Mortgage loans held for sale		–		3,110		–		–			3,110
Mortgage servicing rights		–		–		2,512		–			2,512
Derivative assets		–		1,632		615		(807	)		1,440
Other assets		202		589		–		–			791
Total	$	4,100	$	62,861	$	3,696	$	(807	)	$	69,850
Derivative liabilities	$	2	$	2,266	$	117	$	(1,283	)	$	1,102
Short-term borrowings (c)		122		645		–		–			767
Total	$	124	$	2,911	$	117	$	(1,283	)	$	1,869

(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 Held at End of Period
2016
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	280	$	–		$	–		$	–	$	–		$	(21	)	$	–		$	–		$	259	$	–
Non-prime (b)		216		–			(1	)		–		–			(9	)		–			–			206		(1	)
Asset-backed securities
Other		2		–			–			–		–			–			–			–			2		–
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		507		–	(c)		(1	) (f)		–		–			(30	)		–			–			476		(1	)
Mortgage servicing rights		2,056		(85	) (d)		–			18		–			–			142	(g)		–			2,131		(85	) (d)
Net derivative assets and liabilities		1,080		84	(e)		–			–		(2	)		–			–			(231	)		931		16	(h)
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	(i)		–	(f)		–		–			(39	)		–			–			654		–
Mortgage servicing rights		2,481		(273	) (d)		–			7		–			–			182	(g)		–			2,397		(273	) (d)
Net derivative assets and liabilities		478		426	(j)		–			–		(2	)		–			–			(219	)		683		231	(k)

(a)

(b)

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

(c)

Approximately $(1) million included in securities gain (losses) and $1 million included in interest income.

(d)

Included in mortgage banking revenue.

(e)

Approximately $(73) million included in other noninterest income and $157 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 $(81) million included in other noninterest income and $97 million included in mortgage banking revenue.

(i)

Included in interest income.

(j)

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

(k)

Approximately $159 million included in other noninterest income and $72 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 Held at End of Period
2016
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	318	$	(1	)	$	–		$	–	$	–		$	(58	)	$	–		$	–		$	259	$	–
Non-prime (b)		240		(1	)		(4	)		–		–			(29	)		–			–			206		(4	)
Asset-backed securities
Other		2		–			–			–		–			–			–			–			2		–
Corporate debt securities		9		–			–			–		–			–			–			–			9		–
Total available-for-sale		569		(2	) (c)		(4	) (f)		–		–			(87	)		–			–			476		(4	)
Mortgage servicing rights		2,512		(785	) (d)		–			32		–			–			372	(g)		–			2,131		(785	) (d)
Net derivative assets and liabilities		498		1,047	(e)		–			1		(5	)		–			–			(610	)		931		494	(h)
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	(i)		(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	(j)		–			–		(7	)		–			–			(609	)		683		203	(k)

(a)

(b)

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

(c)

Approximately $(3) million included in securities gain (losses) and $1 million included in interest income.

(d)

Included in mortgage banking revenue.

(e)

Approximately $560 million included in other noninterest income and $487 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 $397 million included in other noninterest income and $97 million included in mortgage banking revenue.

(i)

Included in interest income.

(j)

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

(k)

Approximately $131 million included in other noninterest income and $72 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, 2016								December 31, 2015
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans (a)	$	–	$	–	$	128	$	128	$	–	$	–	$	87	$	87
Other assets (b)		–		–		54		54		–		–		66		66

(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)	2016		2015		2016		2015
Loans (a)	$	45	$	99	$	156	$	139
Other assets (b)		6		10		25		29

(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

Fair Value Option

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, 2016							December 31, 2015
(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	$	5,572	$	5,368	$	204		$	3,110	$	3,032	$	78
Nonaccrual loans		3		4		(1	)		5		7		(2	)
Loans 90 days or more past due		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, 2016										December 31, 2015
	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	$	23,664	$	23,664	$	–	$	–	$	23,664	$	11,147	$	11,147	$	–	$	–	$	11,147
Federal funds sold and securities purchased under resale agreements		209		–		209		–		209		169		–		169		–		169
Investment securities held-to-maturity		42,873		4,256		39,076		74		43,406		43,590		2,275		41,138		80		43,493
Loans held for sale (a)		3		–		–		3		3		74		–		–		74		74
Loans		267,492		–		–		273,136		273,136		256,986		–		–		259,823		259,823
Other financial instruments		2,332		–		920		1,420		2,340		2,311		–		921		1,398		2,319
Financial Liabilities
Deposits		334,595		–		334,522		–		334,522		300,400		–		300,225		–		300,225
Short-term borrowings (b)		14,587		–		14,444		–		14,444		27,110		–		26,782		–		26,782
Long-term debt		37,978		–		38,847		–		38,847		32,078		–		32,412		–		32,412
Other liabilities		1,634		–		–		1,634		1,634		1,353		–		–		1,353		1,353

(a)

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

(b)

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