Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2017

The following table shows the significant valuation assumption ranges for MSRs at September 30, 2017:


	Minimum			Maximum			Average
Expected prepayment		6	%		18	%		10	%
Option adjusted spread		7			10			8

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, 2017:


	Minimum			Maximum			Average
Expected loan close rate		5	%		100	%		79	%
Inherent MSR value (basis points per loan)		(38	)		179			117

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, 2017
Available-for-sale securities
U.S. Treasury and agencies	$	21,321	$	747	$	–	$	–		$	22,068
Mortgage-backed securities
Residential
Agency		–		39,553		–		–			39,553
Commercial
Agency		–		8		–		–			8
Asset-backed securities
Other		–		425		–		–			425
Obligations of state and political subdivisions		–		5,681		–		–			5,681
Other investments		37		–		–		–			37
Total available-for-sale		21,358		46,414		–		–			67,772
Mortgage loans held for sale		–		3,754		–		–			3,754
Mortgage servicing rights		–		–		2,598		–			2,598
Derivative assets		1		1,836		570		(727	)		1,680
Other assets		258		1,302		–		–			1,560
Total	$	21,617	$	53,306	$	3,168	$	(727	)	$	77,364
Derivative liabilities	$	–	$	2,032	$	317	$	(1,182	)	$	1,167
Short-term borrowings and other liabilities (c)		138		1,077		–		–			1,215
Total	$	138	$	3,109	$	317	$	(1,182	)	$	2,382
December 31, 2016
Available-for-sale securities
U.S. Treasury and agencies	$	16,355	$	772	$	–	$	–		$	17,127
Mortgage-backed securities
Residential
Agency		–		43,138		–		–			43,138
Non-agency
Prime (a)		–		–		242		–			242
Non-prime (b)		–		–		195		–			195
Commercial
Agency		–		15		–		–			15
Asset-backed securities
Other		–		481		2		–			483
Obligations of state and political subdivisions		–		5,039		–		–			5,039
Corporate debt securities		–		–		9		–			9
Other investments		36		–		–		–			36
Total available-for-sale		16,391		49,445		448		–			66,284
Mortgage loans held for sale		–		4,822		–		–			4,822
Mortgage servicing rights		–		–		2,591		–			2,591
Derivative assets		–		2,416		554		(984	)		1,986
Other assets		183		1,137		–		–			1,320
Total	$	16,574	$	57,820	$	3,593	$	(984	)	$	77,003
Derivative liabilities	$	7	$	2,469	$	383	$	(1,185	)	$	1,674
Short-term borrowings and other liabilities (c)		142		938		–		–			1,080
Total	$	149	$	3,407	$	383	$	(1,185	)	$	2,754

(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.

(c)

Primarily 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
2017
Mortgage servicing rights	$	2,582	$	(103	) (c)	$	–		$	4	$	–		$	–		$	115	(f)	$	–		$	2,598	$	(103	) (c)
Net derivative assets and liabilities		240		111	(d)		–			–		(3	)		–			–			(95	)		253		41	(g)
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		–			(1	) (e)		–		–			(30	)		–			–			476		(1	)
Mortgage servicing rights		2,056		(85	) (c)		–			18		–			–			142	(f)		–			2,131		(85	) (c)
Net derivative assets and liabilities		1,080		84	(h)		–			–		(2	)		–			–			(231	)		931		16	(i)

(a)

(b)

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

(c)

Included in mortgage banking revenue.

(d)

Approximately $18 million included in other noninterest income and $93 million included in mortgage banking revenue.

(e)

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

(f)

Represents MSRs capitalized during the period.

(g)

Approximately $9 million included in other noninterest income and $32 million included in mortgage banking revenue.

(h)

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

(i)

Approximately $(81) million included in other noninterest income and $97 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
2017
Available-for-sale securities
Mortgage-backed securities
Residential non-agency
Prime (a)	$	242	$	–		$	(2	)	$	–	$	(234	)	$	(6	)	$	–		$	–		$	–	$	–
Non-prime (b)		195		–			(17	)		–		(175	)		(3	)		–			–			–		–
Asset-backed securities
Other		2		–			–			–		(2	)		–			–			–			–		–
Corporate debt securities		9		–			2			–		(11	)		–			–			–			–		–
Total available-for-sale		448		–	(c)		(17	) (f)		–		(422	)		(9	)		–			–			–		–
Mortgage servicing rights		2,591		(322	) (d)		–			10		–			–			319	(g)		–			2,598		(322	) (d)
Net derivative assets and liabilities		171		372	(e)		–			1		(8)			–			–			(283)			253		87	(h)
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	(i)		–			1		(5	)		–			–			(610	)		931		494	(j)

(a)

(b)

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

(c)

Included in securities gains (losses).

(d)

Included in mortgage banking revenue.

(e)

Approximately $128 million included in other noninterest income and $244 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 $55 million included in other noninterest income and $32 million included in mortgage banking revenue.

(i)

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

(j)

Approximately $397 million included in other noninterest income and $97 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, 2017								December 31, 2016
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans (a)	$	–	$	–	$	76	$	76	$	–	$	–	$	59	$	59
Other assets (b)		–		–		30		30		–		–		60		60

(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)	2017		2016		2017		2016
Loans (a)	$	45	$	45	$	120	$	156
Other assets (b)		3		6		15		25

(a)

Represents 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, 2017							December 31, 2016
(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	$	3,754	$	3,638	$	116		$	4,822	$	4,763	$	59
Nonaccrual loans		1		2		(1	)		2		3		(1	)
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, 2017										December 31, 2016
	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	$	20,540	$	20,540	$	–	$	–	$	20,540	$	15,705	$	15,705	$	–	$	–	$	15,705
Federal funds sold and securities purchased under resale agreements		78		–		78		–		78		138		–		138		–		138
Investment securities held-to-maturity		44,018		4,668		39,074		16		43,758		42,991		4,605		37,810		20		42,435
Loans held for sale (a)		3		–		–		3		3		4		–		–		4		4
Loans		274,811		–		–		278,946		278,946		269,394		–		–		273,422		273,422
Other financial instruments		2,449		–		1,037		1,419		2,456		2,362		–		920		1,449		2,369
Financial Liabilities
Deposits		342,589		–		342,411		–		342,411		334,590		–		334,361		–		334,361
Short-term borrowings (b)		14,641		–		14,430		–		14,430		12,891		–		12,706		–		12,706
Long-term debt		34,515		–		34,842		–		34,842		33,323		–		33,678		–		33,678
Other liabilities		1,659		–		–		1,659		1,659		1,702		–		–		1,702		1,702

(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.

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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