Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

The following table shows the significant valuation assumption ranges for MSRs at September 30, 2018:


	Minimum			Maximum			Weighted Average (a)
Expected prepayment		7	%		17	%		9	%
Option adjusted spread		7			10			8

(a)

Determined based on the relative fair value of the related mortgage loans serviced

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, 2018:


	Minimum			Maximum			Weighted Average (a)
Expected loan close rate		6	%		100	%		80	%
Inherent MSR value (basis points per loan)		28			208			127

(a)

Determined based on the relative fair value of the related mortgage loans.

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, 2018
Available-for-sale securities
U.S. Treasury and agencies	$	18,910	$	671	$	–	$	–		$	19,581
Mortgage-backed securities
Residential agency		–		38,310		–		–			38,310
Commercial agency		–		5		–		–			5
Other asset-backed securities		–		408		–		–			408
Obligations of state and political subdivisions		–		6,608		–		–			6,608
Total available-for-sale		18,910		46,002		–		–			64,912
Mortgage loans held for sale		–		3,228		–		–			3,228
Mortgage servicing rights		–		–		2,917		–			2,917
Derivative assets		16		1,426		432		(899	)		975
Other assets		216		1,494		–		–			1,710
Total	$	19,142	$	52,150	$	3,349	$	(899	)	$	73,742
Derivative liabilities	$	–	$	1,248	$	790	$	(969	)	$	1,069
Short-term borrowings and other liabilities (a)		205		1,051		–		–			1,256
Total	$	205	$	2,299	$	790	$	(969	)	$	2,325
December 31, 2017
Available-for-sale securities
U.S. Treasury and agencies	$	22,572	$	729	$	–	$	–		$	23,301
Mortgage-backed securities
Residential agency		–		38,031		–		–			38,031
Commercial agency		–		6		–		–			6
Other asset-backed securities		–		419		–		–			419
Obligations of state and political subdivisions		–		6,358		–		–			6,358
Other		22		–		–		–			22
Total available-for-sale		22,594		45,543		–		–			68,137
Mortgage loans held for sale		–		3,534		–		–			3,534
Mortgage servicing rights		–		–		2,645		–			2,645
Derivative assets		6		1,960		516		(652	)		1,830
Other assets		154		1,163		–		–			1,317
Total	$	22,754	$	52,200	$	3,161	$	(652	)	$	77,463
Derivative liabilities	$	–	$	1,958	$	409	$	(1,130	)	$	1,237
Short-term borrowings and other liabilities (a)		101		894		–		–			995
Total	$	101	$	2,852	$	409	$	(1,130	)	$	2,232

Note:

Excluded from the table above are equity investments without readily determinable fair values. The Company has elected to carry these investments at historical cost, adjusted for impairment and any changes resulting from observable price changes for identical or similar investments of the issuer. The aggregate carrying amount of these equity investments was $90 million at September 30, 2018. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first nine months of 2018 or on a cumulative basis.

(a)

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
2018
Mortgage servicing rights	$	2,844		$	(23	) (a)	$	–	$	2	$	(15	)	$	–	$	109	(c)	$	–		$	2,917		$	(23	) (a)
Net derivative assets and liabilities		(256	)		(81	) (b)		–		2		(13	)		–		–			(10	)		(358	)		(81	) (d)

2017
Mortgage servicing rights	$	2,582		$	(103	) (a)	$	–	$	4	$	–		$	–	$	115	(c)	$	–		$	2,598		$	(103	) (a)
Net derivative assets and liabilities		240			111	(e)		–		–		(3	)		–		–			(95	)		253			41	(f)

(a)

Included in mortgage banking revenue.

(b)

Approximately $(122) million included in other noninterest income and $41 million included in mortgage banking revenue.

(c)

Represents MSRs capitalized during the period.

(d)

Approximately $(97) million included in other noninterest income and $16 million included in mortgage banking revenue.

(e)

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

(f)

Approximately $9 million included in other noninterest income and $32 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
2018
Mortgage servicing rights	$	2,645	$	(25	) (c)	$	–		$	6	$	(15	)	$	–		$	306	(e)	$	–		$	2,917		$	(25	) (c)
Net derivative assets and liabilities		107		(426	) (d)		–			3		(35	)		–			–			(7	)		(358	)		(402	) (f)

2017
Available-for-sale securities
Residential non-agency mortgage-backed securities
Prime (a)	$	242	$	–		$	(2	)	$	–	$	(234	)	$	(6	)	$	–		$	–		$	–		$	–
Non-prime (b)		195		–			(17	)		–		(175	)		(3	)		–			–			–			–
Other asset-backed securities		2		–			–			–		(2	)		–			–			–			–			–
Corporate debt securities		9		–			2			–		(11	)		–			–			–			–			–
Total available-for-sale		448		–			(17	) (g)		–		(422	)		(9	)		–			–			–			–
Mortgage servicing rights		2,591		(322	) (c)		–			10		–			–			319	(e)		–			2,598			(322	) (c)
Net derivative assets and liabilities		171		372	(h)		–			1		(8	)		–			–			(283	)		253			87	(i)

(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)

Included in mortgage banking revenue.

(d)

Approximately $(537) million included in other noninterest income and $111 million included in mortgage banking revenue.

(e)

Represents MSRs capitalized during the period.

(f)

Approximately $(418) million included in other noninterest income and $16 million included in mortgage banking revenue.

(g)

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

(h)

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

(i)

Approximately $55 million included in other noninterest income and $32 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, 2018								December 31, 2017
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans (a)	$	–	$	–	$	53	$	53	$	–	$	–	$	150	$	150
Other assets (b)		–		–		39		39		–		–		31		31

(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)	2018		2017		2018		2017
Loans (a)	$	25	$	45	$	66	$	120
Other assets (b)		5		3		18		15

(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, 2018						December 31, 2017
(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	$	3,228	$	3,159	$	69	$	3,534	$	3,434	$	100
Nonaccrual loans		2		2		–		1		2		(1	)
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, 2018										December 31, 2017
	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	$	20,082	$	20,082	$	–	$	–	$	20,082	$	19,505	$	19,505	$	–	$	–	$	19,505
Federal funds sold and securities purchased under resale agreements		278		–		278		–		278		93		–		93		–		93
Investment securities held-to-maturity		46,046		4,505		39,815		12		44,332		44,362		4,613		39,095		15		43,723
Loans held for sale (a)		1,305		–		–		1,305		1,305		20		–		–		20		20
Loans		277,507		–		–		280,398		280,398		276,507		–		–		279,391		279,391
Other		2,313		–		1,198		1,115		2,313		2,393		–		1,037		1,364		2,401
Financial Liabilities
Time deposits		38,935		–		38,605		–		38,605		33,356		–		33,120		–		33,120
Short-term borrowings (b)		22,612		–		22,369		–		22,369		15,656		–		15,447		–		15,447
Long-term debt		40,894		–		40,259		–		40,259		32,259		–		32,377		–		32,377
Other		2,003		–		–		2,003		2,003		1,556		–		–		1,556		1,556

(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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