Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

The following table shows the significant valuation assumption ranges for MSRs at June 30, 2019:


	Minimum			Maximum			Weighted- Average (a)
Expected prepayment		9	%		20	%		13	%
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 June 30, 2019:


	Minimum			Maximum			Weighted- Average (a)
Expected loan close rate		5	%		100	%		78	%
Inherent MSR value (basis points per loan)		40			201			126

(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
June 30, 2019
Available-for-sale securities
U.S. Treasury and agencies	$	16,515	$	656	$	–	$	–		$	17,171
Mortgage-backed securities
Residential agency		–		45,134		–		–			45,134
Commercial agency		–		1		–		–			1
Other asset-backed securities		–		388		–		–			388
Obligations of state and political subdivisions		–		6,503		–		–			6,503
Total available-for-sale		16,515		52,682		–		–			69,197
Mortgage loans held for sale		–		3,763		–		–			3,763
Mortgage servicing rights		–		–		2,458		–			2,458
Derivative assets		–		1,595		1,281		(1,051	)		1,825
Other assets		283		1,505		–		–			1,788
Total	$	16,798	$	59,545	$	3,739	$	(1,051	)	$	79,031
Derivative liabilities	$	10	$	1,454	$	236	$	(953	)	$	747
Short-term borrowings and other liabilities (a)		147		1,318		–		–			1,465
Total	$	157	$	2,772	$	236	$	(953	)	$	2,212
December 31, 2018
Available-for-sale securities
U.S. Treasury and agencies	$	18,585	$	672	$	–	$	–		$	19,257
Mortgage-backed securities
Residential agency		–		39,752		–		–			39,752
Commercial agency		–		2		–		–			2
Other asset-backed securities		–		403		–		–			403
Obligations of state and political subdivisions		–		6,701		–		–			6,701
Total available-for-sale		18,585		47,530		–		–			66,115
Mortgage loans held for sale		–		2,035		–		–			2,035
Mortgage servicing rights		–		–		2,791		–			2,791
Derivative assets		–		1,427		583		(942	)		1,068
Other assets		392		1,273		–		–			1,665
Total	$	18,977	$	52,265	$	3,374	$	(942	)	$	73,674
Derivative liabilities	$	1	$	1,291	$	503	$	(946	)	$	849
Short-term borrowings and other liabilities (a)		199		1,019		–		–			1,218
Total	$	200	$	2,310	$	503	$	(946	)	$	2,067

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 $88 million and $86 million at June 30, 2019 and December 31, 2018, respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first six months of 2019 and 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 June 30:


(Dollars in Millions)	Beginning of Period Balance			Net Gains (Losses) Included in Net Income			Purchases		Sales			Issuances			Settlements			End of Period Balance			Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2019
Mortgage servicing rights	$	2,656		$	(331	) (a)	$	6	$	–		$	127	(c)	$	–		$	2,458		$	(331	) (a)
Net derivative assets and liabilities		455			568	(b)		53		(1	)		–			(30	)		1,045			662	(d)

2018
Mortgage servicing rights	$	2,780		$	(35	) (a)	$	2	$	–		$	97	(c)	$	–		$	2,844		$	(35	) (a)
Net derivative assets and liabilities		(132	)		(94	) (e)		–		(16	)		–			(14	)		(256	)		(110	) (f)

(a)	Included in mortgage banking revenue.

(b)	Approximately $432 million included in other noninterest income and $136 million included in mortgage banking revenue.

(c)	Represents MSRs capitalized during the period.

(d)	Approximately $611 million included in other noninterest income and $51 million included in mortgage banking revenue.

(e)	Approximately $(144) million included in other noninterest income and $50 million included in mortgage banking revenue.

(f)	Approximately $(138) million included in other noninterest income and $28 million included in mortgage banking revenue.


(Dollars in Millions)	Beginning of Period Balance		Net Gains (Losses) Included in Net Income			Purchases		Sales			Issuances			Settlements			End of Period Balance			Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2019
Mortgage servicing rights	$	2,791	$	(545	) (a)	$	7	$	–		$	205	(c)	$	–		$	2,458		$	(545	) (a)
Net derivative assets and liabilities		80		931	(b)		54		(8	)		–			(12	)		1,045			1,019	(d)
2018
Mortgage servicing rights	$	2,645	$	(2	) (a)	$	4	$	–		$	197	(c)	$	–		$	2,844		$	(2	) (a)
Net derivative assets and liabilities		107		(345	) (e)		1		(22	)		–			3			(256	)		(297	) (f)

(a)	Included in mortgage banking revenue.

(b)	Approximately $712 million included in other noninterest income and $219 million included in mortgage banking revenue.

(c)	Represents MSRs capitalized during the period.

(d)	Approximately $967 million included in other noninterest income and $52 million included in mortgage banking revenue.

(e)	Approximately $(415) million included in other noninterest income and $70 million included in mortgage banking revenue.

(f)	Approximately $(325) million included in other noninterest income and $28 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:


	June 30, 2019								December 31, 2018
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Loans (a)	$	–	$	–	$	331	$	331	$	–	$	–	$	40	$	40
Other assets (b)		–		–		18		18		–		–		57		57

(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 June 30				Six Months Ended June 30
(Dollars in Millions)	2019		2018		2019		2018
Loans (a)	$	29	$	18	$	73	$	41
Other assets (b)		3		8		6		13

(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:


	June 30, 2019						December 31, 2018
(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	$	3,763	$	3,633	$	130	$	2,035	$	1,972	$	63
Nonaccrual loans		1		1		–		2		2		–
Loans 90 days or more past due		–		–		–		–		–		–

Estimated Fair Values of Financial Instruments

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


	June 30, 2019										December 31, 2018
	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	$	16,932	$	16,932	$	–	$	–	$	16,932	$	21,453	$	21,453	$	–	$	–	$	21,453
Federal funds sold and securities purchased under resale agreements		4,128		–		4,128		–		4,128		306		–		306		–		306
Investment securities held-to-maturity		46,383		4,305		42,036		9		46,350		46,050		4,594		40,359		11		44,964
Loans held for sale (a)		56		–		–		56		56		21		–		–		21		21
Loans		288,009		–		–		292,516		292,516		282,837		–		–		284,790		284,790
Other		1,851		–		900		951		1,851		2,412		–		1,241		1,171		2,412

Financial Liabilities
Time deposits		45,106		–		45,075		–		45,075		44,554		–		44,140		–		44,140
Short-term borrowings (b)		13,567		–		13,376		–		13,376		12,921		–		12,678		–		12,678
Long-term debt		41,008		–		41,712		–		41,712		41,340		–		41,003		–		41,003
Other		2,161		–		1,381		2,161		3,542		1,726		–		–		1,726		1,726

(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.