Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2020

The following table shows the significant valuation assumption ranges for MSRs at June 30, 2020:


	Minimum			Maximum			Weighted Average (a)
Expected prepayment		15	%		25	%		20	%
Option adjusted spread		5			7			6

(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, 2020:


	Minimum			Maximum			Weighted Average (a)
Expected loan close rate		10	%		100	%		75	%
Inherent MSR value (basis points per loan)		36			171			106

(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, 2020
Available-for-sale securities
U.S. Treasury and agencies	$	18,068	$	1,910	$	–	$	–		$	19,978
Mortgage-backed securities
Residential agency		–		96,502		–		–			96,502
Commercial agency		–		3,263		–		–			3,263
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		–		1		–			1
Other		–		361		6		–			367
Obligations of state and political subdivisions		–		7,995		1		–			7,996
Obligations of foreign governments		–		9		–		–			9
Corporate debt securities		–		4		–		–			4
Total available-for-sale		18,068		110,044		8		–			128,120
Mortgage loans held for sale		–		8,084		–		–			8,084
Mortgage servicing rights		–		–		1,840		–			1,840
Derivative assets		–		3,303		3,323		(2,277	)		4,349
Other assets		209		1,682		–		–			1,891
Total	$	18,277	$	123,113	$	5,171	$	(2,277	)	$	144,284
Derivative liabilities	$	1	$	2,822	$	482	$	(2,061	)	$	1,244
Short-term borrowings and other liabilities (a)		170		1,590		–		–			1,760
Total	$	171	$	4,412	$	482	$	(2,061	)	$	3,004
December 31, 2019
Available-for-sale securities
U.S. Treasury and agencies	$	18,986	$	853	$	–	$	–		$	19,839
Mortgage-backed securities
Residential agency		–		94,111		–		–			94,111
Commercial agency		–		1,453		–		–			1,453
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations		–		–		1		–			1
Other		–		375		7		–			382
Obligations of state and political subdivisions		–		6,813		1		–			6,814
Obligations of foreign governments		–		9		–		–			9
Corporate debt securities		–		4		–		–			4
Total available-for-sale		18,986		103,618		9		–			122,613
Mortgage loans held for sale		–		5,533		–		–			5,533
Mortgage servicing rights		–		–		2,546		–			2,546
Derivative assets		9		1,707		1,181		(982	)		1,915
Other assets		312		1,563		–		–			1,875
Total	$	19,307	$	112,421	$	3,736	$	(982	)	$	134,482
Derivative liabilities	$	–	$	1,612	$	371	$	(1,067	)	$	916
Short-term borrowings and other liabilities (a)		50		1,578		–		–			1,628
Total	$	50	$	3,190	$	371	$	(1,067	)	$	2,544

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 $89 million and $91 million at June 30, 2020 and December 31, 2019 respectively. The Company has not recorded impairments or adjustments for observable price changes on these equity investments during the first six months of 2020 and 2019, 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			Net Gains (Losses) Included in Other Comprehensive Income (Loss)			Purchases		Sales			Principal Payments			Issuances			Settlements			Transfers into Level 3		End of Period Balance		Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2020
Available-for-sale securities
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations	$	2	$	–		$	(1	)	$	–	$	–		$	–		$	–		$	–		$	–	$	1	$	(1	)
Other		6		–			1			–		–			(1	)		–			–			–		6		–
Obligations of state and political subdivisions		2		–			(1	)		–		–			–			–			–			–		1		(1	)
Total available-for-sale		10		–			(1	)		–		–			(1	)		–			–			–		8		(2	)
Mortgage servicing rights		1,887		(241	) (a)		–			3		1			–			190	(c)		–			–		1,840		(241	) (a)
Net derivative assets and liabilities		2,496		732	(b)		–			91		(1	)		–			–			(477	)		–		2,841		640	(d)

2019
Mortgage servicing rights	$	2,656	$	(331	) (a)	$	–		$	6	$	–		$	–		$	127	(c)	$	–		$	–	$	2,458	$	(331	) (a)
Net derivative assets and liabilities		455		568	(e)		–			53		(1	)		–			–			(30	)		–		1,045		662	(f)

(a)	Included in mortgage banking revenue.

(b)	Approximately $622 million and $110 million included in mortgage banking revenue and commercial products revenue, respectively.

(c)	Represents MSRs capitalized during the period.

(d)	Approximately $334 million and $306 million included in mortgage banking revenue and commercial products revenue, respectively.

(e)	Approximately $136 million, $433 million and $(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(f)	Approximately $51 million, $612 million and $(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.


(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			Transfers into Level 3		End of Period Balance		Net Change in Unrealized Gains (Losses) Relating to Assets and Liabilities Held at End of Period
2020
Available-for-sale securities
Asset-backed securities
Collateralized debt obligations/Collateralized loan obligations	$	1	$	–		$	–	$	–	$	–		$	–		$	–		$	–		$	–	$	1	$	–
Other		7		–			–		–		–			(1	)		–			–			–		6		–
Obligations of state and political subdivisions		1		–			–		–		–			–			–			–			–		1		–
Total available-for-sale		9		–			–		–		–			(1	)		–			–			–		8		–
Mortgage servicing rights		2,546		(1,107	) (a)		–		8		2			–			391	(c)		–			–		1,840		(1,107	) (a)
Net derivative assets and liabilities		810		2,474	(b)		–		95		(1	)		–			–			(537	)		–		2,841		2,066	(d)

2019
Mortgage servicing rights	$	2,791	$	(545	) (a)	$	–	$	7	$	–		$	–		$	205	(c)	$	–		$	–	$	2,458	$	(545	) (a)
Net derivative assets and liabilities		80		931	(e)		–		54		(8	)		–			–			(12	)		–		1,045		1,019	(f)

(a)	Included in mortgage banking revenue.

(b)	Approximately $979 million, $1.5 billion and $(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(c)	Represents MSRs capitalized during the period.

(d)	Approximately $334 million, $1.7 billion and $(1) million included in mortgage banking revenue, commercial products revenue and other noninterest income, respectively.

(e)	Approximately $219 million and $712 million included in mortgage banking revenue and commercial products revenue, respectively.

(f)	Approximately $52 million and $967 million included in mortgage banking revenue and commercial products revenue, respectively.

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, 2020								December 31, 2019
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans (a)	$	–	$	–	$	122	$	122	$	–	$	–	$	136	$	136

Other assets (b)		–		–		18		18		–		–		46		46

(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)	2020		2019		2020		2019
Loans (a)	$	55	$	29	$	60	$	73

Other assets (b)		3		3		6		6

(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, 2020						December 31, 2019
(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	$	8,084	$	7,679	$	405	$	5,533	$	5,366	$	167
Nonaccrual loans		1		1		–		1		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:


	June 30, 2020										December 31, 2019
	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	$	52,392	$	52,392	$	–	$	–	$	52,392	$	22,405	$	22,405	$	–	$	–	$	22,405
Federal funds sold and securities purchased under resale agreements		395		–		395		–		395		1,036		–		1,036		–		1,036
Loans held for sale (a)		94		–		–		94		94		45		–		–		43		43
Loans		302,952		–		–		315,519		315,519		292,082		–		–		297,241		297,241
Other		1,991		–		1,128		863		1,991		1,923		–		929		994		1,923

Financial Liabilities
Time deposits		38,300		–		38,387		–		38,387		42,894		–		42,831		–		42,831
Short-term borrowings (b)		18,835		–		18,738		–		18,738		22,095		–		21,961		–		21,961
Long-term debt		42,579		–		43,728		–		43,728		40,167		–		41,077		–		41,077
Other		3,481		–		1,280		2,201		3,481		3,678		–		1,342		2,336		3,678

(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.