| Fair Value |
FAIR VALUE Fair Value Measurement
We measure certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date, and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value hierarchy established by GAAP requires us to maximize the use of observable inputs when measuring fair value. For more information regarding the fair value hierarchy, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K. Additionally, for more information regarding the fair value of assets and liabilities from our BBVA acquisition, see Note 2 Acquisition and Divestiture Activity in this Report. Assets and Liabilities Measured at Fair Value on a Recurring Basis
For more information on the valuation methodologies used to measure assets and liabilities at fair value on a recurring basis, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K. The following table summarizes our assets and liabilities measured at fair value on a recurring basis, including instruments for which we have elected the fair value option.
Table 70: Fair Value Measurements – Recurring Basis Summary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2021 | | | December 31, 2020 | | | In millions | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Total
Fair Value | | | Assets | | | | | | | | | | | | | | | | | | | Residential mortgage loans held for sale | | | $ | 1,433 | | | $ | 86 | | | $ | 1,519 | | | | | | $ | 691 | | | $ | 163 | | | $ | 854 | | | | Commercial mortgage loans held for sale | | | 457 | | | 51 | | | 508 | | | | | | 305 | | | 57 | | | 362 | | | | | | | | | | | | | | | | | | | | | | Securities available for sale | | | | | | | | | | | | | | | | | | | U.S. Treasury and government agencies | $ | 36,613 | | | 4,356 | | | | | 40,969 | | | | $ | 16,675 | | | 4,036 | | | | | 20,711 | | | | Residential mortgage-backed | | | | | | | | | | | | | | | | | | | Agency | | | 65,185 | | | | | 65,185 | | | | | | 48,911 | | | | | 48,911 | | | | Non-agency | | | 74 | | | 1,168 | | | 1,242 | | | | | | 136 | | | 1,365 | | | 1,501 | | | | Commercial mortgage-backed | | | | | | | | | | | | | | | | | | | Agency | | | 2,060 | | | | | 2,060 | | | | | | 2,688 | | | | | 2,688 | | | | Non-agency | | | 3,668 | | | 3 | | | 3,671 | | | | | | 3,678 | | | 11 | | 3,689 | | | | Asset-backed | | | 5,895 | | | 172 | | | 6,067 | | | | | | 4,951 | | | 199 | | | 5,150 | | | | Other | | | 4,864 | | | 69 | | | 4,933 | | | | | | 4,636 | | | 72 | | | 4,708 | | | | Total securities available for sale | 36,613 | | | 86,102 | | | 1,412 | | | 124,127 | | | | 16,675 | | | 69,036 | | | 1,647 | | | 87,358 | | | | Loans | | | 673 | | | 936 | | | 1,609 | | | | | | 718 | | | 647 | | | 1,365 | | | | Equity investments (a) | 1,071 | | | | | 1,530 | | | 2,804 | | | | 1,070 | | | | | 1,263 | | | 2,629 | | | | Residential mortgage servicing rights | | | | | 1,130 | | | 1,130 | | | | | | | | 673 | | | 673 | | | | Commercial mortgage servicing rights | | | | | 703 | | | 703 | | | | | | | | 569 | | | 569 | | | | Trading securities (b) | 570 | | | 1,308 | | | | | 1,878 | | | | 548 | | | 1,690 | | | | | 2,238 | | | | Financial derivatives (b) (c) | 1 | | | 6,978 | | | 56 | | | 7,035 | | | | | | 6,415 | | | 118 | | | 6,533 | | | | Other assets | 395 | | | 102 | | | | | 497 | | | | 373 | | | 81 | | | | | 454 | | | | Total assets (d) | $ | 38,650 | | | $ | 97,053 | | | $ | 5,904 | | | $ | 141,810 | | | | $ | 18,666 | | | $ | 78,936 | | | $ | 5,137 | | | $ | 103,035 | | | | Liabilities | | | | | | | | | | | | | | | | | | | Other borrowed funds | $ | 832 | | | $ | 116 | | | $ | 4 | | | $ | 952 | | | | $ | 661 | | | $ | 44 | | | $ | 2 | | | $ | 707 | | | | Financial derivatives (c) (e) | | | 4,450 | | | 331 | | | 4,781 | | | | | | 2,483 | | | 273 | | | 2,756 | | | | Other liabilities | | | | | 167 | | | 167 | | | | | | | | 43 | | | 43 | | | | Total liabilities (f) | $ | 832 | | | $ | 4,566 | | | $ | 502 | | | $ | 5,900 | | | | $ | 661 | | | $ | 2,527 | | | $ | 318 | | | $ | 3,506 | | |
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. (b)Included in Other assets on the Consolidated Balance Sheet. (c)Amounts at September 30, 2021 and December 31, 2020 are presented gross and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and cash collateral held or placed with the same counterparty. See Note 12 Financial Derivatives for additional information related to derivative offsetting. (d)Total assets at fair value as a percentage of total consolidated assets was 26% and 22% as of September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total assets at fair value was 4% and 5% at September 30, 2021 and December 31, 2020, respectively. Level 3 assets as a percentage of total consolidated assets was 1% at both September 30, 2021 and December 31, 2020. (e)Included in Other liabilities on the Consolidated Balance Sheet. (f)Total liabilities at fair value as a percentage of total consolidated liabilities was 1% at both September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total liabilities at fair value was 9% at both September 30, 2021 and December 31, 2020. Level 3 liabilities as a percentage of total consolidated liabilities was less than 1% at both September 30, 2021 and December 31, 2020. Reconciliations of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2021 and 2020 follow:Table 71: Reconciliation of Level 3 Assets and Liabilities Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | | Unrealized
gains / losses
on assets and
liabilities held on
Consolidated
Balance Sheet at
Sept. 30, 2021
(a) (c) | Level 3 Instruments Only
In millions | Fair Value June 30, 2021 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | Impact from BBVA Acquisition | Fair
Value Sept. 30, 2021 | | Assets | | | | | | | | | | | | | | | | | Residential mortgage
loans held for sale | $ | 119 | | $ | (1) | | | | $ | 5 | | $ | (29) | | | $ | (6) | | $ | 4 | | | $ | (6) | | (e) | | $ | 86 | | $ | (1) | | | Commercial mortgage
loans held for sale | 52 | | (1) | | | | | | | | | | | | | 51 | | | | Other consumer loans
held for sale | 239 | | | | | | (256) | | | | | | | | $ | 17 | | | | | | Securities available for sale | | | | | | | | | | | | | | | | | Residential mortgage-
backed non-agency | 1,237 | | 10 | | | $ | (2) | | | | | (77) | | | | | | | 1,168 | | | | Commercial mortgage-
backed non-agency | 11 | | | | (8) | | | | | | | | | | | 3 | | | | | Asset-backed | 175 | | 1 | | | 5 | | | | | (9) | | | | | | | 172 | | | | | Other | 73 | | | | | 2 | | (9) | | | 3 | | | | | | | 69 | | | | Total securities
available for sale | 1,496 | | 11 | | | (5) | | 2 | | (9) | | | (83) | | | | | | | 1,412 | | | | | Loans | 979 | | 12 | | | | 14 | | (6) | | | (58) | | | | (5) | | (e) | | 936 | | 12 | | | | Equity investments | 1,540 | | 265 | | | | 158 | | (433) | | | | | | | | | 1,530 | | 95 | | | Residential mortgage
servicing rights | 1,111 | | 49 | | | | 28 | | | $ | 24 | | (82) | | | | | | | 1,130 | | 49 | | | Commercial mortgage
servicing rights | 682 | | 24 | | | | 5 | | | 22 | | (30) | | | | | | | 703 | | 24 | | | | | | | | | | | | | | | | | | | | | Financial derivatives | 87 | | 23 | | | | 1 | | | | (55) | | | | | | | 56 | | 39 | | | | | | | | | | | | | | | | | | | | | Total assets | $ | 6,305 | | $ | 382 | | | $ | (5) | | $ | 213 | | $ | (733) | | $ | 46 | | $ | (314) | | $ | 4 | | | $ | (11) | | | $ | 17 | | $ | 5,904 | | $ | 218 | | | | Liabilities | | | | | | | | | | | | | | | | | | Other borrowed funds | $ | 2 | | | | | | | $ | 3 | | $ | (1) | | | | | | | $ | 4 | | | | | Financial derivatives | 200 | | $ | 165 | | | | | $ | 3 | | | (37) | | | | | | | 331 | | $ | 171 | | | | Other liabilities | 124 | | 45 | | | | | | 4 | | (6) | | | | | | | 167 | | 44 | | | | Total liabilities | $ | 326 | | $ | 210 | | | | | $ | 3 | | $ | 7 | | $ | (44) | | | | | | | $ | 502 | | $ | 215 | | | | Net gains (losses) | | $ | 172 | | (f) | | | | | | | | | | | | $ | 3 | | (g) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020
(a) (c) | Level 3 Instruments Only
In millions | Fair Value June 30, 2020 | Included in Earnings | Included in Other comprehensive income (b) | Purchases | Sales | Issuances | Settlements | | Transfers into Level 3 | Transfers out of Level 3 | | Fair Value Sept. 30, 2020 | | Assets | | | | | | | | | | | | | | | | Residential mortgage
loans held for sale | $ | 88 | | | | | $ | 15 | | $ | (10) | | | $ | (9) | | | $ | 3 | | $ | (10) | | | $ | 77 | | | | Commercial mortgage
loans held for sale | 60 | | $ | (1) | | | | | | | | | | | | 59 | | | | | Securities available for sale | | | | | | | | | | | | | | | | Residential mortgage-
backed non-agency | 1,491 | | 12 | | | $ | 18 | | | | | (83) | | | | | | 1,438 | | | | | Commercial mortgage-backed non-agency | 19 | | | | (8) | | | | | | | | | | 11 | | | | | Asset-backed | 210 | | 1 | | | 5 | | | | | (8) | | | | | | 208 | | | | | Other | 72 | | | | | (1) | | | | | | | | | 71 | | | | Total securities
available for sale | 1,792 | | 13 | | | 15 | | (1) | | | | (91) | | | | | | 1,728 | | | | | Loans | 607 | | 7 | | | | 63 | | (3) | | | (27) | | | | | | 647 | | $ | 7 | | | | Equity investments | 1,183 | | 63 | | | | 60 | | (47) | | | | | | | | 1,259 | | 56 | | | Residential mortgage
servicing rights | 577 | | 11 | | | | 52 | | | $ | 12 | | (54) | | | | | | 598 | | 11 | | | Commercial mortgage
servicing rights | 490 | | 23 | | | | 8 | | | 20 | | (26) | | | | | | 515 | | 23 | | | | | | | | | | | | | | | | | | | | Financial derivatives | 141 | | 41 | | | | 3 | | | | (48) | | | | | | 137 | | 52 | | | | | | | | | | | | | | | | | | | | Total assets | $ | 4,938 | | $ | 157 | | | $ | 15 | | $ | 200 | | $ | (60) | | $ | 32 | | $ | (255) | | | $ | 3 | | $ | (10) | | | $ | 5,020 | | $ | 149 | | | | Liabilities | | | | | | | | | | | | | | | | | Other borrowed funds | $ | 2 | | | | | | | $ | 2 | | $ | (2) | | | | | | $ | 2 | | | | | Financial derivatives | 209 | | $ | (10) | | | | | $ | 1 | | | (57) | | | | | | 143 | | $ | (7) | | | | Other liabilities | 85 | | 7 | | | | | | 17 | | (19) | | | | | | 90 | | 6 | | | | Total liabilities | $ | 296 | | $ | (3) | | | | | $ | 1 | | $ | 19 | | $ | (78) | | | | | | $ | 235 | | $ | (1) | | | | Net gains (losses) | | $ | 160 | | (f) | | | | | | | | | | | $ | 150 | | (g) |
(continued from previous page)
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains / losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2021 (a) (c) | Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2020 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | Transfers
into
Level 3 | Transfers
out of
Level 3 | | Impact from BBVA Acquisition | Fair Value Sept. 30, 2021 | | Assets | | | | | | | | | | | | | | | | Residential mortgage
loans held for sale | $ | 163 | | $ | (1) | | | | $ | 43 | | $ | (81) | | | $ | (34) | | $ | 12 | | $ | (16) | | (e) | | $ | 86 | | $ | (1) | | | Commercial mortgage
loans held for sale | 57 | | (1) | | | | | (6) | | | 1 | | | | | | 51 | | 1 | | | | Other consumer loans held for sale | | | | | | (256) | | | | | | | $ | 256 | | | | | | Securities available for sale | | | | | | | | | | | | | | | | Residential
mortgage-backed
non-agency | 1,365 | | 30 | | | $ | 14 | | | | | (241) | | | | | | 1,168 | | | | Commercial
mortgage-backed
non-agency | 11 | | | | (8) | | | | | | | | | | 3 | | | | | Asset-backed | 199 | | 2 | | | 10 | | | | | (39) | | | | | | 172 | | | | | Other | 72 | | | | 1 | | 5 | | (9) | | | | | | | | 69 | | | | Total securities
available for sale | 1,647 | | 32 | | | 17 | | 5 | | (9) | | | (280) | | | | | | 1,412 | | | | | Loans | 647 | | 32 | | | | 111 | | (12) | | | (121) | | | (13) | | (e) | 292 | | 936 | | 32 | | | | Equity investments | 1,263 | | 489 | | | | 290 | | (512) | | | | | | | | 1,530 | | 294 | | | Residential mortgage
servicing rights | 673 | | 203 | | | | 400 | | | $ | 61 | | (242) | | | | | 35 | | 1,130 | | 203 | | | Commercial mortgage
servicing rights | 569 | | 134 | | | | 26 | | | 61 | | (87) | | | | | | 703 | | 134 | | | | | | | | | | | | | | | | | | | | Financial derivatives | 118 | | 69 | | | | 4 | | | | (140) | | | | | 5 | | 56 | | 87 | | | | | | | | | | | | | | | | | | | | Total assets | $ | 5,137 | | $ | 957 | | | $ | 17 | | $ | 879 | | $ | (876) | | $ | 122 | | $ | (903) | | $ | 12 | | $ | (29) | | | $ | 588 | | $ | 5,904 | | $ | 750 | | | | Liabilities | | | | | | | | | | | | | | | | | Other borrowed funds | $ | 2 | | | | | | | $ | 4 | | $ | (2) | | | | | | $ | 4 | | | | | Financial derivatives | 273 | | $ | 155 | | | | | $ | 6 | | | (110) | | | | | $ | 7 | | 331 | | $ | 156 | | | | Other liabilities | 43 | | 108 | | | | | | 321 | | (305) | | | | | | 167 | | 81 | | | | Total liabilities | $ | 318 | | $ | 263 | | | | | $ | 6 | | $ | 325 | | $ | (417) | | | | | $ | 7 | | $ | 502 | | $ | 237 | | | | Net gains (losses) | | $ | 694 | | (f) | | | | | | | | | | | $ | 513 | | (g) |
Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total realized / unrealized
gains or losses for the
period (a) | | | | | | | | | | Unrealized gains/losses on assets and liabilities held on Consolidated Balance Sheet at Sept. 30, 2020
(a) (c) | Level 3 Instruments Only
In millions | Fair
Value
Dec. 31,
2019 | Included in
Earnings | Included
in Other
comprehensive
income (b) | Purchases | Sales | Issuances | Settlements | | Transfers
into
Level 3 | Transfers
out of
Level 3 | | Fair Value Sept. 30, 2020 | | Assets | | | | | | | | | | | | | | | | Residential mortgage loans
held for sale | $ | 2 | | | | | $ | 22 | | $ | (12) | | | $ | (12) | | | $ | 90 | | $ | (13) | | (e) | $ | 77 | | | | Commercial mortgage
loans held for sale | 64 | | $ | (2) | | | | | | | (3) | | | | | | 59 | | $ | (1) | | | | Securities available for sale | | | | | | | | | | | | | | | | Residential mortgage-
backed non-agency | 1,741 | | 40 | | | $ | (81) | | | | | (262) | | | | | | 1,438 | | | | Commercial mortgage-
backed non-agency | | | | (8) | | | | | | | 19 | | | 11 | | | | | Asset-backed | 240 | | 5 | | | (8) | | | | | (29) | | | | | | 208 | | | | | Other | 74 | | | | (3) | | 3 | | | | (3) | | | | | | 71 | | | | Total securities
available for sale | 2,055 | | 45 | | | (100) | | 3 | | | | (294) | | | 19 | | | | 1,728 | | | | | Loans | 300 | | 20 | | | | 134 | | (34) | | | 313 | | (d) | | (86) | | (e) | 647 | | 20 | | | | Equity investments | 1,276 | | (68) | | | | 173 | | (122) | | | | | | | | 1,259 | | (69) | | | Residential mortgage
servicing rights | 995 | | (408) | | | | 113 | | | $ | 34 | | (136) | | | | | | 598 | | (408) | | | Commercial mortgage
servicing rights | 649 | | (143) | | | | 31 | | | 65 | | (87) | | | | | | 515 | | (144) | | | | | | | | | | | | | | | | | | | | Financial derivatives | 54 | | 192 | | | | 9 | | | | (118) | | | | | | 137 | | 200 | | | | | | | | | | | | | | | | | | | | Total assets | $ | 5,395 | | $ | (364) | | | $ | (100) | | $ | 485 | | $ | (168) | | $ | 99 | | $ | (337) | | | $ | 109 | | $ | (99) | | | $ | 5,020 | | $ | (402) | | | | Liabilities | | | | | | | | | | | | | | | | | Other borrowed funds | $ | 7 | | | | | | | $ | 27 | | $ | (32) | | | | | | $ | 2 | | | | | Financial derivatives | 200 | | $ | 26 | | | | | $ | 3 | | | (86) | | | | | | 143 | | $ | 30 | | | | Other liabilities | 137 | | 13 | | | | | | 54 | | (116) | | | $ | 2 | | | | 90 | | (2) | | | | Total liabilities | $ | 344 | | $ | 39 | | | | | $ | 3 | | $ | 81 | | $ | (234) | | | $ | 2 | | | | $ | 235 | | $ | 28 | | | | Net gains (losses) | | $ | (403) | | (f) | | | | | | | | | | | $ | (430) | | (g) |
(a)Losses for assets are bracketed while losses for liabilities are not. (b)The difference in unrealized gains and losses for the period included in Other comprehensive income and changes in unrealized gains and losses for the period included in Other comprehensive income for securities available for sale held at the end of the reporting period were not significant. (c)The amount of the total gains or losses for the period included in earnings that is attributable to the change in unrealized gains or losses related to those assets and liabilities held at the end of the reporting period. (d)Upon adoption of ASU 2016-13 - Credit Losses, we discontinued the accounting for purchased impaired loans and elected the one-time fair value option election for some of these loans and certain nonperforming loans. (e)Residential mortgage loan transfers out of Level 3 are primarily driven by residential mortgage loans transferring to OREO as well as reclassification of mortgage loans held for sale to held for investment. (f)Net gains (losses) realized and unrealized included in earnings related to Level 3 assets and liabilities included amortization and accretion. The amortization and accretion amounts were included in Interest income on the Consolidated Income Statement and the remaining net gains (losses) realized and unrealized were included in Noninterest income on the Consolidated Income Statement. (g)Net unrealized gains (losses) related to assets and liabilities held at the end of the reporting period were included in Noninterest income on the Consolidated Income Statement. An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification (transfer) of assets or liabilities between hierarchy levels. Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities follows:
Table 72: Fair Value Measurements – Recurring Quantitative Information
September 30, 2021 | | | | | | | | | | | | | | | Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) | | Commercial mortgage loans held for sale | $ | 51 | | Discounted cash flow | Spread over the benchmark curve (b) | 610bps - 10,580bps (2,442bps) | Residential mortgage-backed
non-agency securities | 1,168 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 30.7% (11.2%) | | Constant default rate | 0.0% - 16.9% (4.6%) | | Loss severity | 20.0% - 95.7% (47.7%) | | Spread over the benchmark curve (b) | 160bps weighted-average | | Asset-backed securities | 172 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 40.0% (10.5%) | | Constant default rate | 1.4% - 20.0% (3.3%) | | Loss severity | 8.0% - 100.0% (52.1%) | | Spread over the benchmark curve (b) | 198bps weighted-average | | Loans - Residential real estate | 640 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (77.2%) | | Loss severity | 0.0% - 100.0% (8.9%) | | Discount rate | 4.8% - 6.8% (5.1%) | | 116 | | Discounted cash flow | Loss severity | 8.0% weighted-average | | Discount rate | 3.2% weighted-average | | Loans - Home equity | 18 | | Consensus pricing (c) | Cumulative default rate | 3.6% -100.0% (83.9%) | | Loss severity | 0.0% - 98.4% (29.6%) | | Discount rate | 4.8% - 6.8% (6.2%) | | 162 | | Consensus pricing (c) | Credit and liquidity discount | 0.0% - 100.0% (23.1%) | | Equity investments | 1,530 | | Multiple of adjusted earnings | Multiple of earnings | 5.0x - 14.8x (9.0x) | | Residential mortgage servicing rights | 1,130 | | Discounted cash flow | Constant prepayment rate | 0.0% - 40.0% (11.5%) | | Spread over the benchmark curve (b) | 380bps - 2,271bps (909bps) | | Commercial mortgage servicing rights | 703 | | Discounted cash flow | Constant prepayment rate | 4.9% - 13.9% (5.5%) | | Discount rate | 5.3% - 7.8% (7.6%) | Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (314) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average | | Estimated annual growth rate of Visa Class A share price | 16.0% | | Estimated length of litigation resolution date | Q2 2023 | Insignificant Level 3 assets, net of
liabilities (d) | 26 | | | | | | Total Level 3 assets, net of liabilities (e) | $ | 5,402 | | | | |
(continued from previous page)
December 31, 2020 | | | | | | | | | | | | | | | Level 3 Instruments Only
Dollars in millions | Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted-Average) (a) | | Commercial mortgage loans held for sale | $ | 57 | | Discounted cash flow | Spread over the benchmark curve (b) | 630bps - 5,275bps (3,406bps) | Residential mortgage-backed
non-agency securities | 1,365 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% - 37.6% (8.6%) | | Constant default rate | 0.0% - 12.2% (4.7%) | | Loss severity | 25.0% - 95.7% (48.8%) | | Spread over the benchmark curve (b) | 242bps weighted-average | | Asset-backed securities | 199 | | Priced by a third-party vendor using a discounted cash flow pricing model | Constant prepayment rate | 1.0% -22.0% (7.4%) | | Constant default rate | 1.0% - 6.0% (3.3%) | | Loss severity | 30.0% - 100.0% (58.1%) | | Spread over the benchmark curve (b) | 291bps weighted-average | | Loans - Residential real estate | 434 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (82.1%) | | Loss severity | 0.0% - 100.0% (11.2%) | | Discount rate | 4.8% - 6.8% (5.1%) | | 132 | | Discounted cash flow | Loss severity | 8.0% weighted-average | | Discount rate | 3.2% weighted-average | | Loans - Home equity | 21 | | Consensus pricing (c) | Cumulative default rate | 3.6% - 100.0% (88.5%) | | Loss severity | 0.0% - 98.4% (33.3%) | | Discount rate | 4.8% - 6.8% (6.3%) | | 60 | | Consensus pricing (c) | Credit and Liquidity discount | 17.5% - 97.0% (57.7%) | | Equity investments | 1,263 | | Multiple of adjusted earnings | Multiple of earnings | 5.0x - 15.9x (8.7x) | | Residential mortgage servicing rights | 673 | | Discounted cash flow | Constant prepayment rate | 0.0% - 77.5% (21.1%) | | Spread over the benchmark curve (b) | 325bps - 2,783bps (922bps) | | Commercial mortgage servicing rights | 569 | | Discounted cash flow | Constant prepayment rate | 4.0% - 16.1% (4.9%) | | Discount rate | 4.7% - 7.8% (7.3%) | | | | | | | | | | Financial derivatives - Swaps related to
sales of certain Visa Class B
common shares | (252) | | Discounted cash flow | Estimated conversion factor of Visa Class B shares into Class A shares | 162.3% weighted-average | | Estimated annual growth rate of Visa Class A share price | 16.0% | Estimated length of litigation
resolution date | Q2 2022 | Insignificant Level 3 assets, net of
liabilities (d) | 298 | | | | | | Total Level 3 assets, net of liabilities (e) | $ | 4,819 | | | | |
(a)Unobservable inputs were weighted by the relative fair value of the instruments. (b)The assumed yield spread over the benchmark curve for each instrument is generally intended to incorporate non-interest rate risks, such as credit and liquidity risks. (c)Consensus pricing refers to fair value estimates that are generally internally developed using information such as dealer quotes or other third-party provided valuations or comparable asset prices. (d)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain financial derivative assets and liabilities, trading securities, other securities, residential mortgage loans held for sale, other assets, other borrowed funds and other liabilities. (e)Consisted of total Level 3 assets of $5.9 billion and total Level 3 liabilities of $0.5 billion as of September 30, 2021 and $5.1 billion and $0.3 billion as of December 31, 2020, respectively.
Financial Assets Accounted for at Fair Value on a Nonrecurring Basis
We may be required to measure certain financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment and are included in Table 73. For more information regarding the valuation methodologies of our financial assets measured at fair value on a nonrecurring basis, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K. Assets measured at fair value on a nonrecurring basis follow:Table 73: Fair Value Measurements – Nonrecurring (a) (b) (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value | | Gains (Losses)
Three months ended | | Gains (Losses)
Nine months ended | | | In millions | September 30
2021 | | December 31
2020 | | September 30
2021 | | September 30
2020 | | September 30
2021 | | September 30
2020 | | | Assets | | | | | | | | | | | | | | Nonaccrual loans | $ | 209 | | | $ | 332 | | | $ | (3) | | | $ | (38) | | | $ | (3) | | | $ | (73) | | | | Loans held for sale | 39 | | | | | (1) | | | | | (18) | | | | | | OREO and foreclosed assets | 5 | | | 18 | | | | | (1) | | | | | (2) | | | | Long-lived assets | 12 | | | 20 | | | (6) | | | (4) | | | (17) | | | (7) | | | | Total assets | $ | 265 | | | $ | 370 | | | $ | (10) | | | $ | (43) | | | $ | (38) | | | $ | (82) | | |
(a)All Level 3 as of September 30, 2021 and December 31, 2020, except for $39 million included in Loans held for sale which was categorized as Level 2 as of September 30, 2021. (b)Valuation techniques applied were fair value of property or collateral. (c)Unobservable inputs used were appraised value/sales price, broker opinions or projected income/required improvement costs. Additional quantitative information was not meaningful for the periods presented.
Financial Instruments Accounted for under Fair Value Option
We elect the fair value option to account for certain financial instruments. For more information on these financial instruments for which the fair value option election has been made, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K.
Fair values and aggregate unpaid principal balances of certain items for which we elected the fair value option follow: Table 74: Fair Value Option – Fair Value and Principal Balances | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2021 | | December 31, 2020 | | | In millions | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | | Fair Value | | Aggregate Unpaid
Principal Balance | | Difference | | | Assets | | | | | | | | | | | | | | Residential mortgage loans held for sale | | | | | | | | | | | | | | Accruing loans less than 90 days past due | $ | 1,465 | | | $ | 1,422 | | | $ | 43 | | | $ | 831 | | | $ | 793 | | | $ | 38 | | | | Accruing loans 90 days or more past due | 4 | | | 4 | | | | | 4 | | | 4 | | | | | | Nonaccrual loans | 50 | | | 59 | | | (9) | | | 20 | | | 24 | | | (4) | | | | Total | $ | 1,519 | | | $ | 1,485 | | | $ | 34 | | | $ | 855 | | | $ | 821 | | | $ | 34 | | | | Commercial mortgage loans held for sale (a) | | | | | | | | | | | | | | Accruing loans less than 90 days past due | $ | 508 | | | $ | 520 | | | $ | (12) | | | $ | 357 | | | $ | 370 | | | $ | (13) | | | | Nonaccrual loans | | | | | | | 5 | | | 6 | | | (1) | | | | Total | $ | 508 | | | $ | 520 | | | $ | (12) | | | $ | 362 | | | $ | 376 | | | $ | (14) | | | | Loans | | | | | | | | | | | | | | Accruing loans less than 90 days past due | $ | 652 | | | $ | 669 | | | $ | (17) | | | $ | 519 | | | $ | 530 | | | $ | (11) | | | | Accruing loans 90 days or more past due | 260 | | | 278 | | | (18) | | | 283 | | | 295 | | | (12) | | | | Nonaccrual loans | 697 | | | 971 | | | (274) | | | 563 | | | 820 | | | (257) | | | | Total | $ | 1,609 | | | $ | 1,918 | | | $ | (309) | | | $ | 1,365 | | | $ | 1,645 | | | $ | (280) | | | | Other assets | $ | 96 | | | $ | 93 | | | $ | 3 | | | $ | 81 | | | $ | 69 | | | $ | 12 | | | | Liabilities | | | | | | | | | | | | | | Other borrowed funds | $ | 31 | | | $ | 31 | | | | | $ | 32 | | | $ | 33 | | | $ | (1) | | |
(a)There were no accruing loans 90 days or more past due within this category at September 30, 2021 or December 31, 2020. The changes in fair value for items for which we elected the fair value option are as follows:
Table 75: Fair Value Option – Changes in Fair Value (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains (Losses) | | Gains (Losses) | | | | Three months ended | | Nine months ended | | | September 30 | | September 30 | | September 30 | | September 30 | | | In millions | 2021 | | 2020 | | 2021 | | 2020 | | | Assets | | | | | | | | | | Residential mortgage loans held for sale | $ | 47 | | | $ | 53 | | | $ | 120 | | | $ | 151 | | | | Commercial mortgage loans held for sale | $ | 31 | | | $ | 46 | | | $ | 77 | | | $ | 106 | | | | Loans | $ | 21 | | | $ | 5 | | | $ | 52 | | | $ | 31 | | | | Other assets | $ | 3 | | | $ | 3 | | | $ | 25 | | | $ | (24) | | |
(a)The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.
Additional Fair Value Information Related to Financial Instruments Not Recorded at Fair Value The following table presents the carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of all other financial instruments that are not recorded on our Consolidated Balance Sheet at fair value as of September 30, 2021 and December 31, 2020. For more information regarding the methods and assumptions used to estimate the fair values of financial instruments included in Table 76, see Note 15 Fair Value in Item 8 of our 2020 Form 10-K. Table 76: Additional Fair Value Information Related to Other Financial Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Carrying | | Fair Value | | | In millions | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | | | September 30, 2021 | | | | | | | | | | | | Assets | | | | | | | | | | | | Cash and due from banks | $ | 8,843 | | | $ | 8,843 | | | $ | 8,843 | | | | | | | | Interest-earning deposits with banks | 75,478 | | | 75,478 | | | | | $ | 75,478 | | | | | | Securities held to maturity | 1,482 | | | 1,583 | | | 890 | | | 483 | | | $ | 210 | | | | Net loans (excludes leases) | 277,010 | | | 282,407 | | | | | | | 282,407 | | | | Other assets | 4,265 | | | 4,265 | | | | | 4,262 | | | 3 | | | | Total assets | $ | 367,078 | | | $ | 372,576 | | | $ | 9,733 | | | $ | 80,223 | | | $ | 282,620 | | | | Liabilities | | | | | | | | | | | | Time deposits | $ | 18,911 | | | $ | 18,779 | | | | | $ | 18,779 | | | | | | Borrowed funds | 32,520 | | | 33,203 | | | | | 31,528 | | | $ | 1,675 | | | | Unfunded lending related commitments | 646 | | | 646 | | | | | | | 646 | | | | Other liabilities | 467 | | | 467 | | | | | 467 | | | | | | Total liabilities | $ | 52,544 | | | $ | 53,095 | | | | | $ | 50,774 | | | $ | 2,321 | | | | December 31, 2020 | | | | | | | | | | | | Assets | | | | | | | | | | | | Cash and due from banks | $ | 7,017 | | | $ | 7,017 | | | $ | 7,017 | | | | | | | | Interest-earning deposits with banks | 85,173 | | | 85,173 | | | | | $ | 85,173 | | | | | | Securities held to maturity | 1,445 | | | 1,604 | | | 920 | | | 489 | | | $ | 195 | | | | Net loans (excludes leases) | 228,788 | | | 233,688 | | | | | | | 233,688 | | | | Other assets | 3,601 | | | 3,600 | | | | | 3,559 | | | 41 | | | | Total assets | $ | 326,024 | | | $ | 331,082 | | | $ | 7,937 | | | $ | 89,221 | | | $ | 233,924 | | | | Liabilities | | | | | | | | | | | | Time deposits | $ | 19,692 | | | $ | 19,662 | | | | | $ | 19,662 | | | | | | Borrowed funds | 36,488 | | | 37,192 | | | | | 35,571 | | | $ | 1,621 | | | | Unfunded lending related commitments | 584 | | | 584 | | | | | | | 584 | | | | Other liabilities | 413 | | | 413 | | | | | 413 | | | | | | Total liabilities | $ | 57,177 | | | $ | 57,851 | | | | | $ | 55,646 | | | $ | 2,205 | | |
The aggregate fair values in Table 76 represent only a portion of the total market value of our assets and liabilities as, in accordance with the guidance related to fair values about financial instruments, we exclude the following: •financial instruments recorded at fair value on a recurring basis (as they are disclosed in Table 70), •investments accounted for under the equity method, •equity securities without a readily determinable fair value that apply for the alternative measurement approach to fair value under ASU 2016-01, •real and personal property, •lease financing, •loan customer relationships, •deposit customer intangibles, •mortgage servicing rights (MSRs), •retail branch networks, •fee-based businesses, such as asset management and brokerage, •trademarks and brand names, •trade receivables and payables due in one year or less, •deposit liabilities with no defined or contractual maturities under ASU 2016-01, and •insurance contracts.
|