Fair Value Election and Measurement

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Election and Measurement

NOTE 12 - FAIR VALUE ELECTION AND MEASUREMENT

The Company carries certain assets and liabilities at fair value on a recurring basis and appropriately classifies them as level 1, 2, or 3 within the fair value hierarchy. The Company’s recurring fair value measurements are based on a requirement to carry such assets and liabilities at fair value or the Company’s election to carry certain financial assets and liabilities at fair value. Assets and liabilities that are required to be carried at fair value on a recurring basis include trading securities, securities AFS, and derivative financial instruments. Assets and liabilities that the Company has elected to carry at fair value on a recurring basis include certain LHFS and LHFI, MSRs, certain brokered time deposits, and certain issuances of fixed rate debt.

In certain circumstances, fair value enables a company to more accurately align its financial performance with the economic value of actively traded or hedged assets or liabilities. Fair value also enables a company to mitigate the non-economic earnings volatility caused from financial assets and liabilities being carried at different bases of accounting, as well as, to more accurately portray the active and dynamic management of a company’s balance sheet.

Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions in estimating fair value. The assumptions used to estimate the value of an instrument have varying degrees of impact to the overall fair value of the asset or liability. This process involves the gathering of multiple sources of information, including broker quotes, values provided by pricing services, trading activity in other similar securities, market indices, pricing matrices along with employing various modeling techniques, such as discounted cash flow analyses, in arriving at the best estimate of fair value. Any model used to produce material financial reporting information is required to have a satisfactory independent review performed on an annual basis, or more frequently, when significant modifications to the functionality of the model are made. This review is performed by an internal group that separately reports to the Corporate Risk Function.

The Company has formal processes and controls in place to ensure the appropriateness of all fair value estimates. For fair values obtained from a third party or those that include certain trader estimates of fair value, there is an internal independent price validation function within the Finance organization that provides oversight for fair value estimates. For level 2 instruments and certain level 3 instruments, the validation generally involves evaluating pricing received from two or more other third party pricing sources that are widely used by market participants. The Company reviews pricing validation information from both a qualitative and quantitative perspective and determines whether pricing differences exceed acceptable thresholds. If the pricing differences exceed acceptable thresholds, then the Company reviews differences in valuation approaches used, which may include contacting a pricing service to gain further information on the valuation of a particular security or class of securities to determine the ultimate resolution of the pricing variance, which could include an adjustment to the price used for financial reporting purposes.

The Company classifies instruments as level 2 in the fair value hierarchy if it is able to determine that external pricing sources are using similar instruments trading in the markets as the basis for estimating fair value. One way the Company determines this is by the number of pricing services that will provide a quote on the instrument along with the range of values provided by those pricing services. A wide range of quoted values may indicate that significant adjustments to the trades in the market are being made by the pricing services. The Company maintains a cross-functional approach if the fair value estimates for level 3 securities AFS and trading assets and liabilities are internally developed, since the selection of unobservable inputs is subjective. This cross-functional approach includes input on assumptions not only from the related line of business, but also from risk management and finance. A consensus of the estimate of the instrument's fair value is reached after evaluating all available information pertaining to fair value. Inputs, assumptions, and overall conclusions on internally priced level 3 valuations are formally documented on a quarterly basis. As the balances of level 3 securities has declined, the need for this cross-functional approach is now limited primarily to the remaining ARS instruments that are valued internally.

The classification of an instrument as level 3 involves judgment and is based on a variety of subjective factors. These factors are used in the assessment of whether a market is inactive, resulting in the application of significant unobservable assumptions in the valuation of a financial instrument. A market is considered inactive if significant decreases in the volume and level of activity for the asset or liability have been observed. In determining whether a market is inactive, the Company evaluates such factors as the number of recent transactions in either the primary or secondary markets, whether price quotations are current, the nature of the market participants, the variability of price quotations, the significance of bid/ask spreads, declines in (or the absence of) new issuances, and the availability of public information. Inactive markets necessitate the use of additional judgment in valuing financial instruments, such as pricing matrices, cash flow modeling, and the selection of an appropriate discount rate. The assumptions used to estimate the value of an instrument where the market was inactive are based on the Company’s assessment of the assumptions a market participant would use to value the instrument in an orderly transaction and includes consideration of illiquidity in the current market environment.

Recurring Fair Value Measurements

The following tables present certain information regarding assets and liabilities measured at fair value on a recurring basis and the changes in fair value for those specific financial instruments in which fair value has been elected.

				Fair Value Measurements at March 31, 2013 Using
(Dollars in millions)	Assets/Liabilities			Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Trading assets:
U.S. Treasury securities		$152			$152		$—		$—
Federal agency securities	646			—		646		—
U.S. states and political subdivisions	105			—		105		—
MBS - agency	324			—		324		—
CDO/CLO securities	64			—		3		61
ABS	5			—		—		5
Corporate and other debt securities	647			—		646		1
CP	296			—		296		—
Equity securities	100			100		—		—
Derivative contracts	2,486			105		2,381		—
Trading loans	2,200			—		2,200		—
Gross trading assets	7,025			357		6,601		67
Offsetting collateral 1	(775		)
Total trading assets	6,250
Securities AFS:
U.S. Treasury securities	820			820		—		—
Federal agency securities	2,285			—		2,285		—
U.S. states and political subdivisions	290			—		243		47
MBS - agency	19,255			—		19,255		—
MBS - private	202			—		—		202
ABS	156			—		133		23
Corporate and other debt securities	45			—		40		5
Other equity securities 2	770			98		—		672
Total securities AFS	23,823			918		21,956		949
LHFS:
Residential loans	2,357			—		2,351		6
Corporate and other loans	315			—		315		—
Total LHFS	2,672			—		2,666		6
LHFI	360			—		—		360
MSRs	1,025			—		—		1,025
Other assets 3	120			—		21		99
Liabilities
Trading liabilities:
U.S. Treasury securities	555			555		—		—
Corporate and other debt securities	256			—		256		—
Equity securities	6			6		—		—
Derivative contracts	1,805			—		1,805		—
Gross trading liabilities	2,622			561		2,061		—
Offsetting collateral 1	(1,274		)
Total trading liabilities	1,348
Brokered time deposits	810			—		810		—
Long-term debt	1,632			—		1,632		—
Other liabilities 3,4	59			—		28		31

¹ Amount represents the cash collateral received from or deposited with derivative counterparties. Amount is offset with derivatives in the Consolidated Balance Sheets at March 31, 2013.

² Includes $268 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank stock, $98 million in mutual fund investments, and $2 million of other equity securities.

³ These amounts include IRLCs and derivative financial instruments entered into by the Mortgage line of business to hedge its interest rate risk.

⁴ These amounts include the derivative associated with the Company's sale of Visa shares during the year ended December 31, 2009, certain CDS, and contingent consideration obligations related to acquisitions.

				Fair Value Measurements at December 31, 2012 Using
(Dollars in millions)	Assets/Liabilities			Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Trading assets:
U.S. Treasury securities		$111			$111		$—		$—
Federal agency securities	462			—		462		—
U.S. states and political subdivisions	34			—		34		—
MBS - agency	432			—		432		—
CDO/CLO securities	55			—		3		52
ABS	36			—		31		5
Corporate and other debt securities	567			—		566		1
CP	28			—		28		—
Equity securities	100			100		—		—
Derivative contracts	2,635			183		2,452		—
Trading loans	2,319			—		2,319		—
Gross trading assets	6,779			394		6,327		58
Offsetting collateral 1	(730		)
Total trading assets	6,049
Securities AFS:
U.S. Treasury securities	222			222		—		—
Federal agency securities	2,069			—		2,069		—
U.S. states and political subdivisions	320			—		274		46
MBS - agency	18,169			—		18,169		—
MBS - private	209			—		—		209
ABS	216			—		195		21
Corporate and other debt securities	46			—		41		5
Other equity securities 2	702			69		—		633
Total securities AFS	21,953			291		20,748		914
LHFS:
Residential loans	2,924			—		2,916		8
Corporate and other loans	319			—		319		—
Total LHFS	3,243			—		3,235		8
LHFI	379			—		—		379
MSRs	899			—		—		899
Other assets 3	178			2		44		132
Liabilities
Trading liabilities:
U.S. Treasury securities	582			582		—		—
Corporate and other debt securities	173			—		173		—
Equity securities	9			9		—		—
Derivative contracts	1,656			—		1,656		—
Gross trading liabilities	2,420			591		1,829		—
Offsetting collateral 1	(1,259		)
Total trading liabilities	1,161
Brokered time deposits	832			—		832		—
Long-term debt	1,622			—		1,622		—
Other liabilities 3,4	46			—		15		31

¹ Amount represents the cash collateral received from or deposited with derivative counterparties. Amount is offset with derivatives in the Consolidated Balance Sheets at December 31, 2012.

² Includes $229 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank stock, $69 million in mutual fund investments, and $2 million of other equity securities.

³ These amounts include IRLCs and derivative financial instruments entered into by the Mortgage line of business to hedge its interest rate risk.

⁴ These amounts include the derivative associated with the Company's sale of Visa shares during the year ended December 31, 2009, certain CDS, and contingent consideration obligations related to acquisitions.

The following tables present the difference between the aggregate fair value and the unpaid principal balance of trading loans, LHFS, LHFI, brokered time deposits, and long-term debt instruments for which the FVO has been elected. For LHFS and LHFI for which the FVO has been elected, the tables also include the difference between aggregate fair value and the unpaid principal balance of loans that are 90 days or more past due, as well as loans in nonaccrual status.

(Dollars in millions)	Aggregate Fair Value at March 31, 2013		Aggregate Unpaid Principal Balance under FVO at March 31, 2013		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,200		$2,160		$40
LHFS	2,661		2,591		70
Past due loans of 90 days or more	2		2		—
Nonaccrual loans	9		12		(3		)
LHFI	344		357		(13		)
Past due loans of 90 days or more	2		3		(1		)
Nonaccrual loans	14		23		(9		)
Liabilities:
Brokered time deposits	810		803		7
Long-term debt	1,632		1,461		171
(Dollars in millions)	Aggregate Fair Value at December 31, 2012		Aggregate Unpaid Principal Balance under FVO at December 31, 2012		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,319		$2,285		$34
LHFS	3,237		3,109		128
Past due loans of 90 days or more	3		5		(2		)
Nonaccrual loans	3		12		(9		)
LHFI	360		371		(11		)
Past due loans of 90 days or more	1		3		(2		)
Nonaccrual loans	18		28		(10		)
Liabilities:
Brokered time deposits	832		825		7
Long-term debt	1,622		1,462		160

The following tables present the change in fair value during the three months ended March 31, 2013 and 2012, of financial instruments for which the FVO has been elected, as well as MSRs. The tables do not reflect the change in fair value attributable to the related economic hedges the Company used to mitigate the market-related risks associated with the financial instruments. Generally, the changes in the fair value of economic hedges are also recognized in trading income, mortgage production related income, or mortgage servicing related income, as appropriate, and are designed to partially offset the change in fair value of the financial instruments referenced in the tables below. The Company’s economic hedging activities are deployed at both the instrument and portfolio level.

	Fair Value Gain/(Loss) for the Three Months Ended March 31, 2013, for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income			Mortgage Production Related  Income1			Mortgage Servicing Related Income		Total Changes in Fair Values   Included in Current Period  Earnings 2
Assets:
Trading loans		$4			$—			$—		$4
LHFS	2			(21		)	—		(19		)
LHFI	—			(3		)	—		(3		)
MSRs	—			1			17		18
Liabilities:
Brokered time deposits	2			—			—		2
Long-term debt	(10		)	—			—		(10		)

¹ Income related to LHFS does not include income from IRLCs. For the three months endedMarch 31, 2013, income related to MSRs includes $1 million of MSRs recognized upon the sale of loans reported at LOCOM.

² Changes in fair value for the three months endedMarch 31, 2013, exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be carried at fair value are recognized in interest income or interest expense in the Consolidated Statements of Income.

	Fair Value Gain/(Loss) for the Three Months Ended March 31, 2012, for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income			Mortgage Production Related  Income1			Mortgage Servicing Related Income		Total Changes in Fair Values   Included in Current Period  Earnings 2
Assets:
Trading loans		$8			$—			$—		$8
LHFS	7			(17		)	—		(10		)
LHFI	—			(3		)	—		(3		)
MSRs	—			10			67		77
Liabilities:
Long-term debt	(4		)	—			—		(4		)

¹ Income related to LHFS does not include income from IRLCs. For the three months endedMarch 31, 2012, income related to MSRs includes $10 million of MSRs recognized upon the sale of loans reported at LOCOM.

² Changes in fair value for the three months endedMarch 31, 2012, exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be carried at fair value are recognized in interest income or interest expense in the Consolidated Statements of Income.

The following is a discussion of the valuation techniques and inputs used in developing fair value measurements for assets and liabilities classified as level 2 or 3 that are measured at fair value on a recurring basis, based on the class of asset or liability as determined by the nature and risks of the instrument.

Trading Assets and Securities Available for Sale

Unless otherwise indicated, trading assets are priced by the trading desk and securities AFS are valued by an independent third party pricing service.

Federal agency securities

The Company includes in this classification securities issued by federal agencies and GSEs. Agency securities consist of debt obligations issued by HUD, FHLB, and other agencies or collateralized by loans that are guaranteed by the SBA and are, therefore, backed by the full faith and credit of the U.S. government. For SBA instruments, the Company estimated fair value based on pricing from observable trading activity for similar securities or obtained fair values from a third party pricing service; accordingly, the Company has classified these instruments as level 2.

U.S. states and political subdivisions

The Company’s investments in U.S. states and political subdivisions (collectively “municipals”) include obligations of county and municipal authorities and agency bonds, which are general obligations of the municipality or are supported by a specified revenue source. Holdings were geographically dispersed, with no significant concentrations in any one state or municipality. Additionally, all but an immaterial amount of AFS municipal obligations classified as level 2 are highly rated or are otherwise collateralized by securities backed by the full faith and credit of the federal government.

Level 3 AFS municipal securities includes ARS purchased since the auction rate market began failing in February 2008 and have been considered level 3 securities due to the significant decrease in the volume and level of activity in these markets, which has necessitated the use of significant unobservable inputs into the Company’s valuations. Municipal ARS are classified as securities AFS. These securities were valued based on comparisons to similar ARS for which auctions are currently successful and/or to longer term, non-ARS issued by similar municipalities. The Company also evaluated the relative strength of the municipality and made appropriate downward adjustments in price based on the credit rating of the municipality as well as the relative financial strength of the insurer on those bonds. Although auctions for several municipal ARS have been operating successfully, ARS owned by the Company at March 31, 2013, continued to be classified as level 3 as they are those ARS for which the auctions continued to fail; accordingly, due to the uncertainty around the success rates for auctions and the absence of any successful auctions for these identical securities, the Company continued to price the ARS below par.

Level 3 AFS municipal bond securities also include bonds that are only redeemable with the issuer at par and cannot be traded in the market. As such, no significant observable market data for these instruments is available. To estimate pricing on these securities, the Company utilized a third party municipal bond yield curve for the lowest investment grade bonds and priced each bond based on the yield associated with that maturity.

MBS – agency

MBS – agency includes pass-through securities and collateralized mortgage obligations issued by GSEs and U.S. government agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae. Each security contains a guarantee by the issuing GSE or agency. For agency MBS, the Company estimated fair value based on pricing from observable trading activity for similar securities or obtained fair values from a third party pricing service; accordingly, the Company has classified these instruments as level 2.

MBS – private

Private MBS includes purchased interests in third party securitizations, as well as retained interests in Company-sponsored securitizations of 2006 and 2007 vintage residential mortgages; including both prime jumbo fixed rate collateral and floating rate collateral. At the time of purchase or origination, these securities had high investment grade ratings, however, through the credit crisis, they have experienced a deterioration in credit quality leading to downgrades to non-investment grade levels. Generally, the Company obtains pricing for its securities from an independent pricing service. The Company evaluates third party pricing to determine the reasonableness of the information relative to changes in market data, such as any recent trades, market information received from outside market participants and analysts, and/or changes in the underlying collateral performance. Even though third party pricing has been available, the Company continued to classify private MBS as level 3, as the Company believes that this third party pricing relies on significant unobservable assumptions, as evidenced by a persistently wide bid-ask price range and variability in pricing from the pricing services, particularly for the vintage and exposures held by the Company.

Securities that are classified as AFS and are in an unrealized loss position are included as part of the Company's quarterly OTTI evaluation process. See Note 2, “Securities Available for Sale,” for details regarding assumptions used to assess impairment and impairment amounts recognized through earnings on private MBS.

CDO/CLO Securities

The Company’s investments in level 3 trading CDOs consisted of senior ARS interests in Company-sponsored securitizations of trust preferred collateral. The auctions related to these securities continue to fail and the Company continues to make significant adjustments to valuation assumptions based on information available from observable secondary market trading of similar term securities; therefore, the Company continues to classify these as level 3 investments. The Company values these interests by constructing a pricing matrix based on a range of overcollateralization levels that are derived from discussions with the dealer community along with limited trade data. Based on dealer feedback on indicative pricing and expected yields, the matrix was revised during the first quarter of 2013. The price derived from the pricing matrix is adjusted for each security based on deal specific factors such as the percentage of collateral that is considered to be at heightened risk for future deferral or default, and collateral specific prepayment expectations, among other factors. Under this modified approach, all CDO ARS were valued using a discounted cash flow to an expected yield approach at March 31, 2013. The primary assumptions and inputs considered by the Company in valuing these retained interests include prepayment speeds, credit losses, and the market yield. See the level 3 assumptions table in this note, as well as Note 6, "Certain Transfers of Financial Assets and Variable Interest Entities," for discussion of the sensitivity of these interests to changes in the assumptions.

Asset-backed securities

Level 2 ABS classified as securities AFS are primarily interests collateralized by third party securitizations of 2009 through 2011 vintage auto loans. These ABS are either publicly traded or are 144A privately placed bonds. The Company utilizes an independent pricing service to obtain fair values for publicly traded securities and similar securities for estimating the fair value of the privately placed bonds. No significant unobservable assumptions were used in pricing the auto loan ABS; therefore, the Company classified these bonds as level 2. Level 3 ABS classified as securities AFS are valued based on third party pricing with significant unobservable assumptions. Additionally, trading ARS are classified as level 2 due to observable market trades and bids for similar senior securities. These ARS consist of student loan ABS that are generally collateralized by FFELP student loans, the majority of which benefit from a maximum guarantee amount of 97%. During the three months ended March 31, 2013, the Company sold the remaining senior student loan ARS. For valuations of subordinate securities in the same structure, the Company adjusts valuations on the senior securities based on the likelihood that the issuer will refinance in the near term, a security’s level of subordination in the structure, and/or the perceived risk of the issuer as determined by credit ratings or total leverage of the trust. These adjustments may be significant; therefore, the subordinate student loan ARS held as trading assets continue to be classified as level 3.

Corporate and other debt securities

Corporate debt securities are predominantly comprised of senior and subordinate debt obligations of domestic corporations and are classified as level 2. Other debt securities in level 3 primarily include bonds that are redeemable with the issuer at par and cannot be traded in the market; as such, no significant observable market data for these instruments is available.

Commercial paper

From time to time, the Company trades third party CP that is generally short-term in nature (less than 30 days) and highly rated. The Company estimates the fair value of this CP based on observable pricing from executed trades of similar instruments; thus, CP is classified as level 2.

Equity securities

Level 3 equity securities classified as securities AFS include FHLB stock and Federal Reserve Bank stock, which are redeemable with the issuer at cost and cannot be traded in the market. As such, no significant observable market data for these instruments is available. The Company accounts for the stock based on industry guidance that requires these investments be carried at cost and evaluated for impairment based on the ultimate recovery of cost.

Derivative contracts (trading assets or trading liabilities)

With the exception of certain instruments discussed under "other assets/liabilities, net" that qualify as derivative instruments, the Company’s derivative instruments are level 1 or 2 instruments. Level 1 derivative contracts generally include exchange-traded futures or option contracts for which pricing is readily available.

The Company’s level 2 instruments are predominantly standard OTC swaps, options, and forwards, with underlying market variables of interest rates, foreign exchange, equity, and credit. Because fair values for OTC contracts are not readily available, the Company estimates fair values using internal, but standard, valuation models that incorporate market-observable inputs. The valuation model is driven by the type of contract: for option-based products, the Company uses an appropriate option pricing model, such as Black-Scholes; for forward-based products, the Company’s valuation methodology is generally a discounted cash flow approach. The primary drivers of the fair values of derivative instruments are the underlying variables, such as interest rates, exchange rates, equity, or credit. As such, the Company uses market-based assumptions for all of its significant inputs, such as interest rate yield curves, quoted exchange rates and spot prices, market implied volatilities, and credit curves.

Derivative instruments are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. For purposes of valuation adjustments to its derivative positions, the Company has evaluated liquidity premiums that may be demanded by market participants, as well as the credit risk of its counterparties and its own credit. The Company has considered factors such as the likelihood of default by itself and its counterparties, its net exposures, and remaining maturities in determining the appropriate fair value adjustments to record. Generally, the expected loss of each counterparty is estimated using the Company's proprietary internal risk rating system. The risk rating system utilizes counterparty-specific probabilities of default and LGD estimates to derive the expected loss. For counterparties that are rated by national rating agencies, those ratings are also considered in estimating the credit risk. In addition, counterparty exposure is evaluated by netting positions that are subject to master netting arrangements, as well as considering the amount of marketable collateral securing the position. Specifically approved counterparties and exposure limits are defined. Creditworthiness of the approved counterparties is regularly reviewed and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. This approach used to estimate exposures to counterparties is also used by the Company to estimate its own credit risk on derivative liability positions. See Note 10, “Derivative Financial Instruments,” for additional information on the Company's derivative contracts.

Trading loans

The Company engages in certain businesses whereby the election to carry loans at fair value for financial reporting aligns with the underlying business purpose. Specifically, the loans that are included within this classification are: (i) loans made or acquired in connection with the Company’s TRS business (see Note 6, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 10, “Derivative Financial Instruments,” for further discussion of this business), (ii) loans backed by the SBA, and (iii) the loan sales and trading business within the Company’s Wholesale Banking segment. All of these loans are classified as level 2, due to the market data that the Company uses in the estimate of fair value.

The loans made in connection with the Company’s TRS business are short-term, demand loans, whereby the repayment is senior in priority and whose value is collateralized. While these loans do not trade in the market, the Company believes that the par amount of the loans approximates fair value and no unobservable assumptions are made by the Company to arrive at this conclusion. At March 31, 2013 and December 31, 2012, the Company had outstanding $1.8 billion and $1.9 billion, respectively, of such short-term loans carried at fair value.

SBA loans are similar to SBA securities discussed herein under “Federal agency securities,” except for their legal form. In both cases, the Company trades instruments that are fully guaranteed by the U.S. government as to contractual principal and interest and there is sufficient observable trading activity upon which to base the estimate of fair value.

The loans from the Company’s sales and trading business are commercial and corporate leveraged loans that are either traded in the market or for which similar loans trade. The Company elected to carry these loans at fair value since they are actively traded. The Company is able to obtain fair value estimates for substantially all of these loans through a third party valuation service that is broadly used by market participants. While most of the loans are traded in the market, the Company does not believe that trading activity qualifies the loans as level 1 instruments, as the volume and level of trading activity is subject to variability and the loans are not exchange-traded, such that the Company believes that level 2 is a more appropriate presentation of the underlying market activity for the loans. At March 31, 2013 and December 31, 2012, $373 million and $357 million, respectively, of loans related to the Company’s trading business were held in inventory.

All recognized gains or losses due to changes in fair value are attributable to instrument-specific credit risk.

Loans Held for Sale and Loans Held for Investment

Residential LHFS

The Company values certain newly-originated mortgage LHFS predominantly at fair value based upon defined product criteria. The Company chooses to fair value these mortgage LHFS to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. Origination fees and costs are recognized in earnings when earned or incurred. The servicing value is included in the fair value of the loan and initially recognized at the time the Company enters into IRLCs with borrowers. The Company uses derivatives to economically hedge changes in servicing value as a result of including the servicing value in the fair value of the loan. The mark-to-market adjustments related to LHFS and the associated economic hedges are captured in mortgage production related income.

Level 2 LHFS are primarily agency loans which trade in active secondary markets and are priced using current market pricing for similar securities adjusted for servicing, interest rate risk, and credit risk. Non-agency residential mortgages are also included in level 2 LHFS. As disclosed in the tabular level 3 rollforwards, transfers of certain mortgage LHFS into level 3 during the three months ended March 31, 2013 and 2012 were not due to using alternative valuation approaches, but were largely due to borrower defaults or the identification of other loan defects impacting the marketability of the loans.

For residential loans that the Company has elected to carry at fair value, the Company considers the component of the fair value changes due to instrument-specific credit risk, which is intended to be an approximation of the fair value change attributable to changes in borrower-specific credit risk. For the three months ended March 31, 2013, the Company recognized no change in fair value attributable to borrower-specific credit risk in the Consolidated Statements of Income. For the three months ended March 31, 2012, the Company recognized losses in the Consolidated Statements of Income of $3 million due to changes in fair value attributable to borrower-specific credit risk. In addition to borrower-specific credit risk, there are other, more significant, variables that drive changes in the fair values of the loans, including interest rates and general conditions in the principal markets for the loans.

Corporate and other LHFS

As discussed in Note 6, “Certain Transfers of Financial Assets and Variable Interest Entities,” the Company has determined that it is the primary beneficiary of a CLO vehicle, which resulted in the Company consolidating the loans of that vehicle. Because the CLO trades its loans from time to time and to fairly present the economics of the CLO, the Company elected to carry the loans of the CLO at fair value. For the three months ended March 31, 2013 and 2012, the Company recognized in the Consolidated Statements of Income gains of $4 million and $7 million, respectively, due to changes in fair value attributable to borrower-specific credit risk. The Company obtains fair value estimates for substantially all of these loans using a third party valuation service that is broadly used by market participants. While most of the loans are traded in the markets, the Company does not believe the loans qualify as level 1 instruments, as the volume and level of trading activity is subject to variability and the loans are not exchange-traded, such that the Company believes that level 2 is more representative of the general market activity for the loans.

LHFI

Level 3 LHFI predominantly includes mortgage loans that are deemed not marketable, largely due to borrower defaults or the identification of other loan defects. The Company values these loans using a discounted cash flow approach based on assumptions that are generally not observable in the current markets, such as prepayment speeds, default rates, loss severity rates, and discount rates. These assumptions have an inverse relationship to the overall fair value. Level 3 LHFI also includes mortgage loans that are valued using collateral based pricing. Changes in the applicable housing price index since the time of the loan origination are considered and applied to the loan's collateral value. An additional discount representing the return that a buyer would require is also considered in the overall fair value.

Other Intangible Assets

Other intangible assets that the Company records at fair value are the Company’s MSR assets. The fair values of MSRs are determined by projecting cash flows, which are then discounted to estimate an expected fair value. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. For additional information, see Note 5, "Goodwill and Other Intangible Assets." The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio. Because these inputs are not transparent in market trades, MSRs are considered to be level 3 assets.

Other Assets/Liabilities, net

The Company’s other assets/liabilities that are carried at fair value on a recurring basis include IRLCs that satisfy the criteria to be treated as derivative financial instruments, derivative financial instruments that are used by the Company to economically hedge certain loans and MSRs, and the derivative that the Company obtained as a result of its sale of Visa Class B shares.

The fair value of IRLCs on residential LHFS, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These “pull-through” rates are based on the Company’s historical data and reflect the Company’s best estimate of the likelihood that a commitment will ultimately result in a closed loan. As pull-through rates increase, the fair value of IRLCs also increases. Servicing value is included in the fair value of IRLCs, and the fair value of servicing is determined by projecting cash flows which are then discounted to estimate an expected fair value. The fair value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. Because these inputs are not transparent in market trades, IRLCs are considered to be level 3 assets.

During the three months ended March 31, 2013 and 2012, the Company transferred $135 million and $172 million, respectively, of IRLCs out of level 3 as the associated loans were closed.

The Company is exposed to interest rate risk associated with MSRs, IRLCs, residential LHFS, and residential LHFI reported at fair value. The Company may hedge these exposures with a combination of derivatives, including MBS forward and option contracts, interest rate swap and swaption contracts, futures contracts, and eurodollar options. The Company estimates the fair values of such derivative instruments consistent with the methodologies discussed herein under “Derivative contracts” and accordingly these derivatives are considered to be level 2 instruments.

During the second quarter of 2009, in connection with its sale of Visa Class B shares, the Company entered into a derivative contract whereby the ultimate cash payments received or paid, if any, under the contract are based on the ultimate resolution of litigation involving Visa. The value of the derivative was estimated based on the Company’s expectations regarding the ultimate resolution of that litigation, which involved a high degree of judgment and subjectivity. Accordingly, the value of the derivative liability is classified as a level 3 instrument. See Note 11, "Reinsurance Arrangements and Guarantees," for a discussion of the valuation assumptions.

Contingent consideration associated with acquisitions is adjusted to fair value until settled. As the assumptions used to measure fair value are based on internal metrics that are not market observable, the earn-out is considered a level 3 liability.

Liabilities

Trading liabilities

Trading liabilities are primarily comprised of derivative contracts, but also include various contracts involving U.S. Treasury securities, equity securities, and corporate and other debt securities that the Company uses in certain of its trading businesses. The Company employs the same valuation methodologies for these derivative contracts and securities as are discussed within the corresponding sections herein under “Trading Assets and Securities Available for Sale.”

Brokered time deposits

The Company has elected to measure certain CDs at fair value. These debt instruments include embedded derivatives that are generally based on underlying equity securities or equity indices, but may be based on other underlyings that may or may not be clearly and closely related to the host debt instrument. The Company elected to carry certain of these instruments at fair value to better align the economics of the CDs with the Company’s risk management strategies. The Company evaluated, on an instrument by instrument basis, whether a new issuance would be carried at fair value.

The Company classified these CDs as level 2 instruments due to the Company’s ability to reasonably measure all significant inputs based on observable market variables. The Company employs a discounted cash flow approach to the host debt component of the CD, based on observable market interest rates for the term of the CD and an estimate of the Bank’s credit risk. For the embedded derivative features, the Company uses the same valuation methodologies as if the derivative were a standalone derivative, as discussed herein under “Derivative contracts.”

For brokered time deposits carried at fair value, the Company estimated credit spreads above LIBOR, based on credit spreads from actual or estimated trading levels of the debt or other relevant market data. The Company recognized losses of $1 million and $6 million for the three months ended March 31, 2013 and 2012, respectively, due to changes in its own credit spread on its brokered time deposits carried at fair value.

Long-term debt

The Company has elected to carry at fair value certain fixed rate debt issuances of public debt which are valued by obtaining quotes from a third party pricing service and utilizing broker quotes to corroborate the reasonableness of those marks. Additionally, information from market data of recent observable trades and indications from buy side investors, if available, are taken into consideration as additional support for the value. Due to the availability of this information, the Company determined that the appropriate classification for the debt is level 2. The election to fair value the debt was made to align the accounting for the debt with the accounting for the derivatives without having to account for the debt under hedge accounting, thus avoiding the complex and time consuming fair value hedge accounting requirements.

The Company’s public debt carried at fair value impacts earnings predominantly through changes in the Company’s credit spreads as the Company has entered into derivative financial instruments that economically convert the interest rate on the debt from fixed to floating. The estimated earnings impact from changes in credit spreads above U.S. Treasury rates were losses of $21 million and $9 million for the three months ended March 31, 2013 and 2012, respectively.

The Company also carries approximately $286 million of issued securities contained in a consolidated CLO at fair value to recognize the nonrecourse nature of these liabilities to the Company. Specifically, the holders of the liabilities are only paid interest and principal to the extent of the cash flows from the assets of the vehicle, and the Company has no current or future obligations to fund any of the CLO vehicle’s liabilities. The Company classified these securities as level 2, as the primary driver of their fair values are the loans owned by the CLO, which the Company also elected to carry at fair value, as discussed herein under “Loans Held for Sale and Loans Held for Investment – Corporate and other LHFS.”

The valuation technique and range, including weighted average, of the unobservable inputs associated with the Company's level 3 assets and liabilities are as follows:

	Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)	Fair value March 31, 2013			Valuation Technique	Unobservable Input1	Range (weighted average)
Trading assets:
CDO/CLO securities		$61		Matrix pricing	Estimated collateral losses	32-45% (40%)
					Market yield	9-11% (10%)
ABS	5			Matrix pricing	Indicative pricing	$45 ($45)
Corporate and other debt securities	1			Third party pricing	N/A
Securities AFS:
U.S. states and political subdivisions	47			Matrix pricing	Indicative pricing	$80-$115 ($96)
MBS - private	202			Third party pricing	N/A
ABS	23			Third party pricing	N/A
Corporate and other debt securities	5			Cost	N/A
Other equity securities	672			Cost	N/A
Residential LHFS	6			Monte Carlo/Discounted cash flow	Option adjusted spread	175-625 bps (252 bps)
					Conditional prepayment rate	3-20 CPR (7 CPR)
					Conditional default rate	0-1 CDR (0.5 CDR)
LHFI	342			Monte Carlo/Discounted cash flow	Option adjusted spread	0-625 bps (255 bps)
					Conditional prepayment rate	1-30 CPR (15 CPR)
					Conditional default rate	0-12 CDR (3 CDR)
	18			Collateral based pricing	Appraised value	NM2
MSRs	1,025			Discounted cash flow	Conditional prepayment rate	6-26 CPR (14 CPR)
					Discount rate	8-28% (11%)
Other assets/(liabilities), net3	99			Internal model	Pull through rate	10-98% (70%)
					MSR value	10-243 bps (117 bps)
	(24		)	Internal model	Loan production volume	0-150% (92%)
	(7		)	Internal model	Revenue run rate	NM2

¹ For certain assets and liabilities that the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available to the Company, and therefore, have been noted as "N/A."

² Not meaningful.

³ Input assumptions relate to the Company's IRLCs and the contingent consideration obligations related to acquisitions. Refer to Note 11, "Reinsurance Arrangements and Guarantees," for additional information.

	Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)	Fair value December 31, 2012			Valuation Technique	Unobservable Input1	Range (weighted average)
Trading assets:
CDO/CLO securities		$52		Matrix pricing	Indicative pricing based on overcollateralization ratio	$33-$45 ($40)
					Estimated collateral losses	34-45% (39%)
ABS	5			Matrix pricing	Indicative pricing	$45 ($45)
Corporate and other debt securities	1			Third party pricing	N/A
Securities AFS:
U.S. states and political subdivisions	46			Matrix pricing	Indicative pricing	$72-$115 ($92)
MBS - private	209			Third party pricing	N/A
ABS	21			Third party pricing	N/A
Corporate and other debt securities	5			Cost	N/A
Other equity securities	633			Cost	N/A
Residential LHFS	8			Monte Carlo/Discounted cash flow	Option adjusted spread	0-622 bps (251 bps)
					Conditional prepayment rate	5-30 CPR (15 CPR)
					Conditional default rate	0-20 CDR (3.5 CDR)
LHFI	369			Monte Carlo/Discounted cash flow	Option adjusted spread	0-622 bps (251 bps)
					Conditional prepayment rate	5-30 CPR (15 CPR)
					Conditional default rate	0-20 CDR (3.5 CDR)
	10			Collateral based pricing	Appraised value	NM2
MSRs	899			Discounted cash flow	Conditional prepayment rate	6-31 CPR (16 CPR)
					Discount rate	9-28% (11%)
Other assets/(liabilities), net3	132			Internal model	Pull through rate	9-98% (71%)
					MSR value	6-244 bps (104 bps)
	(24		)	Internal model	Loan production volume	0-150% (92%)
	(7		)	Internal model	Revenue run rate	NM2

¹ For certain assets and liabilities that the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available to the Company, and therefore, have been noted as "N/A."

² Not meaningful.

³ Input assumptions relate to the Company's IRLCs and the contingent consideration obligations related to acquisitions. Refer to Note 11, "Reinsurance Arrangements and Guarantees," for additional information.

The following tables present a reconciliation of the beginning and ending balances for fair valued assets and liabilities measured on a recurring basis using significant unobservable inputs (other than MSRs which are disclosed in Note 5, “Goodwill and Other Intangible Assets”). Transfers into and out of the fair value hierarchy levels are assumed to be as of the end of the quarter in which the transfer occurred. None of the transfers into or out of level 3 have been the result of using alternative valuation approaches to estimate fair values. There were no transfers between level 1 and 2 during the three months ended March 31, 2013 and 2012.

	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance January 1, 2013		Included in earnings				OCI		Purchases		Sales			Settlements			Transfers to/from other balance sheet line items			Transfers into Level 3		Transfers out of Level 3			Fair value March 31, 2013		Included in earnings (held at March 31, 2013) 1
Trading assets:
CDO/CLO securities		$52		$9				$—		$—		$—			$—			$—			$—		$—			$61		$9
ABS	5		—				—		—		—			—			—			—		—			5		—
Corporate and other debt securities	1		—				—		—		—			—			—			—		—			1		—
Total trading assets	58		9			2	—		—		—			—			—			—		—			67		9			2
Securities AFS:
U.S. states and political subdivisions	46		—				2		—		(1		)	—			—			—		—			47		—
MBS - private	209		—				2		—		—			(9		)	—			—		—			202		—
ABS	21		(1		)		3		—		—			—			—			—		—			23		(1		)
Corporate and other debt securities	5		—				—		—		—			—			—			—		—			5		—
Other equity securities	633		—				—		45		—			(6		)	—			—		—			672		—
Total securities AFS	914		(1		)	3	7		45		(1		)	(15		)	—			—		—			949		(1		)	3
Residential LHFS	8		—				—		—		(10		)	—			(2		)	11		(1		)	6		—
LHFI	379		(5		)	4	—		—		—			(16		)	2			—		—			360		(4		)	4
Other assets/(liabilities), net	101		102			5	—		—		—			—			(135		)	—		—			68		—

¹ Change in unrealized gains/(losses) included in earnings during the period related to financial assets still held at March 31, 2013.

² Amounts included in earnings are recognized in trading income.

³ Amounts included in earnings are recognized in net securities gains.

⁴ Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in trading income.

⁵ Amounts included in earnings are net of issuances, fair value changes, and expirations and are recognized in mortgage production related income.

	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance January 1, 2012			Included in earnings				OCI				Purchases		Sales		Settlements			Transfers to/from other balance sheet line items			Transfers into Level 3		Transfers out of Level 3			Fair value March 31, 2012			Included in earnings (held at March 31, 2012) 1
Assets
Trading assets:
CDO/CLO securities		$43			$—				$—				$—		$—		$—			$—			$—		$—			$43			$—
ABS	5			—				—				—		—		—			—			—		—			5			—
Corporate and other debt securities	1			—				—				—		—		—			—			—		—			1			—
Total trading assets	49			—				—				—		—		—			—			—		—			49			—
Securities AFS:
U.S. states and political subdivisions	58			—				(1		)		—		—		—			—			—		—			57			—
MBS - private	221			(2		)		9				—		—		(12		)	—			—		—			216			(2		)
ABS	16			—				1				—		—		—			—			—		—			17			—
Corporate and other debt securities	5			—				—				—		—		—			—			—		—			5			—
Other equity securities	741			—				—				90		—		—			—			—		—			831			—
Total securities AFS	1,041			(2		)	2	9				90		—		(12		)	—			—		—			1,126			(2		)	2
Residential LHFS	1			—				—				—		—		—			4			3		(4		)	4			(2		)	3
LHFI	433			(4		)	4	—				—		—		(12		)	(6		)	2		—			413			(2		)	4
Other assets/(liabilities), net	62			179			3	—				—		—		22			(172		)	—		—			91			—
Liabilities
Derivative contracts	(189		)	1			5	(58		)	6	—		—		—			—			—		—			(246		)	1			5

¹ Change in unrealized gains/(losses) included in earnings for the period related to financial assets still held at March 31, 2012.

² Amounts included in earnings are generally recognized in net securities gains; however, any related hedge ineffectiveness is recognized in trading income.

³ Amounts included in earnings are net of issuances, fair value changes, and expirations and are recognized in mortgage production related income.

⁴ Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in trading income.

⁵ Amounts included in earnings are recognized in trading income.

⁶ Amount recognized in OCI is the effective portion of the cash flow hedges related to the Company’s probable forecasted sale of its shares of Coke common stock as discussed in Note 16, “Derivative Financial Instruments,” to the Consolidated Financial Statements in the 2012 Annual Report on Form 10-K.

Non-recurring Fair Value Measurements

The following tables present those assets measured at fair value on a non-recurring basis at March 31, 2013 and December 31, 2012, respectively. The changes in fair value when comparing balances at March 31, 2013 to December 31, 2012, generally result from the application of LOCOM or through write-downs of individual assets. The table does not reflect the change in fair value attributable to any related economic hedges the Company may have used to mitigate the interest rate risk associated with LHFS and MSRs. The Company’s economic hedging activities for LHFS are deployed at the portfolio level.

(Dollars in millions)	March 31, 2013		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for the Three Months Ended March 31, 2013
LHFS		$68		$—		$68		$—		$—
LHFI	5		—		—		5		—
OREO	224		—		214		10		(12		)
Other Assets	32		—		32		—		(4		)
(Dollars in millions)	December 31, 2012		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses for the Year Ended December 31, 2012
LHFS		$65		$—		$65		$—		$—
LHFI	308		—		—		308		(79		)
OREO	264		—		205		59		(48		)
Affordable Housing	82		—		—		82		(96		)
Other Assets	65		—		42		23		(13		)

The following is a discussion of the valuation techniques and inputs used in developing fair value measurements for assets classified as level 2 or 3 that are measured at fair value on a non-recurring basis, as determined by the nature and risks of the instrument.

Loans Held for Sale

At March 31, 2013 and December 31, 2012, level 2 LHFS consisted primarily of agency and non-agency residential mortgages, which were measured using observable collateral valuations and corporate loans that are accounted for at LOCOM. These loans were valued consistent with the methodology discussed in the Recurring Fair Value Measurement section of this footnote.

During the three months ended March 31, 2013, the Company transferred $7 million of residential mortgage NPLs to LHFS, as the Company elected to actively market these loans for sale. These loans were predominantly reported at amortized cost prior to transferring to LHFS; however, a portion of the NPLs was carried at fair value. As a result of transferring the loans to LHFS, the Company recognized a $1 million charge-off to reflect the loans' estimated market value. These transferred NPL loans were sold at approximately their carrying value during the three months ended March 31, 2013. In conjunction with the sale of these residential mortgage NPLs, the Company also sold an additional $17 million of residential mortgage NPLs which had either been transferred to LHFS in a prior period or repurchased into LHFS directly. These additional loans were sold at a gain of approximately $3 million.

During the three months ended March 31, 2012, the Company transferred $86 million of residential mortgage NPLs to LHFS, as the Company elected to actively market these loans for sale. These loans were predominantly reported at amortized cost prior to transferring to LHFS; however, a portion of the NPLs was carried at fair value. As a result of transferring the loans to LHFS, the Company recognized a $26 million charge-off to reflect the loans' estimated market value.

Loans Held for Investment

At March 31, 2013, LHFI consisted primarily of nonperforming commercial real estate loans for which specific reserves have been recognized. At December 31, 2012, LHFI consisted predominantly of residential real estate loans discharged in Chapter 7 bankruptcy that had not been reaffirmed by the borrower. As these loans have been classified as nonperforming, cash proceeds from the sale of the underlying collateral is the expected source of repayment for a majority of these loans. Accordingly, the fair value of these loans is derived from the estimated fair value of the underlying collateral, incorporating market data if available. There were no gains/(losses) for the three months ended March 31, 2013 and 2012 as the charge-offs related to these loans are a component of the ALLL. Due to the lack of market data for similar assets, all of these loans are considered level 3.

OREO

OREO is measured at the lower of cost or its fair value less costs to sell. Level 2 OREO consists primarily of residential homes, commercial properties, and vacant lots and land for which current property-specific appraisals, broker pricing opinions, or other market information is available. Level 3 OREO consists of lots and land for which initial valuations are based on property-specific appraisals or internal valuations. Due to the lower dollar value per property and geographic dispersion of the portfolio, these properties are re-evaluated using a pooled approach, which applies geographic factors to adjust carrying values for estimated further declines in value. Land and lots have proven to be the most challenging asset class to accurately value due in part to the low balance per property composition of the asset class. The pooled discount methodology provides a means to reserve for losses across a broad band of assets rather than rely on potentially unreliable asset-specific valuations. The pooled discount methodology is applied to land and lot assets that have valuations older than six months. The Company's independent internal valuation group determines the discounts to be applied and the discount percentages are segregated by state and by asset class (residential or commercial). The range of discount percentages applied to residential properties was 25% to 55% with a weighted average of 36%. The range of discount percentages applied to commercial properties was 15% to 45% with a weighted average of 35%. The discount percentages reflect the general market decline/increase in a particular state for a particular asset class and are determined by examining various valuation sources, including but not limited to, recent appraisals or sales prices of similar assets within each state.

Affordable Housing

The Company evaluates its consolidated affordable housing properties for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized if the carrying amount of the property exceeds its fair value. Fair value measurements for affordable housing properties are derived from internal analyses using market assumptions if available. Significant assumptions utilized in these analyses include cash flows, market capitalization rates, and tax credit market pricing. Due to the lack of comparable sales in the marketplace, these valuations are considered level 3. No impairment charges were recognized during the three months ended March 31, 2013 and 2012.

Other Assets

Other assets consist of private equity investments, other repossessed assets, assets under operating leases where the Company is the lessor, and land held for sale.

Investments in private equity partnerships are valued based on the estimated expected remaining cash flows to be received from these assets discounted at a market rate that is commensurate with their risk profile. Based on the valuation methodology and the lack of observable inputs, these investments are considered level 3. No impairment charges were recognized on private equity partnership investments during the three months ended March 31, 2013. During the three months ended March 31, 2012, the Company recognized an immaterial amount of impairment charges on its private equity partnership investments.

Other repossessed assets consist of repossessed personal property that is measured at fair value less cost to sell. These assets are considered level 2 as their fair value is determined based on market comparables and broker opinions. During the three months ended March 31, 2013 and 2012, the Company recognized impairment charges of $4 million and $1 million, respectively, on other repossessed assets.

The Company monitors the fair value of assets under operating leases where the Company is the lessor and recognizes impairment to the extent the carrying value is not recoverable and the fair value is less than its carrying value. Fair value is determined using collateral specific pricing digests, external appraisals, and recent sales data from industry equipment dealers. As market data for similar assets is available and used in the valuation, these assets are considered level 2. During the three months ended March 31, 2013, the Company recognized an immaterial amount of impairment charges on its various personal property under operating leases. During the three months ended March 31, 2012, the Company recognized impairment charges of $1 million attributable to the fair value of various personal property under operating leases.

Land held for sale is measured at the lesser of carrying value or fair value less cost to sell. The fair value of the land is determined using broker opinions, and based on the lack of observable inputs, the land is considered level 3. No impairment charges were recognized on land during the three months ended March 31, 2013 and 2012.

Fair Value of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	March 31, 2013				Fair Value Measurement Using
(Dollars in millions)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents		$5,962		$5,962		$5,962		$—		$—	(a)
Trading assets	6,250		6,250		357		5,826		67		(b)
Securities AFS	23,823		23,823		918		21,956		949		(b)
LHFS	3,193		3,200		—		3,114		86		(c)
LHFI, net	118,652		114,587		—		3,590		110,997		(d)
Financial liabilities:
Consumer and commercial deposits		$127,735		$127,861		$—		$127,861		$—	(e)
Brokered time deposits	2,080		2,100		—		2,100		—		(f)
Foreign deposits	100		100		—		100		—		(f)
Short-term borrowings	6,628		6,628		—		6,628		—		(f)
Long-term debt	9,331		9,434		—		8,881		553		(f)
Trading liabilities	1,348		1,348		561		787		—		(b)

	December 31, 2012				Fair Value Measurement Using
(Dollars in millions)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents		$8,257		$8,257		$8,257		$—		$—	(a)
Trading assets	6,049		6,049		394		5,597		58		(b)
Securities AFS	21,953		21,953		291		20,748		914		(b)
LHFS	3,399		3,399		—		3,375		24		(c)
LHFI, net	119,296		115,690		—		4,041		111,649		(d)
Financial liabilities:
Consumer and commercial deposits		$130,180		$130,449		$—		$130,449		$—	(e)
Brokered time deposits	2,136		2,164		—		2,164		—		(f)
Short-term borrowings	5,494		5,494		—		5,494		—		(f)
Long-term debt	9,357		9,413		—		8,829		584		(f)
Trading liabilities	1,161		1,161		591		570		—		(b)

The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:

(a) Cash and cash equivalents are valued at their carrying amounts reported in the balance sheet, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.

(b) Securities AFS, trading assets, and trading liabilities that are classified as level 1 are valued based on quoted market prices. For those instruments classified as level 2 or 3, refer to the respective valuation discussions within this footnote.

(c) LHFS are generally valued based on observable current market prices or, if quoted market prices are not available, on quoted market prices of similar instruments. Refer to the LHFS section within this footnote for further discussion of the LHFS carried at fair value. In instances for which significant valuation assumptions are not readily observable in the market, instruments are valued based on the best available data to approximate fair value. This data may be internally-developed and considers risk premiums that a market participant would require under then-current market conditions.

(d) LHFI fair values are based on a hypothetical exit price, which does not represent the estimated intrinsic value of the loan if held for investment. The assumptions used are expected to approximate those that a market participant purchasing the loans would use to value the loans, including a market risk premium and liquidity discount. Estimating the fair value of the loan portfolio when loan sales and trading markets are illiquid, or for certain loan types, nonexistent, requires significant judgment. Therefore, the estimated fair value can vary significantly depending on a market participant’s ultimate considerations and assumptions. The final value yields a market participant’s expected return on investment that is indicative of the current market conditions, but it does not take into consideration the Company’s estimated value from continuing to hold these loans or its lack of willingness to transact at these estimated values.

The Company generally estimated fair value for LHFI based on estimated future cash flows discounted, initially, at current origination rates for loans with similar terms and credit quality, which derived an estimated value of 100% and 101% on the loan portfolio’s net carrying value at March 31, 2013 and December 31, 2012, respectively. The value derived from origination rates likely does not represent an exit price; therefore, an incremental market risk and liquidity discount was subtracted from the initial value at March 31, 2013 and December 31, 2012, respectively. The discounted value is a function of a market participant’s required yield in the current environment and is not a reflection of the expected cumulative losses on the loans. Loan prepayments are used to adjust future cash flows based on historical experience and prepayment model forecasts. The value of related accrued interest on loans approximates fair value; however, it is not included in the carrying amount or fair value of loans. The value of long-term customer relationships is not permitted under current U.S. GAAP to be included in the estimated fair value.

(e) Deposit liabilities with no defined maturity such as DDAs, NOW/money market accounts, and savings accounts have a fair value equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for CDs are estimated using a discounted cash flow measurement that applies current interest rates to a schedule of aggregated expected maturities. The assumptions used in the discounted cash flow analysis are expected to approximate those that market participants would use in valuing deposits. The value of long-term relationships with depositors is not taken into account in estimating fair values.

(f) Fair values for foreign deposits, certain brokered time deposits, short-term borrowings, and certain long-term debt are based on quoted market prices for similar instruments or estimated using discounted cash flow analysis and the Company’s current incremental borrowing rates for similar types of instruments. For brokered time deposits and long-term debt that the Company carries at fair value, refer to the respective valuation sections within this footnote. For level 3 debt, the terms are unique in nature or there are otherwise no similar instruments than can be used to value the instrument without using significant unobservable assumptions. In this situation, we look at current borrowing rates along with the collateral levels that secure the debt in determining an appropriate fair value adjustment.

Unfunded loan commitments and letters of credit are not included in the table above. At March 31, 2013 and December 31, 2012, the Company had $44.3 billion and $42.7 billion, respectively, of unfunded commercial loan commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related unfunded commitments reserve, which was a combined $56 million and $49 million at March 31, 2013 and December 31, 2012, respectively. No active trading market exists for these instruments, and the estimated fair value does not include any value associated with the borrower relationship. The Company does not estimate the fair values of consumer unfunded lending commitments which can generally be canceled by providing notice to the borrower.

Netting of Financial Instruments

The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by a MRA. The Company enters into ISDA or other legally enforceable industry standard master netting arrangements with derivative counterparties. Under the terms of the MRA and the master netting arrangements, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted.

The following tables present the Company's eligible financial assets and liabilities at March 31, 2013 and December 31, 2012:

	March 31, 2013
(Dollars in millions)	Gross Amount		Amount Offset		Net Amount Presented in Consolidated Balance Sheets			Held/Pledged Financial Instruments		Net Amount
Financial assets:
Securities borrowed or purchased under agreements to resell		$1,154		$—		$1,154	1		$1,147		$7
Derivatives:
Derivatives subject to master netting arrangement or similar arrangement	7,015		5,389		1,626			94		1,532
Derivatives not subject to master netting arrangement or similar arrangement	100		—		100			—		100
Exchange traded/cleared derivatives	453		348		105			—		105
Total derivative assets	7,568		5,737		1,831		2	94		1,737
Total financial assets		$8,722		$5,737		$2,985			$1,241		$1,744
Financial liabilities:
Securities sold under agreements to repurchase		$1,854		$—		$1,854	1		$1,854		$—
Derivatives:
Derivatives subject to master netting arrangement or similar arrangement	6,263		5,888		375			30		345
Derivatives not subject to master netting arrangement or similar arrangement	184		—		184			—		184
Exchange traded/cleared derivatives	348		348		—			—		—
Total derivative liabilities	6,795		6,236		559		3	30		529
Total financial liabilities		$8,649		$6,236		$2,413			$1,884		$529

¹ None of the Company's repurchase and reverse repurchase transactions met the right of setoff criteria at March 31, 2013.

² At March 31, 2013, $1.7 billion, net of $775 million offsetting collateral, is recognized in trading assets and $120 million is recognized in other assets within the Company's Consolidated Balance Sheets.

³ At March 31, 2013, $531 million, net of $1.3 billion offsetting collateral, is recognized in trading liabilities and $28 million is recognized in other liabilities within the Company's Consolidated Balance Sheets.

	December 31, 2012
(Dollars in millions)	Gross Amount		Amount Offset		Net Amount Presented in Consolidated Balance Sheets			Held/Pledged Financial Instruments		Net Amount
Financial assets:
Securities borrowed or purchased under agreements to resell		$1,072		$—		$1,072	1,2		$1,069		$3
Derivatives:
Derivatives subject to master netting arrangement or similar arrangement	8,041		6,273		1,768			94		1,674
Derivatives not subject to master netting arrangement or similar arrangement	132		—		132			—		132
Exchange traded/cleared derivatives	483		300		183			—		183
Total derivative assets	8,656		6,573		2,083		3	94		1,989
Total financial assets		$9,728		$6,573		$3,155			$1,163		$1,992
Financial liabilities:
Securities sold under agreements to repurchase		$1,574		$—		$1,574	1		$1,574		$—
Derivatives:
Derivatives subject to master netting arrangement or similar arrangement	7,051		6,802		249			37		212
Derivatives not subject to master netting arrangement or similar arrangement	163		—		163			—		163
Exchange traded/cleared derivatives	300		300		—			—		—
Total derivative liabilities	7,514		7,102		412		4	37		375
Total financial liabilities		$9,088		$7,102		$1,986			$1,611		$375

¹ None of the Company's repurchase and reverse repurchase transactions met the right of setoff criteria at December 31, 2012.

² Excludes $29 million of Fed funds sold which are not subject to a master netting agreement at December 31, 2012.

³ At December 31, 2012, $1.9 billion, net of $730 million offsetting collateral, is recognized in trading assets and $178 million is recognized in other assets within the Company's Consolidated Balance Sheets.

⁴ At December 31, 2012, $397 million, net of $1.3 billion offsetting collateral, is recognized in trading liabilities and $15 million is recognized in other liabilities within the Company's Consolidated Balance Sheets.