NOTE 14 - FAIR VALUE ELECTION AND MEASUREMENT

The Company measures certain assets and liabilities at fair value on a recurring basis and classifies them as level 1, 2, or 3 within the fair value hierarchy on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions taking into account information about market participant assumptions that is readily available. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy encompasses the following measurements:


•	Level 1: Quoted prices for identical instruments in active markets.


•	Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company’s recurring fair value measurements are based on a requirement to measure such assets and liabilities at fair value or the Company’s election to measure certain financial assets and liabilities at fair value. Assets and liabilities that are required to be measured 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 measure at fair value on a recurring basis include MSRs, and certain LHFS, LHFI, trading loans, brokered time deposits, and issuances of fixed rate debt.

The Company elects to measure certain assets and liabilities at fair value to more accurately align its financial performance with the economic value of actively traded or hedged assets or liabilities. The use of fair value also enables the Company to mitigate 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 the 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 an 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 identical or similar securities, market indices, and pricing matrices. When observable market prices for the asset or liability are not available, the Company employs various modeling techniques, such as discounted cash flow analyses to estimate fair value. Models used to produce material financial reporting information are validated prior to use, and following any material change in methodology. Their performance is monitored quarterly, and any material deterioration in model performance is addressed. This review is performed by an internal group that reports to the Corporate Risk Function.

The Company has formal processes and controls in place to ensure the appropriateness of its fair value estimates. For fair values obtained from a third party or those that include certain trader estimates of fair value, there is an independent price validation function within the Finance organization that provides oversight for these 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 evaluates this pricing information from both a qualitative and quantitative perspective and determines whether any pricing differences exceed acceptable thresholds. If these thresholds are exceeded, then the Company assesses differences in valuation approaches used, which may include contacting a pricing service to gain further insight into the valuation of a particular security or class of securities to resolve the pricing variance, which could include an adjustment to the price used for financial reporting purposes.

The Company classifies instruments within level 2 in the fair value hierarchy when it determines that external pricing sources estimated fair value using prices for similar instruments trading in active markets. A wide range of quoted values from pricing sources may imply a reduced level of market activity and indicate that significant adjustments to price indications have been made. In such cases, the Company evaluates whether the asset or liability should be classified as level 3.

The classification of an instrument as level 3 involves judgment and is based on a variety of subjective factors including whether a market is inactive. A market is considered inactive if significant decreases in the volume and level of activity for the asset or liability have been observed. In making this determination the Company evaluates the number of recent transactions in either the primary or secondary market, whether price quotations are current, the nature of market participants, the variability of price quotations, the breadth of bid/ask spreads, declines in (or the absence of) new issuances, and the availability of public information. When a market is determined to be inactive, significant adjustments may be made to price indications when estimating fair value. In making these adjustments the Company seeks to employ assumptions a market participant would use to value the asset or liability, including consideration of illiquidity in the referenced market.

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.



	September 30, 2014
	Fair Value Measurements
(Dollars in millions)	Level 1		Level 2		Level 3		Netting Adjustments ¹			Assets/Liabilities at Fair Value
Assets
Trading assets and derivatives:
U.S. Treasury securities		$252		$—		$—		$—			$252
Federal agency securities	—		460		—		—			460
U.S. states and political subdivisions	—		32		—		—			32
MBS - agency	—		498		—		—			498
CLO securities	—		5		—		—			5
Corporate and other debt securities	—		790		—		—			790
CP	—		261		—		—			261
Equity securities	59		—		—		—			59
Derivative contracts	798		4,525		17		(4,103		)	1,237
Trading loans	—		2,188		—		—			2,188
Total trading assets and derivatives	1,109		8,759		17		(4,103		)	5,782
Securities AFS:
U.S. Treasury securities	1,011		—		—		—			1,011
Federal agency securities	—		970		—		—			970
U.S. states and political subdivisions	—		225		12		—			237
MBS - agency	—		22,811		—		—			22,811
MBS - private	—		—		132		—			132
ABS	—		—		21		—			21
Corporate and other debt securities	—		36		5		—			41
Other equity securities ²	109		—		830		—			939
Total securities AFS	1,120		24,042		1,000		—			26,162
Residential LHFS	—		1,559		1		—			1,560
LHFI	—		—		284		—			284
MSRs	—		—		1,305		—			1,305
Liabilities
Trading liabilities and derivatives:
U.S. Treasury securities	621		—		—		—			621
Corporate and other debt securities	—		250		—		—			250
Derivative contracts	491		4,524		12		(4,667		)	360
Total trading liabilities and derivatives	1,112		4,774		12		(4,667		)	1,231
Brokered time deposits	—		87		—		—			87
Long-term debt	—		1,293		—		—			1,293
Other liabilities ³	—		—		24		—			24

¹Amounts represent offsetting cash collateral received from and paid to the same derivative counterparties and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists.

² Includes $421 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank stock, $109 million in mutual fund investments, and $7 million of other.

³ Includes contingent consideration obligations related to acquisitions.



	December 31, 2013
	Fair Value Measurements
(Dollars in millions)	Level 1		Level 2		Level 3		Netting Adjustments ¹			Assets/Liabilities at Fair Value
Assets
Trading assets and derivatives:
U.S. Treasury securities		$219		$—		$—		$—			$219
Federal agency securities	—		426		—		—			426
U.S. states and political subdivisions	—		65		—		—			65
MBS - agency	—		323		—		—			323
CDO/CLO securities	—		3		54		—			57
ABS	—		—		6		—			6
Corporate and other debt securities	—		534		—		—			534
CP	—		29		—		—			29
Equity securities	109		—		—		—			109
Derivative contracts	828		5,285		12		(4,741		)	1,384
Trading loans	—		1,888		—		—			1,888
Total trading assets and derivatives	1,156		8,553		72		(4,741		)	5,040
Securities AFS:
U.S. Treasury securities	1,293		—		—		—			1,293
Federal agency securities	—		984		—		—			984
U.S. states and political subdivisions	—		203		34		—			237
MBS - agency	—		18,911		—		—			18,911
MBS - private	—		—		154		—			154
ABS	—		58		21		—			79
Corporate and other debt securities	—		37		5		—			42
Other equity securities ²	103		—		739		—			842
Total securities AFS	1,396		20,193		953		—			22,542
LHFS:
Residential loans	—		1,114		3		—			1,117
Corporate and other loans	—		261		—		—			261
Total LHFS	—		1,375		3		—			1,378
LHFI	—		—		302		—			302
MSRs	—		—		1,300		—			1,300
Liabilities
Trading liabilities and derivatives:
U.S. Treasury securities	472		—		—		—			472
Corporate and other debt securities	—		179		—		—			179
Equity securities	5		—		—		—			5
Derivative contracts	502		5,167		4		(5,148		)	525
Total trading liabilities and derivatives	979		5,346		4		(5,148		)	1,181
Brokered time deposits	—		764		—		—			764
Long-term debt	—		1,556		—		—			1,556
Other liabilities ³	—		—		29		—			29

¹ Amounts represent offsetting cash collateral received from and paid to the same derivative counterparties and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists.

² Includes $336 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank stock, $103 million in mutual fund investments, and $1 million of other.

³ Includes contingent consideration obligations related to acquisitions, as well as the derivative associated with the Company's sale of Visa shares during the year ended December 31, 2009.

The following tables present the difference between the aggregate fair value and the UPB 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 UPB of loans that are 90 days or more past due, as well as loans in nonaccrual status.



(Dollars in millions)	Aggregate Fair Value at September 30, 2014		Aggregate UPB under FVO at September 30, 2014		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,188		$2,151		$37
LHFS	1,559		1,511		48
Nonaccrual	1		2		(1		)
LHFI	278		292		(14		)
Nonaccrual	6		9		(3		)
Liabilities:
Brokered time deposits	87		87		—
Long-term debt	1,293		1,176		117
(Dollars in millions)	Aggregate Fair Value at December 31, 2013		Aggregate UPB under FVO at December 31, 2013		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$1,888		$1,858		$30
LHFS	1,375		1,359		16
Past due 90 days or more	1		2		(1		)
Nonaccrual	2		15		(13		)
LHFI	294		317		(23		)
Nonaccrual	8		12		(4		)
Liabilities:
Brokered time deposits	764		761		3
Long-term debt	1,556		1,432		124

The following tables present the change in fair value during the three and nine months ended September 30, 2014 and 2013 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 uses 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/(loss), 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 September 30, 2014 for Items Measured at Fair Value Pursuant to Election of the FVO											Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2014 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income		Mortgage Production Related Income/(Loss) ¹			Mortgage Servicing Related Income			Total Changes in Fair Values Included in Current Period Earnings ²			Trading Income		Mortgage Production Related Income/(Loss) ¹			Mortgage Servicing Related Income			Total Changes in Fair Values Included in Current Period Earnings ²
Assets:
Trading loans		$1		$—			$—			$1			$10		$—			$—			$10
LHFS	—		(32		)	—			(32		)	—		(18		)	—			(18		)
LHFI	—		—			—			—			—		8			—			8
MSRs	—		—			(55		)	(55		)	—		2			(240		)	(238		)
Liabilities:
Brokered time deposits	1		—			—			1			6		—			—			6
Long-term debt	9		—			—			9			6		—			—			6

¹Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2014, income related to MSRs includes mortgage servicing income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the three and nine months ended September 30, 2014 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 September 30, 2013 for Items Measured at Fair Value Pursuant to Election of the FVO										Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2013 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income		Mortgage Production Related Income/(Loss) ¹		Mortgage Servicing Related Income			Total Changes in Fair Values Included in Current Period Earnings ²			Trading Income		Mortgage Production Related Income/(Loss) ¹			Mortgage Servicing Related Income		Total Changes in Fair Values Included in Current Period Earnings ²
Assets:
Trading loans		$3		$—		$—			$3			$8		$—			$—		$8
LHFS	1		4		—			5			2		(103		)	—		(101		)
LHFI	—		5		—			5			—		(5		)	—		(5		)
MSRs	—		1		(56		)	(55		)	—		3			42		45
Liabilities:
Brokered time deposits	2		—		—			2			6		—			—		6
Long-term debt	—		—		—			—			27		—			—		27

¹Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2013, income related to MSRs includes mortgage servicing income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the three and nine months ended September 30, 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.

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 Derivatives 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 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.

MBS – agency

Agency MBS 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 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.

These securities that are classified as AFS are in an unrealized gain position at September 30, 2014. See Note 4, “Securities Available for Sale,” for details regarding assumptions used to assess impairment and impairment amounts recognized through earnings on private MBS.

CLO securities

The Company has CLO preference share exposure valued at $5 million at September 30, 2014. The Company estimated fair value based on pricing from observable trading activity for similar securities. Accordingly, the Company has classified these instruments as level 2.

Asset-Backed Securities

ABS classified as securities AFS includes purchased interests in third party securitizations. These securities are classified as level 3, as the fair value is based on third party pricing with significant unobservable assumptions.

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, observable market data for these instruments is not available.

Commercial Paper

From time to time, the Company acquires 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, observable market data for these instruments is not 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

The Company holds derivative instruments for both trading purposes and risk management purposes.

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, measured using observable market assumptions for 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. The selection of valuation models 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.

Level 2 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. To this end, the Company has evaluated liquidity premiums required 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 PD 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. The Company does not currently employ a funding valuation adjustment to its derivative positions, as market practice in this area continues to evolve. See Note 12, “Derivative Financial Instruments,” for additional information on the Company's derivative contracts.

The Company's level 3 derivatives include IRLCs that satisfy the criteria to be treated as derivative financial instruments. 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 and nine months ended September 30, 2014, the Company transferred $64 million and $181 million, respectively, of net IRLCs out of level 3 as the associated loans were closed. During the three and nine months ended September 30, 2013, the Company transferred $50 million and $159 million, respectively, of net IRLCs out of level 3 as the associated loans were closed.

Trading loans

The Company engages in certain businesses whereby the election to measure 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 8, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 12, “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 September 30, 2014 and December 31, 2013, the Company had outstanding $1.7 billion and $1.5 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. As these SBA loans are fully guaranteed, the changes in fair value are attributable to factors other than instrument-specific credit risk.

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 measure these loans at fair value since they are actively traded. For both the three and nine months ended September 30, 2014 and 2013, gains or losses the Company recognized in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk were immaterial. 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 September 30, 2014 and December 31, 2013, $373 million and $313 million, respectively, of loans related to the Company’s trading business were held in inventory.

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 interest rates and 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/(loss).

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. Transfers of certain mortgage LHFS into level 3 during the three and nine months ended September 30, 2014 and 2013 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 measure 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 both the three and nine months ended September 30, 2014 and 2013, gains or losses the Company recognized in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk were immaterial. 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 markets for the loans.

Corporate and other LHFS

As discussed in Note 8, “Certain Transfers of Financial Assets and Variable Interest Entities,” the Company was previously the primary beneficiary of a CLO entity, which resulted in the Company consolidating its underlying loans. During the second quarter of 2014, in connection with the sale of RidgeWorth, the Company determined it was no longer the primary beneficiary of the CLO, and accordingly, the CLO was deconsolidated. Prior to the second quarter of 2014, the Company elected to measure the loans of the CLO at fair value because the loans were periodically traded by the CLO. For the three and nine months ended September 30, 2014, the Company recognized no gains or losses, and an immaterial amount of gains, due to changes in fair value attributable to borrower-specific credit risk in the Consolidated Statements of Income, compared to gains of $1 million and $2 million, for the same periods in 2013, respectively.

LHFI

Level 3 LHFI predominantly includes mortgage loans that are deemed not marketable, largely due to the identification of loan defects. The Company chooses to fair value these mortgage LHFI 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. The Company values these loans using a discounted cash flow approach based on assumptions that are generally not observable in 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.

Mortgage Servicing Rights

The Company records MSR assets at fair value. These values are determined by projecting cash flows, which are then discounted. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, spreads, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. For additional information, see Note 7, "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 classified as level 3 assets.

Liabilities

Trading liabilities and derivatives

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 Derivatives and Securities Available for Sale.”

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 13, "Guarantees," for a discussion of the valuation assumptions.

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 measure 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 measured 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. For the three and nine months ended September 30, 2014 and 2013, the Company recognized an immaterial amount of losses 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 measure 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 gains of $2 million and losses of $24 million for the three and nine months ended September 30, 2014, respectively, and losses of $9 million and $27 million for the three and nine months ended September 30, 2013, respectively.

At September 30, 2014, the Company did not measure any issued securities of a CLO at fair value. Previously, the Company classified these types of securities as level 2, as the primary driver of their fair values were the loans owned by the CLO, which the Company also elected to measure at fair value prior to the deconsolidation of the CLO, as discussed herein under “Loans Held for Sale and Loans Held for Investment–Corporate and other LHFS.”

Other liabilities

The Company’s other liabilities that are carried at fair value on a recurring basis include contingent consideration obligations related to acquisitions. 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.

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 September 30, 2014		Valuation Technique	Unobservable Input ¹	Range (weighted average)
Assets
Trading assets and derivatives:
Derivative contracts, net ²		$5	Internal model	Pull through rate	10-100% (72%)
Derivative contracts, net ²		$5	Internal model	MSR value	42-210 bps (110 bps)
Securities AFS:
U.S. states and political subdivisions	12		Cost	N/A
MBS - private	132		Third party pricing	N/A
ABS	21		Third party pricing	N/A
Corporate and other debt securities	5		Cost	N/A
Other equity securities	830		Cost	N/A
Residential LHFS	1		Monte Carlo/Discounted cash flow	Option adjusted spread	145-165 bps (150 bps)
				Conditional prepayment rate	0-30 CPR (16.5 CPR)
				Conditional default rate	0-3 CDR (0.5 CDR)
LHFI	278		Monte Carlo/Discounted cash flow	Option adjusted spread	0-450 bps (285 bps)
				Conditional prepayment rate	4-30 CPR (12.5 CPR)
				Conditional default rate	0-7 CDR (1.75 CDR)
	6		Collateral based pricing	Appraised value	NM ⁴
MSRs	1,305		Monte Carlo/Discounted cash flow	Conditional prepayment rate	1-19 CPR (9 CPR)
MSRs	1,305		Monte Carlo/Discounted cash flow	Option adjusted spread	1-113% (10%)
Liabilities
Other liabilities ³	24		Internal model	Loan production volume	0-150% (96%)

¹For certain assets and liabilities where 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 not applicable, "N/A."

²Represents the net of IRLC assets and liabilities entered into by the Mortgage Banking segment.

³Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. See Note 13, "Guarantees," for additional information.

⁴Not meaningful.



	Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)	Fair value December 31, 2013		Valuation Technique	Unobservable Input ¹	Range (weighted average)
Assets
Trading assets and derivatives:
CDO/CLO securities		$54	Matrix pricing/Discounted cash flow	Indicative pricing based on overcollateralization ratio	$50-$60 ($54)
CDO/CLO securities		$54	Matrix pricing/Discounted cash flow	Discount margin	4-6% (5%)
ABS	6		Matrix pricing	Indicative pricing	$55 ($55)
Derivative contracts, net ²	8		Internal model	Pull through rate	1-99% (74%)
Derivative contracts, net ²	8		Internal model	MSR value	42-222 bps (111 bps)
Securities AFS:
U.S. states and political subdivisions	34		Matrix pricing	Indicative pricing	$80-$111 ($95)
MBS - private	154		Third party pricing	N/A
ABS	21		Third party pricing	N/A
Corporate and other debt securities	5		Cost	N/A
Other equity securities	739		Cost	N/A
Residential LHFS	3		Monte Carlo/Discounted cash flow	Option adjusted spread	250-675 bps (277 bps)
				Conditional prepayment rate	2-10 CPR (7 CPR)
				Conditional default rate	0-4 CDR (0.5 CDR)
LHFI	292		Monte Carlo/Discounted cash flow	Option adjusted spread	0-675 bps (307 bps)
				Conditional prepayment rate	1-30 CPR (13 CPR)
				Conditional default rate	0-7 CDR (2.5 CDR)
	10		Collateral based pricing	Appraised value	NM ⁴
MSRs	1,300		Discounted cash flow	Conditional prepayment rate	4-25 CPR (8 CPR)
MSRs	1,300		Discounted cash flow	Discount rate	9-28% (12%)
Liabilities
Other liabilities ³	23		Internal model	Loan production volume	0-150% (92%)
Other liabilities ³	3		Internal model	Revenue run rate	NM ⁴

²Represents the net of IRLC assets and liabilities entered into by the Mortgage Banking segment.

³Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. Excludes $3 million of Other Liabilities. See Note 13, "Guarantees," for additional information.

⁴Not meaningful.

The following tables present a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (other than MSRs which are disclosed in Note 7, “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 and nine months ended September 30, 2014 and 2013.




	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance July 1, 2014		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 September 30, 2014		Included in earnings (held at September 30, 2014) ¹
Assets
Trading assets:
Derivative contracts, net		$21		$47		²		$—				$—		$—			$1			($64	)		$—		$—		$5		$16		²
Securities AFS:
U.S. states and political subdivisions	12		—				—				—		—			—			—			—		—		12		—
MBS - private	140		(1		)		(1		)		—		—			(6		)	—			—		—		132		(1		)
ABS	22		—				—				—		—			(1		)	—			—		—		21		—
Corporate and other debt securities	5		—				—				—		—			—			—			—		—		5		—
Other equity securities	779		—				—				135		—			(90		)	6			—		—		830		—
Total securities AFS	958		(1		)	⁴	(1		)	⁵	135		—			(97		)	6			—		—		1,000		(1		)

Residential LHFS	3		—				—				—		(3		)	—			—			1		—		1		—
LHFI	292		1			⁶	—				—		—			(8		)	(2		)	1		—		284		1			⁶
Liabilities
Other liabilities	27		—				—				—		—			(3		)	—			—		—		24		—



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance January 1, 2014		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 September 30, 2014		Included in earnings (held at September 30, 2014) ¹
Assets
Trading assets and derivatives:
CDO/CLO securities		$54		$11		³		$—			$—		($65	)		$—			$—			$—		$—			$—		$—
ABS	6		1			³	—			—		(7		)	—			—			—		—			—		—
Derivative contracts, net	8		180			²	—			—		—			2			(185		)	—		—			5		(10		)	²
Total trading assets and derivatives	68		192				—			—		(72		)	2			(185		)	—		—			5		(10		)
Securities AFS:
U.S. states and political subdivisions	34		(2		)		—			—		(20		)	—			—			—		—			12		—
MBS - private	154		(1		)		4			—		—			(25		)	—			—		—			132		(1		)
ABS	21		—				1			—		—			(1		)	—			—		—			21		—
Corporate and other debt securities	5		—				—			—		—			—			—			—		—			5		—
Other equity securities	739		—				—			270		—			(185		)	6			—		—			830		—
Total securities AFS	953		(3		)	⁴	5		⁵	270		(20		)	(211		)	6			—		—			1,000		(1		)

Residential LHFS	3		—				—			—		(7		)	—			(6		)	12		(1		)	1		—
LHFI	302		9			⁶	—			—		—			(31		)	3			1		—			284		6			⁶
Liabilities
Other liabilities	29		1				—			—		—			(3		)	(3		)	—		—			24		—

¹ Change in unrealized gains/(losses) included in earnings during the period related to financial assets still held at September 30, 2014.

² Amounts included in earnings are net of issuances, fair value changes, and expirations and are recognized in mortgage production related income/(loss).

³ Amounts included in earnings are recognized in trading income.

⁴ Amounts included in earnings are recognized in net securities (losses)/gains.

⁵ Amount recognized in OCI is recognized in change in unrealized gains/(losses) on AFS securities.

⁶ Amounts are generally included in mortgage production related income/(loss); however, the mark on certain fair value loans is included in trading income.

⁷ Amounts included in earnings are recognized in other noninterest expense.




	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance July 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 September 30, 2013		Included in earnings (held at September 30, 2013) ¹
Assets
Trading assets and derivatives:
CDO/CLO securities		$63			$—			$—				$—		$—			$—			$—			$—		$—			$63		$—
ABS	6			—		³	—				—		—			—			—			—		—			6		—		³
Derivative contracts, net	(52		)	46		²	—				—		—			1			50			—		—			45		—
Total trading assets and derivatives	17			46			—				—		—			1			50			—		—			114		—
Securities AFS:
U.S. states and political subdivisions	37			—			—				—		—			(3		)	—			—		—			34		—
MBS - private	181			—			(2		)		—		—			(13		)	—			—		—			166		—
ABS	22			—			—				—		—			(1		)	—			—		—			21		—
Corporate and other debt securities	2			—			—				4		—			(1		)	—			—		—			5		—
Other equity securities	737			—			—				—		—			(68		)	—			—		—			669		—
Total securities AFS	979			—			(2		)	⁵	4		—			(86		)	—			—		—			895		—
Residential LHFS	8			—			—				—		(4		)	—			(5		)	6		(1		)	4		—
LHFI	339			4		⁶	—				—		—			(15		)	(12		)	—		—			316		2		⁶
Liabilities
Other liabilities	29			—			—				—		—			(3		)	—			—		—			26		—



	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 September 30, 2013		Included in earnings (held at September 30, 2013)¹
Assets
Trading assets and derivatives:
CDO/CLO securities		$52		$11		³		$—			$—		$—			$—			$—			$—		$—			$63		$11		³
ABS	5		1			³	—			—		—			—			—			—		—			6		1			³
Derivative contracts, net	132		71			²	—			—		—			1			(159		)	—		—			45		—
Corporate and other debt securities	1		—				—			—		—			(1		)	—			—		—			—		—
Total trading assets and derivatives	190		83				—			—		—			—			(159		)	—		—			114		12
Securities AFS:
U.S. states and political subdivisions	46		—				2			—		(7		)	(7		)	—			—		—			34		—
MBS - private	209		—				(5		)	—		—			(38		)	—			—		—			166		—
ABS	21		(1		)		3			—		—			(2		)	—			—		—			21		(1		)
Corporate and other debt securities	5		—				—			4		—			(4		)	—			—		—			5		—
Other equity securities	633		—				—			110		—			(74		)	—			—		—			669		—
Total securities AFS	914		(1		)	⁴	—			114		(7		)	(125		)	—			—		—			895		(1		)	⁴
Residential LHFS	8		—				—			—		(20		)	—			(8		)	28		(4		)	4		—
LHFI	379		(2		)	⁶	—			—		—			(47		)	(14		)	—		—			316		(8		)	⁶
Liabilities
Other liabilities	31		(1		)		—			—		—			(4		)	—			—		—			26		1

¹ Change in unrealized gains/(losses) included in earnings for the period related to financial assets still held at September 30, 2013.

² Amounts included in earnings are net of issuances, fair value changes, and expirations and are recognized in mortgage production related income.

³ Amounts included in earnings are recognized in trading income.

⁴ Amounts included in earnings are recognized in net securities (losses)/gains.

⁵ Amounts recognized in OCI are recognized in change in unrealized gains/(losses) on AFS securities.

⁶ Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in trading income.

Non-recurring Fair Value Measurements

The following tables present those assets measured at fair value on a non-recurring basis at September 30, 2014 and December 31, 2013, as well as corresponding gains/(losses) recognized during the three and nine months ended September 30, 2014 and the year ended December 31, 2013. The changes in fair value when comparing balances at September 30, 2014 to those at December 31, 2013, 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.



(Dollars in millions)	September 30, 2014		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Gains/(Losses) for the Three Months Ended September 30, 2014			Gains/(Losses) for the Nine Months Ended September 30, 2014
LHFS		$72		$—		$72		$—		$—			$1
LHFI	26		—		—		26		—			—
OREO	40		—		5		35		(5		)	(9		)
Affordable Housing	70		—		—		70		8			(28		)
Other Assets	203		—		196		7		(49		)	(62		)

(Dollars in millions)	December 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 Year Ended December 31, 2013
LHFS		$278		$—		$278		$—		($3	)
LHFI	75		—		—		75		—
OREO	49		—		1		48		(10		)
Affordable Housing	7		—		—		7		(3		)
Other Assets	171		—		158		13		(61		)

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 September 30, 2014 and December 31, 2013, 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 and nine months ended September 30, 2014, the Company transferred $53 million of residential mortgage NPLs to LHFS as the Company elected to actively market these loans for sale in anticipation of a fourth quarter sale. As a result of transferring these loans to LHFS, the Company recognized a $9 million charge-off through the ALLL to reflect the loans' estimated market value. These loans were predominantly reported at amortized cost prior to transferring to LHFS; however, a portion of the NPLs were carried at fair value. Also during the nine months ended September 30, 2014, the Company sold $10 million of nonperforming LHFS and eliminated an additional $2 million of nonperforming LHFS resulting from the deconsolidation of the CLO in connection with the sale of RidgeWorth. During the nine months ended September 30, 2013, the Company transferred $22 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 $3 million charge-off to reflect the loans' estimated market value. These transferred NPL loans were sold at approximately their carrying value during the nine months ended September 30, 2013. The Company also sold an additional $39 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 $5 million during 2013.

Loans Held for Investment

At September 30, 2014 and December 31, 2013, LHFI consisted primarily of consumer and residential real estate loans discharged in Chapter 7 bankruptcy that had not been reaffirmed by the borrower, as well as nonperforming CRE loans for which specific reserves had been recognized. 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 or losses during the three and nine months ended September 30, 2014 and 2013 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 binding purchase agreements exist. Level 3 OREO consists primarily of residential homes, commercial properties, and vacant lots and land for which initial valuations are based on property-specific appraisals, broker pricing opinions, or other available market information. Updated value estimates are received regularly on level 3 OREO.

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. 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. During the first quarter of 2014, the Company decided to actively market for sale certain consolidated affordable housing properties, and accordingly, recognized an impairment charge of $36 million to adjust the carrying values of these properties to their estimated net realizable values obtained from a third party broker opinion. During the three months ended September 30, 2014, the Company recognized gains of $8 million on these affordable housing properties as a result of increased estimated net realizable values. The Company anticipates that the sale of these properties will occur within the next six months. During the three and nine months ended September 30, 2013, as a result of increased net realizable values, the Company recognized gains of $9 million on certain affordable housing properties that were impaired during 2012.

Other Assets

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

Other repossessed assets consist of repossessed personal property that is measured at fair value less cost to sell. These assets are considered level 3 as their fair value is determined based on a variety of subjective unobservable factors. During the three and nine months ended September 30, 2014 and 2013, no losses were recognized by the Company on other repossessed assets as the impairment charges on repossessed personal property are a component of the ALLL.

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, broker opinions, recent sales data from industry equipment dealers, and the discounted cash flows derived from the underlying lease agreement. As market data for similar assets and lease arrangements is available and used in the valuation, these assets are considered level 2. During the three and nine months ended September 30, 2014, the Company recognized impairment charges of $49 million and $57 million, respectively, attributable to the fair value of various personal property under operating leases. During the three and nine months ended September 30, 2013, the Company recognized impairment charges of $38 million and $39 million, respectively, attributable to the fair value of various personal property under operating leases.

Land held for sale is recorded at the lesser of carrying value or fair value less cost to sell. Land held for sale is considered level 2 as its fair value is determined based on market comparables and broker opinions. No impairment charges were recognized during the three months ended September 30, 2014. The Company recognized $5 million in impairment charges on land held for sale during the nine months ended September 30, 2014. No impairment charges were recognized on land held for sale during the three and nine months ended September 30, 2013.

Fair Value of Financial Instruments

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



	September 30, 2014				Fair Value Measurement Using
(Dollars in millions)	Measured 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		$8,325		$8,325		$8,325		$—		$—	(a)
Trading assets and derivatives	5,782		5,782		1,109		4,656		17		(b)
Securities AFS	26,162		26,162		1,120		24,042		1,000		(b)
LHFS	1,739		1,744		—		1,697		47		(c)
LHFI, net	130,183		125,954		—		528		125,426		(d)
Financial liabilities:
Deposits	136,507		136,468		—		136,468		—		(e)
Short-term borrowings	10,372		10,372		—		10,372		—		(f)
Long-term debt	12,942		13,008		—		12,456		552		(f)
Trading liabilities and derivatives	1,231		1,231		1,112		107		12		(b)



	December 31, 2013				Fair Value Measurement Using
(Dollars in millions)	Measured 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		$5,263		$5,263		$5,263		$—		$—	(a)
Trading assets and derivatives	5,040		5,040		1,156		3,812		72		(b)
Securities AFS	22,542		22,542		1,396		20,193		953		(b)
LHFS	1,699		1,700		—		1,666		34		(c)
LHFI, net	125,833		121,341		—		2,860		118,481		(d)
Financial liabilities:
Deposits	129,759		129,801		—		129,801		—		(e)
Short-term borrowings	8,739		8,739		—		8,739		—		(f)
Long-term debt	10,700		10,678		—		10,086		592		(f)
Trading liabilities and derivatives	1,181		1,181		979		198		4		(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 derivatives, and trading liabilities and derivatives 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 99% on the loan portfolio’s net carrying value at September 30, 2014 and December 31, 2013, 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 September 30, 2014 and December 31, 2013. 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. For valuation of brokered time deposits that the Company measures at fair value as well as those that are carried at amortized cost, refer to the respective valuation section within this footnote.

(f)

Fair values for 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 long-term debt that the Company measures at fair value, refer to the respective valuation section within this footnote. For level 3 debt, the terms are unique in nature or there are otherwise no similar instruments that can be used to value the instrument without using significant unobservable assumptions. In this situation, the Company reviews 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 September 30, 2014 and December 31, 2013, the Company had $56.0 billion and $48.9 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 $46 million and $53 million at September 30, 2014 and December 31, 2013, 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.