NOTE 18 - FAIR VALUE ELECTION AND MEASUREMENT

The Company measures certain assets and liabilities at fair value and classifies them as level 1, 2, or 3 within the fair value hierarchy, as shown below, 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.


•	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.

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 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.

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 support 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 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.

Determining whether to classify 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 for which fair value has been elected.



	December 31, 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		$267		$—		$—		$—			$267
Federal agency securities	—		547		—		—			547
U.S. states and political subdivisions	—		42		—		—			42
MBS - agency	—		545		—		—			545
CLO securities	—		3		—		—			3
Corporate and other debt securities	—		509		—		—			509
CP	—		327		—		—			327
Equity securities	45		—		—		—			45
Derivative contracts	688		5,126		25		(4,532		)	1,307
Trading loans	—		2,610		—		—			2,610
Total trading assets and derivatives	1,000		9,709		25		(4,532		)	6,202
Securities AFS:
U.S. Treasury securities	1,921		—		—		—			1,921
Federal agency securities	—		484		—		—			484
U.S. states and political subdivisions	—		197		12		—			209
MBS - agency	—		23,048		—		—			23,048
MBS - private	—		—		123		—			123
ABS	—		—		21		—			21
Corporate and other debt securities	—		36		5		—			41
Other equity securities ²	138		—		785		—			923
Total securities AFS	2,059		23,765		946		—			26,770
Residential LHFS	—		1,891		1		—			1,892
LHFI	—		—		272		—			272
MSRs	—		—		1,206		—			1,206
Liabilities
Trading liabilities and derivatives:
U.S. Treasury securities	485		—		—		—			485
MBS - agency	—		1		—		—			1
Corporate and other debt securities	—		279		—		—			279
Derivative contracts	444		5,128		5		(5,115		)	462
Total trading liabilities and derivatives	929		5,408		5		(5,115		)	1,227
Long-term debt	—		1,283		—		—			1,283
Other liabilities ³	—		—		27		—			27

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 $376 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $138 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 of Atlanta 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, if any, as well as loans in nonaccrual status.



(Dollars in millions)	Aggregate Fair Value at December 31, 2014		Aggregate UPB under FVO at December 31, 2014		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,610		$2,589		$21
LHFS	1,891		1,817		74
Nonaccrual	1		1		—
LHFI	269		281		(12		)
Nonaccrual	3		5		(2		)
Liabilities:
Long-term debt	1,283		1,176		107
(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 years ended December 31, 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, 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 Year Ended December 31, 2014 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income		Mortgage Production Related Income ¹		Mortgage Servicing Related Income			Total Changes in Fair Values Included in Current Period Earnings ²
Assets:
Trading loans		$11		$—		$—			$11
LHFS	—		3		—			3
LHFI	—		11		—			11
MSRs	—		3		(401		)	(398		)
Liabilities:
Brokered time deposits	6		—		—			6
Long-term debt	17		—		—			17

¹Income related to LHFS does not include income from IRLCs. For the year ended December 31, 2014, income related to MSRs includes mortgage servicing income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the year ended December 31, 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 Year Ended December 31, 2013 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income		Mortgage Production Related Income ¹			Mortgage Servicing Related Income		Total Changes in Fair Values Included in Current Period Earnings ²
Assets:
Trading loans		$13		$—			$—		$13
LHFS	1		(135		)	—		(134		)
LHFI	—		(10		)	—		(10		)
MSRs	—		4			50		54
Liabilities:
Brokered time deposits	8		—			—		8
Long-term debt	36		—			—		36

¹Income related to LHFS does not include income from IRLCs. For the year ended December 31, 2013, income related to MSRs includes mortgage servicing income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the year ended December 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 Year Ended December 31, 2012, for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading income			Mortgage Production Related Income ¹		Mortgage Servicing Related Income			Total Changes in Fair Values Included in Current Period Earnings ²
Assets:
Trading loans		$8			$—		$—			$8
LHFS	10			161		—			171
LHFI	1			20		—			21
MSRs	—			31		(353		)	(322		)
Liabilities:
Brokered time deposits	5			—		—			5
Long-term debt	(65		)	—		—			(65		)

¹Income related to LHFS does not include income from IRLCs. For the year ended December 31, 2012, income related to MSRs includes mortgage servicing income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the year ended December 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 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 at December 31, 2014 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. 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.

Level 3 AFS municipal securities at December 31, 2013 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. 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 December 31, 2013 were classified as level 3 as they were 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 priced the ARS below par. Subsequent to December 31, 2013, the Company sold these remaining ARS securities.

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 a small net unrealized gain position at December 31, 2014. See Note 5, “Securities Available for Sale,” for details regarding assumptions used to value private MBS.

CLO securities

The Company has CLO preference share exposure valued at $3 million at December 31, 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.

The Company’s investments in level 3 trading CDOs at December 31, 2013 consisted of senior ARS interests in Company-sponsored securitizations of trust preferred collateral. The auctions related to these securities were failing, requiring the Company to make significant adjustments to valuation assumptions. As such, the Company classified these as level 3 investments. The Company valued these interests utilizing a pricing matrix based on a range of overcollateralization levels that was periodically updated based on discussions with the dealer community and limited trade data. Under this modified approach, at December 31, 2013, all CDO ARS were valued using a simplified discounted cash flow approach that prices the securities to their expected maturity. The primary inputs and assumptions considered by the Company in valuing these retained interests were overcollateralization levels (impacted by credit losses) and the discount margin over LIBOR. See the level 3 assumptions table in this note for information on the sensitivity of these interests to changes in the assumptions. The Company sold all of its level 3 investments in trading CDOs during 2014.

Asset-Backed Securities

Level 2 ABS classified as securities AFS at December 31, 2013 were primarily interests collateralized by third party securitizations of 2009 through 2011 vintage auto loans. These ABS were either publicly traded or 144A privately placed bonds. The Company utilized 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. The Company sold all of its interests in these level 2 ABS during 2014.

Level 3 ABS classified as securities AFS includes purchased interests in third party securitizations collateralized by home equity loans and are valued based on third party pricing with significant unobservable assumptions. At December 31, 2013 trading ARS consisted of student loan ABS that were generally collateralized by FFELP student loans, the majority of which benefited from a maximum guarantee amount of 97%. However, 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 was classified as level 3. The Company sold the remaining interests in these subordinate student loan ARS during 2014.

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 of Atlanta stock and Federal Reserve Bank of Atlanta 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. See Note 17, “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 years ended December 31, 2014 and 2013, the Company transferred $245 million and $222 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, (ii) loans backed by the SBA, and (iii) the loan sales and trading business within the Company’s Wholesale Banking segment. See Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 17, “Derivative Financial Instruments,” for further discussion of this business. 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 used by the Company to value these loans. At December 31, 2014 and 2013, the Company had outstanding $2.3 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 the years ended December 31, 2014, 2013, and 2012, the Company recognized an immaterial amount of gains in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk. 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. The Company believes that level 2 is a more appropriate presentation of the underlying market activity for the loans. At December 31, 2014 and 2013, $284 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.

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 years ended December 31, 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 the years ended December 31, 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. For the year ended December 31, 2012, gains the Company recognized in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk were $12 million. 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 10, “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 the entity's 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 years ended December 31, 2014 and 2013, the Company recognized an immaterial amount of gains due to changes in fair value attributable to borrower-specific credit risk in the Consolidated Statements of Income. For the year ended December 31, 2012, gains the Company recognized due to changes in fair value attributable to borrower-specific credit risk in the Consolidated Statements of Income were $10 million.

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 9, "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, and comparisons to market transactions. 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 16, "Guarantees," for a discussion of the valuation assumptions.

Brokered time deposits

The Company elected to measure certain CDs at fair value. These debt instruments included embedded derivatives that were generally based on underlying equity securities or equity indices, but may have been based on other underlyings that may or may not have been clearly and closely related to the host debt instrument. The Company measured 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 specific basis, whether a new issuance should 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 employed 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 used 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 at December 31, 2013, 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 years ended December 31, 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. For the year ended December 31, 2012, the Company recognized $15 million of losses due to changes in its own credit spread on its brokered time deposits carried at fair value. At December 31, 2014 the Company did not have any 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 a fixed to a floating rate. The estimated earnings impact from changes in credit spreads above U.S. Treasury rates were losses of $19 million and gains of $40 million and $78 million for the years ended December 31, 2014, 2013, and 2012, respectively.

At December 31, 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. Additionally, the derivative that the Company obtained as a result of its sale of Visa Class B shares was included in other liabilities at December 31, 2013. This derivative was included in derivative contracts at December 31, 2014 and accordingly, reclassified to derivative contracts in the prior year level 3 assumptions and reconciliation below for comparability.

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 December 31, 2014		Valuation Technique	Unobservable Input ¹	Range (weighted average)
Assets
Trading assets and derivatives:
Derivative contracts, net ²		$20	Internal model	Pull through rate	40-100% (75%)
Derivative contracts, net ²		$20	Internal model	MSR value	39-218 bps (107 bps)
Securities AFS:
U.S. states and political subdivisions	12		Cost	N/A
MBS - private	123		Third party pricing	N/A
ABS	21		Third party pricing	N/A
Corporate and other debt securities	5		Cost	N/A
Other equity securities	785		Cost	N/A
Residential LHFS	1		Monte Carlo/Discounted cash flow	Option adjusted spread	145-225 (157 bps)
				Conditional prepayment rate	1-30 CPR (15 CPR)
				Conditional default rate	0-3 CDR (0.75 CDR)
LHFI	269		Monte Carlo/Discounted cash flow	Option adjusted spread	0-450 (286 bps)
				Conditional prepayment rate	4-30 CPR (13.75 CPR)
				Conditional default rate	0-7 CDR (1.75 CDR)
	3		Collateral based pricing	Appraised value	NM ⁴
MSRs	1,206		Monte Carlo/Discounted cash flow	Conditional prepayment rate	2-47 CPR (11 CPR)
MSRs	1,206		Monte Carlo/Discounted cash flow	Option adjusted spread	(1.34%)-122.1% (9.96%)
Liabilities
Other liabilities ³	27		Internal model	Loan production volume	0-150% (107%)

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 and includes the derivative liability associated with the Company's sale of Visa shares.

³Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. See Note 16, "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, 3}	5		Internal model	Pull through rate	1-99% (74%)
Derivative contracts, net ^{2, 3}	5		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 ⁴	23		Internal model	Loan production volume	0-150% (92%)
Other liabilities ⁴	3		Internal model	Revenue run rate	NM ⁵

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

³Includes a $3 million derivative liability associated with the Company's sale of Visa shares during the year ended December 31, 2009.

⁴Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. Excludes $3 million of Other Liabilities. See Note 16, "Guarantees," for additional information.

⁵Not 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 9, “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 years ended December 31, 2014 and 2013.



	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 December 31, 2014		Included in earnings (held at December 31, 2014) ¹
Assets
Trading assets and derivatives:
CDO/CLO securities		$54		$11		³		$—			$—		($65	)		$—			$—			$—		$—			$—		$—
ABS	6		1			³	—			—		(7		)	—			—			—		—			—		—
Derivative contracts, net	5		252			²	—			—		—			8			(245		)	—		—			20		—
Total trading assets and derivatives	65		264				—			—		(72		)	8			(245		)	—		—			20		—
Securities AFS:
U.S. states and political subdivisions	34		(2		)		—			—		(20		)	—			—			—		—			12		—
MBS - private	154		(1		)		2			—		—			(32		)	—			—		—			123		(1		)
ABS	21		—				2			—		—			(2		)	—			—		—			21		—
Corporate and other debt securities	5		—				—			—		—			—			—			—		—			5		—
Other equity securities	739		—				—			360		—			(320		)	6			—		—			785		—
Total securities AFS	953		(3		)	⁴	4		⁵	360		(20		)	(354		)	6			—		—			946		(1		)	⁴

Residential LHFS	3		—				—			—		(10		)	—			(6		)	17		(3		)	1		—
LHFI	302		12			⁶	—			—		—			(45		)	1			2		—			272		9			⁶
Liabilities
Other liabilities	26		4			⁷	—			—		—			(3		)	—			—		—			27		—

¹ Change in unrealized gains/(losses) included in earnings during the period related to financial assets still held at December 31, 2014.

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 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; 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 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 December 31, 2013			Included in earnings (held at December 31, 2013)¹
Assets
Trading assets and derivatives:
CDO/CLO securities		$52		$23		³		$—				$—		($20	)		($1	)		$—			$—		$—			$54			$15		³
ABS	5		1			³	—				—		—			—			—			—		—			6			1			³
Derivative contracts, net	132		93			²	—				—		—			2			(222		)	—		—			5		⁷	(5		)	²
Corporate and other debt securities	1		—				—				—		—			(1		)	—			—		—			—			—
Total trading assets and derivatives	190		117				—				—		(20		)	—			(222		)	—		—			65			11
Securities AFS:
U.S. states and political subdivisions	46		—				2				—		(6		)	(8		)	—			—		—			34			—
MBS - private	209		—				(5		)		—		—			(50		)	—			—		—			154			—
ABS	21		(1		)		4				—		—			(3		)	—			—		—			21			(1		)
Corporate and other debt securities	5		—				—				4		—			(4		)	—			—		—			5			—
Other equity securities	633		—				—				200		—			(94		)	—			—		—			739			—
Total securities AFS	914		(1		)	⁴	1			⁵	204		(6		)	(159		)	—			—		—			953			(1		)	⁴
Residential LHFS	8		1			⁶	—				—		(25		)	(1		)	(8		)	32		(4		)	3			—
LHFI	379		(5		)	⁶	—				—		—			(55		)	(17		)	—		—			302			(11		)	⁶
Liabilities
Other liabilities	31		(1		)	⁷	—				—		—			(4		)	—			—		—			26			(1		)	⁷

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

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

Non-recurring Fair Value Measurements

The following tables present those assets measured at fair value on a non-recurring basis at December 31, 2014 and 2013 as well as corresponding losses recognized during the years ended December 31, 2014 and 2013. When comparing balances at December 31, 2014 to those at December 31, 2013, the changes in fair value generally result from the application of LOCOM or through write-downs of individual assets. The tables do not reflect changes in fair value attributable to economic hedges the Company may have used to mitigate interest rate risk associated with LHFS and MSRs.



(Dollars in millions)	December 31, 2014		Level 1		Level 2		Level 3		Losses for the Year Ended December 31, 2014
LHFS		$1,108		$121		$45		$942		($6	)
LHFI	24		—		—		24		—
OREO	29		—		1		28		(6		)
Affordable housing	77		—		—		77		(21		)
Other assets	225		—		216		9		(64		)

(Dollars in millions)	December 31, 2013		Level 1		Level 2		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 December 31, 2014, LHFS level 1 assets consisted of commercial and industrial loans. At December 31, 2014 and 2013 level 2 assets 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. Level 3 assets at December 31, 2014 consisted primarily of indirect auto loans and tax-exempt municipal leases. These loans were valued consistent with the methodology discussed in the Recurring Fair Value Measurement section of this footnote.

During the fourth quarter of 2014, the Company transferred $470 million of C&I loans to LHFS as the Company elected to actively market these loans for sale, and are expected to be sold in the first quarter of 2015; $340 million of these were tax-exempt municipal leases included in level 3 and the remainder were included in level 1 at December 31, 2014. Also, during the fourth quarter of 2014, the Company transferred $38 million of residential mortgage NPLs to LHFS, which are included in level 2 at December 31, 2014, as the Company elected to actively market these loans for sale. These transferred loans were predominantly reported at amortized cost prior to transferring to LHFS; however, a portion of the NPLs were carried at fair value. Additionally, during the fourth quarter of 2014, the Company transferred approximately $600 million of indirect auto loans to LHFS, which the Company elected to actively market for sale in anticipation of a first quarter 2015 sale. These loans are included in level 3 at December 31, 2014.

During 2013, the Company transferred $25 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 2013. The Company also sold an additional $63 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 $12 million during 2013.

Loans Held for Investment

At December 31, 2014 and 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 years ended December 31, 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.

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 and were considered level 3. During the year ended December 31, 2014, the Company recognized gains of $15 million on these affordable housing properties as a result of increased estimated net realizable values. The Company anticipates that the sale of a majority of these properties will occur within the next three months.

At December 31, 2013, fair value measurements for affordable housing properties were derived from internal analyses using market assumptions. Significant assumptions utilized in these analyses included cash flows, market capitalization rates, and tax credit market pricing. Due to the lack of comparable sales in the marketplace, these valuations were considered level 3. During the year ended December 31, 2013, the Company recognized impairment of $3 million on its held for use consolidated affordable housing properties.

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 years ended December 31, 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 years ended December 31, 2014 and 2013, the Company recognized impairment charges of $59 million and $50 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. The Company recognized $5 million in impairment charges on land held for sale during the year ended December 31, 2014. No impairment charges were recognized on land held for sale during the year ended December 31, 2013.

Fair Value of Financial Instruments

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



	December 31, 2014				Fair Value Measurement Using
(Dollars in millions)	Measured Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents		$8,229		$8,229		$8,229		$—		$—	(a)
Trading assets and derivatives	6,202		6,202		1,000		5,177		25		(b)
Securities AFS	26,770		26,770		2,059		23,765		946		(b)
LHFS	3,232		3,240		—		2,063		1,177		(c)
LHFI, net	131,175		126,855		—		545		126,310		(d)
Financial liabilities:
Deposits	140,567		140,562		—		140,562		—		(e)
Short-term borrowings	9,186		9,186		—		9,186		—		(f)
Long-term debt	13,022		13,056		—		12,398		658		(f)
Trading liabilities and derivatives	1,227		1,227		929		293		5		(b)



	December 31, 2013				Fair Value Measurement Using
(Dollars in millions)	Measured Amount		Fair Value		Level 1		Level 2		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)	Trading assets and derivatives, securities AFS, 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 December 31, 2014 and 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 December 31, 2014 and 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 December 31, 2014 and 2013, the Company had $56.5 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 $59 million and $53 million at December 31, 2014 and 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.