NOTE 14 - FAIR VALUE ELECTION AND MEASUREMENT

The Company measures certain assets and liabilities at fair value, which are classified 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, 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, 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.



	June 30, 2015
	Fair Value Measurements
(Dollars in millions)	Level 1		Level 2		Level 3		Netting Adjustments ¹			Assets/Liabilities at Fair Value
Assets
Trading assets and derivative instruments:
U.S. Treasury securities		$556		$—		$—		$—			$556
Federal agency securities	—		560		—		—			560
U.S. states and political subdivisions	—		32		—		—			32
MBS - agency	—		612		—		—			612
CLO securities	—		2		—		—			2
Corporate and other debt securities	—		577		—		—			577
CP	—		165		—		—			165
Equity securities	58		—		—		—			58
Derivative instruments	548		4,667		24		(4,031		)	1,208
Trading loans	—		2,668		—		—			2,668
Total trading assets and derivative instruments	1,162		9,283		24		(4,031		)	6,438

Securities AFS:
U.S. Treasury securities	2,913		—		—		—			2,913
Federal agency securities	—		477		—		—			477
U.S. states and political subdivisions	—		179		5		—			184
MBS - agency	—		22,733		—		—			22,733
MBS - private	—		—		112		—			112
ABS	—		—		17		—			17
Corporate and other debt securities	—		34		3		—			37
Other equity securities ²	58		—		582		—			640
Total securities AFS	2,971		23,423		719		—			27,113

Residential LHFS	—		1,864		2		—			1,866
LHFI	—		—		263		—			263
MSRs	—		—		1,393		—			1,393

Liabilities
Trading liabilities and derivative instruments:
U.S. Treasury securities	613		—		—		—			613
MBS - agency	—		1		—		—			1
Corporate and other debt securities	—		294		—		—			294
Derivative instruments	362		4,747		10		(4,719		)	400
Total trading liabilities and derivative instruments	975		5,042		10		(4,719		)	1,308

Long-term debt	—		1,263		—		—			1,263
Other liabilities ³	—		—		23		—			23

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 $58 million in mutual fund investments, $174 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, and $6 million of other.

³ Includes contingent consideration obligations related to acquisitions.



	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 derivative instruments:
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 instruments	688		5,126		25		(4,532		)	1,307
Trading loans	—		2,610		—		—			2,610
Total trading assets and derivative instruments	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 derivative instruments:
U.S. Treasury securities	485		—		—		—			485
MBS - agency	—		1		—		—			1
Corporate and other debt securities	—		279		—		—			279
Derivative instruments	444		5,128		5		(5,115		)	462
Total trading liabilities and derivative instruments	929		5,408		5		(5,115		)	1,227

Long-term debt	—		1,283		—		—			1,283
Other liabilities ³	—		—		27		—			27

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 $138 million in mutual fund investments, $376 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, and $7 million of other.

³ Includes contingent consideration obligations related to acquisitions.

The following tables present the difference between the aggregate fair value and the UPB of trading loans, LHFS, LHFI, 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 in nonaccrual status.



(Dollars in millions)	Aggregate Fair Value at June 30, 2015		Aggregate UPB under FVO at June 30, 2015		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,668		$2,610		$58
LHFS	1,865		1,830		35
Nonaccrual	1		2		(1		)
LHFI	261		274		(13		)
Nonaccrual	2		3		(1		)
Liabilities:
Long-term debt	1,263		1,176		87

(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

The following tables present the change in fair value during the three and six months ended June 30, 2015 and 2014 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 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 (Loss)/Gain for the Three Months Ended June 30, 2015 for Items Measured at Fair Value Pursuant to Election of the FVO											Fair Value Gain/(Loss) for the Six Months Ended June 30, 2015 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			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		($2	)		$—			$—		($2	)		$2		$—			$—			$2
LHFS	—			(24		)	—		(24		)	—		(12		)	—			(12		)
LHFI	—			—			—		—			—		2			—			2
MSRs	—			—			89		89			—		1			(37		)	(36		)
Liabilities:
Long-term debt	18			—			—		18			19		—			—			19

¹Income related to LHFS does not include income from IRLCs. For the three and six months ended June 30, 2015, income related to MSRs includes income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the three and six months ended June 30, 2015 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, and long-term debt that have been elected to be measured 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 June 30, 2014 for Items Measured at Fair Value Pursuant to Election of the FVO										Fair Value Gain/(Loss) for the Six Months Ended June 30, 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			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		$3		$—		$—			$3			$9			$—		$—			$9
LHFS	—		15		—			15			—			14		—			14
LHFI	—		4		—			4			—			8		—			8
MSRs	—		2		(104		)	(102		)	—			2		(185		)	(183		)
Liabilities:
Brokered time deposits	2		—		—			2			5			—		—			5
Long-term debt	5		—		—			5			(3		)	—		—			(3		)

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

²Changes in fair value for the three and six months ended June 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 measured 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 estimating fair value measurements for assets and liabilities measured at fair value on a recurring basis and classified as level 2 or 3.

Trading Assets and Derivative Instruments 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 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 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 June 30, 2015 and 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; therefore these securities are priced at par.

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, information received from market participants and analysts, and/or changes in the underlying collateral performance. The Company continued to classify private MBS as level 3, as the Company believes that available 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.

Asset-Backed Securities

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; thus, they are classified as level 3.

Corporate and other debt securities

Corporate debt securities are predominantly comprised of senior and subordinate debt obligations of domestic corporations and are classified as level 2. Other debt securities in level 3 primarily include bonds that are redeemable with the issuer at par and cannot be traded in the market; as such, 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

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 and they are classified as level 3. 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 instruments

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

Level 1 derivative instruments generally include exchange-traded futures or option contracts for which pricing is readily available. The Company’s level 2 instruments are predominantly 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.

The Company's derivative instruments classified as level 2 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 13, “Derivative Financial Instruments,” for additional information on the Company's derivative instruments.

The Company's derivative instruments classified as level 3 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 six months ended June 30, 2015, the Company transferred $37 million and $97 million, respectively, of net IRLCs out of level 3 as the associated loans were closed. During the three and six months ended June 30, 2014 the Company transferred $60 million and $118 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 8, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 13, “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, senior demand loans that are collateralized by cash. 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 both June 30, 2015 and December 31, 2014, the Company had outstanding $2.3 billion of such short-term loans measured 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 three and six months ended June 30, 2015, the Company recognized an immaterial amount of losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk. For the three and six months ended June 30, 2014, 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. At June 30, 2015 and December 31, 2014, $312 million and $284 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 are recognized within mortgage production related income in the Consolidated Statements of Income when earned at the time of closing. 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 derivative instruments 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.

LHFS classified as level 2 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 six months ended June 30, 2015 and 2014 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 three and six months ended June 30, 2015, the Company recognized an immaterial amount of losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk. For the three and six months ended June 30, 2014, the Company recognized an immaterial amount of gains in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk. In addition to borrower-specific credit risk, there are other, more significant, variables that drive changes in the fair values of the loans, including interest rates and general conditions in the markets for the loans.

LHFI

LHFI classified as level 3 includes predominantly mortgage loans that are not marketable, largely due to the identification of loan defects. 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 using a discounted cash flow approach. 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. 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. For additional information see Note 7, "Goodwill and Other Intangible Assets."

Liabilities

Trading liabilities and derivative instruments

Trading liabilities are primarily comprised of derivative contracts, but also include various contracts (primarily U.S. Treasury securities, 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 Derivative Instruments 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 related derivative liability is classified as a level 3 instrument. See Note 12, "Guarantees," for a discussion of the valuation assumptions.

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 price indications 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 offsetting derivative positions without having to apply hedge accounting, thus avoiding the complex and time consuming fair value hedge accounting requirements.

The Company’s public debt measured 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 resulted in an immaterial amount of gains and losses for the three and six months ended June 30, 2015, respectively, and losses of $11 million and $27 million for the three and six months ended June 30, 2014, respectively.

Other liabilities

The Company’s other liabilities that are measured 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 June 30, 2015		Valuation Technique	Unobservable Input ¹	Range (weighted average)
Assets
Trading assets and derivative instruments:
Derivative instruments, net ²		$14	Internal model	Pull through rate	40-100% (76%)
Derivative instruments, net ²		$14	Internal model	MSR value	34-220 bps (119 bps)
Securities AFS:
U.S. states and political subdivisions	5		Cost	N/A
MBS - private	112		Third party pricing	N/A
ABS	17		Third party pricing	N/A
Corporate and other debt securities	3		Cost	N/A
Other equity securities	582		Cost	N/A
Residential LHFS	2		Monte Carlo/Discounted cash flow	Option adjusted spread	143-162 bps (151 bps)
				Conditional prepayment rate	2-25 CPR (14 CPR)
				Conditional default rate	0-2 CDR (0.50 CDR)
LHFI	261		Monte Carlo/Discounted cash flow	Option adjusted spread	0-450 bps (275 bps)
				Conditional prepayment rate	5-35 CPR (12 CPR)
				Conditional default rate	0-5 CDR (1.75 CDR)
	2		Collateral based pricing	Appraised value	NM ⁴
MSRs	1,393		Monte Carlo/Discounted cash flow	Conditional prepayment rate	1-21 CPR (9 CPR)
MSRs	1,393		Monte Carlo/Discounted cash flow	Option adjusted spread	(4)-105% (9%)
Liabilities
Other liabilities ³	23		Internal model	Loan production volume	0-150% (150%)

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 12, "Guarantees," for additional information.

⁴Not meaningful.



	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 derivative instruments:
Derivative instruments, net ²		$20	Internal model	Pull through rate	40-100% (75%)
Derivative instruments, 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 bps (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 bps (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)-122% (10%)
Liabilities
Other liabilities ³	27		Internal model	Loan production volume	0-150% (107%)

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 12, "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 servicing rights 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 six months ended June 30, 2015 and 2014.



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance April 1, 2015		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 June 30, 2015		Included in earnings (held at June 30, 2015) ¹
Assets
Trading assets:
Derivative instruments, net		$37		$12		²		$—		$—		$—			$1			($36	)		$—		$—		$14		$—
Securities AFS:
U.S. states and political subdivisions	6		—				—		—		—			(1		)	—			—		—		5		—
MBS - private	119		—				—		—		—			(7		)	—			—		—		112		—
ABS	21		—				—		—		—			(4		)	—			—		—		17		—
Corporate and other debt securities	5		—				—		—		—			(2		)	—			—		—		3		—
Other equity securities	616		—				—		83		—			(117		)	—			—		—		582		—
Total securities AFS	767		—				—		83		—			(131		)	—			—		—		719		—

Residential LHFS	4		—				—		—		(6		)	—			(1		)	5		—		2		—
LHFI	268		(3		)	³	—		—		—			(15		)	(1		)	14		—		263		(4		)	³
Liabilities
Other liabilities	21		2			⁴	—		—		—			—			—			—		—		23		2			⁴



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance January 1, 2015		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 June 30, 2015		Included in earnings (held at June 30, 2015) ¹
Assets
Trading assets:
Derivative instruments, net		$20		$89	²		$—			$—		$—			$1			($96	)		$—		$—		$14		($4	)	²
Securities AFS:
U.S. states and political subdivisions	12		—			—			—		—			(7		)	—			—		—		5		—
MBS - private	123		—			1			—		—			(12		)	—			—		—		112		—
ABS	21		—			—			—		—			(4		)	—			—		—		17		—
Corporate and other debt securities	5		—			—			—		—			(2		)	—			—		—		3		—
Other equity securities	785		—			—			104		—			(307		)	—			—		—		582		—
Total securities AFS	946		—			1		⁵	104		—			(332		)	—			—		—		719		—

Residential LHFS	1		—			—			—		(9		)	—			(1		)	11		—		2		—
LHFI	272		—			—			—		—			(24		)	(1		)	16		—		263		(2		)	³
Liabilities
Other liabilities	27		6		⁴	—			—		—			(10		)	—			—		—		23		6			⁴

¹ Change in unrealized gains/(losses) included in earnings during the period related to financial assets/liabilities still held at June 30, 2015.

² Includes issuances, fair value changes, and expirations and are recognized in mortgage production related income.

³ Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in trading income.

⁴ Amounts included in earnings are recognized in other noninterest expense.

⁵ Amount recognized in OCI is included in change in net unrealized (losses)/gains on securities AFS, net of tax.



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning balance April 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 June 30, 2014		Included in earnings (held at June 30, 2014) ¹
Assets
Trading assets:
Derivative instruments, net		$11		$72	²		$—				$—		$—			($2	)		($60	)		$—		$—			$21		($6	)	²
Securities AFS:
U.S. states and political subdivisions	13		—			(1		)		—		—			—			—			—		—			12		—
MBS - private	149		—			2				—		—			(11		)	—			—		—			140		—
ABS	21		—			1				—		—			—			—			—		—			22		—
Corporate and other debt securities	5		—			—				—		—			—			—			—		—			5		—
Other equity securities	712		—			—				135		—			(68		)	—			—		—			779		—
Total securities AFS	900		—			2			⁵	135		—			(79		)	—			—		—			958		—

Residential LHFS	2		—			—				—		(2		)	—			(2		)	6		(1		)	3		—
LHFI	299		4		⁶	—				—		—			(12		)	1			—		—			292		2			⁶
Liabilities
Other liabilities	26		1		⁷	—				—		—			—			—			—		—			27		1			⁷



	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 June 30, 2014		Included in earnings (held at June 30, 2014)¹
Assets
Trading assets:
CDO/CLO securities		$54		$11		³		$—			$—		($65	)		$—			$—			$—		$—			$—		$—
ABS	6		1			³	—			—		(7		)	—			—			—		—			—		—
Derivative instruments, net	8		133			²	—			—		—			1			(121		)	—		—			21		(6		)	²
Total trading assets	68		145				—			—		(72		)	1			(121		)	—		—			21		(6		)
Securities AFS:
U.S. states and political subdivisions	34		(2		)		—			—		(20		)	—			—			—		—			12		—
MBS - private	154		—				5			—		—			(19		)	—			—		—			140		—
ABS	21		—				1			—		—			—			—			—		—			22		—
Corporate and other debt securities	5		—				—			—		—			—			—			—		—			5		—
Other equity securities	739		—				—			135		—			(95		)	—			—		—			779		—
Total securities AFS	953		(2		)	⁴	6		⁵	135		(20		)	(114		)	—			—		—			958		—

Residential LHFS	3		—				—			—		(4		)	—			(6		)	11		(1		)	3		—
LHFI	302		8			⁶	—			—		—			(23		)	5			—		—			292		5			⁶
Liabilities
Other liabilities	29		1			⁷	—			—		—			—			(3		)	—		—			27		1			⁷

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

² Includes 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 gains/(losses).

⁵ Amounts recognized in OCI are included in change in net unrealized (losses)/gains on securities AFS, net of tax.

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.

Non-recurring Fair Value Measurements

The following tables present losses recognized on assets still held at period end and measured at fair value on a non-recurring basis for the three and six months ended June 30, 2015 and for the year ended December 31, 2014. Adjustments to 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.



			Fair Value Measurements						Losses for the Three Months Ended June 30, 2015			Losses for the Six Months Ended June 30, 2015
(Dollars in millions)	June 30, 2015		Level 1		Level 2		Level 3		Losses for the Three Months Ended June 30, 2015			Losses for the Six Months Ended June 30, 2015
LHFS		$97		$—		$97		$—		$—			$—
LHFI	11		—		—		11		—			—
OREO	13		—		1		12		(2		)	(3		)
Other assets	47		—		41		6		(7		)	(7		)

			Fair Value Measurements						Losses for the Year Ended December 31, 2014
(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		)

Discussed below are the valuation techniques and inputs used in developing fair value measurements for assets measured at fair value on a non-recurring basis and classified as level 1, 2, and/or 3.

Loans Held for Sale

At June 30, 2015, LHFS classified as level 2 consisted of residential mortgage NPLs transferred to LHFS during the second quarter of 2015 as the Company elected to actively market these loans for sale. There were no gains or losses during the three and six months ended June 30, 2015 as the $11 million in second quarter charge-offs related to these loans were recognized as a component of the ALLL. 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.

At December 31, 2014, LHFS classified as level 1 consisted of commercial and industrial loans for which pricing is readily available, and level 2 assets consisted primarily of agency and non-agency residential mortgages, which were measured using observable collateral valuations, and corporate loans, all of which are accounted for at LOCOM. Level 3 assets at December 31, 2014 consisted primarily of indirect auto loans and tax-exempt municipal leases that incurred non-recurring fair value adjustments upon being transferred to LHFS, as the Company elected to actively market these loans for sale. These loans were valued consistent with the methodology discussed in the Recurring Fair Value Measurements section of this footnote.

Loans Held for Investment

At June 30, 2015 and December 31, 2014, 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 six months ended June 30, 2015 or the year ended December 31, 2014, 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 fair value less costs to sell. OREO classified as level 2 consists primarily of residential homes, commercial properties, and vacant lots and land for which binding purchase agreements exist. OREO classified as level 3 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 three and six months ended June 30, 2015, the Company did not recognize impairment on any of its affordable housing properties. During the first quarter of 2014, the Company decided to actively market for sale certain consolidated affordable housing properties, and accordingly, recognized an initial impairment charge of $36 million to adjust the carrying values of these properties to their estimated net realizable values, which were obtained from a third party broker opinion and were considered level 3. Subsequently during 2014, the Company recognized recoveries of $15 million on these affordable housing properties as a result of increased estimated net realizable values. Additionally, the Company recognized $1 million and $19 million in recoveries during the three and six months ended June 30, 2015, respectively, on the sale of legacy affordable housing investments that had previously incurred carrying value adjustments in 2014.

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. There were no losses recognized by the Company on other repossessed assets during the three and six months ended June 30, 2015 or the year ended December 31, 2014, 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 on the leased asset 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 both the three and six months ended June 30, 2015 the Company recognized impairment charges of $6 million attributable to the fair value of various personal property under operating leases. During the year ended December 31, 2014, the Company recognized impairment charges of $59 million 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 $1 million in impairment charges on land held for sale during the three and six months ended June 30, 2015. The Company recognized $5 million in impairment charges on land held for sale during the year ended December 31, 2014.

Fair Value of Financial Instruments

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



	June 30, 2015				Fair Value Measurements
(Dollars in millions)	Measured Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents		$7,288		$7,288		$7,288		$—		$—	(a)
Trading assets and derivative instruments	6,438		6,438		1,162		5,252		24		(b)
Securities AFS	27,113		27,113		2,971		23,423		719		(b)
LHFS	2,457		2,460		—		2,458		2		(c)
LHFI, net	130,704		126,690		—		436		126,254		(d)
Financial liabilities:
Deposits	144,937		144,896		—		144,896		—		(e)
Short-term borrowings	6,117		6,117		—		6,117		—		(f)
Long-term debt	10,109		10,103		—		9,576		527		(f)
Trading liabilities and derivative instruments	1,308		1,308		975		323		10		(b)



	December 31, 2014				Fair Value Measurements
(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 derivative instruments	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 derivative instruments	1,227		1,227		929		293		5		(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, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.


(b)	Trading assets and derivative instruments, securities AFS, and trading liabilities and derivative instruments 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, quoted market prices of similar instruments. Refer to the LHFS section within this footnote for further discussion. When 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 nonexistent requires significant judgment.

Generally, the Company measures fair value for LHFI based on estimated future discounted cash flows using current origination rates for loans with similar terms and credit quality, which derived an estimated value of 100% on the loan portfolio’s net carrying value at both June 30, 2015 and December 31, 2014. The value derived from origination rates likely does not represent an exit price; therefore, an incremental market risk and liquidity discount was applied when estimating the fair value of these loans. 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.

(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 approach that applies current interest rates to a schedule of aggregated expected maturities. The assumptions used in the discounted cash flow analysis are expected to approximate those that market participants would use in valuing deposits. The value of long-term relationships with depositors is not taken into account in estimating fair values.

(f)

Fair values for short-term borrowings and certain long-term debt are based on quoted market prices for similar instruments or estimated discounted cash flows utilizing the Company’s current incremental borrowing rate 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 June 30, 2015 and December 31, 2014, the Company had $60.8 billion and $56.5 billion, respectively, of unfunded commercial loan commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related unfunded commitments reserve, which was a combined $56 million and $59 million at June 30, 2015 and December 31, 2014, 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.