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Fair Value Election and Measurement

9 Months Ended

Sep. 30, 2019

NOTE 17 - 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 either a requirement to measure such assets and liabilities at fair value or on 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, derivative instruments, securities AFS, and certain other equity securities. Assets and liabilities that the Company has elected to measure at fair value on a recurring basis include trading loans, certain LHFS and LHFI, residential MSRs, brokered time deposits, and certain structured notes and fixed rate issuances included in long-term debt.

The Company elects to measure certain assets and liabilities at fair value to better 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 measured using 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 gathering 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 an 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 at least quarterly, and any material deterioration in model performance is escalated.

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 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 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.

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. There have been no significant changes in the Company’s valuation techniques or inputs used

in estimating fair value for assets and liabilities measured on a recurring basis from those disclosed in Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K.



	September 30, 2019
	Fair Value Measurements						Netting Adjustments ¹			Assets/Liabilities at Fair Value
(Dollars in millions)	Level 1		Level 2		Level 3
Assets
Trading assets and derivative instruments:
U.S. Treasury securities		$212		$—		$—		$—			$212
Federal agency securities	—		319		—		—			319
U.S. states and political subdivisions	—		43		—		—			43
MBS - agency residential	—		1,004		—		—			1,004
MBS - agency commercial	—		51		—		—			51
ABS	—		7		—		—			7
Corporate and other debt securities	—		628		—		—			628
CP	—		122		—		—			122
Equity securities	86		—		—		—			86
Derivative instruments	466		3,385		27		(2,108		)	1,770
Trading loans ²	—		2,862		—		—			2,862
Total trading assets and derivative instruments	764		8,421		27		(2,108		)	7,104

Securities AFS:
U.S. Treasury securities	4,018		—		—		—			4,018
Federal agency securities	—		124		—		—			124
U.S. states and political subdivisions	—		572		—		—			572
MBS - agency residential	—		22,585		—		—			22,585
MBS - agency commercial	—		2,983		—		—			2,983
MBS - non-agency commercial	—		1,064		—		—			1,064
Corporate and other debt securities	—		12		—		—			12
Total securities AFS	4,018		27,340		—		—			31,358

LHFS	—		1,488		—		—			1,488
LHFI	—		—		124		—			124
Residential MSRs	—		—		1,564		—			1,564
Other assets	76		—		—		—			76

Liabilities
Trading liabilities and derivative instruments:
U.S. Treasury securities	538		—		—		—			538
Corporate and other debt securities	—		539		—		—			539
Equity securities	20		—		—		—			20
Derivative instruments	135		2,886		10		(2,757		)	274
Trading loans	—		9		—		—			9
Total trading liabilities and derivative instruments	693		3,434		10		(2,757		)	1,380

Brokered time deposits	—		552		—		—			552
Long-term debt	—		302		—		—			302

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. See Note 16, “Derivative Financial Instruments,” for additional information.

² At September 30, 2019, includes $2.5 billion of loans related to the Company’s TRS business, $70 million of loans related to the Company’s loan sales and trading business held in inventory, and $227 million of loans backed by the SBA held in inventory.



	December 31, 2018
	Fair Value Measurements						Netting Adjustments ¹			Assets/Liabilities at Fair Value
(Dollars in millions)	Level 1		Level 2		Level 3
Assets
Trading assets and derivative instruments:
U.S. Treasury securities		$262		$—		$—		$—			$262
Federal agency securities	—		188		—		—			188
U.S. states and political subdivisions	—		54		—		—			54
MBS - agency residential	—		860		—		—			860
Corporate and other debt securities	—		700		—		—			700
CP	—		190		—		—			190
Equity securities	73		—		—		—			73
Derivative instruments	186		2,425		20		(1,992		)	639
Trading loans ²	—		2,540		—		—			2,540
Total trading assets and derivative instruments	521		6,957		20		(1,992		)	5,506

Securities AFS:
U.S. Treasury securities	4,211		—		—		—			4,211
Federal agency securities	—		221		—		—			221
U.S. states and political subdivisions	—		589		—		—			589
MBS - agency residential	—		22,864		—		—			22,864
MBS - agency commercial	—		2,627		—		—			2,627
MBS - non-agency commercial	—		916		—		—			916
Corporate and other debt securities	—		14		—		—			14
Total securities AFS	4,211		27,231		—		—			31,442

LHFS	—		1,178		—		—			1,178
LHFI	—		—		163		—			163
Residential MSRs	—		—		1,983		—			1,983
Other assets	95		—		—		—			95

Liabilities
Trading liabilities and derivative instruments:
U.S. Treasury securities	801		—		—		—			801
MBS - agency	—		3		—		—			3
Corporate and other debt securities	—		385		—		—			385
Equity securities	5		—		—		—			5
Derivative instruments	119		2,590		7		(2,306		)	410
Total trading liabilities and derivative instruments	925		2,978		7		(2,306		)	1,604

Brokered time deposits	—		403		—		—			403
Long-term debt	—		289		—		—			289

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. See Note 16, “Derivative Financial Instruments,” for additional information.

² At December 31, 2018, includes $2.0 billion of loans related to the Company’s TRS business, $137 million of loans related to the Company’s loan sales and trading business held in inventory, and $366 million of loans backed by the SBA loans held in inventory, measured at fair value.

The following tables present the difference between fair value and the aggregate UPB for which the FVO has been elected for certain trading loans, LHFS, LHFI, brokered time deposits, and long-term debt instruments.



(Dollars in millions)	Fair Value at September 30, 2019		Aggregate UPB at September 30, 2019		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,862		$2,779		$83
LHFS:
Accruing	1,488		1,446		42
LHFI:
Accruing	121		119		2
Nonaccrual	3		4		(1		)
Liabilities:
Trading loans	9		9		—
Brokered time deposits	552		539		13
Long-term debt	302		290		12

(Dollars in millions)	Fair Value at December 31, 2018		Aggregate UPB at December 31, 2018		Fair Value Over/(Under) Unpaid Principal
Assets:
Trading loans		$2,540		$2,526		$14
LHFS:
Accruing	1,178		1,128		50
LHFI:
Accruing	158		163		(5		)
Nonaccrual	5		6		(1		)
Liabilities:
Brokered time deposits	403		403		—
Long-term debt	289		286		3

The following tables present the changes in fair value of financial instruments for which the FVO has been elected. The tables do not reflect the change in fair value attributable to related economic hedges that the Company uses to mitigate market-related risks associated with the financial instruments. Generally, changes in the fair value of economic hedges are recognized in

Trading income, Mortgage-related income, Commercial real estate-related income, or Other noninterest 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 September 30, 2019 for Items Measured at Fair Value Pursuant to Election of the FVO											Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2019 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income			Mortgage ¹ Related Income			Other Noninterest Income		Total ² Changes in Fair Values Included in Earnings			Trading Income			Mortgage ¹Related Income			Other Noninterest Income		Total ² Changes in Fair Values Included in Earnings
Assets:
Trading loans ³		($1	)		$—			$—		($1	)		$18			$—			$—		$18
LHFS ⁴	—			40			—		40			—			80			—		80
LHFI	—			—			2		2			—			—			5		5
Residential MSRs	—			(250		)	—		(250		)	—			(650		)	—		(650		)
Liabilities:
Brokered time deposits	(3		)	—			—		(3		)	(24		)	—			—		(24		)
Long-term debt	(2		)	—			—		(2		)	(15		)	—			—		(15		)

¹Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2019, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the three and nine months ended September 30, 2019 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.

³ Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk for three and nine months ended September 30, 2019.

⁴ Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for the three and nine months ended September 30, 2019.



	Fair Value Gain/(Loss) for the Three Months Ended September 30, 2018 for Items Measured at Fair Value Pursuant to Election of the FVO												Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2018 for Items Measured at Fair Value Pursuant to Election of the FVO
(Dollars in millions)	Trading Income			Mortgage ¹ Related Income			Other Noninterest Income			Total ² Changes in Fair Values Included in Earnings			Trading Income		Mortgage ¹ Related Income			Other Noninterest Income			Total ² Changes in Fair Values Included in Earnings
Assets:
Trading loans ³		$3			$—			$—			$3			$10		$—			$—			$10
LHFS ⁴	—			5			—			5			—		(3		)	—			(3		)
LHFI	—			—			(1		)	(1		)	—		—			(4		)	(4		)
Residential MSRs	—			(8		)	—			(8		)	—		22			—			22
Liabilities:
Brokered time deposits	(4		)	—			—			(4		)	6		—			—			6
Long-term debt	1			—			—			1			6		—			—			6

¹Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2018, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM.

²Changes in fair value for the three and nine months ended September 30, 2018 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 valuation technique and range, including weighted average, of the unobservable inputs associated with the Company’s level 3 assets and liabilities are as follows:



	Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)	Fair value September 30, 2019		Valuation Technique	Unobservable Input	Range (Weighted Average) ¹
Assets
Trading assets and derivative instruments:
Derivative instruments, net ²		$17	Internal model	Pull through rate	2-100% (83%)
Derivative instruments, net ²		$17	Internal model	MSR value	21-155 bps (102 bps)
LHFI	121		Monte Carlo/Discounted cash flow	Option adjusted spread	62-250 bps (172 bps)
				Conditional prepayment rate	7-31 CPR (16 CPR)
				Conditional default rate	0-2 CDR (0.5 CDR)
	3		Collateral based pricing	Appraised value	NM ³
Residential MSRs	1,564		Monte Carlo/Discounted cash flow	Conditional prepayment rate	6-31 CPR (15 CPR)
Residential MSRs	1,564		Monte Carlo/Discounted cash flow	Option adjusted spread	1-29% (3%)

¹Unobservable inputs were weighted by the relative fair value of the financial instruments.

² Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company’s sale of Visa shares. Refer to the “Trading Liabilities and Derivative Instruments” section in Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.

³Not meaningful.



	Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)	Fair value December 31, 2018		Valuation Technique	Unobservable Input	Range (Weighted Average) ¹
Assets
Trading assets and derivative instruments:
Derivative instruments, net ²		$13	Internal model	Pull through rate	41-100% (81%)
Derivative instruments, net ²		$13	Internal model	MSR value	11-165 bps (108 bps)
LHFI	158		Monte Carlo/Discounted cash flow	Option adjusted spread	0-250 bps (164 bps)
				Conditional prepayment rate	7-22 CPR (12 CPR)
				Conditional default rate	0-1 CDR (0.6 CDR)
	5		Collateral based pricing	Appraised value	NM ³
Residential MSRs	1,983		Monte Carlo/Discounted cash flow	Conditional prepayment rate	6-30 CPR (13 CPR)
Residential MSRs	1,983		Monte Carlo/Discounted cash flow	Option adjusted spread	0-116% (2%)

¹Unobservable inputs were weighted by the relative fair value of the financial instruments.

²Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company’s sale of Visa shares. Refer to the “Trading Liabilities and Derivative Instruments” section in Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.

³Not 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 residential MSRs which are disclosed in Note 8, “Goodwill and Other Intangible Assets”). Transfers into and out

of the fair value hierarchy levels are assumed to occur at the end of the period 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.



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning Balance July 1, 2019		Included in Earnings			OCI		Purchases		Sales		Settlements			Transfers to/from Other Balance Sheet Line Items				Transfers into Level 3		Transfers out of Level 3		Fair Value September 30, 2019
Trading assets:
Derivative instruments, net		$24		$60	¹		$—		$—		$—		($3	)		($64	)	²		$—		$—		$17
LHFI	127		2		³	—		—		—		(6		)	—				1		—		124



(Dollars in millions)	Beginning Balance January 1, 2019		Included in Earnings			OCI		Purchases		Sales		Settlements			Transfers to/from Other Balance Sheet Line Items				Transfers into Level 3		Transfers out of Level 3			Fair Value September 30, 2019
Trading assets:
Derivative instruments, net		$13		$147	¹		$—		$—		$—		($5	)		($138	)	²		$—		$—			$17
LHFI	163		5		³	—		—		—		(21		)	—				2		(25		)	124

¹Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $23 million in earnings during both the three and nine months ended September 30, 2019, related to changes in unrealized gains on net derivative instruments still held at September 30, 2019.

²During the three and nine months ended September 30, 2019, the Company transferred $64 million and $138 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed.

³ Amounts are generally included in Mortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $3 million and $5 million in earnings during the three and nine months ended September 30, 2019, respectively, related to changes in unrealized gains on LHFI still held at September 30, 2019.



	Fair Value Measurements Using Significant Unobservable Inputs
(Dollars in millions)	Beginning Balance July 1, 2018		Included in Earnings			OCI		Purchases		Sales		Settlements			Transfers to/from Other Balance Sheet Line Items				Transfers into Level 3		Transfers out of Level 3		Fair Value September 30, 2018
Trading assets:
Derivative instruments, net		$3		$18	¹		$—		$—		$—		$8			($26	)	²		$—		$—		$3
LHFI	177		—		³	—		—		—		(9		)	—				—		—		168



(Dollars in millions)	Beginning Balance January 1, 2018		Included in Earnings				OCI		Purchases		Sales		Settlements			Transfers to/from Other Balance Sheet Line Items				Transfers into Level 3		Transfers out of Level 3			Fair Value September 30, 2018
Trading assets:
Derivative instruments, net		$—		$36		¹		$—		$—		$—		$10			($43	)	²		$—		$—			$3
Securities AFS:
MBS - non-agency residential	59		—				—		—		—		(2		)	—				—		(57		)	—
ABS	8		—				—		—		—		(1		)	—				—		(7		)	—
Corporate and other debt securities	5		—				—		—		—		—			—				—		(5		)	—
Total securities AFS	72		—				—		—		—		(3		)	—				—		(69		)	—
LHFI	196		(3		)	³	—		—		—		(26		)	—				1		—			168

¹ Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $10 million and $7 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized gains on net derivative instruments still held at September 30, 2018.

²During the three and nine months ended September 30, 2018, the Company transferred $26 million and $43 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed.

³ Amounts are generally included in Mortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $4 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized losses on LHFI still held at September 30, 2018.

Non-recurring Fair Value Measurements

The following tables present gains and losses recognized on assets still held at period end, and measured at fair value on a non-recurring basis, for the three and nine months ended September 30, 2019 and the year ended December 31, 2018. Adjustments to fair value generally result from the application

of LOCOM, or the measurement alternative, 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.



			Fair Value Measurements						(Losses)/Gains for the Three Months Ended September 30, 2019			(Losses)/Gains for the Nine Months Ended September 30, 2019
(Dollars in millions)	September 30, 2019		Level 1		Level 2		Level 3					(Losses)/Gains for the Nine Months Ended September 30, 2019
LHFS		$311		$—		$311		$—		($14	)		($14	)
LHFI	128		—		—		128		—			—
OREO	22		—		—		22		(1		)	(3		)
Other assets	74		—		61		13		16			14

			Fair Value Measurements						(Losses)/Gains for the Year Ended December 31, 2018
(Dollars in millions)	December 31, 2018		Level 1		Level 2		Level 3		(Losses)/Gains for the Year Ended December 31, 2018
LHFS		$47		$—		$47		$—		($1	)
LHFI	63		—		—		63		—
OREO	19		—		—		19		(4		)
Other assets	67		—		47		20		24

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

Loans Held for Sale

At September 30, 2019 and December 31, 2018, LHFS classified as level 2 consisted of commercial loans that were valued using market prices and measured at LOCOM. During both the three and nine months ended September 30, 2019, the Company recognized impairment charges of $14 million attributable to changes in the fair value of LHFS. During the year ended December 31, 2018, the Company recognized an immaterial amount of impairment charges attributable to changes in the fair value of LHFS.

Loans Held for Investment

At September 30, 2019 and December 31, 2018, LHFI classified as level 3 consisted primarily of consumer loans discharged in Chapter 7 bankruptcy that had not been reaffirmed by the borrower. 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. Due to the lack of market data for similar assets, all of these loans are classified as level 3. There were no gains/(losses) recognized during the three and nine months ended September 30, 2019 or during the year ended December 31, 2018, as the charge-offs related to these loans are a component of the ALLL.

OREO

OREO is measured at the lower of cost or fair value less costs to sell. 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 limited, highly subjective market information. Updated value estimates are received regularly for level 3 OREO.

Other Assets

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

The Company elected the measurement alternative for measuring certain equity securities without readily determinable fair values, which are adjusted based on any observable price changes in orderly transactions. These equity securities are classified as level 2 based on the valuation methodology and associated inputs. During both the three and nine months ended September 30, 2019, the Company recognized remeasurement gains of $16 million on these equity securities. During the year ended December 31, 2018, the Company recognized remeasurement gains of $30 million on these equity securities.

Other repossessed assets include repossessed personal property that is measured at fair value less cost to sell. These assets are classified as level 3 as their fair value is determined based on a variety of subjective, unobservable factors. There were no losses recognized in earnings by the Company on other repossessed assets during the three and nine months ended September 30, 2019 or during the year ended December 31, 2018, as the impairment charges on repossessed personal property were 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 is greater than its fair value. Fair value is determined using collateral specific pricing digests, external appraisals, broker opinions, recent sales data from industry equipment dealers, and the discounted cash flows derived from the underlying lease agreement. As market data for similar assets and lease arrangements is available and used in the valuation, these assets are considered level 2. During the three and nine months ended September 30, 2019 and the year ended December 31, 2018, the Company recognized an immaterial amount of impairment charges attributable to changes in the fair value of various personal property under operating leases.

Branch properties are classified as level 3, as their fair value is based on property-specific appraisals and broker opinions. No impairment charges were recognized on branch properties during the three months ended September 30, 2019 and an immaterial amount was recognized during the nine months ended September 30, 2019. During the year ended December 31, 2018, the Company recognized impairment charges of $5 million on branch properties.

Land held for sale is recorded at the lesser of carrying value or fair value less cost to sell, and is considered level 3 as its fair value is determined based on property-specific appraisals and broker opinions. No impairment charges were recognized on land held for sale during the three months ended September 30, 2019. During the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company recognized an immaterial amount of impairment charges on land held for sale.

Fair Value of Financial Instruments

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



		September 30, 2019				Fair Value Measurements
(Dollars in millions)	Measurement Category	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	Amortized cost		$9,184		$9,184		$9,184		$—		$—
Trading assets and derivative instruments	Fair value	7,104		7,104		764		6,313		27
Securities AFS	Fair value	31,358		31,358		4,018		27,340		—
LHFS	Amortized cost	518		525		—		448		77
LHFS	Fair value	1,488		1,488		—		1,488		—
LHFI, net	Amortized cost	156,632		156,222		—		—		156,222
LHFI, net	Fair value	124		124		—		—		124
Other ¹	Amortized cost	737		737		—		—		737
Other ¹	Fair value	76		76		76		—		—
Financial liabilities:
Consumer and other time deposits	Amortized cost	16,727		16,637		—		16,637		—
Brokered time deposits	Amortized cost	993		964		—		964		—
Brokered time deposits	Fair value	552		552		—		552		—
Short-term borrowings	Amortized cost	7,144		7,144		—		7,144		—
Long-term debt	Amortized cost	20,067		20,257		—		18,490		1,767
Long-term debt	Fair value	302		302		—		302		—
Trading liabilities and derivative instruments	Fair value	1,380		1,380		693		677		10



		December 31, 2018				Fair Value Measurements
(Dollars in millions)	Measurement Category	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	Amortized cost		$7,495		$7,495		$7,495		$—		$—
Trading assets and derivative instruments	Fair value	5,506		5,506		521		4,965		20
Securities AFS	Fair value	31,442		31,442		4,211		27,231		—
LHFS	Amortized cost	290		291		—		261		30
LHFS	Fair value	1,178		1,178		—		1,178		—
LHFI, net	Amortized cost	150,061		148,167		—		—		148,167
LHFI, net	Fair value	163		163		—		—		163
Other ¹	Amortized cost	630		630		—		—		630
Other ¹	Fair value	95		95		95		—		—
Financial liabilities:
Consumer and other time deposits	Amortized cost	15,355		15,106		—		15,106		—
Brokered time deposits	Amortized cost	642		615		—		615		—
Brokered time deposits	Fair value	403		403		—		403		—
Short-term borrowings	Amortized cost	8,772		8,772		—		8,772		—
Long-term debt	Amortized cost	14,783		14,729		—		13,024		1,705
Long-term debt	Fair value	289		289		—		289		—
Trading liabilities and derivative instruments	Fair value	1,604		1,604		925		672		7

¹Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values.

At September 30, 2019 and December 31, 2018, the Company had $76.2 billion and $72.0 billion of unfunded commercial loan commitments and letters of credit, respectively, that are not included in the preceding tables. Since no active trading market exists for these instruments, a reasonable estimate of the instruments' fair value is the carrying value of deferred fees plus

the related unfunded commitments reserve, which totaled $76 million and $72 million at September 30, 2019 and December 31, 2018, respectively. The Company does not estimate the fair value of its unfunded consumer lending commitments, which can generally be canceled by providing notice to the borrower.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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