Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value of Direct and Indirect Investments, Related Unfunded Commitments and Financial Support Provided

The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at September 30, 2018, as well as financial support provided for the three and nine months ended September 30, 2018, and September 30, 2017.



					Financial support provided
					Three months ended September 30,					Nine months ended September 30,
	September 30, 2018				2018		2017			2018			2017
in millions	Fair Value		Unfunded Commitments		Funded Commitments	Funded Other	Funded Commitments		Funded Other	Funded Commitments		Funded Other	Funded Commitments		Funded Other
INVESTMENT TYPE
Direct investments ^(a)	$	12	—		—	—	—		—	—		—	—		$	—
Indirect investments (measured at NAV)	101		$	28	—	—	$	—	—	$	1	—	$	1	—
Total	$	113	$	28	—	—	$	—	—	$	1	—	$	1	$	—

(a)

Our direct investments consist of equity and debt investments directly in independent business enterprises. Operations of the business enterprises are handled by management of the portfolio company. The purpose of funding these enterprises is to provide financial support for business development and acquisition strategies. We infuse equity capital based on an initial contractual cash contribution and later from additional requests on behalf of the companies’ management.

(b)

Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. We estimate that the underlying investments of the funds will be liquidated over a period of one to six years. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Fair Value of Assets and Liabilities Measured on Recurring Basis

The following tables present these assets and liabilities at September 30, 2018, and December 31, 2017.



	September 30, 2018									December 31, 2017
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
in millions
ASSETS MEASURED ON A RECURRING BASIS
Trading account assets:
U.S. Treasury, agencies and corporations	—		$	759	—		$	759		—		615		—		615
States and political subdivisions	—		54		—		54			—		37		—		37
Other mortgage-backed securities	—		86		—		86			—		104		—		104
Other securities	3		39		—		42			—		65		—		65
Total trading account securities	3		938		—		941			—		821		—		821
Commercial loans	—		17		—		17			—		15		—		15
Total trading account assets	3		955		—		958			—		836		—		836
Securities available for sale:
U.S. Treasury, agencies and corporations	—		145		—		145			—		157		—		157
States and political subdivisions	—		7		—		7			—		9		—		9
Agency residential collateralized mortgage obligations	—		14,192		—		14,192			—		14,660		—		14,660
Agency residential mortgage-backed securities	—		1,661		—		1,661			—		1,439		—		1,439
Agency commercial mortgage-backed securities	—		2,316		—		2,316			—		1,854		—		1,854
Other securities	—		—		$	20	20			—		—		20		20
Total securities available for sale	—		18,321		20		18,341			—		18,119		20		18,139
Other investments:
Principal investments:
Direct	—		—		12		12			—		—		13		13
Indirect (measured at NAV) ^(a)	—		—		—		101			—		—		—		124
Total principal investments	—		—		12		113			—		—		13		137
Equity investments:
Direct	—		1		7		8			—		4		3		7
Direct (measured at NAV) ^(a)	—		—		—		1			—		—		—		—
Total equity investments	—		1		7		9			—		4		3		7
Total other investments	—		1		19		122			—		4		16		144
Loans, net of unearned income	—		—		3		3			—		—		2		2
Loans held for sale	—		87		—		87			—		70		1		71
Derivative assets:
Interest rate	—		304		6		310			—		713		9		722
Foreign exchange	$	70	32		—		102			$	100	$	30	$	—	$	130
Commodity	—		491		—		491			—		255		—		255
Credit	—		—		—		—			—		—		1		1
Other	—		5		2		7			—		1		3		4
Derivative assets	70		832		8		910			100		999		13		1,112
Netting adjustments ^(b)	—		—		—		(162		)	—		—		—		(443		)
Total derivative assets	70		832		8		748			100		999		13		669
Accrued income and other assets	—		—		—		—			—		—		—		—
Total assets on a recurring basis at fair value	$	73	$	20,196	$	50	$	20,259		$	100	$	20,028	$	52	$	19,861
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	37	$	600	—		$	637		$	72	$	562	$	—	$	634
Derivative liabilities:
Interest rate	—		445		—		445			—		520		—		520
Foreign exchange	62		31		—		93			98		26		—		124
Commodity	—		481		—		481			—		246		—		246
Credit	—		3		—		3			—		4		—		4
Other	—		3		—		3			—		13		—		13
Derivative liabilities	62		963		—		1,025			98		809		—		907
Netting adjustments ^(b)	—		—		—		(582		)	—		—		—		(616		)
Total derivative liabilities	62		963		—		443			98		809		—		291
Accrued expense and other liabilities	—		—		—		—			—		—		—		—
Total liabilities on a recurring basis at fair value	$	99	$	1,563	—		$	1,080		$	170	$	1,371	$	—	$	925


(a)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(b)

Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.

Change in Fair Values of Level 3 Financial Instruments

The following table shows the components of the change in the fair values of our Level 3 financial instruments for the three and nine months ended September 30, 2018, and September 30, 2017.



in millions	Beginning of Period Balance			Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings				Purchases	Sales		Settlements		Transfers Other		Transfers into Level 3 ^(a)			Transfers out of Level 3^(a)				End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2018
Securities available for sale
Other securities	$	20		$	—	—				—	—		—		—		—			—				$	20	—
Other investments
Principal investments
Direct	13			—		$	(1	)	^(b)	1	(1	)	—		—		—			—				12		$	1		^(b)
Equity investments
Direct	3			—		—				—	—		—		—		$	4		—				7		—
Loans held for sale	1			—		—				—	(1	)	—		—		—			—				—		—
Loans held for investment	2			—		—				—	—		—		1		—			—				3		—
Derivative instruments ^(c)
Interest rate	9			—		(2		)	^(d)	1	(2	)	—		—		6		^(e)	$	(6	)	^(e)	6		—
Credit	1			—		(26		)	^(d)	—	—		$	25	—		—			—				—		—
Other ^(f)	3			—		—				—	—		—		(1	)	—			—				2		—
Three months ended September 30, 2018
Securities available for sale
Other securities	$	20		$	—	—				—	—		—		—		—			$	—			$	20	—
Other investments
Principal investments
Direct	13			—		$	(1	)	^(b)	—	—		—		—		—			—				12		(1		)	^(b)
Equity investments
Direct	7			—		—				—	—		—		—		—			—				7		—
Loans held for sale	—			—		—				—	—		—		—		—			—				—		—
Loans held for investment	3			—		—				—	—		—		—		—			—				3		—
Derivative instruments ^(c)
Interest rate	5			—		—			^(d)	—	—		—		—		2		^(e)	(1		)	^(e)	6		—
Credit	(9		)	—		(6		)	^(d)	—	—		$	15	—		—			—				—		—
Other ^(f)	3			—		—				—	—		—		(1	)	—			—				2		—



in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings				Purchases		Sales			Settlements		Transfers Other		Transfers into Level 3 ^(a)			Transfers out of Level 3 ^(a)				End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2017
Securities available for sale
Other securities	$	17	$	3	—				—		—			—		—		—			—				$	20	—
Other investments
Principal investments
Direct	27		$	—	$	(7	)	^(b)	—		$	(7	)	—		—		—			—				13		$	(1	)	^(b)
Loans held for sale	—		—		—				—		(1		)	—		3		—			—				2		—
Derivative instruments ^(c)
Interest rate	7		—		—				—		—			—		—		$	13	^(e)	$	(9	)	^(e)	11		—
Credit	1		—		(12		)	^(d)	—		—			$	12	—		—			—				1		—
Other ^(f)	2		—		—				—		—			—		$	2	—			—				4		—
Three months ended September 30, 2017
Securities available for sale
Other securities	$	20	$	1	—				—		—			—		—		—			$	(1	)		$	20	—
Other investments
Principal investments
Direct	15		$	—	$	(2	)	^(b)	—		$	—		—		—		—			—				13		$	2		^(b)
Loans held for sale	—		—		—				—		(1		)	—		3		—			—				2		—
Derivative instruments ^(c)
Interest rate	16		—		—				—		—			—		—		$	1	^(e)	$	(6	)	^(e)	11		—
Credit	1		—		(5		)	^(d)	—		—			$	5	—		—			—				1		—
Other ^(f)	4		—		—				$	—	—			—		$	—	—			—				4		—


(a)	Our policy is to recognize transfers into and transfers out of Level 3 as of the end of the reporting period.


(b)	Realized and unrealized gains and losses on principal investments are reported in “other income” on the income statement.


(c)	Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.


(d)	Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.


(e)	Certain derivatives previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.

(f)

Amounts represent Level 3 interest rate lock commitments.

Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

The following table presents our assets measured at fair value on a nonrecurring basis at September 30, 2018, and December 31, 2017:



	September 30, 2018							December 31, 2017
in millions	Level 1	Level 2		Level 3		Total		Level 1	Level 2		Level 3			Total
ASSETS MEASURED ON A NONRECURRING BASIS
Impaired loans and leases	—	$	—	$	97	$	97	—	—		$	9		$	9
Accrued income and other assets	—	—		24		24		—	$	5	133		^(a)	138
Total assets on a nonrecurring basis at fair value	—	$	—	$	121	$	121	—	$	5	$	142		$	147

(a)

At December 31, 2017, we recorded $31 million of impairment related to $119 million of LIHTC and Historic Tax Credit investments impacted by the enactment of the TCJ Act. Refer to the “LIHTC and Historic Tax Credit Investments” section below for a description of the valuation technique and inputs applied for this fair value measurement.

Quantitative Information about Level 3 Fair Value Measurements

The range and weighted average of the significant unobservable inputs used to fair value our material Level 3 recurring and nonrecurring assets at September 30, 2018, and December 31, 2017, along with the valuation techniques used, are shown in the following table:



September 30, 2018	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
dollars in millions	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
Recurring
Other investments — principal investments — direct:	$	12	Individual analysis of the condition of each investment
Debt instruments				EBITDA multiple	N/A (6.88)
Equity instruments of private companies				EBITDA multiple	N/A (6.88)
Nonrecurring
Impaired loans	97		Fair value of underlying collateral	Discount	0.00 - 75.00% (20.00%)



December 31, 2017	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
dollars in millions	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
Recurring
Other investments — principal investments — direct:	$	13	Individual analysis of the condition of each investment
Debt instruments				EBITDA multiple	N/A (6.00)
Equity instruments of private companies				EBITDA multiple	N/A (6.00)
Nonrecurring
Impaired loans	9		Fair value of underlying collateral	Discount	0.00 - 50.00% (23.00%)

Fair Value Disclosures of Financial Instruments

The levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at September 30, 2018, and December 31, 2017, are shown in the following tables. Assets and liabilities are further arranged by measurement category.



	September 30, 2018
				Fair Value
in millions	Carrying Amount			Level 1		Level 2			Level 3		Measured at NAV		Netting Adjustment				Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets ^(b)	$	958		3		$	955		—		—		—				$	958
Other investments ^(b)	681			—		1			$	578	$	102	—				681
Loans, net of unearned income ^(d)	3			—		—			3		—		—				3
Loans held for sale ^(b)	87			—		87			—		—		—				87
Derivative assets - trading ^(b)	700			$	68	794			8		—		$	(170	)	^(f)	700
Fair value - OCI
Securities available for sale ^(b)	18,341			—		18,321			$	20	—		—				18,341
Derivative assets - hedging ^(b)	48			2		38			—		—		8			^(f)	48
Amortized cost
Held-to-maturity securities ^(c)	11,869			—		11,261			—		—		—				11,261
Loans, net of unearned income ^(d)	88,378			—		—			86,418		—		—				86,418
Loans held for sale ^(b)	1,531			—		—			1,531		—		—				1,531
Other
Cash and short-term investments ^(a)	2,591			2,591		—			—		—		—				2,591
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading ^(b)	$	446		$	61	$	967		—		—		$	(582	)	^(f)	$	446
Fair value - OCI
Derivative liabilities - hedging ^(b)	(3		)	1		(4		)	—		—		—			^(f)	(3		)
Amortized cost
Time deposits ^(e)	13,583			—		13,654			—		—		—				13,654
Short-term borrowings ^(a)	1,922			$	37	1,885			—		—		—				1,922
Long-term debt ^(e)	13,849			12,659		1,205			—		—		—				13,864
Other
Deposits with no stated maturity^(a)	92,197			—		92,197			—		—		—				92,197



	December 31, 2017
				Fair Value
in millions	Carrying Amount			Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment				Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets ^(b)	$	836		—		$	836	—		—		—				$	836
Other investments ^(b)	726			—		4		$	598	$	124	—				726
Loans, net of unearned income ^(d)	2			—		—		2		—		—				2
Loans held for sale ^(b)	71			—		70		1		—		—				71
Derivative assets - trading ^(b)	681			$	99	918		13		—		$	(349	)	^(f)	681
Fair value - OCI
Securities available for sale ^(b)	18,139			—		18,119		20		—		—				18,139
Derivative assets - hedging ^(b)	(12		)	1		81		—		—		(94		)	^(f)	(12		)
Amortized cost
Held-to-maturity securities ^(c)	11,830			—		11,565		—		—		—				11,565
Loans, net of unearned income ^(d)	85,526			—		—		84,003		—		—				84,003
Loans held for sale ^(b)	1,036			—		—		1,036		—		—				1,036
Other
Cash and short-term investments ^(a)	5,118			5,118		—		—		—		—				5,118
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading ^(b)	$	289		$	94	$	763	—		—		$	(568	)	^(f)	$	289
Fair value - OCI
Derivative liabilities - hedging ^(b)	2			4		46		—		—		(48		)	^(f)	2
Amortized cost
Time deposits ^(e)	11,647			—		11,750		—		—		—				11,750
Short-term borrowings ^(a)	1,011			72		939		—		—		—				1,011
Long-term debt ^(e)	14,333			13,407		$	1,219	—		—		—				14,626
Other
Deposits with no stated maturity^(a)	93,588			—		93,588		—		—		—				93,588

Valuation Methods and Assumptions


(a)	Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.

(b)

Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” in this Note. Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.

(c)

Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.

(d)

The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.


(e)	Fair values of time deposits and long-term debt are based on discounted cash flows utilizing relevant market inputs.

(f)