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Fair Value Measurement
9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurement
NOTE 12—FAIR VALUE MEASUREMENT
Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:
Level 1:
 
Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:
 
Valuation is based on observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities.
Level 3:
 
Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.
The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made any material fair value option elections as of or for the periods disclosed herein.
The determination and classification of financial instruments in the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. For additional information on the valuation techniques used in estimating the fair value of our financial assets and liabilities on a recurring or nonrecurring basis and for estimating the fair value for financial instruments that are not recorded at fair value, see “Note 17—Fair Value Measurement” in our 2016 Form 10-K.
Fair Value Governance and Control
We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification and review of valuation judgments, methods, models, process controls and results.
Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including comparing prices from third-party pricing services to other available market information.
Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance divisions, provides guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.
We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and provides ongoing monitoring of their performance.
The fair valuation governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC is only required to convene to review escalated valuation disputes.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of September 30, 2017 and December 31, 2016. During the nine months ended September 30, 2017, we had minimal movements between Levels 1 and 2.
Table 12.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
 
September 30, 2017
 
 
Fair Value Measurements Using
 
Netting Adjustments(1)
 
 
(Dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
5,139

 
$
0

 
$
0

 
$

 
$
5,139

RMBS
 
0

 
27,718

 
520

 

 
28,238

CMBS
 
0

 
4,763

 
66

 

 
4,829

Other ABS
 
0

 
547

 
0

 

 
547

Other securities
 
292

 
688

 
9

 

 
989

Total securities available for sale
 
5,431

 
33,716

 
595

 

 
39,742

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)(2)
 
1

 
687

 
57

 
(236
)
 
509

Other(3)
 
267

 
0

 
268

 

 
535

Total assets
 
$
5,699

 
$
34,403

 
$
920

 
$
(236
)
 
$
40,786

Liabilities:
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)(2)
 
$
3

 
$
998

 
$
30

 
$
(598
)
 
$
433

Total liabilities
 
$
3

 
$
998

 
$
30

 
$
(598
)
 
$
433

 
 
December 31, 2016
 
 
Fair Value Measurements Using
 
Netting Adjustments(1)
 
 
(Dollars in millions)
 
Level 1
 
Level 2
 
Level 3
 
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
5,065

 
$
0

 
$
0

 
$

 
$
5,065

RMBS
 
0

 
28,731

 
518

 

 
29,249

CMBS
 
0

 
4,937

 
51

 

 
4,988

Other ABS
 
0

 
714

 
0

 

 
714

Other securities
 
295

 
417

 
9

 

 
721

Total securities available for sale
 
5,360

 
34,799

 
578

 

 
40,737

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)(2)
 
7

 
1,440

 
47

 
(539
)
 
955

Other(3)
 
219

 
0

 
281

 

 
500

Total assets
 
$
5,586

 
$
36,239

 
$
906

 
$
(539
)
 
$
42,192

Liabilities:
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)(2)
 
$
12

 
$
1,397

 
$
29

 
$
(336
)
 
$
1,102

Total liabilities
 
$
12

 
$
1,397

 
$
29

 
$
(336
)
 
$
1,102

__________
(1) 
Represents balance sheet netting of derivative assets and liabilities, and related payable and receivables for cash collateral held or placed with the same counterparty. See “Note 9—Derivative Instrument and Hedging Activities” for additional information.
(2) 
Does not reflect $3 million and $5 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2017 and December 31, 2016, respectively. Non-performance risk is included in the derivative assets and liabilities which are part of other assets and liabilities on the consolidated balance sheets and offset through non-interest income in the consolidated statements of income.
(3) 
Other includes consumer MSRs of $90 million and $80 million, retained interests in securitizations of $178 million and $201 million and deferred compensation plan assets of $267 million and $219 million as of September 30, 2017 and December 31, 2016, respectively.
Level 3 Recurring Fair Value Rollforward
The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 and 2016. When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period.
Table 12.2: Level 3 Recurring Fair Value Rollforward
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Three Months Ended September 30, 2017
 
 
 
 
Total Gains (Losses)
(Realized/Unrealized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2017
(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance,
July 1,
2017
 
Included
in Net
Income(1)
 
Included in
OCI
 
Purchases
 
Sales
 
Issuances
 
Settlements
 
Transfers
Into
Level 3(2)
 
Transfers
Out of
Level 3(2)
 
Balance, September 30, 2017
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
429

 
$
65

 
$
(37
)
 
$
0

 
$
(111
)
 
$
0

 
$
(23
)
 
$
222

 
$
(25
)
 
$
520

 
$
5

CMBS
 
17

 
0

 
0

 
50

 
0

 
0

 
(1
)
 
0

 
0

 
66

 
0

Other securities
 
9

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
9

 
0

Total securities available for sale
 
455

 
65

 
(37
)
 
50

 
(111
)
 
0

 
(24
)
 
222

 
(25
)
 
595

 
5

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(4)
 
57

 
(2
)
 
0

 
0

 
0

 
25

 
(20
)
 
0

 
(3
)
 
57

 
(2
)
Consumer MSRs
 
85

 
1

 
0

 
0

 
0

 
6

 
(2
)
 
0

 
0

 
90

 
1

Retained interest in securitizations
 
188

 
(10
)
 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
178

 
(10
)
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(4)
 
$
(32
)
 
$
0

 
$
0

 
$
0

 
$
0

 
$
(7
)
 
$
7

 
$
0

 
$
2

 
$
(30
)
 
$
0


 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Three Months Ended September 30, 2016
 
 
 
 
Total Gains (Losses)
(Realized/Unrealized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2016(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance,
July 1,
2016
 
Included
in Net
Income
(1)
 
Included in
OCI
 
Purchases
 
Sales
 
Issuances
 
Settlements
 
Transfers
Into
Level 3
(2)
 
Transfers
Out of
Level 3
(2)
 
Balance, September 30, 2016
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
555

 
$
9

 
$
11

 
$
51

 
$
0

 
$
0

 
$
(27
)
 
$
122

 
$
(137
)
 
$
584

 
$
8

CMBS
 
128

 
0

 
0

 
78

 
0

 
0

 
(2
)
 
0

 
(106
)
 
98

 
0

Other ABS
 
30

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
(30
)
 
0

 
0

Other securities
 
19

 
(9
)
 
0

 
6

 
0

 
0

 
(7
)
 
0

 
0

 
9

 
0

Total securities available for sale
 
732

 
0

 
11

 
135

 
0

 
0

 
(36
)
 
122

 
(273
)
 
691

 
8

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(4)
 
85

 
0

 
0

 
0

 
0

 
18

 
(27
)
 
0

 
(2
)
 
74

 
0

Consumer MSRs
 
53

 
3

 
0

 
0

 
0

 
7

 
(1
)
 
0

 
0

 
62

 
3

Retained interest in securitizations
 
203

 
2

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
205

 
2

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(4)
 
$
(67
)
 
$
1

 
$
0

 
$
0

 
$
0

 
$
(1
)
 
$
22

 
$
0

 
$
1

 
$
(44
)
 
$
1


 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Nine Months Ended September 30, 2017
 
 
 
 
Total Gains (Losses)
(Realized/Unrealized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2017
(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance,
January 1,
2017
 
Included
in Net
Income(1)
 
Included in
OCI
 
Purchases
 
Sales
 
Issuances
 
Settlements
 
Transfers
Into
Level 3(2)
 
Transfers
Out of
Level 3(2)
 
Balance, September 30, 2017
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
518

 
$
82

 
$
(19
)
 
$
0

 
$
(116
)
 
$
0

 
$
(69
)
 
$
434

 
$
(310
)
 
$
520

 
$
17

CMBS
 
51

 
0

 
0

 
110

 
0

 
0

 
(3
)
 
0

 
(92
)
 
66

 
0

Other securities
 
9

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
9

 
0

Total securities available for sale
 
578

 
82

 
(19
)
 
110

 
(116
)
 
0

 
(72
)
 
434

 
(402
)
 
595

 
17

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(4)
 
47

 
1

 
0

 
0

 
0

 
65

 
(45
)
 
0

 
(11
)
 
57

 
1

Consumer MSRs
 
80

 
(3
)
 
0

 
0

 
0

 
18

 
(5
)
 
0

 
0

 
90

 
(3
)
Retained interest in securitizations
 
201

 
(23
)
 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
178

 
(23
)
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(4)
 
$
(29
)
 
$
(2
)
 
$
0

 
$
0

 
$
0

 
$
(20
)
 
$
17

 
$
0

 
$
4

 
$
(30
)
 
$
(2
)
 
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Nine Months Ended September 30, 2016
 
 
 
 
Total Gains (Losses)
(Realized/Unrealized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2016(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance,
January 1,
2016
 
Included
in Net
Income(1)
 
Included in
OCI
 
Purchases
 
Sales
 
Issuances
 
Settlements
 
Transfers
Into
Level 3(2)
 
Transfers
Out of
Level 3(2)
 
Balance, September 30, 2016
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
504

 
$
22

 
$
17

 
$
110

 
$
0

 
$
0

 
$
(75
)
 
$
329

 
$
(323
)
 
$
584

 
$
22

CMBS
 
97

 
0

 
2

 
234

 
0

 
0

 
(12
)
 
64

 
(287
)
 
98

 
0

Other ABS
 
0

 
0

 
0

 
30

 
0

 
0

 
0

 
0

 
(30
)
 
0

 
0

Other securities
 
14

 
(9
)
 
0

 
14

 
0

 
0

 
(10
)
 
0

 
0

 
9

 
0

Total securities available for sale
 
615

 
13

 
19

 
388

 
0

 
0

 
(97
)
 
393

 
(640
)
 
691

 
22

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets(4)
 
57

 
28

 
0

 
0

 
0

 
60

 
(53
)
 
0

 
(18
)
 
74

 
28

Consumer MSRs
 
68

 
(17
)
 
0

 
0

 
0

 
15

 
(4
)
 
0

 
0

 
62

 
(17
)
Retained interest in securitizations
 
211

 
(6
)
 
0

 
0

 
0

 
0

 
0

 
0

 
0

 
205

 
(6
)
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(4)
 
$
(27
)
 
$
(28
)
 
$
0

 
$
0

 
$
0

 
$
(32
)
 
$
35

 
$
0

 
$
8

 
$
(44
)
 
$
(28
)
__________
(1) 
Gains (losses) related to Level 3 Consumer MSRs, derivative assets and derivative liabilities, and retained interests in securitizations are reported in other non-interest income, which is a component of non-interest income, in our consolidated statements of income.
(2) 
During the three and nine months ended September 30, 2017 and 2016, the transfers into Level 3 were primarily driven by the usage of unobservable assumptions in the pricing of these securities as evidenced by wider pricing variations among pricing vendors. Transfers out of Level 3 were primarily driven by the usage of assumptions corroborated by market observable information as evidenced by tighter pricing among multiple pricing sources.
(3) 
The amount presented for unrealized gains (losses) for assets still held as of the reporting date primarily represents impairments of securities available for sale, accretion on certain fixed maturity securities, changes in fair value of derivative instruments and mortgage servicing rights transactions.
(4) 
All Level 3 derivative assets and liabilities are presented on a gross basis and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty.
Significant Level 3 Fair Value Asset and Liability Input Sensitivity
Changes in unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.
Techniques and Inputs for Level 3 Fair Value Measurements
The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments on a recurring basis. We utilize multiple third-party pricing services to obtain fair value for our securities. Several of our third-party pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other third-party pricing services are able to provide unobservable input information for all securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation models.


Table 12.3: Quantitative Information about Level 3 Fair Value Measurements
 
 
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
 
Fair Value at September 30,
2017
 
Significant
Valuation
Techniques
 
Significant
Unobservable
Inputs
 
Range
 
Weighted
Average
Assets:
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
520

 
Discounted cash flows (3rd party pricing)
 
Yield
Voluntary prepayment rate
Default rate
Loss severity
 
2-9%
0-15%
0-10%
0-90%
 
4%
4%
4%
65%
CMBS
 
66

 
Discounted cash flows (3rd party pricing)
 
Yield
Voluntary prepayment rate
 
2-3%
0%
 
2%
0%
Other securities
 
9

 
Discounted cash flows
 
Yield
 
2%
 
2%
Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
57

 
Discounted cash flows
 
Swap rates
 
2%
 
2%
Consumer MSRs
 
90

 
Discounted cash flows
 
Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)
 
7-21%
15%
400-1,464 bps
$75-$100
 
15%
15%
497 bps
$76
Retained interests in securitization(2)
 
178

 
Discounted cash flows
 
Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
 
2-87
2-10%
3-11%
1-11%
5-113%
 
N/A
Liabilities:
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
$
30

 
Discounted cash flows
 
Swap rates
 
2%
 
2%
 
 
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
 
Fair Value at
December 31,
2016
 
Significant
Valuation
Techniques
 
Significant
Unobservable
Inputs
 
Range
 
Weighted
Average
Assets:
 
 
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
 
 
RMBS
 
$
518

 
Discounted cash flows (3rd party pricing)
 
Yield
Voluntary prepayment rate
Default rate
Loss severity
 
0-15%
0-30%
0-16%
9-87%
 
5%
4%
4%
57%
CMBS
 
51

 
Discounted cash flows (3rd party pricing)
 
Yield
Voluntary prepayment rate
 
2%
0%

 
2%
0%

Other securities
 
9

 
Discounted cash flows
 
Yield
 
1-2%
 
1%
Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative assets(1)
 
47

 
Discounted cash flows
 
Swap rates
 
2%
 
2%
Consumer MSRs
 
80

 
Discounted cash flows
 
Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)
 
8-20%
15%
580-1,500 bps
$75-$100
 
15%
15%
636 bps
$76
Retained interests in securitization(2)
 
201

 
Discounted cash flows
 
Life of receivables (months) Voluntary prepayment rate
Discount rate
Default rate
Loss severity
 
6-87
2-11%
4-11%
1-6%
7-102%
 
N/A
Liabilities:
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(1)
 
$
29

 
Discounted cash flows
 
Swap rates
 
2%
 
2%
__________
(1) 
All Level 3 derivative assets and liabilities are presented on a gross basis and are not reduced by the impact of legally enforceable master netting agreements that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty.
(2) 
Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).
The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of September 30, 2017 and December 31, 2016, and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended:
Table 12.4: Nonrecurring Fair Value Measurements
 
 
September 30, 2017
 
 
Estimated Fair Value Hierarchy
 
Total
(Dollars in millions)
 
Level 2
 
Level 3
 
Loans held for investment
 
$
0

 
$
563

 
$
563

Loans held for sale
 
773

 
2

 
775

Other assets(1)
 
0

 
29

 
29

Total
 
$
773

 
$
594

 
$
1,367

 
 
December 31, 2016
  
 
Estimated Fair Value Hierarchy
 
Total
(Dollars in millions)
 
Level 2
 
Level 3
 
Loans held for investment
 
$
0

 
$
587

 
$
587

Loans held for sale
 
157

 
0

 
157

Other assets(1)
 
0

 
83

 
83

Total
 
$
157

 
$
670

 
$
827

__________
(1) 
Other assets includes foreclosed property and repossessed assets of $22 million and long-lived assets held for sale of $7 million as of September 30, 2017, compared to foreclosed property and repossessed assets of $43 million and long-lived assets held for sale of $40 million as of December 31, 2016.
In the above table, loans held for investment primarily include nonperforming loans for which specific reserves or charge-offs have been recognized. These loans are classified as Level 3, as they are valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. Collateral fair value sources include the appraisal value obtained from independent appraisers, broker pricing opinions or other available market information. The non-recoverable rate ranged from 0% to 17%, with a weighted average of 12%, and from 0% to 73%, with a weighted average of 16%, as of September 30, 2017 and December 31, 2016, respectively. The fair value of the loans held for sale and the other assets classified as Level 3 is determined based on appraisal value or listing price which involves significant judgment; the significant unobservable inputs and related quantitative information are not meaningful to disclose as they vary significantly across properties and collateral.
The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, 2017 and 2016.
Table 12.5: Nonrecurring Fair Value Measurements Included in Earnings
 
 
Total Gains (Losses)
 
 
Nine Months Ended September 30,
(Dollars in millions)
 
2017
 
2016
Loans held for investment
 
$
(237
)
 
$
(142
)
Loans held for sale
 
(5
)
 
0

Other assets(1)
 
(7
)
 
(15
)
Total
 
$
(249
)
 
$
(157
)
__________
(1) 
Other assets includes losses related to foreclosed property, repossessed assets and long-lived assets held for sale.
Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of September 30, 2017 and December 31, 2016.
Table 12.6: Fair Value of Financial Instruments
 
 
September 30, 2017
 
 
Carrying
Value
 
Estimated
Fair Value
 
Estimated Fair Value Hierarchy
(Dollars in millions)
 
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,484

 
$
8,484

 
$
4,154

 
$
4,330

 
$
0

Restricted cash for securitization investors
 
304

 
304

 
304

 
0

 
0

Securities held to maturity
 
28,650

 
29,327

 
199

 
29,122

 
6

Net loans held for investment
 
245,004

 
249,622

 
0

 
0

 
249,622

Loans held for sale
 
1,566

 
1,580

 
0

 
1,578

 
2

Interest receivable
 
1,426

 
1,426

 
0

 
1,426

 
0

Other investments(1)
 
1,803

 
1,804

 
0

 
1,793

 
11

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
239,062

 
$
241,634

 
$
26,106

 
$
215,528

 
$
0

Securitized debt obligations
 
17,087

 
17,196

 
0

 
17,196

 
0

Senior and subordinated notes
 
28,420

 
29,004

 
0

 
29,004

 
0

Federal funds purchased and securities loaned or sold under agreements to repurchase
 
767

 
767

 
0

 
767

 
0

Other borrowings(2)
 
13,136

 
13,137

 
0

 
13,137

 
0

Interest payable
 
301

 
301

 
0

 
301

 
0

 
 
December 31, 2016
 
 
Carrying
Value
 
Estimated
Fair Value
 
Estimated Fair Value Hierarchy
(Dollars in millions)
 
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,976

 
$
9,976

 
$
4,185

 
$
5,791

 
$
0

Restricted cash for securitization investors
 
2,517

 
2,517

 
2,517

 
0

 
0

Securities held to maturity
 
25,712

 
26,196

 
199

 
25,962

 
35

Net loans held for investment
 
239,083

 
242,935

 
0

 
0

 
242,935

Loans held for sale
 
1,043

 
1,038

 
0

 
1,038

 
0

Interest receivable
 
1,351

 
1,351

 
0

 
1,351

 
0

Other investments(1)
 
2,029

 
2,029

 
0

 
2,020

 
9

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits
 
$
236,768

 
$
237,082

 
$
25,502

 
$
211,580

 
$
0

Securitized debt obligations
 
18,826

 
18,920

 
0

 
18,920

 
0

Senior and subordinated notes
 
23,431

 
23,774

 
0

 
23,774

 
0

Federal funds purchased and securities loaned or sold under agreements to repurchase
 
992

 
992

 
0

 
992

 
0

Other borrowings
 
17,211

 
17,180

 
0

 
17,180

 
0

Interest payable
 
327

 
327

 
0

 
327

 
0

__________
(1) 
Other investments includes FHLB, Federal Reserve stock and cost method investments. These investments are included in other assets on our consolidated balance sheets.    
(2)
Other borrowings exclude capital lease obligations.