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.

Table12.1: 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 millionand$5 millionrecognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as ofSeptember 30, 2017andDecember 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 millionand$80 million, retained interests in securitizations of $178 million and$201 millionand deferred compensation plan assets of$267 millionand$219 millionas ofSeptember 30, 2017andDecember 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.

Table12.3: 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.