Bank of America Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments under applicable accounting standards and conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are considered to be effective as of the beginning of the quarter in which they occur. During the nine months ended September 30, 2018, there were no changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations.

For more information regarding the fair value hierarchy and how the Corporation measures fair value and valuation processes and techniques, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 15 – Fair Value Option.

Recurring Fair Value

Assets and liabilities carried at fair value on a recurring basis at September 30, 2018 and December 31, 2017, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.




	September 30, 2018
	Fair Value Measurements
(Dollars in millions)	Level 1		Level 2		Level 3		Netting Adjustments ⁽¹⁾			Assets/Liabilities at Fair Value
Assets
Time deposits placed and other short-term investments	$	1,528	$	—	$	—	$	—		$	1,528
Federal funds sold and securities borrowed or purchased under agreements to resell	—		52,524		—		—			52,524
Trading account assets:
U.S. Treasury and agency securities ⁽²⁾	39,677		1,251		—		—			40,928
Corporate securities, trading loans and other	—		27,281		1,534		—			28,815
Equity securities	66,850		28,049		290		—			95,189
Non-U.S. sovereign debt	5,667		19,524		469		—			25,660
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed	—		18,697		—		—			18,697
Mortgage trading loans, ABS and other MBS	—		8,350		1,479		—			9,829
Total trading account assets ⁽³⁾	112,194		103,152		3,772		—			219,118
Derivative assets	9,961		322,940		4,380		(291,664		)	45,617
AFS debt securities:
U.S. Treasury and agency securities	50,900		1,406		—		—			52,306
Mortgage-backed securities:
Agency	—		136,112		—		—			136,112
Agency-collateralized mortgage obligations	—		5,678		—		—			5,678
Non-agency residential	—		1,593		544		—			2,137
Commercial	—		13,510		—		—			13,510
Non-U.S. securities	759		6,317		3		—			7,079
Other taxable securities	—		3,869		7		—			3,876
Tax-exempt securities	—		18,349		1		—			18,350
Total AFS debt securities	51,659		186,834		555		—			239,048
Other debt securities carried at fair value:
Mortgage-backed securities:
Non-agency residential	—		1,400		296		—			1,696
Non-U.S. securities	9,943		945		—		—			10,888
Other taxable securities	—		3		—		—			3
Total other debt securities carried at fair value	9,943		2,348		296		—			12,587
Loans and leases	—		5,321		410		—			5,731
Loans held-for-sale	—		2,590		526		—			3,116
Other assets ⁽⁴⁾	18,858		1,740		3,140		—			23,738
Total assets	$	204,143	$	677,449	$	13,079	$	(291,664	)	$	603,007
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	529	$	—	$	—		$	529
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		34,242		—		—			34,242
Trading account liabilities:
U.S. Treasury and agency securities	15,403		362		—		—			15,765
Equity securities	38,743		4,673		—		—			43,416
Non-U.S. sovereign debt	12,496		9,863		—		—			22,359
Corporate securities and other	—		8,407		17		—			8,424
Total trading account liabilities	66,642		23,305		17		—			89,964
Derivative liabilities	9,142		309,966		4,950		(287,869		)	36,189
Short-term borrowings	—		1,789		—		—			1,789
Accrued expenses and other liabilities	22,667		1,849		—		—			24,516
Long-term debt	—		27,754		923		—			28,677
Total liabilities	$	98,451	$	399,434	$	5,890	$	(287,869	)	$	215,906


⁽¹⁾	Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.


⁽²⁾	Includes $19.9 billion of GSE obligations.


⁽³⁾	Includes securities with a fair value of $14.2 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.


⁽⁴⁾	Includes MSRs of $2.2 billion which are classified as Level 3 assets.




	December 31, 2017
	Fair Value Measurements
(Dollars in millions)	Level 1		Level 2		Level 3		Netting Adjustments ⁽¹⁾			Assets/Liabilities at Fair Value
Assets
Time deposits placed and other short-term investments	$	2,234	$	—	$	—	$	—		$	2,234
Federal funds sold and securities borrowed or purchased under agreements to resell	—		52,906		—		—			52,906
Trading account assets:
U.S. Treasury and agency securities ⁽²⁾	38,720		1,922		—		—			40,642
Corporate securities, trading loans and other	—		28,714		1,864		—			30,578
Equity securities	60,747		23,958		235		—			84,940
Non-U.S. sovereign debt	6,545		15,839		556		—			22,940
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed	—		20,586		—		—			20,586
Mortgage trading loans, ABS and other MBS	—		8,174		1,498		—			9,672
Total trading account assets ⁽³⁾	106,012		99,193		4,153		—			209,358
Derivative assets	6,305		341,178		4,067		(313,788		)	37,762
AFS debt securities:
U.S. Treasury and agency securities	51,915		1,608		—		—			53,523
Mortgage-backed securities:
Agency	—		192,929		—		—			192,929
Agency-collateralized mortgage obligations	—		6,804		—		—			6,804
Non-agency residential	—		2,669		—		—			2,669
Commercial	—		13,684		—		—			13,684
Non-U.S. securities	772		5,880		25		—			6,677
Other taxable securities	—		5,261		509		—			5,770
Tax-exempt securities	—		20,106		469		—			20,575
Total AFS debt securities	52,687		248,941		1,003		—			302,631
Other debt securities carried at fair value:
Mortgage-backed securities:
Non-agency residential	—		2,769		—		—			2,769
Non-U.S. securities	8,191		1,297		—		—			9,488
Other taxable securities	—		229		—		—			229
Total other debt securities carried at fair value	8,191		4,295		—		—			12,486
Loans and leases	—		5,139		571		—			5,710
Loans held-for-sale	—		1,466		690		—			2,156
Other assets ⁽⁴⁾	19,367		789		2,425		—			22,581
Total assets	$	194,796	$	753,907	$	12,909	$	(313,788	)	$	647,824
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	449	$	—	$	—		$	449
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		36,182		—		—			36,182
Trading account liabilities:
U.S. Treasury and agency securities	17,266		734		—		—			18,000
Equity securities	33,019		3,885		—		—			36,904
Non-U.S. sovereign debt	11,976		7,382		—		—			19,358
Corporate securities and other	—		6,901		24		—			6,925
Total trading account liabilities	62,261		18,902		24		—			81,187
Derivative liabilities	6,029		334,261		5,781		(311,771		)	34,300
Short-term borrowings	—		1,494		—		—			1,494
Accrued expenses and other liabilities	21,887		945		8		—			22,840
Long-term debt	—		29,923		1,863		—			31,786
Total liabilities	$	90,177	$	422,156	$	7,676	$	(311,771	)	$	208,238


⁽¹⁾	Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.


⁽²⁾	Includes $21.3 billion of GSE obligations.


⁽³⁾	Includes securities with a fair value of $16.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.


⁽⁴⁾	Includes MSRs of $2.3 billion which are classified as Level 3 assets.

The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2018 and 2017, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.




Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2018 ⁽¹⁾

	Balance July 1 2018			Total Realized/Unrealized Gains (Losses) ⁽²⁾			Gains (Losses) in OCI ⁽³⁾			Gross											Gross Transfers into Level 3			Gross Transfers out of Level 3			Balance September 30 2018			Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held ⁽²⁾
(Dollars in millions)										Purchases		Sales			Issuances			Settlements
Trading account assets:
Corporate securities, trading loans and other	$	1,638		$	14		$	—		$	54	$	(87	)	$	—		$	(175	)	$	269		$	(179	)	$	1,534		$	(14	)
Equity securities	228			8			—			21		—			—			—			43			(10		)	290			8
Non-U.S. sovereign debt	368			10			(13		)	—		—			—			—			109			(5		)	469			11
Mortgage trading loans, ABS and other MBS	1,523			16			(1		)	75		(184		)	—			(29		)	191			(112		)	1,479			8
Total trading account assets	3,757			48			(14		)	150		(271		)	—			(204		)	612			(306		)	3,772			13
Net derivative assets ⁽⁴⁾	(1,588		)	(53		)	—			23		(66		)	—			111			20			983			(570		)	(51		)
AFS debt securities:
Non-agency residential MBS	453			31			(28		)	—		(72		)	—			—			235			(75		)	544			—
Non-U.S. securities	3			—			—			—		—			—			—			—			—			3			—
Other taxable securities	99			(1		)	(3		)	—		(22		)	—			—			—			(66		)	7			—
Tax-exempt securities	1			—			—			—		—			—			—			—			—			1			—
Total AFS debt securities	556			30			(31		)	—		(94		)	—			—			235			(141		)	555			—
Other debt securities carried at fair value – Non-agency residential MBS	287			(23		)	—			—		—			—			—			60			(28		)	296			(10		)
Loans and leases ^{(5, 6)}	493			—			—			—		(62		)	—			(21		)	—			—			410			(1		)
Loans held-for-sale ⁽⁵⁾	577			12			(4		)	39		—			—			(82		)	12			(28		)	526			9
Other assets ^{(6, 7)}	3,184			121			—			—		(22		)	31			(174		)	—			—			3,140			55
Trading account liabilities – Corporate securities and other	(35		)	9			—			9		—			—			—			—			—			(17		)	(6		)
Long-term debt ⁽⁵⁾	(1,225		)	11			(1		)	—		—			(11		)	106			(106		)	303			(923		)	13


⁽¹⁾	Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.

⁽²⁾

Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.

⁽³⁾

Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.


⁽⁴⁾	Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.


⁽⁵⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁶⁾	Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.


⁽⁷⁾	Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.

Transfers into Level 3, primarily due to decreased price observability, during the three months ended September 30, 2018 included $612 million of trading account assets, $235 million of AFS debt securities, $60 million of other debt securities carried at fair value and $106 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

Transfers out of Level 3, primarily due to increased price observability, during the three months ended September 30, 2018 included $306 million of trading account assets, $983 million of net derivative assets, $141 million of AFS debt securities and $303 million of long-term debt.




Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2017 ⁽¹⁾

	Balance July 1 2017			Total Realized/Unrealized Gains (Losses) ⁽²⁾			Gains (Losses) in OCI ⁽³⁾			Gross											Gross Transfers into Level 3			Gross Transfers out of Level 3			Balance September 30 2017			Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held ⁽²⁾
(Dollars in millions)										Purchases		Sales			Issuances			Settlements
Trading account assets:
Corporate securities, trading loans and other	$	1,777		$	77		$	—		$	35	$	(79	)	$	5		$	(208	)	$	288		$	(153	)	$	1,742		$	35
Equity securities	229			8			—			3		(3		)	—			—			17			(10		)	244			10
Non-U.S. sovereign debt	506			33			18			—		—			—			(5		)	—			—			552			33
Mortgage trading loans, ABS and other MBS	1,232			10			(1		)	150		(157		)	—			(46		)	83			(19		)	1,252			(2		)
Total trading account assets	3,744			128			17			188		(239		)	5			(259		)	388			(182		)	3,790			76
Net derivative assets ⁽⁴⁾	(1,803		)	(252		)	—			150		(367		)	—			278			7			(36		)	(2,023		)	(283		)
AFS debt securities:
Non-U.S. securities	139			1			4			7		—			—			(115		)	—			—			36			—
Other taxable securities	483			—			1			—		—			—			(1		)	—			—			483			—
Tax-exempt securities	518			—			1			—		—			—			(7		)	—			(45		)	467			—
Total AFS debt securities	1,140			1			6			7		—			—			(123		)	—			(45		)	986			—
Other debt securities carried at fair value – Non-agency residential MBS	23			—			—			—		—			—			(1		)	—			—			22			—
Loans and leases ^{(5, 6)}	667			2			—			2		(24		)	—			(29		)	—			—			618			2
Loans held-for-sale ⁽⁵⁾	766			38			10			—		(4		)	—			(93		)	58			—			775			27
Other assets ^{(6, 7)}	2,795			124			(43		)	—		(80		)	69			(191		)	—			—			2,674			8
Federal funds purchased and securities loaned or sold under agreements to repurchase ⁽⁵⁾	(135		)	—			—			—		—			—			135			—			—			—			—
Trading account liabilities – Corporate securities and other	(22		)	1			—			—		(3		)	(1		)	—			—			—			(25		)	—
Accrued expenses and other liabilities ⁽⁵⁾	(9		)	—			—			—		—			—			—			—			—			(9		)	—
Long-term debt ⁽⁵⁾	(1,646		)	(87		)	(7		)	63		—			(129		)	115			(244		)	45			(1,890		)	(87		)


⁽¹⁾	Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.

⁽²⁾

Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.

⁽³⁾


⁽⁴⁾	Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.


⁽⁵⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁶⁾	Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.


⁽⁷⁾	Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.

Transfers into Level 3, primarily due to decreased price observability, during the three months ended September 30, 2017 included $388 million of trading account assets and $244 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

Transfers out of Level 3, primarily due to increased price observability, during the three months ended September 30, 2017 included $182 million of trading account assets.




Level 3 – Fair Value Measurements for the Nine Months Ended September 30, 2018 ⁽¹⁾

(Dollars in millions)	Balance January 1 2018			Total Realized/Unrealized Gains (Losses) ⁽²⁾			Gains (Losses) in OCI ⁽³⁾			Gross											Gross Transfers into Level 3			Gross Transfers out of Level 3			Balance September 30 2018			Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held ⁽²⁾
										Purchases		Sales			Issuances			Settlements
Trading account assets:
Corporate securities, trading loans and other	$	1,864		$	(14	)	$	(1	)	$	328	$	(298	)	$	—		$	(388	)	$	517		$	(474	)	$	1,534		$	(88	)
Equity securities	235			17			—			29		(11		)	—			(4		)	73			(49		)	290			17
Non-U.S. sovereign debt	556			39			(55		)	7		(50		)	—			(8		)	117			(137		)	469			40
Mortgage trading loans, ABS and other MBS	1,498			157			2			392		(760		)	—			(136		)	541			(215		)	1,479			92
Total trading account assets	4,153			199			(54		)	756		(1,119		)	—			(536		)	1,248			(875		)	3,772			61
Net derivative assets ⁽⁴⁾	(1,714		)	203			—			371		(919		)	—			488			87			914			(570		)	(138		)
AFS debt securities:
Non-agency residential MBS	—			39			(42		)	—		(72		)	—			—			694			(75		)	544			—
Non-U.S. securities	25			—			(1		)	—		(10		)	—			(14		)	3			—			3			—
Other taxable securities	509			1			(5		)	—		(22		)	—			(10		)	60			(526		)	7			—
Tax-exempt securities	469			—			—			—		—			—			—			1			(469		)	1			—
Total AFS debt securities ⁽⁵⁾	1,003			40			(48		)	—		(104		)	—			(24		)	758			(1,070		)	555			—
Other debt securities carried at fair value – Non-agency residential MBS	—			(27		)	—			—		(7		)	—			—			358			(28		)	296			(5		)
Loans and leases ^{(6, 7)}	571			(20		)	—			—		(71		)	—			(70		)	—			—			410			(17		)
Loans held-for-sale ⁽⁶⁾	690			24			(31		)	51		—			—			(160		)	12			(60		)	526			18
Other assets ^{(5, 7, 8)}	2,425			389			—			2		(68		)	83			(585		)	929			(35		)	3,140			188
Trading account liabilities – Corporate securities and other	(24		)	11			—			9		(11		)	(2		)	—			—			—			(17		)	(7		)
Accrued expenses and other liabilities ⁽⁶⁾	(8		)	—			—			—		—			—			8			—			—			—			—
Long-term debt ⁽⁶⁾	(1,863		)	97			2			9		—			(131		)	429			(253		)	787			(923		)	87


⁽¹⁾	Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.

⁽²⁾

⁽³⁾


⁽⁴⁾	Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.


⁽⁵⁾	Transfer primarily relates to the reclassification of certain securities.


⁽⁶⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁷⁾	Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.


⁽⁸⁾	Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.

Transfers into Level 3, primarily due to decreased price observability, during the nine months ended September 30, 2018 included $1.2 billion of trading account assets, $758 million of AFS debt securities, $358 million of other debt securities carried at fair value and $253 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

Transfers out of Level 3, primarily due to increased price observability, during the nine months ended September 30, 2018 included $875 million of trading account assets, $914 million of net derivatives assets and $787 million of long-term debt.




Level 3 – Fair Value Measurements for the Nine Months Ended September 30, 2017 ⁽¹⁾

	Balance January 1 2017			Total Realized/Unrealized Gains (Losses) ⁽²⁾			Gains (Losses) in OCI ⁽³⁾			Gross											Gross Transfers into Level 3			Gross Transfers out of Level 3			Balance September 30 2017			Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held ⁽²⁾
(Dollars in millions)										Purchases		Sales			Issuances			Settlements
Trading account assets:
Corporate securities, trading loans and other	$	2,777		$	225		$	—		$	353	$	(679	)	$	5		$	(443	)	$	506		$	(1,002	)	$	1,742		$	72
Equity securities	281			23			—			45		(67		)	—			(10		)	119			(147		)	244			11
Non-U.S. sovereign debt	510			64			12			26		(59		)	—			(73		)	72			—			552			60
Mortgage trading loans, ABS and other MBS	1,211			195			(2		)	747		(846		)	—			(169		)	187			(71		)	1,252			107
Total trading account assets	4,779			507			10			1,171		(1,651		)	5			(695		)	884			(1,220		)	3,790			250
Net derivative assets ⁽⁴⁾	(1,313		)	(1,098		)	—			558		(843		)	—			722			36			(85		)	(2,023		)	(561		)
AFS debt securities:
Non-U.S. securities	229			2			16			49		—			—			(260		)	—			—			36			—
Other taxable securities	594			3			6			5		—			—			(31		)	—			(94		)	483			—
Tax-exempt securities	542			—			1			—		(56		)	—			(10		)	35			(45		)	467			—
Total AFS debt securities	1,365			5			23			54		(56		)	—			(301		)	35			(139		)	986			—
Other debt securities carried at fair value – Non-agency residential MBS	25			(1		)	—			—		—			—			(2		)	—			—			22			—
Loans and leases ^{(5, 6)}	720			20			—			2		(24		)	—			(93		)	—			(7		)	618			18
Loans held-for-sale ⁽⁵⁾	656			109			7			2		(159		)	—			(281		)	473			(32		)	775			60
Other assets ^{(6, 7)}	2,986			93			(31		)	2		(74		)	207			(573		)	64			—			2,674			(181		)
Federal funds purchased and securities loaned or sold under agreements to repurchase ⁽⁵⁾	(359		)	(5		)	—			—		—			(12		)	171			(58		)	263			—			(5		)
Trading account liabilities – Corporate securities and other	(27		)	13			—			4		(13		)	(2		)	—			—			—			(25		)	(1		)
Accrued expenses and other liabilities ⁽⁵⁾	(9		)	—			—			—		—			—			—			—			—			(9		)	—
Long-term debt ⁽⁵⁾	(1,514		)	(160		)	(18		)	81		—			(279		)	398			(530		)	132			(1,890		)	(158		)


⁽¹⁾	Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.

⁽²⁾

⁽³⁾


⁽⁴⁾	Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.


⁽⁵⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁶⁾	Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.


⁽⁷⁾	Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.

Transfers into Level 3, primarily due to decreased price observability, during the nine months ended September 30, 2017 included $884 million of trading account assets, $473 million of LHFS and $530 million of long-term debt. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

Transfers out of Level 3, primarily due to increased price observability, during the nine months ended September 30, 2017 included $1.2 billion of trading account assets, $139 million of AFS debt securities, $263 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $132 million of long-term debt.

The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at September 30, 2018 and December 31, 2017.




Quantitative Information about Level 3 Fair Value Measurements at September 30, 2018

(Dollars in millions)					Inputs
Financial Instrument	Fair Value			Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted Average
Loans and Securities ⁽¹⁾
Instruments backed by residential real estate assets	$	1,615		Discounted cash flow, Market comparables	Yield	0% to 25%	7%
Trading account assets – Mortgage trading loans, ABS and other MBS	353				Prepayment speed	0% to 19% CPR	11%
Loans and leases	410				Default rate	0% to 3% CDR	1%
Loans held-for-sale	1				Loss severity	0% to 51%	17%
AFS debt securities, primarily non-agency residential	555				Price	$0 to $141	$75
Other debt securities carried at fair value - Non-agency residential	296
Instruments backed by commercial real estate assets	$	361		Discounted cash flow	Yield	0% to 25%	7%
Trading account assets – Corporate securities, trading loans and other	272				Price	$0 to $102	$78
Trading account assets – Mortgage trading loans, ABS and other MBS	89
Commercial loans, debt securities and other	$	3,293		Discounted cash flow, Market comparables	Yield	1% to 46%	14%
Trading account assets – Corporate securities, trading loans and other	1,262				Prepayment speed	10% to 20%	14%
Trading account assets – Non-U.S. sovereign debt	469				Default rate	3% to 4%	4%
Trading account assets – Mortgage trading loans, ABS and other MBS	1,037				Loss severity	35% to 40%	38%
Loans held-for-sale	525				Price	$0 to $141	$65
Other assets, primarily auction rate securities	$	950		Discounted cash flow, Market comparables	Price	$10 to $100	$96


MSRs	$	2,190		Discounted cash flow	Weighted-average life, fixed rate ⁽⁴⁾	0 to 14 years	6 years
					Weighted-average life, variable rate ⁽⁴⁾	0 to 10 years	3 years
					Option-adjusted spread, fixed rate	9% to 14%	10%
					Option-adjusted spread, variable rate	9% to 15%	12%
Structured liabilities
Long-term debt	$	(923	)	Discounted cash flow, Market comparables, Industry standard derivative pricing ⁽²⁾	Equity correlation	9% to 100%	61%
					Long-dated equity volatilities	4% to 79%	27%
					Yield	7% to 46%	18%
					Price	$0 to $100	$70
Net derivative assets
Credit derivatives	$	(304	)	Discounted cash flow, Stochastic recovery correlation model	Yield	2% to 12%	4%
					Upfront points	0 points to 100 points	69 points
					Credit correlation	70%	n/a
					Prepayment speed	15% to 20% CPR	15%
					Default rate	1% to 4% CDR	2%
					Loss severity	35%	n/a
					Price	$0 to $101	$77
Equity derivatives	$	(857	)	Industry standard derivative pricing ⁽²⁾	Equity correlation	9% to 100%	61%
				Industry standard derivative pricing ⁽²⁾	Long-dated equity volatilities	4% to 79%	27%
Commodity derivatives	$	11		Discounted cash flow, Industry standard derivative pricing ⁽²⁾	Natural gas forward price	$1/MMBtu to $11/MMBtu	$3/MMBtu
					Correlation	53% to 89%	78%
					Volatilities