Fair Value Measurements |
Fair Value Measurements
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) |
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 $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) |
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) |
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) |
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 $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% |
|
|
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 |
| |