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

3 Months Ended

Mar. 31, 2019

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 made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities become unobservable or observable in the current marketplace. During the three months ended March 31, 2019, 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, how the Corporation measures fair value and valuation techniques, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 16 – Fair Value Option.

Recurring Fair Value

Assets and liabilities carried at fair value on a recurring basis at March 31, 2019 and December 31, 2018, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.




	March 31, 2019
	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	$	1,180	$	—	$	—	$	—		$	1,180
Federal funds sold and securities borrowed or purchased under agreements to resell	—		59,557		—		—			59,557
Trading account assets:
U.S. Treasury and agency securities ⁽²⁾	41,904		450		—		—			42,354
Corporate securities, trading loans and other	—		28,254		1,428		—			29,682
Equity securities	63,520		35,570		288		—			99,378
Non-U.S. sovereign debt	8,470		24,068		472		—			33,010
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed ⁽²⁾	—		23,539		—		—			23,539
Mortgage trading loans, ABS and other MBS	—		9,589		1,510		—			11,099
Total trading account assets ⁽³⁾	113,894		121,470		3,698		—			239,062
Derivative assets	12,581		312,097		3,473		(285,760		)	42,391
AFS debt securities:
U.S. Treasury and agency securities	59,800		1,224		—		—			61,024
Mortgage-backed securities:
Agency	—		117,165		—		—			117,165
Agency-collateralized mortgage obligations	—		5,379		—		—			5,379
Non-agency residential	—		1,434		581		—			2,015
Commercial	—		14,369		—		—			14,369
Non-U.S. securities	—		10,760		2		—			10,762
Other taxable securities	—		3,430		3		—			3,433
Tax-exempt securities	—		17,466		—		—			17,466
Total AFS debt securities	59,800		171,227		586		—			231,613
Other debt securities carried at fair value:
Agency MBS	—		1,013		—		—			1,013
Non-agency residential MBS	—		1,414		224		—			1,638
Non-U.S. securities	3,369		4,320		—		—			7,689
Other taxable securities	—		3		—		—			3
Total other debt securities carried at fair value	3,369		6,750		224		—			10,343
Loans and leases	—		5,870		317		—			6,187
Loans held-for-sale	—		1,989		558		—			2,547
Other assets ⁽⁴⁾	17,784		2,396		2,749		—			22,929
Total assets⁽⁵⁾	$	208,608	$	681,356	$	11,605	$	(285,760	)	$	615,809
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	499	$	—	$	—		$	499
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		26,609		—		—			26,609
Trading account liabilities:
U.S. Treasury and agency securities	11,539		610		—		—			12,149
Equity securities	37,038		3,155		—		—			40,193
Non-U.S. sovereign debt	16,206		9,234		—		—			25,440
Corporate securities and other	—		6,607		21		—			6,628
Total trading account liabilities	64,783		19,606		21		—			84,410
Derivative liabilities	11,907		301,867		4,491		(281,927		)	36,338
Short-term borrowings	—		1,895		—		—			1,895
Accrued expenses and other liabilities	20,821		2,552		—		—			23,373
Long-term debt	—		30,735		890		—			31,625
Total liabilities ⁽⁵⁾	$	97,511	$	383,763	$	5,402	$	(281,927	)	$	204,749


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


⁽²⁾	Includes $24.0 billion of GSE obligations.


⁽³⁾	Includes securities with a fair value of $15.7 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 $1.9 billion which are classified as Level 3 assets.


⁽⁵⁾	Total recurring Level 3 assets were 0.49 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.26 percent of total consolidated liabilities.




	December 31, 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	$	1,214	$	—	$	—	$	—		$	1,214
Federal funds sold and securities borrowed or purchased under agreements to resell	—		56,399		—		—			56,399
Trading account assets:
U.S. Treasury and agency securities ⁽²⁾	53,131		1,593		—		—			54,724
Corporate securities, trading loans and other	—		24,630		1,558		—			26,188
Equity securities	53,840		23,163		276		—			77,279
Non-U.S. sovereign debt	5,818		19,210		465		—			25,493
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed ⁽²⁾	—		19,586		—		—			19,586
Mortgage trading loans, ABS and other MBS	—		9,443		1,635		—			11,078
Total trading account assets ⁽³⁾	112,789		97,625		3,934		—			214,348
Derivative assets	9,967		315,413		3,466		(285,121		)	43,725
AFS debt securities:
U.S. Treasury and agency securities	53,663		1,260		—		—			54,923
Mortgage-backed securities:
Agency	—		121,826		—		—			121,826
Agency-collateralized mortgage obligations	—		5,530		—		—			5,530
Non-agency residential	—		1,320		597		—			1,917
Commercial	—		14,078		—		—			14,078
Non-U.S. securities	—		9,304		2		—			9,306
Other taxable securities	—		4,403		7		—			4,410
Tax-exempt securities	—		17,376		—		—			17,376
Total AFS debt securities	53,663		175,097		606		—			229,366
Other debt securities carried at fair value:
U.S. Treasury and agency securities	1,282		—		—		—			1,282
Non-agency residential MBS	—		1,434		172		—			1,606
Non-U.S. securities	490		5,354		—		—			5,844
Other taxable securities	—		3		—		—			3
Total other debt securities carried at fair value	1,772		6,791		172		—			8,735
Loans and leases	—		4,011		338		—			4,349
Loans held-for-sale	—		2,400		542		—			2,942
Other assets ⁽⁴⁾	15,032		1,775		2,932		—			19,739
Total assets ⁽⁵⁾	$	194,437	$	659,511	$	11,990	$	(285,121	)	$	580,817
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	492	$	—	$	—		$	492
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		28,875		—		—			28,875
Trading account liabilities:
U.S. Treasury and agency securities	7,894		761		—		—			8,655
Equity securities	33,739		4,070		—		—			37,809
Non-U.S. sovereign debt	7,452		9,182		—		—			16,634
Corporate securities and other	—		5,104		18		—			5,122
Total trading account liabilities	49,085		19,117		18		—			68,220
Derivative liabilities	9,931		303,441		4,401		(279,882		)	37,891
Short-term borrowings	—		1,648		—		—			1,648
Accrued expenses and other liabilities	18,096		1,979		—		—			20,075
Long-term debt	—		26,872		817		—			27,689
Total liabilities ⁽⁵⁾	$	77,112	$	382,424	$	5,236	$	(279,882	)	$	184,890


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


⁽²⁾	Includes $20.2 billion of GSE obligations.


⁽³⁾	Includes securities with a fair value of $16.6 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 $2.0 billion which are classified as Level 3 assets.

⁽⁵⁾

Total recurring Level 3 assets were 0.51 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.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 months ended March 31, 2019 and 2018, including net realized and unrealized gains (losses) included in earnings and accumulated OCI. Transfers into Level 3 occur primarily due to decreased price observability, and transfers out of Level 3 occur primarily due to increased price observability. 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.




Level 3 – Fair Value Measurements ⁽¹⁾

	Balance January 1			Total Realized/Unrealized Gains (Losses) in Net Income ⁽²⁾			Gains (Losses) in OCI ⁽³⁾			Gross											Gross Transfers into Level 3			Gross Transfers out of Level 3			Balance March 31			Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held ⁽²⁾
(Dollars in millions)										Purchases		Sales			Issuances			Settlements
Three Months Ended March 31, 2019
Trading account assets:
Corporate securities, trading loans and other	$	1,558		$	3		$	—		$	54	$	(73	)	$	—		$	(60	)	$	139		$	(193	)	$	1,428		$	(8	)
Equity securities	276			2			—			18		(1		)	—			(3		)	2			(6		)	288			2
Non-U.S. sovereign debt	465			8			(1		)	—		—			—			—			—			—			472			8
Mortgage trading loans, ABS and other MBS	1,635			38			(1		)	230		(337		)	—			(9		)	89			(135		)	1,510			27
Total trading account assets	3,934			51			(2		)	302		(411		)	—			(72		)	230			(334		)	3,698			29
Net derivative assets ⁽⁴⁾	(935		)	(25		)	—			111		(245		)	—			(55		)	122			9			(1,018		)	(25		)
AFS debt securities:
Non-agency residential MBS	597			—			93			—		—			—			(7		)	159			(261		)	581			—
Non-U.S. securities	2			—			—			—		—			—			—			—			—			2			—
Other taxable securities	7			—			—			—		—			—			(4		)	—			—			3			—
Total AFS debt securities	606			—			93			—		—			—			(11		)	159			(261		)	586			—
Other debt securities carried at fair value – Non-agency residential MBS	172			47			—			—		—			—			(1		)	38			(32		)	224			47
Loans and leases ⁽⁵⁾	338			4			—			—		(15		)	—			(10		)	—			—			317			4
Loans held-for-sale ^(5,6)	542			12			(2		)	10		(21		)	11			(53		)	59			—			558			4
Other assets ^{(6, 7)}	2,932			(74		)	8			—		—			41			(158		)	—			—			2,749			(128		)
Trading account liabilities – Corporate securities and other	(18		)	—			—			—		(3		)	—			—			—			—			(21		)	—
Long-term debt ⁽⁵⁾	(817		)	(46		)	(1		)	—		—			(3		)	38			(61		)	—			(890		)	(46		)

Three Months Ended March 31, 2018
Trading account assets:
Corporate securities, trading loans and other	$	1,864		$	9		$	—		$	193	$	(136	)	$	—		$	(139	)	$	103		$	(178	)	$	1,716		$	(15	)
Equity securities	235			8			—			6		(7		)	—			—			1			(31		)	212			8
Non-U.S. sovereign debt	556			16			2			—		(50		)	—			(8		)	—			(115		)	401			16
Mortgage trading loans, ABS and other MBS	1,498			99			3			125		(320		)	—			(69		)	94			(58		)	1,372			83
Total trading account assets	4,153			132			5			324		(513		)	—			(216		)	198			(382		)	3,701			92
Net derivative assets ⁽⁴⁾	(1,714		)	495			—			153		(262		)	—			202			71			(83		)	(1,138		)	517
AFS debt securities:
Mortgage-backed securities:
Non-U.S. securities	25			—			—			—		—			—			(2		)	—			—			23			—
Other taxable securities	509			1			—			—		—			—			(7		)	—			(460		)	43			—
Tax-exempt securities	469			—			—			—		—			—			—			—			(469		)	—			—
Total AFS debt securities ⁽⁸⁾	1,003			1			—			—		—			—			(9		)	—			(929		)	66			—
Loans and leases ⁽⁵⁾	571			(16		)	—			—		(4		)	—			(25		)	—			—			526			(16		)
Loans held-for-sale ^(5,6)	690			24			—			12		—			—			(41		)	—			—			685			21
Other assets ^{(6, 7, 8)}	2,425			192			—			—		(38		)	29			(242		)	929			—			3,295			120
Trading account liabilities – Corporate securities and other	(24		)	1			—			—		(2		)	(1		)	—			—			—			(26		)	1
Accrued expenses and other liabilities ⁽⁵⁾	(8		)	—			—			—		—			—			—			—			—			(8		)	—
Long-term debt ⁽⁵⁾	(1,863		)	23			1			5		—			(67		)	172			(33		)	411			(1,351		)	26


⁽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 income; Net derivative assets - primarily trading account income 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 - primarily trading account income. 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. Total gains (losses) in OCI include net unrealized gains of $96 million related to financial instruments still held at March 31, 2019. For additional information on changes in fair value recorded in accumulated OCI, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K.


⁽⁴⁾	Net derivative assets include derivative assets of $3.5 billion and $4.5 billion and derivative liabilities of $4.5 billion and $5.7 billion at March 31, 2019 and 2018.


⁽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.

⁽⁸⁾

Transfers out of AFS debt and into other assets relate to the reclassification of certain securities.The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at March 31, 2019 and December 31, 2018.




Quantitative Information about Level 3 Fair Value Measurements at March 31, 2019

(Dollars in millions)					Inputs
Financial Instrument	Fair Value			Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted Average ⁽¹⁾
Loans and Securities ⁽²⁾
Instruments backed by residential real estate assets	$	1,583		Discounted cash flow, Market comparables	Yield	0% to 25%	6%
Trading account assets – Mortgage trading loans, ABS and other MBS	455				Prepayment speed	0% to 25% CPR	15%
Loans and leases	317				Default rate	0% to 3% CDR	1%
Loans held-for-sale	1				Loss severity	0% to 48%	15%
AFS debt securities, primarily non-agency residential	586				Price	$0 to $150	$100
Other debt securities carried at fair value - Non-agency residential	224
Instruments backed by commercial real estate assets	$	355		Discounted cash flow	Yield	0% to 25%	7%
Trading account assets – Corporate securities, trading loans and other	232				Price	$0 to $100	$71
Trading account assets – Mortgage trading loans, ABS and other MBS	123
Commercial loans, debt securities and other	$	3,157		Discounted cash flow, Market comparables	Yield	1% to 15%	7%
Trading account assets – Corporate securities, trading loans and other	1,196				Prepayment speed	10% to 20%	15%
Trading account assets – Non-U.S. sovereign debt	472				Default rate	3% to 4%	4%
Trading account assets – Mortgage trading loans, ABS and other MBS	932				Loss severity	35% to 40%	37%
Loans held-for-sale	557				Price	$0 to $143	$66
Other assets, primarily auction rate securities	$	878		Discounted cash flow, Market comparables	Price	$10 to $100	$95


MSRs	$	1,871		Discounted cash flow	Weighted-average life, fixed rate ⁽⁵⁾	0 to 14 years	5 years
					Weighted-average life, variable rate ⁽⁵⁾	0 to 9 years	3 years
					Option-adjusted spread, fixed rate	7% to 14%	9%
					Option-adjusted spread, variable rate	9% to 15%	12%
Structured liabilities
Long-term debt	$	(890	)	Discounted cash flow, Market comparables, Industry standard derivative pricing (3)	Equity correlation	10% to 100%	65%
					Long-dated equity volatilities	4% to 91%	31%
					Price	$0 to $101	$71

Net derivative assets
Credit derivatives	$	(197	)	Discounted cash flow, Stochastic recovery correlation model	Yield	3% to 5%	4%
					Upfront points	0 to 100 points	68 points
					Prepayment speed	15% to 100% CPR	38%
					Default rate	1% to 4% CDR	2%
					Loss severity	35%	n/a
					Price	$0 to $138	$85
Equity derivatives	$	(802	)	Industry standard derivative pricing ⁽³⁾	Equity correlation	10% to 100%	65%
				Industry standard derivative pricing ⁽³⁾	Long-dated equity volatilities	4% to 91%	31%
Commodity derivatives	$	6		Discounted cash flow, Industry standard derivative pricing ⁽³⁾	Natural gas forward price	$1/MMBtu to $8/MMBtu	$3/MMBtu
					Correlation	25% to 85%	67%
					Volatilities	15% to 115%	34%
Interest rate derivatives	$	(25	)	Industry standard derivative pricing ⁽⁴⁾	Correlation (IR/IR)	15% to 70%	54%
					Correlation (FX/IR)	0% to 46%	3%
					Long-dated inflation rates	-18% to 38%	4%
					Long-dated inflation volatilities	0% to 1%	1%
Total net derivative assets	$	(1,018	)


⁽¹⁾	For loans and securities, structured liabilities and net derivative assets, the weighted average is calculated based upon the absolute fair value of the instruments.

⁽²⁾

The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 79: Trading account assets – Corporate securities, trading loans and other of $1.4 billion, Trading account assets – Non-U.S. sovereign debt of $472 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities of $586 million, Other debt securities carried at fair value - Non-agency residential of $224 million, Other assets, including MSRs, of $2.7 billion, Loans and leases of $317 million and LHFS of $558 million.


⁽³⁾	Includes models such as Monte Carlo simulation and Black-Scholes.


⁽⁴⁾	Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.


⁽⁵⁾	The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions.

CPR = Constant Prepayment Rate

CDR = Constant Default Rate

MMBtu = Million British thermal units

IR = Interest Rate

FX = Foreign Exchange

n/a = not applicable




Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018

(Dollars in millions)					Inputs
Financial Instrument	Fair Value			Valuation Technique	Significant Unobservable Inputs	Ranges of Inputs	Weighted Average ⁽¹⁾
Loans and Securities ⁽²⁾
Instruments backed by residential real estate assets	$	1,536		Discounted cash flow, Market comparables	Yield	0% to 25%	8%
Trading account assets – Mortgage trading loans, ABS and other MBS	419				Prepayment speed	0% to 21% CPR	12%
Loans and leases	338				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	606				Price	$0 to $128	$72
Other debt securities carried at fair value - Non-agency residential	172
Instruments backed by commercial real estate assets	$	291		Discounted cash flow	Yield	0% to 25%	7%
Trading account assets – Corporate securities, trading loans and other	200				Price	$0 to $100	$79
Trading account assets – Mortgage trading loans, ABS and other MBS	91
Commercial loans, debt securities and other	$	3,489		Discounted cash flow, Market comparables	Yield	1% to 18%	13%
Trading account assets – Corporate securities, trading loans and other	1,358				Prepayment speed	10% to 20%	15%
Trading account assets – Non-U.S. sovereign debt	465				Default rate	3% to 4%	4%
Trading account assets – Mortgage trading loans, ABS and other MBS	1,125				Loss severity	35% to 40%	38%
Loans held-for-sale	541				Price	$0 to $141	$68
Other assets, primarily auction rate securities	$	890		Discounted cash flow, Market comparables	Price	$10 to $100	$95


MSRs	$	2,042		Discounted cash flow	Weighted-average life, fixed rate ⁽⁵⁾	0 to 14 years	5 years
					Weighted-average life, variable rate ⁽⁵⁾	0 to 10 years	3 years
					Option-adjusted spread, fixed rate	7% to 14%	9%
					Option-adjusted spread, variable rate	9% to 15%	12%
Structured liabilities
Long-term debt	$	(817	)	Discounted cash flow, Market comparables, Industry standard derivative pricing ⁽³⁾	Equity correlation	11% to 100%	67%
					Long-dated equity volatilities	4% to 84%	32%
					Yield	7% to 18%	16%
					Price	$0 to $100	$72
Net derivative assets
Credit derivatives	$	(565	)	Discounted cash flow, Stochastic recovery correlation model	Yield	0% to 5%	4%
					Upfront points	0 points to 100 points	70 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 $138	$93
Equity derivatives	$	(348	)	Industry standard derivative pricing ⁽³⁾	Equity correlation	11% to 100%	67%
				Industry standard derivative pricing ⁽³⁾	Long-dated equity volatilities	4% to 84%	32%
Commodity derivatives	$	10		Discounted cash flow, Industry standard derivative pricing ⁽³⁾	Natural gas forward price	$1/MMBtu to $12/MMBtu	$3/MMBtu
					Correlation	38% to 87%	71%
					Volatilities	15% to 132%	38%
Interest rate derivatives	$	(32	)	Industry standard derivative pricing⁽⁴⁾	Correlation (IR/IR)	15% to 70%	61%
					Correlation (FX/IR)	0% to 46%	1%
					Long-dated inflation rates	-20% to 38%	2%
					Long-dated inflation volatilities	0% to 1%	1%
Total net derivative assets	$	(935	)


⁽¹⁾	For loans and securities, structured liabilities and net derivative assets, the weighted average is calculated based upon the absolute fair value of the instruments.

⁽²⁾

The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 80: Trading account assets – Corporate securities, trading loans and other of $1.6 billion, Trading account assets – Non-U.S. sovereign debt of $465 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $606 million, Other debt securities carried at fair value - Non-agency residential of $172 million, Other assets, including MSRs, of 2.9 billion, Loans and leases of $338 million and LHFS of $542 million.


⁽³⁾	Includes models such as Monte Carlo simulation and Black-Scholes.


⁽⁴⁾	Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.


⁽⁵⁾	The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions.

CPR = Constant Prepayment Rate

CDR = Constant Default Rate

MMBtu = Million British thermal units

IR = Interest Rate

FX = Foreign Exchange

n/a = not applicable

Uncertainty of Fair Value Measurements from Unobservable Inputs

For information on the types of instruments, valuation approaches and the impact of changes in unobservable inputs used in Level 3 measurements, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K.

Sensitivity of Fair Value Measurements for Mortgage Servicing Rights

The weighted-average lives and fair value of MSRs are sensitive to changes in modeled assumptions. The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. The weighted-average life represents the average period of time that the MSRs’ cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs. For example, as of March 31, 2019, a 10 percent or 20 percent decrease in prepayment rates, which impacts the weighted-average life, could result in an increase in fair value of $64 million

or $134 million, while a 10 percent or 20 percent increase in prepayment rates could result in a decrease in fair value of $59 million or $114 million. A 100 bp or 200 bp decrease in option-adjusted spread (OAS) levels could result in an increase in fair value of $55 million or $114 million, while a 100 bp or 200 bp increase in OAS levels could result in a decrease in fair value of $52 million or $100 million. These sensitivities are hypothetical and actual amounts may vary materially. For additional information on variations in assumptions and sensitivities on MSRs, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K.Nonrecurring Fair Value

The Corporation holds certain assets that are measured at fair value, but only in certain situations (e.g., impairment) and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the three months ended March 31, 2019 and 2018.




Assets Measured at Fair Value on a Nonrecurring Basis

	March 31, 2019				Three Months Ended March 31, 2019
(Dollars in millions)	Level 2		Level 3		Gains (Losses)
Assets
Loans held-for-sale	$	55	$	—	$	(1	)
Loans and leases ⁽¹⁾	—		120		(40		)
Foreclosed properties ^{(2, 3)}	—		40		(13		)
Other assets	61		6		(11		)

	March 31, 2018				Three Months Ended March 31, 2018
Assets
Loans held-for-sale	$	13	$	—	$	(2	)
Loans and leases ⁽¹⁾	—		273		(98		)
Foreclosed properties ^{(2, 3)}	—		61		(17		)
Other assets	47		—		(7		)


⁽¹⁾	Includes $18 million and $45 million of losses on loans that were written down to a collateral value of zero during the three months ended March 31, 2019 and 2018.


⁽²⁾	Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses recorded during the first 90 days after transfer of a loan to foreclosed properties.


⁽³⁾	Excludes $400 million and $680 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at March 31, 2019 and 2018.

The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at March 31, 2019 and December 31, 2018. Loans and leases backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral.

Quantitative Information about Nonrecurring Level 3 Fair Value Measurements

Inputs

Financial Instrument

Fair Value

Valuation

Technique

Significant Unobservable

Inputs

Ranges of

Inputs

Weighted

Average ⁽¹⁾

(Dollars in millions)

March 31, 2019

Loans and leases backed by residential real estate assets

120

Market comparables

OREO discount

13% to 59%

Costs to sell

8% to 26%

December 31, 2018

Loans and leases backed by residential real estate assets

474

Market comparables

OREO discount

13% to 59%

Costs to sell

8% to 26%

⁽¹⁾ The weighted average is calculated based upon the fair value of the loans.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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