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

6 Months Ended

Jun. 30, 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

six months ended June 30, 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 June 30, 2019 and December 31, 2018, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.




	June 30, 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	$	1,179	$	—	$	—	$	—		$	1,179
Federal funds sold and securities borrowed or purchased under agreements to resell	—		54,257		—		—			54,257
Trading account assets:
U.S. Treasury and agency securities ⁽²⁾	42,612		825		—		—			43,437
Corporate securities, trading loans and other	—		27,902		1,393		—			29,295
Equity securities	72,274		30,515		296		—			103,085
Non-U.S. sovereign debt	11,279		29,318		481		—			41,078
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed ⁽²⁾	—		24,769		—		—			24,769
Mortgage trading loans, ABS and other MBS	—		8,934		1,389		—			10,323
Total trading account assets ⁽³⁾	126,165		122,263		3,559		—			251,987
Derivative assets	14,574		336,706		3,403		(309,771		)	44,912
AFS debt securities:
U.S. Treasury and agency securities	55,574		1,245		—		—			56,819
Mortgage-backed securities:
Agency	—		125,569		—		—			125,569
Agency-collateralized mortgage obligations	—		5,210		—		—			5,210
Non-agency residential	—		1,454		568		—			2,022
Commercial	—		14,525		—		—			14,525
Non-U.S. securities	—		11,183		2		—			11,185
Other taxable securities	—		3,692		3		—			3,695
Tax-exempt securities	—		16,954		—		—			16,954
Total AFS debt securities	55,574		179,832		573		—			235,979
Other debt securities carried at fair value:
Non-agency residential MBS	—		1,325		273		—			1,598
Non-U.S. securities	2,838		5,676		—		—			8,514
Other taxable securities	—		3		—		—			3
Total other debt securities carried at fair value	2,838		7,004		273		—			10,115
Loans and leases	—		7,508		355		—			7,863
Loans held-for-sale	—		1,902		486		—			2,388
Other assets ⁽⁴⁾	17,689		1,834		2,551		—			22,074
Total assets⁽⁵⁾	$	218,019	$	711,306	$	11,200	$	(309,771	)	$	630,754
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	604	$	—	$	—		$	604
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		19,866		—		—			19,866
Trading account liabilities:
U.S. Treasury and agency securities	14,891		2,072		—		—			16,963
Equity securities	32,135		3,604		2		—			35,741
Non-U.S. sovereign debt	13,814		8,100		—		—			21,914
Corporate securities and other	—		7,519		13		—			7,532
Total trading account liabilities	60,840		21,295		15		—			82,150
Derivative liabilities	13,435		330,362		4,517		(309,934		)	38,380
Short-term borrowings	—		2,403		—		—			2,403
Accrued expenses and other liabilities	20,773		2,038		—		—			22,811
Long-term debt	—		34,296		902		—			35,198
Total liabilities ⁽⁵⁾	$	95,048	$	410,864	$	5,434	$	(309,934	)	$	201,412


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


⁽²⁾	Includes $25.2 billion of GSE obligations.


⁽³⁾	Includes securities with a fair value of $16.0 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 $1.7 billion which are classified as Level 3 assets.


⁽⁵⁾	Total recurring Level 3 assets were 0.47 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 and six months ended June 30, 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 April 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 June 30			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 June 30, 2019
Trading account assets:
Corporate securities, trading loans and other	$	1,428		$	55		$	—		$	140	$	(79	)	$	—		$	(146	)	$	107		$	(112	)	$	1,393		$	26
Equity securities	288			20			—			3		(5		)	—			—			1			(11		)	296			20
Non-U.S. sovereign debt	472			19			5			1		—			—			(11		)	—			(5		)	481			19
Mortgage trading loans, ABS and other MBS	1,510			50			(1		)	167		(324		)	—			(115		)	178			(76		)	1,389			4
Total trading account assets	3,698			144			4			311		(408		)	—			(272		)	286			(204		)	3,559			69
Net derivative assets ⁽⁴⁾	(1,018		)	(91		)	—			56		(161		)	—			(33		)	17			116			(1,114		)	(94		)
AFS debt securities:
Non-agency residential MBS	581			—			(3		)	—		—			—			(14		)	47			(43		)	568			—
Non-U.S. securities	2			—			—			—		—			—			—			—			—			2			—
Other taxable securities	3			—			—			—		—			—			—			—			—			3			—
Total AFS debt securities	586			—			(3		)	—		—			—			(14		)	47			(43		)	573			—
Other debt securities carried at fair value – Non-agency residential MBS	224			2			—			—		—			—			(7		)	69			(15		)	273			2
Loans and leases ⁽⁵⁾	317			—			—			—		—			53			(15		)	—			—			355			—
Loans held-for-sale ^(5,6)	558			26			2			—		(50		)	—			(50		)	—			—			486			16
Other assets ^{(6, 7)}	2,749			(80		)	8			—		(10		)	67			(183		)	—			—			2,551			(128		)
Trading account liabilities – Equity securities	—			(2		)	—			—		—			—			—			—			—			(2		)	(2		)
Trading account liabilities – Corporate securities and other	(21		)	7			—			1		—			—			—			—			—			(13		)	—
Long-term debt ⁽⁵⁾	(890		)	(41		)	—			—		—			(10		)	38			—			1			(902		)	(41		)

Three Months Ended June 30, 2018
Trading account assets:
Corporate securities, trading loans and other	$	1,716		$	(37	)	$	(1	)	$	81	$	(75	)	$	—		$	(74	)	$	145		$	(117	)	$	1,638		$	(67	)
Equity securities	212			1			—			2		(4		)	—			(4		)	29			(8		)	228			(3		)
Non-U.S. sovereign debt	401			13			(44		)	7		—			—			—			8			(17		)	368			13
Mortgage trading loans, ABS and other MBS	1,372			42			—			192		(256		)	—			(38		)	256			(45		)	1,523			32
Total trading account assets	3,701			19			(45		)	282		(335		)	—			(116		)	438			(187		)	3,757			(25		)
Net derivative assets ⁽⁴⁾	(1,138		)	(239		)	—			195		(591		)	—			175			(4		)	14			(1,588		)	(251		)
AFS debt securities:
Non-agency residential MBS	—			8			(14		)	—		—			—			—			459			—			453			—
Non-U.S. securities	23			—			(1		)	—		(10		)	—			(12		)	3			—			3			—
Other taxable securities	43			1			(2		)	—		—			—			(3		)	60			—			99			—
Tax-exempt securities	—			—			—			—		—			—			—			1			—			1			—
Total AFS debt securities	66			9			(17		)	—		(10		)	—			(15		)	523			—			556			—
Other debt securities carried at fair value – Non-agency residential MBS	—			(4		)	—			—		(7		)	—			—			298			—			287			5
Loans and leases ⁽⁵⁾	526			(4		)	—			—		(5		)	—			(24		)	—			—			493			(4		)
Loans held-for-sale ⁽⁵⁾	685			(12		)	(27		)	—		—			—			(37		)	—			(32		)	577			(16		)
Other assets ^{(6, 7)}	3,295			76			—			2		(8		)	23			(169		)	—			(35		)	3,184			8
Trading account liabilities – Corporate securities and other	(26		)	1			—			—		(9		)	(1		)	—			—			—			(35		)	1
Accrued expenses and other liabilities ⁽⁵⁾	(8		)	—			—			—		—			—			8			—			—			—			—
Long-term debt ⁽⁵⁾	(1,351		)	63			2			4		—			(53		)	151			(114		)	73			(1,225		)	66


⁽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 - 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 $11 million related to financial instruments still held at June 30, 2019.


⁽⁴⁾	Net derivative assets include derivative assets of $3.4 billion and $4.5 billion and derivative liabilities of $4.5 billion and $6.1 billion at June 30, 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.




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 June 30			Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held ⁽²⁾
(Dollars in millions)										Purchases		Sales			Issuances			Settlements
Six Months Ended June 30, 2019
Trading account assets:
Corporate securities, trading loans and other	$	1,558		$	58		$	—		$	194	$	(152	)	$	—		$	(206	)	$	246		$	(305	)	$	1,393		$	20
Equity securities	276			22			—			21		(6		)	—			(3		)	3			(17		)	296			(4		)
Non-U.S. sovereign debt	465			27			4			1		—			—			(11		)	—			(5		)	481			27
Mortgage trading loans, ABS and other MBS	1,635			88			(2		)	397		(661		)	—			(124		)	267			(211		)	1,389			20
Total trading account assets	3,934			195			2			613		(819		)	—			(344		)	516			(538		)	3,559			63
Net derivative assets ⁽⁴⁾	(935		)	(116		)	—			167		(406		)	—			(88		)	139			125			(1,114		)	(131		)
AFS debt securities:
Non-agency residential MBS	597			—			90			—		—			—			(21		)	206			(304		)	568			—
Non-U.S. securities	2			—			—			—		—			—			—			—			—			2			—
Other taxable securities	7			—			—			—		—			—			(4		)	—			—			3			—
Total AFS debt securities	606			—			90			—		—			—			(25		)	206			(304		)	573			—
Other debt securities carried at fair value – Non-agency residential MBS	172			49			—			—		—			—			(8		)	107			(47		)	273			47
Loans and leases ⁽⁵⁾	338			4			—			—		(15		)	53			(25		)	—			—			355			3
Loans held-for-sale ^(5,6)	542			38			—			10		(71		)	11			(103		)	59			—			486			20
Other assets ^{(6, 7)}	2,932			(154		)	16			—		(10		)	108			(341		)	—			—			2,551			(253		)
Trading account liabilities – Equity securities	—			(2		)	—			—		—			—			—			—			—			(2		)	(2		)
Trading account liabilities – Corporate securities and other	(18		)	7			—			1		(3		)	—			—			—			—			(13		)	—
Long-term debt ⁽⁵⁾	(817		)	(87		)	(1		)	—		—			(13		)	76			(61		)	1			(902		)	(82		)

Six Months Ended June 30, 2018
Trading account assets:
Corporate securities, trading loans and other	$	1,864		$	(28	)	$	(1	)	$	274	$	(211	)	$	—		$	(213	)	$	248		$	(295	)	$	1,638		$	(76	)
Equity securities	235			9			—			8		(11		)	—			(4		)	30			(39		)	228			9
Non-U.S. sovereign debt	556			29			(42		)	7		(50		)	—			(8		)	8			(132		)	368			28
Mortgage trading loans, ABS and other MBS	1,498			141			3			317		(576		)	—			(107		)	350			(103		)	1,523			81
Total trading account assets	4,153			151			(40		)	606		(848		)	—			(332		)	636			(569		)	3,757			42
Net derivative assets ⁽⁴⁾	(1,714		)	256			—			348		(853		)	—			377			67			(69		)	(1,588		)	325
AFS debt securities:
Non-agency residential MBS	—			8			(14		)	—		—			—			—			459			—			453			—
Non-U.S. securities	25			—			(1		)	—		(10		)	—			(14		)	3			—			3			—
Other taxable securities	509			2			(2		)	—		—			—			(10		)	60			(460		)	99			—
Tax-exempt securities	469			—			—			—		—			—			—			1			(469		)	1			—
Total AFS debt securities ⁽⁸⁾	1,003			10			(17		)	—		(10		)	—			(24		)	523			(929		)	556			—
Other debt securities carried at fair value – Non-agency residential MBS	—			(4		)	—			—		(7		)	—			—			298			—			287			5
Loans and leases ⁽⁵⁾	571			(20		)	—			—		(9		)	—			(49		)	—			—			493			(19		)
Loans held-for-sale ⁽⁵⁾	690			12			(27		)	12		—			—			(78		)	—			(32		)	577			5
Other assets ^(6,7,8)	2,425			268			—			2		(46		)	52			(411		)	929			(35		)	3,184			145
Trading account liabilities – Corporate securities and other	(24		)	2			—			—		(11		)	(2		)	—			—			—			(35		)	1
Accrued expenses and other liabilities ⁽⁵⁾	(8		)	—			—			—		—			—			8			—			—			—			—
Long-term debt ⁽⁵⁾	(1,863		)	86			3			9		—			(120		)	323			(147		)	484			(1,225		)	51


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

⁽²⁾


⁽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 $112 million related to financial instruments still held at June 30, 2019.


⁽⁴⁾	Net derivative assets include derivative assets of $3.4 billion and $4.5 billion and derivative liabilities of $4.5 billion and $6.1 billion at June 30, 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 securities 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 June 30, 2019 and December 31, 2018.




Quantitative Information about Level 3 Fair Value Measurements at June 30, 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	$	1,633		Discounted cash flow, Market comparables	Yield	0% to 25%	6%
Trading account assets – Mortgage trading loans, ABS and other MBS	431				Prepayment speed	1% to 27% CPR	17% CPR
Loans and leases	355				Default rate	0% to 3% CDR	1% CDR
Loans held-for-sale	1				Loss severity	0% to 48%	15%
AFS debt securities, primarily non-agency residential	573				Price	$0 to $151	$99
Other debt securities carried at fair value - Non-agency residential	273
Instruments backed by commercial real estate assets	$	264		Discounted cash flow	Yield	0% to 25%	6%
Trading account assets – Corporate securities, trading loans and other	198				Price	$0 to $100	$66
Trading account assets – Mortgage trading loans, ABS and other MBS	66
Commercial loans, debt securities and other	$	3,053		Discounted cash flow, Market comparables	Yield	0% to 13%	6%
Trading account assets – Corporate securities, trading loans and other	1,195				Prepayment speed	10% to 20%	14%
Trading account assets – Non-U.S. sovereign debt	481				Default rate	3% to 4%	4%
Trading account assets – Mortgage trading loans, ABS and other MBS	892				Loss severity	35% to 40%	38%
Loans held-for-sale	485				Price	$0 to $149	$67
Other assets, primarily auction rate securities	$	851		Discounted cash flow, Market comparables	Price	$10 to $100	$95


MSRs	$	1,700		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	$	(902	)	Discounted cash flow, Market comparables, Industry standard derivative pricing ⁽³⁾	Equity correlation	11% to 100%	63%
					Long-dated equity volatilities	6% to 52%	27%
					Price	$0 to $131	$80

Net derivative assets
Credit derivatives	$	(14	)	Discounted cash flow, Stochastic recovery correlation model	Yield	5%	n/a
					Upfront points	0 to 100 points	68 points
					Prepayment speed	15% to 100% CPR	38% CPR
					Default rate	1% to 4% CDR	2% CDR
					Loss severity	35%	n/a
					Price	$0 to $138	$93
Equity derivatives	$	(1,010	)	Industry standard derivative pricing ⁽³⁾	Equity correlation	11% to 100%	63%
				Industry standard derivative pricing ⁽³⁾	Long-dated equity volatilities	6% to 52%	27%
Commodity derivatives	$	1		Discounted cash flow, Industry standard derivative pricing ⁽³⁾	Natural gas forward price	$1/MMBtu to $8/MMBtu	$3/MMBtu
					Correlation	30% to 66%	66%
					Volatilities	14% to 48%	32%
Interest rate derivatives	$	(91	)	Industry standard derivative pricing ⁽⁴⁾	Correlation (IR/IR)	15% to 70%	51%
					Correlation (FX/IR)	0% to 46%	2%
					Long-dated inflation rates	-21% to 35%	5%
					Long-dated inflation volatilities	0% to 1%	1%
Total net derivative assets	$	(1,114	)


⁽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 86: Trading account assets – Corporate securities, trading loans and other of $1.4 billion, Trading account assets – Non-U.S. sovereign debt of $481 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.4 billion, AFS debt securities of $573 million, Other debt securities carried at fair value - Non-agency residential of $273 million, Other assets, including MSRs, of $2.6 billion, Loans and leases of $355 million and LHFS of $486 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% CPR
Loans and leases	338				Default rate	0% to 3% CDR	1% CDR
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% CPR
					Default rate	1% to 4% CDR	2% CDR
					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 87: 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.

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 and six months ended June 30, 2019 and 2018.




Assets Measured at Fair Value on a Nonrecurring Basis

	June 30, 2019						Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
(Dollars in millions)	Level 2			Level 3			Gains (Losses)
Assets
Loans held-for-sale	$	15		$	28		$	—		$	(1	)
Loans and leases ⁽¹⁾	—			204			(40		)	(73		)
Foreclosed properties ^{(2, 3)}	—			21			(9		)	(12		)
Other assets	142			6			(15		)	(29		)
Accrued expenses and other liabilities	(2		)	(12		)	(14		)	(14		)

	June 30, 2018						Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Assets
Loans held-for-sale	$	179		$	1		$	—		$	(2	)
Loans and leases ⁽¹⁾	—			420			(80		)	(156		)
Foreclosed properties ^{(2, 3)}	15			77			(25		)	(32		)
Other assets	243			5			(31		)	(35		)


⁽¹⁾	Includes $18 million and $31 million of losses on loans that were written down to a collateral value of zero during the three and six months ended June 30, 2019 compared to losses of $31 million and $64 million for the same periods in 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 $294 million and $573 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at June 30, 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 June 30, 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)

June 30, 2019

Loans and leases backed by residential real estate assets

204

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.

+ References + Details