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 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
nine months ended September 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 September 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.
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September 30, 2019 |
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Fair Value Measurements |
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(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 |
$ |
1,356 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,356 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell |
— |
|
|
50,298 |
|
|
— |
|
|
— |
|
|
50,298 |
|
Trading account assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities (2)
|
46,103 |
|
|
1,952 |
|
|
— |
|
|
— |
|
|
48,055 |
|
Corporate securities, trading loans and other |
— |
|
|
29,625 |
|
|
1,591 |
|
|
— |
|
|
31,216 |
|
Equity securities |
77,822 |
|
|
31,823 |
|
|
279 |
|
|
— |
|
|
109,924 |
|
Non-U.S. sovereign debt |
11,554 |
|
|
27,237 |
|
|
465 |
|
|
— |
|
|
39,256 |
|
Mortgage trading loans, MBS and ABS: |
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agency guaranteed (2)
|
— |
|
|
25,268 |
|
|
— |
|
|
— |
|
|
25,268 |
|
Mortgage trading loans, ABS and other MBS |
— |
|
|
8,402 |
|
|
1,563 |
|
|
— |
|
|
9,965 |
|
Total trading account assets (3)
|
135,479 |
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|
124,307 |
|
|
3,898 |
|
|
— |
|
|
263,684 |
|
Derivative assets |
15,501 |
|
|
372,583 |
|
|
3,370 |
|
|
(346,331 |
) |
|
45,123 |
|
AFS debt securities: |
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|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities |
55,704 |
|
|
1,243 |
|
|
— |
|
|
— |
|
|
56,947 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Agency |
— |
|
|
134,949 |
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|
— |
|
|
— |
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|
134,949 |
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Agency-collateralized mortgage obligations |
— |
|
|
4,962 |
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|
— |
|
|
— |
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|
4,962 |
|
Non-agency residential |
— |
|
|
1,435 |
|
|
508 |
|
|
— |
|
|
1,943 |
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Commercial |
— |
|
|
14,677 |
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|
— |
|
|
— |
|
|
14,677 |
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Non-U.S. securities |
— |
|
|
11,077 |
|
|
2 |
|
|
— |
|
|
11,079 |
|
Other taxable securities |
— |
|
|
3,880 |
|
|
3 |
|
|
— |
|
|
3,883 |
|
Tax-exempt securities |
— |
|
|
16,432 |
|
|
— |
|
|
— |
|
|
16,432 |
|
Total AFS debt securities |
55,704 |
|
|
188,655 |
|
|
513 |
|
|
— |
|
|
244,872 |
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Other debt securities carried at fair value: |
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U.S. Treasury and agency securities |
3 |
|
|
— |
|
|
— |
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|
— |
|
|
3 |
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Non-agency residential MBS |
— |
|
|
1,235 |
|
|
308 |
|
|
— |
|
|
1,543 |
|
Commercial |
— |
|
|
13 |
|
|
— |
|
|
— |
|
|
13 |
|
Non-U.S. securities |
2,531 |
|
|
5,377 |
|
|
— |
|
|
— |
|
|
7,908 |
|
Other taxable securities |
— |
|
|
3 |
|
|
— |
|
|
— |
|
|
3 |
|
Total other debt securities carried at fair value |
2,534 |
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|
6,628 |
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|
308 |
|
|
— |
|
|
9,470 |
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Loans and leases |
— |
|
|
7,273 |
|
|
401 |
|
|
— |
|
|
7,674 |
|
Loans held-for-sale |
— |
|
|
4,625 |
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|
386 |
|
|
— |
|
|
5,011 |
|
Other assets (4)
|
18,471 |
|
|
2,081 |
|
|
2,400 |
|
|
— |
|
|
22,952 |
|
Total assets (5)
|
$ |
229,045 |
|
|
$ |
756,450 |
|
|
$ |
11,276 |
|
|
$ |
(346,331 |
) |
|
$ |
650,440 |
|
Liabilities |
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|
|
|
|
|
|
|
|
|
|
|
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|
Interest-bearing deposits in U.S. offices |
$ |
— |
|
|
$ |
626 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
626 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase |
— |
|
|
21,963 |
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|
— |
|
|
— |
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|
21,963 |
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Trading account liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
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U.S. Treasury and agency securities |
13,948 |
|
|
195 |
|
|
— |
|
|
— |
|
|
14,143 |
|
Equity securities |
34,161 |
|
|
3,930 |
|
|
2 |
|
|
— |
|
|
38,093 |
|
Non-U.S. sovereign debt |
9,995 |
|
|
9,011 |
|
|
— |
|
|
— |
|
|
19,006 |
|
Corporate securities and other |
— |
|
|
7,387 |
|
|
13 |
|
|
— |
|
|
7,400 |
|
Total trading account liabilities |
58,104 |
|
|
20,523 |
|
|
15 |
|
|
— |
|
|
78,642 |
|
Derivative liabilities |
14,741 |
|
|
361,185 |
|
|
4,602 |
|
|
(342,503 |
) |
|
38,025 |
|
Short-term borrowings |
— |
|
|
3,458 |
|
|
— |
|
|
— |
|
|
3,458 |
|
Accrued expenses and other liabilities |
21,210 |
|
|
2,302 |
|
|
— |
|
|
— |
|
|
23,512 |
|
Long-term debt |
— |
|
|
35,909 |
|
|
864 |
|
|
— |
|
|
36,773 |
|
Total liabilities (5)
|
$ |
94,055 |
|
|
$ |
445,966 |
|
|
$ |
5,481 |
|
|
$ |
(342,503 |
) |
|
$ |
202,999 |
|
|
|
(1) |
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
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(2) |
Includes $25.8 billion of GSE obligations.
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(3) |
Includes securities with a fair value of $14.9 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.
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(4) |
Includes MSRs of $1.6 billion which are classified as Level 3 assets.
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(5) |
Total recurring Level 3 assets were 0.46 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.
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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 nine months ended September 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.
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Level 3 – Fair Value Measurements (1)
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Balance
July 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 September 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 September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other |
$ |
1,393 |
|
$ |
28 |
|
$ |
— |
|
$ |
158 |
|
$ |
(153 |
) |
$ |
— |
|
$ |
(143 |
) |
$ |
356 |
|
$ |
(48 |
) |
$ |
1,591 |
|
$ |
— |
|
Equity securities |
296 |
|
(8 |
) |
— |
|
17 |
|
(81 |
) |
— |
|
(1 |
) |
66 |
|
(10 |
) |
279 |
|
(31 |
) |
Non-U.S. sovereign debt |
481 |
|
9 |
|
(28 |
) |
— |
|
— |
|
— |
|
(36 |
) |
39 |
|
— |
|
465 |
|
10 |
|
Mortgage trading loans, ABS and other MBS |
1,389 |
|
(8 |
) |
— |
|
91 |
|
(156 |
) |
— |
|
(48 |
) |
316 |
|
(21 |
) |
1,563 |
|
(24 |
) |
Total trading account assets |
3,559 |
|
21 |
|
(28 |
) |
266 |
|
(390 |
) |
— |
|
(228 |
) |
777 |
|
(79 |
) |
3,898 |
|
(45 |
) |
Net derivative assets (4)
|
(1,114 |
) |
73 |
|
— |
|
81 |
|
(270 |
) |
— |
|
(36 |
) |
— |
|
34 |
|
(1,232 |
) |
52 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
568 |
|
— |
|
(13 |
) |
— |
|
— |
|
— |
|
(8 |
) |
— |
|
(39 |
) |
508 |
|
— |
|
Non-U.S. securities |
2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
Other taxable securities |
3 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
3 |
|
— |
|
Total AFS debt securities |
573 |
|
— |
|
(13 |
) |
— |
|
— |
|
— |
|
(8 |
) |
— |
|
(39 |
) |
513 |
|
— |
|
Other debt securities carried at fair value – Non-agency residential MBS |
273 |
|
(8 |
) |
— |
|
— |
|
— |
|
— |
|
(5 |
) |
48 |
|
— |
|
308 |
|
(8 |
) |
Loans and leases (5,6)
|
355 |
|
8 |
|
— |
|
27 |
|
(17 |
) |
44 |
|
(16 |
) |
— |
|
— |
|
401 |
|
8 |
|
Loans held-for-sale (5)
|
486 |
|
5 |
|
(11 |
) |
2 |
|
— |
|
— |
|
(96 |
) |
— |
|
— |
|
386 |
|
(7 |
) |
Other assets (6, 7)
|
2,551 |
|
(40 |
) |
(5 |
) |
— |
|
— |
|
53 |
|
(163 |
) |
4 |
|
— |
|
2,400 |
|
(82 |
) |
Trading account liabilities – Equity securities |
(2 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
Trading account liabilities – Corporate securities
and other
|
(13 |
) |
1 |
|
— |
|
(1 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
(13 |
) |
(1 |
) |
Long-term debt (5)
|
(902 |
) |
16 |
|
1 |
|
(27 |
) |
— |
|
— |
|
49 |
|
(1 |
) |
— |
|
(864 |
) |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
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)
|
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 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. |
|
|
(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 losses of $53 million related to financial instruments still held at September 30, 2019.
|
|
|
(4) |
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 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 September 30 |
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
|
(Dollars in millions)
|
Purchases |
Sales |
Issuances |
Settlements |
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other |
$ |
1,558 |
|
$ |
86 |
|
$ |
— |
|
$ |
352 |
|
$ |
(305 |
) |
$ |
— |
|
$ |
(349 |
) |
$ |
602 |
|
$ |
(353 |
) |
$ |
1,591 |
|
$ |
33 |
|
Equity securities |
276 |
|
14 |
|
— |
|
38 |
|
(87 |
) |
— |
|
(4 |
) |
69 |
|
(27 |
) |
279 |
|
(14 |
) |
Non-U.S. sovereign debt |
465 |
|
36 |
|
(24 |
) |
1 |
|
— |
|
— |
|
(47 |
) |
39 |
|
(5 |
) |
465 |
|
37 |
|
Mortgage trading loans, ABS and other MBS |
1,635 |
|
80 |
|
(2 |
) |
488 |
|
(817 |
) |
— |
|
(172 |
) |
583 |
|
(232 |
) |
1,563 |
|
13 |
|
Total trading account assets |
3,934 |
|
216 |
|
(26 |
) |
879 |
|
(1,209 |
) |
— |
|
(572 |
) |
1,293 |
|
(617 |
) |
3,898 |
|
69 |
|
Net derivative assets (4)
|
(935 |
) |
(43 |
) |
— |
|
248 |
|
(676 |
) |
— |
|
(124 |
) |
139 |
|
159 |
|
(1,232 |
) |
(110 |
) |
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
597 |
|
— |
|
77 |
|
— |
|
— |
|
— |
|
(29 |
) |
206 |
|
(343 |
) |
508 |
|
— |
|
Non-U.S. securities |
2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
Other taxable securities |
7 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4 |
) |
— |
|
— |
|
3 |
|
— |
|
Total AFS debt securities |
606 |
|
— |
|
77 |
|
— |
|
— |
|
— |
|
(33 |
) |
206 |
|
(343 |
) |
513 |
|
— |
|
Other debt securities carried at fair value – Non-agency residential MBS |
172 |
|
41 |
|
— |
|
— |
|
— |
|
— |
|
(13 |
) |
155 |
|
(47 |
) |
308 |
|
38 |
|
Loans and leases (5,6)
|
338 |
|
12 |
|
— |
|
27 |
|
(32 |
) |
97 |
|
(41 |
) |
— |
|
— |
|
401 |
|
11 |
|
Loans held-for-sale (5,6)
|
542 |
|
43 |
|
(11 |
) |
12 |
|
(71 |
) |
11 |
|
(199 |
) |
59 |
|
— |
|
386 |
|
13 |
|
Other assets (6, 7)
|
2,932 |
|
(194 |
) |
11 |
|
— |
|
(10 |
) |
161 |
|
(504 |
) |
4 |
|
— |
|
2,400 |
|
(342 |
) |
Trading account liabilities – Equity securities |
— |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
(2 |
) |
Trading account liabilities – Corporate securities
and other
|
(18 |
) |
8 |
|
— |
|
— |
|
(3 |
) |
— |
|
— |
|
— |
|
— |
|
(13 |
) |
(1 |
) |
Long-term debt (5)
|
(817 |
) |
(71 |
) |
— |
|
(27 |
) |
— |
|
(13 |
) |
125 |
|
(62 |
) |
1 |
|
(864 |
) |
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
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 (8)
|
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 (5)
|
571 |
|
(20 |
) |
— |
|
— |
|
(71 |
) |
— |
|
(70 |
) |
— |
|
— |
|
410 |
|
(17 |
) |
Loans held-for-sale (5)
|
690 |
|
24 |
|
(31 |
) |
51 |
|
— |
|
— |
|
(160 |
) |
12 |
|
(60 |
) |
526 |
|
18 |
|
Other assets (6,7,8)
|
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 (5)
|
(8 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
8 |
|
— |
|
— |
|
— |
|
— |
|
Long-term debt (5)
|
(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 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. |
|
|
(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 $47 million related to financial instruments still held at September 30, 2019.
|
|
|
(4) |
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 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 primarily 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 September 30, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2019 |
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(Dollars in millions) |
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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 |
$ |
1,515 |
|
Discounted cash flow, Market comparables |
Yield |
0% to 25% |
6% |
Trading account assets – Mortgage trading loans, ABS and other MBS |
287 |
|
Prepayment speed |
1% to 28% CPR |
18% CPR |
Loans and leases |
401 |
|
Default rate |
0% to 3% CDR |
1% CDR |
Loans held-for-sale |
6 |
|
Loss severity |
0% to 48% |
15% |
AFS debt securities, primarily non-agency residential |
513 |
|
Price |
$0 to $680 |
$92 |
Other debt securities carried at fair value - Non-agency residential |
308 |
|
|
|
|
Instruments backed by commercial real estate assets |
$ |
183 |
|
Discounted cash flow |
Yield |
0% to 25% |
18% |
Trading account assets – Corporate securities, trading loans and other |
158 |
|
Price |
$0 to $100 |
$60 |
Trading account assets – Mortgage trading loans, ABS and other MBS |
23 |
|
|
|
|
Loans held-for-sale |
2 |
|
|
|
|
Commercial loans, debt securities and other |
$ |
3,529 |
|
Discounted cash flow, Market comparables |
Yield |
1% to 15% |
6% |
Trading account assets – Corporate securities, trading loans and other |
1,433 |
|
Prepayment speed |
10% to 20% |
17% |
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 |
1,253 |
|
Loss severity |
35% to 40% |
37% |
Loans held-for-sale
|
378 |
|
Price |
$0 to $158 |
$70 |
Other assets, primarily auction rate securities |
$ |
844 |
|
Discounted cash flow, Market comparables |
Price |
$10 to $100 |
$96 |
|
|
|
|
|
|
|
|
|
|
MSRs |
$ |
1,556 |
|
Discounted cash flow |
Weighted-average life, fixed rate (5)
|
0 to 14 years |
4 years |
|
|
Weighted-average life, variable rate (5)
|
0 to 9 years |
3 years |
|
|
Option-adjusted spread, fixed rate |
9% to 14% |
9% |
|
|
Option-adjusted spread, variable rate |
9% to 15% |
11% |
Structured liabilities |
|
|
|
|
|
Long-term debt |
$ |
(864 |
) |
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
|
Equity correlation |
16% to 97% |
69% |
|
|
Long-dated equity volatilities |
4% to 80% |
32% |
|
|
Price |
$0 to $113 |
$76 |
|
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|
|
|
Net derivative assets |
|
|
|
|
|
Credit derivatives |
$ |
(9 |
) |
Discounted cash flow, Stochastic recovery correlation model |
Yield |
5% |
n/a |
|
|
Upfront points |
0 to 100 points |
69 points |
|
|
Prepayment speed |
15% to 100% CPR |
32% CPR |
|
|
Default rate |
1% to 4% CDR |
2% CDR |
|
|
Loss severity |
35% |
n/a |
|
|
Price |
$0 to $138 |
$81 |
Equity derivatives |
$ |
(1,107 |
) |
Industry standard derivative pricing (3)
|
Equity correlation |
16% to 97% |
69% |
|
|
Long-dated equity volatilities |
4% to 80% |
32% |
Commodity derivatives |
$ |
18 |
|
Discounted cash flow, Industry standard derivative pricing (3)
|
Natural gas forward price |
$1/MMBtu to $7/MMBtu |
$3/MMBtu |
|
|
Correlation |
30% to 69% |
68% |
|
|
Volatilities |
15% to 62% |
33% |
Interest rate derivatives |
$ |
(134 |
) |
Industry standard derivative pricing (4)
|
Correlation (IR/IR) |
15% to 97% |
51% |
|
|
Correlation (FX/IR) |
0% to 46% |
3% |
|
|
Long-dated inflation rates |
-15% to 148% |
84% |
|
|
Long-dated inflation volatilities |
0% to 1% |
1% |
Total net derivative assets |
$ |
(1,232 |
) |
|
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|
(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. |
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(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 82: 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 $513 million, Other debt securities carried at fair value - Non-agency residential of $308 million, Other assets, including MSRs, of $2.4 billion, Loans and leases of $401 million and LHFS of $386 million.
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(3) |
Includes models such as Monte Carlo simulation and Black-Scholes. |
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(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. |
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(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
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Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018 |
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|
|
(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% |
|
|
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% |
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|
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 |
) |
|
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|
|
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|
(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 83: 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.
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|
|
(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 only in certain situations (e.g., the impairment of an asset), 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 |