Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.20.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
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 six months ended June 30, 2020, 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
21 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For more information, see Note 15 – Fair Value Option.
Recurring Fair Value
Assets and liabilities carried at fair value on a recurring basis at June 30, 2020 and December 31, 2019, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.
 
 
 
 
 
 
 
 
 
 
 
June 30, 2020
 
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
$
1,194

 
$
—

 
$
—

 
$
—

 
$
1,194

Federal funds sold and securities borrowed or purchased under agreements to resell
—

 
46,139

 
—

 
—

 
46,139

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
42,865

 
2,988

 
—

 
—

 
45,853

Corporate securities, trading loans and other
—

 
24,055

 
1,548

 
—

 
25,603

Equity securities
59,311

 
30,556

 
194

 
—

 
90,061

Non-U.S. sovereign debt
11,913

 
25,344

 
248

 
—

 
37,505

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed (2)
—

 
18,188

 
152

 
—

 
18,340

Mortgage trading loans, ABS and other MBS
—

 
7,519

 
1,584

 
—

 
9,103

Total trading account assets (3)
114,089

 
108,650

 
3,726

 
—

 
226,465

Derivative assets
18,040

 
411,420

 
2,562

 
(386,838
)
 
45,184

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
51,492

 
1,172

 
—

 
—

 
52,664

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency
—

 
78,999

 
—

 
—

 
78,999

Agency-collateralized mortgage obligations
—

 
6,295

 
—

 
—

 
6,295

Non-agency residential
—

 
529

 
462

 
—

 
991

Commercial
—

 
15,921

 
—

 
—

 
15,921

Non-U.S. securities
—

 
13,327

 
5

 
—

 
13,332

Other taxable securities
—

 
4,187

 
65

 
—

 
4,252

Tax-exempt securities
—

 
17,641

 
337

 
—

 
17,978

Total AFS debt securities
51,492

 
138,071

 
869

 
—

 
190,432

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
3

 
—

 
—

 
—

 
3

Agency MBS
—

 
—

 
—

 
—

 
—

Non-agency residential MBS
—

 
762

 
449

 
—

 
1,211

Non-U.S. and other securities
5,484

 
5,782

 
—

 
—

 
11,266

Total other debt securities carried at fair value
5,487

 
6,544

 
449

 
—

 
12,480

Loans and leases
—

 
8,435

 
741

 
—

 
9,176

Loans held-for-sale
—

 
2,274

 
970

 
—

 
3,244

Other assets (4)
5,857

 
3,017

 
1,911

 
—

 
10,785

Total assets (5)
$
196,159

 
$
724,550

 
$
11,228

 
$
(386,838
)
 
$
545,099

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$
—

 
$
594

 
$
—

 
$
—

 
$
594

Federal funds purchased and securities loaned or sold under agreements to repurchase
—

 
21,516

 
—

 
—

 
21,516

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
11,193

 
361

 
—

 
—

 
11,554

Equity securities
41,057

 
4,610

 
1

 
—

 
45,668

Non-U.S. sovereign debt
8,651

 
9,420

 
—

 
—

 
18,071

Corporate securities and other
—

 
5,603

 
16

 
—

 
5,619

Total trading account liabilities
60,901

 
19,994

 
17

 
—

 
80,912

Derivative liabilities
17,836

 
407,669

 
5,905

 
(388,899
)
 
42,511

Short-term borrowings
—

 
2,651

 
—

 
—

 
2,651

Accrued expenses and other liabilities
7,488

 
3,201

 
—

 
—

 
10,689

Long-term debt
—

 
32,869

 
956

 
—

 
33,825

Total liabilities (5)
$
86,225

 
$
488,494

 
$
6,878

 
$
(388,899
)
 
$
192,698

(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $19.9 billion of GSE obligations.
(3) 
Includes securities with a fair value of $15.9 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.
(4) 
Includes MSRs of $1.1 billion which are classified as Level 3 assets.
(5) 
Total recurring Level 3 assets were 0.41 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.28 percent of total consolidated liabilities.
 
 
 
 
 
 
 
 
 
 
 
December 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
$
1,000

 
$
—

 
$
—

 
$
—

 
$
1,000

Federal funds sold and securities borrowed or purchased under agreements to resell
—

 
50,364

 
—

 
—

 
50,364

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
49,517

 
4,157

 
—

 
—

 
53,674

Corporate securities, trading loans and other
—

 
25,226

 
1,507

 
—

 
26,733

Equity securities
53,597

 
32,619

 
239

 
—

 
86,455

Non-U.S. sovereign debt
3,965

 
23,854

 
482

 
—

 
28,301

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed (2)
—

 
24,324

 
—

 
—

 
24,324

Mortgage trading loans, ABS and other MBS
—

 
8,786

 
1,553

 
—

 
10,339

Total trading account assets (3)
107,079

 
118,966

 
3,781

 
—

 
229,826

Derivative assets
14,079

 
328,442

 
2,226

 
(304,262
)
 
40,485

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
67,332

 
1,196

 
—

 
—

 
68,528

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency
—

 
122,528

 
—

 
—

 
122,528

Agency-collateralized mortgage obligations
—

 
4,641

 
—

 
—

 
4,641

Non-agency residential
—

 
653

 
424

 
—

 
1,077

Commercial
—

 
15,021

 
—

 
—

 
15,021

Non-U.S. securities
—

 
11,989

 
2

 
—

 
11,991

Other taxable securities
—

 
3,876

 
65

 
—

 
3,941

Tax-exempt securities
—

 
17,804

 
108

 
—

 
17,912

Total AFS debt securities
67,332

 
177,708

 
599

 
—

 
245,639

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
3

 
—

 
—

 
—

 
3

Agency MBS
—

 
3,003

 
—

 
—

 
3,003

Non-agency residential MBS
—

 
1,035

 
299

 
—

 
1,334

Non-U.S. and other securities
400

 
6,088

 
—

 
—

 
6,488

Total other debt securities carried at fair value
403

 
10,126

 
299

 
—

 
10,828

Loans and leases
—

 
7,642

 
693

 
—

 
8,335

Loans held-for-sale
—

 
3,334

 
375

 
—

 
3,709

Other assets (4)
11,782

 
1,376

 
2,360

 
—

 
15,518

Total assets (5)
$
201,675

 
$
697,958

 
$
10,333

 
$
(304,262
)
 
$
605,704

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$
—

 
$
508

 
$
—

 
$
—

 
$
508

Federal funds purchased and securities loaned or sold under agreements to repurchase
—

 
16,008

 
—

 
—

 
16,008

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
13,140

 
282

 
—

 
—

 
13,422

Equity securities
38,148

 
4,144

 
2

 
—

 
42,294

Non-U.S. sovereign debt
10,751

 
11,310

 
—

 
—

 
22,061

Corporate securities and other
—

 
5,478

 
15

 
—

 
5,493

Total trading account liabilities
62,039

 
21,214

 
17

 
—

 
83,270

Derivative liabilities
11,904

 
320,479

 
4,764

 
(298,918
)
 
38,229

Short-term borrowings
—

 
3,941

 
—

 
—

 
3,941

Accrued expenses and other liabilities
13,927

 
1,507

 
—

 
—

 
15,434

Long-term debt
—

 
33,826

 
1,149

 
—

 
34,975

Total liabilities (5)
$
87,870

 
$
397,483

 
$
5,930

 
$
(298,918
)
 
$
192,365


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $26.7 billion of GSE obligations.
(3) 
Includes securities with a fair value of $14.7 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 $1.5 billion which are classified as Level 3 assets.
(5) 
Total recurring Level 3 assets were 0.42 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.27 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, 2020 and 2019, 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, 2020
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
1,640

(27
)
—

64

(42
)
—

(42
)
147

(192
)
1,548

(27
)
Equity securities
249

1

—

3

(23
)
—

—

—

(36
)
194

—

Non-U.S. sovereign debt
250

26

(10
)
2

(11
)
—

(9
)
—

—

248

26

Mortgage trading loans, ABS and other MBS
1,733

(22
)
(1
)
104

(229
)
—

(21
)
259

(87
)
1,736

(36
)
Total trading account assets
3,872

(22
)
(11
)
173

(305
)
—

(72
)
406

(315
)
3,726

(37
)
Net derivative assets (liabilities) (4)
(2,909
)
(463
)
—

137

(233
)
—

(178
)
252

51

(3,343
)
(558
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
524

(2
)
4

23

—

—

(10
)
5

(82
)
462

(2
)
Non-U.S. securities
1

—

—

—

—

—

—

4

—

5

—

Other taxable securities
68

—

—

—

(4
)
—

—

1

—

65

—

Tax-exempt securities
100

(24
)
1

—

—

—

—

265

(5
)
337

(24
)
Total AFS debt securities
693

(26
)
5

23

(4
)
—

(10
)
275

(87
)
869

(26
)
Other debt securities carried at fair value – Non-agency residential MBS
269

43

—

—

—

—

(4
)
150

(9
)
449

43

Loans and leases (5,6)
558

47

—

32

(1
)
22

(15
)
98

—

741

46

Loans held-for-sale (5,6)
1,077

9

(5
)
—

(81
)
—

(30
)
—

—

970

5

Other assets (6,7)
1,960

(68
)
13

—

—

133

(128
)
3

(2
)
1,911

(91
)
Trading account liabilities – Equity securities
(1
)
—

—

—

—

—

—

—

—

(1
)
—

Trading account liabilities – Corporate securities
   and other
(20
)
4

—

(1
)
—

—

1

—

—

(16
)
—

Long-term debt (5)
(721
)
(72
)
(127
)
—

—

(32
)
14

(29
)
11

(956
)
(74
)
 
 
 
 
 
 
 
 
 
 
 
 
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 (liabilities) (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 (5,6)
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
)
(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 market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; AFS debt securities - other income; Other debt securities carried at fair value - other income; Loans and leases - predominantly other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - market making and similar activities.
(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. Amounts include net unrealized gains (losses) of $(126) million and $11 million related to financial instruments still held at June 30, 2020 and 2019.
(4) 
Net derivative assets (liabilities) include derivative assets of $2.6 billion and $3.4 billion and derivative liabilities of $5.9 billion and $4.5 billion at June 30, 2020 and 2019.
(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, 2020
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
1,507

(130
)
(1
)
280

(132
)
8

(74
)
384

(294
)
1,548

(122
)
Equity securities
239

(25
)
—

29

(34
)
—

—

25

(40
)
194

(23
)
Non-U.S. sovereign debt
482

28

(63
)
75

(59
)
—

(19
)
17

(213
)
248

28

Mortgage trading loans, ABS and other MBS
1,553

(147
)
(3
)
466

(474
)
—

(40
)
492

(111
)
1,736

(139
)
Total trading account assets
3,781

(274
)
(67
)
850

(699
)
8

(133
)
918

(658
)
3,726

(256
)
Net derivative assets (liabilities) (4)
(2,538
)
(117
)
—

177

(381
)
—

(166
)
(276
)
(42
)
(3,343
)
(500
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
424

(5
)
(9
)
23

—

—

(22
)
133

(82
)
462

(5
)
Non-U.S. securities
2

—

—

—

(1
)
—

—

4

—

5

—

Other taxable securities
65

—

—

3

(4
)
—

—

1

—

65

—

Tax-exempt securities
108

(34
)
3

—

—

—

—

265

(5
)
337

(33
)
Total AFS debt securities
599

(39
)
(6
)
26

(5
)
—

(22
)
403

(87
)
869

(38
)
Other debt securities carried at fair value – Non-agency residential MBS
299

(6
)
—

—

—

—

(8
)
176

(12
)
449

(29
)
Loans and leases (5,6)
693

(72
)
—

32

(1
)
22

(31
)
98

—

741

(36
)
Loans held-for-sale (5,6)
375

—

(33
)
—

(81
)
691

(75
)
93

—

970

(10
)
Other assets (6,7)
2,360

(319
)
(17
)
—

1

153

(270
)
5

(2
)
1,911

(376
)
Trading account liabilities – Equity securities
(2
)
1

—

—

—

—

—

—

—

(1
)
1

Trading account liabilities – Corporate securities
   and other
(15
)
5

—

(7
)
—

—

1

—

—

(16
)
1

Long-term debt (5)
(1,149
)
55

60

8

—

(45
)
155

(52
)
12

(956
)
37

 
 
 
 
 
 
 
 
 
 
 
 
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 (liabilities) (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 (5,6)
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
)
(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 market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; AFS debt securities - other income; Other debt securities carried at fair value - other income; Loans and leases - primarily other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - market making and similar activities.
(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. Amounts include net unrealized gains (losses) of $(40) million and $112 million related to financial instruments still held at June 30, 2020 and 2019.
(4) 
Net derivative assets (liabilities) include derivative assets of $2.6 billion and $3.4 billion and derivative liabilities of $5.9 billion and $4.5 billion at June 30, 2020 and 2019.
(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.
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, 2020 and December 31, 2019.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at June 30, 2020
 
 
 
 
 
 
(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
$
1,838

Discounted cash flow, Market comparables
Yield
0% to 25%
8%
Trading account assets – Mortgage trading loans, ABS and other MBS
608

Prepayment speed
1% to 33% CPR
21% CPR
Loans and leases
248

Default rate
0% to 3% CDR
1% CDR
Loans held-for-sale
1

Loss severity
0% to 50%
17%
AFS debt securities, primarily non-agency residential
467

Price
$0 to $160
$76
AFS debt securities – Other taxable securities
65

 
 
 
Other debt securities carried at fair value - Non-agency residential
449

 
 
 
Instruments backed by commercial real estate assets
$
1,117

Discounted cash flow
Yield
0% to 25%
3%
Trading account assets – Corporate securities, trading loans and other
249

Price
$0 to $117
$63
Trading account assets – Mortgage trading loans, ABS and other MBS
169

 
 
 
Loans held-for-sale
699

 
 
 
Commercial loans, debt securities and other
$
3,454

Discounted cash flow, Market comparables
Yield
1% to 29%
7%
Trading account assets – Corporate securities, trading loans and other
1,299

Prepayment speed
10% to 20%
14%
Trading account assets – Non-U.S. sovereign debt
248

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
807

Loss severity
35% to 40%
38%
AFS debt securities – Tax-exempt securities
337

Price
$0 to $142
$69
Loans and leases
493

Long-dated equity volatilities
85%
n/a
Loans held-for-sale
270

 
 
 
Other assets, primarily auction rate securities
$
795

Discounted cash flow, Market comparables
Price
$10 to $99
$95

 
 
 
 

 
 
 
 
MSRs
$
1,116

Discounted cash flow
Weighted-average life, fixed rate (5)
0 to 13 years
4 years
 
 
Weighted-average life, variable rate (5)
0 to 8 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
$
(956
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Yield
2% to 7%
7%
 
 
Equity correlation
6% to 100%
71%
 
 
Long-dated equity volatilities
4% to 235%
32%
 
 
Price
$0 to $119
$85
 
 
Natural gas forward price
$1/MMBtu to $4/MMBtu
$2/MMBtu
Net derivative assets (liabilities)
 
 
 
 
 
Credit derivatives
$
(4
)
Discounted cash flow, Stochastic recovery correlation model
Yield
5%
n/a
 
 
Upfront points
0 to 100 points
75 points
 
 
Prepayment speed
15% to 100% CPR
25% CPR
 
 
Default rate
1% CDR
n/a
 
 
Price
$0 to $122
$51
Equity derivatives
$
(1,600
)
Industry standard derivative pricing (3)
Equity correlation
6% to 100%
71%
 
 
Long-dated equity volatilities
4% to 235%
32%
Commodity derivatives
$
(1,616
)
Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $4/MMBtu
$2/MMBtu
 
 
Correlation
54% to 85%
73%
 
 
Volatilities
17% to 74%
54%
Interest rate derivatives
$
(123
)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 91%
39%
 
 
Correlation (FX/IR)
0% to 46%
3%
 
 
Long-dated inflation rates
-13% to 60%
18%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets (liabilities)
$
(3,343
)
 
 
 
 
(1) 
For loans and securities, structured liabilities and net derivative assets (liabilities), 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 89: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $248 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $869 million, Other debt securities carried at fair value - Non-agency residential of $449 million, Other assets, including MSRs, of $1.9 billion, Loans and leases of $741 million and LHFS of $970 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, 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
$
1,407

Discounted cash flow, Market comparables
Yield
0% to 25%
6%
Trading account assets – Mortgage trading loans, ABS and other MBS
332

Prepayment speed
1% to 27% CPR
17% CPR
Loans and leases
281

Default rate
0% to 3% CDR
1% CDR
Loans held-for-sale
4

Loss severity
0% to 47%
14%
AFS debt securities, primarily non-agency residential
491

Price
$0 to $160
$94
Other debt securities carried at fair value - Non-agency residential
299

 
 
 
Instruments backed by commercial real estate assets
$
303

Discounted cash flow
Yield
0% to 30%
14%
Trading account assets – Corporate securities, trading loans and other
201

Price
$0 to $100
$55
Trading account assets – Mortgage trading loans, ABS and other MBS
85

 
 
 
Loans held-for-sale
17

 
 
 
Commercial loans, debt securities and other
$
3,798

Discounted cash flow, Market comparables
Yield
1% to 20%
6%
Trading account assets – Corporate securities, trading loans and other
1,306

Prepayment speed
10% to 20%
13%
Trading account assets – Non-U.S. sovereign debt
482

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,136

Loss severity
35% to 40%
38%
AFS debt securities – Tax-exempt securities
108

Price
$0 to $142
$72
Loans and leases
412

Long-dated equity volatilities
35%
n/a
Loans held-for-sale
354


 
 
Other assets, primarily auction rate securities
$
815

Discounted cash flow, Market comparables
Price
$10 to $100
$96
 
 
 
 
 
 
 
 
 
 
MSRs
$
1,545

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%
11%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,149
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Yield
2% to 6%
5%
 
 
Equity correlation
9% to 100%
63%
 
 
Long-dated equity volatilities
4% to 101%
32%
 
 
Price
$0 to $116
$74
 
 
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
Net derivative assets (liabilities)
 
 

 
 
Credit derivatives
$
13

Discounted cash flow, Stochastic recovery correlation model
Yield
5%
n/a
 
 
Upfront points
0 to 100 points
63 points
 
 
Prepayment speed
15% to 100% CPR
22% CPR
 
 
Default rate
1% to 4% CDR
2% CDR
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $104
$73
Equity derivatives
$
(1,081
)
Industry standard derivative pricing (3)
Equity correlation
9% to 100%
63%
 
 
Long-dated equity volatilities
4% to 101%
32%
Commodity derivatives
$
(1,357
)
Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
 
 
Correlation
30% to 69%
68%
 
 
Volatilities
14% to 54%
27%
Interest rate derivatives
$
(113
)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 94%
52%
 
 
Correlation (FX/IR)
0% to 46%
2%
 
 
Long-dated inflation rates
-23% to 56%
16%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets (liabilities)
$
(2,538
)
 
 
 
 

(1) 
For loans and securities, structured liabilities and net derivative assets (liabilities), 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 90: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $482 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $599 million, Other debt securities carried at fair value - Non-agency residential of $299 million, Other assets, including MSRs, of $2.4 billion, Loans and leases of $693 million and LHFS of $375 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 21 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2019 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 three and six months ended June 30, 2020 and 2019.
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
 
 
 
June 30, 2020
 
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
(Dollars in millions)
 
Level 2
 
Level 3
 
Gains (Losses)
Assets
 

 
 

 
 
 
 
Loans held-for-sale
$
505

 
$
1,119

 
$
(37
)
 
$
(113
)
Loans and leases (1)
—

 
186

 
(22
)
 
(45
)
Foreclosed properties (2, 3)
—

 
16

 
(5
)
 
(8
)
Other assets
187

 
6

 
(26
)
 
(27
)
 
 
 
 
 
 
 
 
 
June 30, 2019
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
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
)
(1) 
Includes $9 million and $18 million of losses on loans that were written down to a collateral value of zero during the three and six months ended June 30, 2020 compared to losses of $18 million and $31 million for the same periods in 2019.
(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 $124 million and $294 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at June 30, 2020 and 2019.
The table below presents information about significant unobservable inputs at June 30, 2020 and December 31, 2019.
 
 
 
 
 
 
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, 2020
Loans held-for-sale
$
1,119

Discounted cash flow
Price
$8 to $98
$96
Loans and leases (2)
186

Market comparables
OREO discount
13% to 59%
24
%
 
 
 
Costs to sell
8% to 26%
9
%
 
December 31, 2019
Loans held-for-sale
$
102

Discounted cash flow
Price
$85 to $97
$88
Loans and leases (2)
257

Market comparables
OREO discount
13% to 59%
24
%
 
 
 
Costs to sell
8% to 26%
9
%
Other assets (3)
640

Discounted cash flow
Customer attrition
0% to 19%
5
%
 
 
 
Costs to service
11% to 19%
15
%

(1) 
The weighted average is calculated based upon the fair value of the loans.
(2) 
Represents residential mortgages where the loan has been written down to the fair value of the underlying collateral.
(3) 
Reflects the measurement of the Corporation’s merchant services equity method investment on which the Corporation recorded an impairment charge in 2019. For more information, see Note 13 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K. The fair value of the merchant services joint venture was measured using a discounted cash flow method in which the two primary drivers of fair value were the customer attrition rate and certain costs to service the customers. The weighted averages are calculated based on variations of the attrition rates and costs to service the customers.