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, 2021

Fair Value MeasurementsUnder 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 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, 2021, 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 2020 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, 2021 and December 31, 2020, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.



	June 30, 2021
	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	$	1,450	$	—	$	—	$	—	$	1,450
Federal funds sold and securities borrowed or purchased under agreements to resell	—		163,344		—		—		163,344
Trading account assets:
U.S. Treasury and agency securities (2)	40,733		1,299		—		—		42,032
Corporate securities, trading loans and other	—		36,707		1,764		—		38,471
Equity securities	104,218		39,316		260		—		143,794
Non-U.S. sovereign debt	10,621		20,919		414		—		31,954
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed (2)	—		23,567		97		—		23,664
Mortgage trading loans, ABS and other MBS	—		10,417		1,401		—		11,818
Total trading account assets (3)	155,572		132,225		3,936		—		291,733
Derivative assets	17,487		331,302		3,312		(310,603)		41,498
AFS debt securities:
U.S. Treasury and agency securities	159,245		1,088		—		—		160,333
Mortgage-backed securities:
Agency	—		57,889		—		—		57,889
Agency-collateralized mortgage obligations	—		4,226		—		—		4,226
Non-agency residential	—		647		205		—		852
Commercial	—		18,919		—		—		18,919
Non-U.S. securities	—		17,156		11		—		17,167

Other taxable securities	—		2,847		74		—		2,921
Tax-exempt securities	—		15,823		51		—		15,874
Total AFS debt securities	159,245		118,595		341		—		278,181
Other debt securities carried at fair value:
U.S. Treasury and agency securities	518		—		—		—		518



Non-agency residential MBS	—		451		281		—		732



Non-U.S. and other securities	3,491		5,991		—		—		9,482
Total other debt securities carried at fair value	4,009		6,442		281		—		10,732
Loans and leases	—		6,093		857		—		6,950
Loans held-for-sale	—		1,944		263		—		2,207


Other assets (4)	10,034		3,119		1,775		—		14,928

Total assets (5)	$	347,797	$	763,064	$	10,765	$	(310,603)	$	811,023

Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	515	$	—	$	—	$	515
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		165,781		—		—		165,781
Trading account liabilities:
U.S. Treasury and agency securities	22,888		289		—		—		23,177
Equity securities	47,288		4,358		—		—		51,646
Non-U.S. sovereign debt	17,404		9,074		—		—		26,478
Corporate securities and other	—		8,766		17		—		8,783

Total trading account liabilities	87,580		22,487		17		—		110,084
Derivative liabilities	16,945		330,062		6,196		(314,287)		38,916
Short-term borrowings	—		4,490		—		—		4,490
Accrued expenses and other liabilities	11,899		3,275		—		—		15,174
Long-term debt	—		29,301		1,060		—		30,361
Total liabilities (5)	$	116,424	$	555,911	$	7,273	$	(314,287)	$	365,321

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

(2)Includes $23.7 billion of GSE obligations.

(3)Includes securities with a fair value of $8.6 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. Trading account assets also includes certain commodities inventory of $2.1 billion that are accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.

(4)Includes MSRs of $976 million which are classified as Level 3 assets.

(5)Total recurring Level 3 assets were 0.36 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.26 percent of total consolidated liabilities.



	December 31, 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	$	1,649	$	—	$	—	$	—	$	1,649
Federal funds sold and securities borrowed or purchased under agreements to resell	—		108,856		—		—		108,856
Trading account assets:
U.S. Treasury and agency securities (2)	45,219		3,051		—		—		48,270
Corporate securities, trading loans and other	—		22,817		1,359		—		24,176
Equity securities	36,372		31,372		227		—		67,971
Non-U.S. sovereign debt	5,753		20,884		354		—		26,991
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed (2)	—		21,566		75		—		21,641
Mortgage trading loans, ABS and other MBS	—		8,440		1,365		—		9,805
Total trading account assets (3)	87,344		108,130		3,380		—		198,854
Derivative assets	15,624		416,175		2,751		(387,371)		47,179
AFS debt securities:
U.S. Treasury and agency securities	115,266		1,114		—		—		116,380
Mortgage-backed securities:
Agency	—		61,849		—		—		61,849
Agency-collateralized mortgage obligations	—		5,260		—		—		5,260
Non-agency residential	—		631		378		—		1,009
Commercial	—		16,491		—		—		16,491
Non-U.S. securities	—		13,999		18		—		14,017

Other taxable securities	—		2,640		71		—		2,711
Tax-exempt securities	—		16,598		176		—		16,774
Total AFS debt securities	115,266		118,582		643		—		234,491
Other debt securities carried at fair value:
U.S. Treasury and agency securities	93		—		—		—		93


Non-agency residential MBS	—		506		267		—		773



Non-U.S. and other securities	2,619		8,625		—		—		11,244
Total other debt securities carried at fair value	2,712		9,131		267		—		12,110
Loans and leases	—		5,964		717		—		6,681
Loans held-for-sale	—		1,349		236		—		1,585
Other assets (4)	9,898		3,850		1,970		—		15,718

Total assets (5)	$	232,493	$	772,037	$	9,964	$	(387,371)	$	627,123

Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	481	$	—	$	—	$	481
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		135,391		—		—		135,391
Trading account liabilities:
U.S. Treasury and agency securities	9,425		139		—		—		9,564
Equity securities	38,189		4,235		—		—		42,424
Non-U.S. sovereign debt	5,853		8,043		—		—		13,896
Corporate securities and other	—		5,420		16		—		5,436
Total trading account liabilities	53,467		17,837		16		—		71,320
Derivative liabilities	14,907		412,881		6,219		(388,481)		45,526
Short-term borrowings	—		5,874		—		—		5,874
Accrued expenses and other liabilities	12,297		4,014		—		—		16,311
Long-term debt	—		31,036		1,164		—		32,200
Total liabilities (5)	$	80,671	$	607,514	$	7,399	$	(388,481)	$	307,103

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

(2)Includes $22.2 billion of GSE obligations.

(3)Includes securities with a fair value of $16.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. Trading account assets also includes certain commodities inventory of $576 million that are accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.

(4)Includes MSRs of $1.0 billion which are classified as Level 3 assets.

(5)Total recurring Level 3 assets were 0.35 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.29 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, 2021 and 2020, 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, 2021
Trading account assets:

Corporate securities, trading loans and other	$	1,516	$	38	$	—	$	185	$	(110)	$	—	$	(116)	$	306	$	(55)	$	1,764	$	16
Equity securities	273		32		—		8		(26)		—		—		26		(53)		260		23
Non-U.S. sovereign debt	334		20		34		—		—		—		—		26		—		414		20
Mortgage trading loans, MBS and ABS	1,561		(10)		—		119		(274)		—		(28)		188		(58)		1,498		(10)
Total trading account assets	3,684		80		34		312		(410)		—		(144)		546		(166)		3,936		49
Net derivative assets (liabilities) (4)	(3,206)		5		—		211		(88)		—		36		(83)		241		(2,884)		(19)
AFS debt securities:



Non-agency residential MBS	284		1		3		—		—		—		(8)		—		(75)		205		—

Non-U.S. securities	13		(1)		—		—		—		—		(1)		—		—		11		—

Other taxable securities	73		—		1		—		—		—		—		—		—		74		—
Tax-exempt securities	98		3		—		—		—		—		—		—		(50)		51		3
Total AFS debt securities	468		3		4		—		—		—		(9)		—		(125)		341		3
Other debt securities carried at fair value – Non-agency residential MBS	260		3		—		—		—		—		(14)		32		—		281		3
Loans and leases (5,6)	793		34		—		—		—		60		(46)		16		—		857		34

Loans held-for-sale (5,6)	220		10		11		38		—		—		(23)		7		—		263		4
Other assets (6,7)	2,090		(153)		4		55		(144)		23		(100)		—		—		1,775		(117)

Trading account liabilities – Corporate securities and other	(16)		—		—		—		—		(1)		—		—		—		(17)		—


Long-term debt (5)	(1,028)		(67)		15		2		—		(2)		19		—		1		(1,060)		(66)

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, MBS and ABS	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)

(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 - market making and similar activities and 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 $67 million and $(126) million related to financial instruments still held at June 30, 2021 and 2020.

(4)Net derivative assets (liabilities) include derivative assets of $3.3 billion and $2.6 billion and derivative liabilities of $6.2 billion and $5.9 billion at June 30, 2021 and 2020.

(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, 2021
Trading account assets:

Corporate securities, trading loans and other	$	1,359	$	25	$	—	$	426	$	(257)	$	—	$	(133)	$	458	$	(114)	$	1,764	$	(5)
Equity securities	227		22		—		53		(49)		—		—		78		(71)		260		14
Non-U.S. sovereign debt	354		20		12		2		—		—		—		26		—		414		23
Mortgage trading loans, ABS and other MBS	1,440		39		—		247		(495)		1		(64)		444		(114)		1,498		16
Total trading account assets	3,380		106		12		728		(801)		1		(197)		1,006		(299)		3,936		48
Net derivative assets (liabilities) (4)	(3,468)		291		—		349		(349)		—		183		(191)		301		(2,884)		192
AFS debt securities:



Non-agency residential MBS	378		(15)		(94)		—		—		—		(25)		36		(75)		205		(2)

Non-U.S. securities	18		(1)		—		—		—		—		(6)		—		—		11		—

Other taxable securities	71		—		(5)		8		—		—		—		—		—		74		—
Tax-exempt securities	176		17		—		—		—		—		—		—		(142)		51		16
Total AFS debt securities	643		1		(99)		8		—		—		(31)		36		(217)		341		14
Other debt securities carried at fair value – Non-agency residential MBS	267		2		—		—		—		—		(20)		32		—		281		2
Loans and leases (5,6)	717		104		—		—		—		70		(80)		46		—		857		111
Loans held-for-sale (5,6)	236		4		3		38		—		—		(40)		26		(4)		263		(5)
Other assets (6,7)	1,970		21		8		55		(145)		64		(205)		7		—		1,775		46



Trading account liabilities – Corporate securities and other	(16)		—		—		—		—		(1)		—		—		—		(17)		1


Long-term debt (5)	(1,164)		(18)		2		2		—		(2)		37		(32)		115		(1,060)		(34)

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

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

(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 $(5) million and $(40) million related to financial instruments still held at June 30, 2021 and 2020.

(4)Net derivative assets (liabilities) include derivative assets of $3.3 billion and $2.6 billion and derivative liabilities of $6.2 billion and $5.9 billion at June 30, 2021 and 2020.

(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, 2021 and December 31, 2020.

Quantitative Information about Level 3 Fair Value Measurements at June 30, 2021

(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

1,237

Discounted cash flow, Market comparables

Yield

0% to 25%

Trading account assets – Mortgage trading loans, ABS and other MBS

368

Prepayment speed

1% to 37% CPR

18% CPR

Loans and leases

383

Default rate

0% to 3% CDR

1% CDR

AFS debt securities – Non-agency residential

205

Price

$0 to $155

$96

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

281

Loss severity

0% to 42%

Instruments backed by commercial real estate assets

440

Discounted cash
flow

Yield

0% to 25%

Trading account assets – Corporate securities, trading loans and other

266

Price

$0 to $101

$60

Trading account assets – Mortgage trading loans, ABS and other MBS

AFS debt securities, primarily other taxable securities

Loans held-for-sale

Commercial loans, debt securities and other

3,741

Discounted cash flow, Market comparables

Yield

0% to 17%

Trading account assets – Corporate securities, trading loans and other

1,498

Prepayment speed

10% to 20%

Trading account assets – Non-U.S. sovereign debt

414

Default rate

3% to 4%

Trading account assets – Mortgage trading loans, ABS and other MBS

1,050

Loss severity

35% to 40%

AFS debt securities – Tax-exempt securities

Price

$0 to $156

$71

Loans and leases

474

Long-dated equity volatilities

44%

n/a

Loans held-for-sale

254

Other assets, primarily auction rate securities

799

Discounted cash flow, Market comparables

Price

$10 to $96

$93

Discount rate

n/a

MSRs

976

Discounted cash
flow

Weighted-average life, fixed rate (5)

0 to 14 years

4 years

Weighted-average life, variable rate (5)

0 to 10 years

3 years

Option-adjusted spread, fixed rate

7% to 14%

Option-adjusted spread, variable rate

9% to 15%

Structured liabilities

Long-term debt

(1,060)

Discounted cash flow, Market comparables, Industry standard derivative pricing (3)

Yield

0% to 14%

Equity correlation

3% to 99%

Long-dated equity volatilities

4% to 61%

Price

$0 to $124

$87

Natural gas forward price

$2/MMBtu to $6/MMBtu

$3 /MMBtu

Net derivative assets (liabilities)

Credit derivatives

(108)

Discounted cash flow, Stochastic recovery correlation model

Credit spreads

1 to 375 bps

85 bps

Upfront points

16 to 100 points

74 points

Prepayment speed

15% CPR

n/a

Default rate

2% CDR

n/a

Credit correlation

21% to 60%

Price

$0 to $122

$63

Equity derivatives

(1,440)

Industry standard derivative pricing (3)

Equity correlation

3% to 99%

Long-dated equity volatilities

4% to 60%

Commodity derivatives

(1,259)

Discounted cash flow, Industry standard derivative pricing (3)

Natural gas forward price

$2/MMBtu to $6/MMBtu

$3 /MMBtu

Correlation

54% to 85%

Volatilities

27% to 51%

Interest rate derivatives

(77)

Industry standard derivative pricing (4)

Correlation (IR/IR)

(1)% to 90%

Correlation (FX/IR)

0% to 58%

Long-dated inflation rates

(8)% to 15%

Long-dated inflation volatilities

0% to 1%

Interest rate volatilities

0% to 2%

Total net derivative assets (liabilities)

(2,884)

(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 87: Trading account assets – Corporate securities, trading loans and other of $1.8 billion, Trading account assets – Non-U.S. sovereign debt of $414 million, Trading account assets – Mortgage trading loans, MBS and ABS of $1.5 billion, AFS debt securities of $341 million, Other debt securities carried at fair value - Non-agency residential of $281 million, Other assets, including MSRs, of $1.8 billion, Loans and leases of $857 million and LHFS of $263 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, 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

1,543

Discounted cash
flow, Market comparables

Yield

(3)% to 25%

Trading account assets – Mortgage trading loans, ABS and other MBS

467

Prepayment speed

1% to 56% CPR

20% CPR

Loans and leases

431

Default rate

0% to 3% CDR

1% CDR

AFS debt securities - Non-agency residential

378

Price

$0 to $168

$110

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

267

Loss severity

0% to 47%

Instruments backed by commercial real estate assets

407

Discounted cash
flow

Yield

0% to 25%

Trading account assets – Corporate securities, trading loans and other

262

Price

$0 to $100

$52

Trading account assets – Mortgage trading loans, ABS and other MBS

AFS debt securities, primarily other taxable securities

Loans held-for-sale

Commercial loans, debt securities and other

3,066

Discounted cash flow, Market comparables

Yield

0% to 26%

Trading account assets – Corporate securities, trading loans and other

1,097

Prepayment speed

10% to 20%

Trading account assets – Non-U.S. sovereign debt

354

Default rate

3% to 4%

Trading account assets – Mortgage trading loans, ABS and other MBS

930

Loss severity

35% to 40%

AFS debt securities – Tax-exempt securities

176

Price

$0 to $142

$66

Loans and leases

286

Long-dated equity volatilities

77%

n/a

Loans held-for-sale

223

Other assets, primarily auction rate securities

937

Discounted cash flow, Market comparables

Price

$10 to $97

$91

Discount rate

n/a

MSRs

1,033

Discounted cash
flow

Weighted-average life, fixed rate (5)

0 to 13 years

4 years

Weighted-average life, variable rate (5)

0 to 10 years

3 years

Option-adjusted spread, fixed rate

7% to 14%

Option-adjusted spread, variable rate

9% to 15%

Structured liabilities

Long-term debt

(1,164)

Discounted cash flow, Market comparables, Industry standard derivative pricing (3)

Yield

0% to 11%

Equity correlation

2% to 100%

Long-dated equity volatilities

7% to 64%

Price

$0 to $124

$86

Natural gas forward price

$1/MMBtu to $4/MMBtu

$3/MMBtu

Net derivative assets (liabilities)

Credit derivatives

(112)

Discounted cash flow, Stochastic recovery correlation model

Yield

n/a

Upfront points

0 to 100 points

75 points

Prepayment speed

15% to 100% CPR

22% CPR

Default rate

2% CDR

n/a

Credit correlation

21% to 64%

Price

$0 to $122

$69

Equity derivatives

(1,904)

Industry standard derivative pricing (3)

Equity correlation

2% to 100%

Long-dated equity volatilities

7% to 64%

Commodity derivatives

(1,426)

Discounted cash flow, Industry standard derivative pricing (3)

Natural gas forward price

$1/MMBtu to $4/MMBtu

$3/MMBtu

Correlation

39% to 85%

Volatilities

23% to 70%

Interest rate derivatives

(26)

Industry standard derivative pricing (4)

Correlation (IR/IR)

15% to 96%

Correlation (FX/IR)

0% to 46%

Long-dated inflation rates

G(7)% to 84%

Long-dated inflation volatilities

0% to 1%

Interest rates volatilities

0% to 2%

Total net derivative assets (liabilities)

(3,468)

(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 88: Trading account assets – Corporate securities, trading loans and other of $1.4 billion, Trading account assets – Non-U.S. sovereign debt of $354 million, Trading account assets – Mortgage trading loans, MBS and ABS of $1.4 billion, AFS debt securities of $643 million, Other debt securities carried at fair value - Non-agency residential of $267 million, Other assets, including MSRs, of $2.0 billion, Loans and leases of $717 million and LHFS of $236 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 2020 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, 2021 and 2020.



Assets Measured at Fair Value on a Nonrecurring Basis


	June 30, 2021				Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
(Dollars in millions)	Level 2		Level 3		Gains (Losses)
Assets
Loans held-for-sale	$	1,105	$	52	$	9	$	9
Loans and leases (1)	—		142		(24)		(37)
Foreclosed properties (2, 3)	—		3		—		(1)
Other assets	322		2,172		(67)		(470)

	June 30, 2020				Three Months Ended June 30, 2020		Six Months Ended June 30, 2020

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)

(1)Includes $15 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, 2021 compared to losses of $9 million and $18 million for the same periods in 2020.

(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 $66 million and $124 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at June 30, 2021 and 2020.

The table below presents information about significant unobservable inputs utilized in the Corporation's nonrecurring Level 3 fair value measurements at June 30, 2021 and December 31, 2020.

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)

Six Months Ended June 30, 2021

Loans and leases (2)

142

Market comparables

OREO discount

13% to 59%

Costs to sell

8% to 26%

Other assets (3)

1,955

Discounted cash flow

Discount rate

n/a

211

Market comparables

Estimated appraisal value

n/a

Year Ended December 31, 2020

Loans held-for-sale

792

Discounted cash flow

Price

$8 to $99

$95

Loans and leases (2)

301

Market comparables

OREO discount

13% to 59%

Costs to sell

8% to 26%

Other assets (4)

576

Discounted cash flow

Revenue attrition

2% to 19%

Discount rate

11% to 14%

(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)Represents the fair value of certain impaired renewable energy investments and impaired assets related to the Corporation’s real estate rationalization.

(4)Represents the fair value of the intangible asset related to the merchant contracts received from the dissolution of the Corporation's merchant services joint venture.

n/a = not applicable

- 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