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

9 Months Ended

Sep. 30, 2011

NOTE 16 – Fair Value Measurements

Under applicable accounting guidance, 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 based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles and Note 22 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K. The Corporation accounts for certain corporate loans and loan commitments, LHFS, structured reverse repurchase agreements, long-term deposits and long-term debt under the fair value option. For more information, see Note 17 – Fair Value Option.

Recurring Fair Value

Assets and liabilities carried at fair value on a recurring basis at September 30, 2011 and December 31, 2010, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.



	September 30, 2011
	Fair Value Measurements
(Dollars in millions)	Level 1 ⁽¹⁾		Level 2 ⁽¹⁾		Level 3		Netting Adjustments ⁽²⁾			Assets/Liabilities at Fair Value
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	—	$	92,441	$	—	$	—		$	92,441
Trading account assets:
U.S. government and agency securities	30,354		21,371		—		—			51,725
Corporate securities, trading loans and other	1,345		36,645		7,492		—			45,482
Equity securities	16,227		6,815		597		—			23,639
Non-U.S. sovereign debt	33,531		9,206		375		—			43,112
Mortgage trading loans and ABS	—		8,669		3,771		—			12,440
Total trading account assets	81,457		82,706		12,235		—			176,398
Derivative assets ⁽³⁾	4,978		2,151,021		16,047		(2,093,002		)	79,044
AFS debt securities:
U.S. Treasury securities and agency securities	56,600		3,431		—		—			60,031
Mortgage-backed securities:
Agency	—		160,066		13		—			160,079
Agency-collateralized mortgage obligations	—		53,183		55		—			53,238
Non-agency residential	—		16,514		1,080		—			17,594
Non-agency commercial	—		6,564		35		—			6,599
Non-U.S. securities	1,938		3,025		—		—			4,963
Corporate/Agency bonds	—		3,752		364		—			4,116
Other taxable securities	20		3,106		9,342		—			12,468
Tax-exempt securities	—		2,306		2,873		—			5,179
Total AFS debt securities	58,558		251,947		13,762		—			324,267
Loans and leases	—		5,924		5,300		—			11,224
Mortgage servicing rights	—		—		7,880		—			7,880
Loans held-for-sale	—		7,553		3,630		—			11,183
Other assets	22,804		9,824		5,750		—			38,378
Total assets	$	167,797	$	2,601,416	$	64,604	$	(2,093,002	)	$	740,815
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	3,268	$	—	$	—		$	3,268
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		36,943		—		—			36,943
Trading account liabilities:
U.S. government and agency securities	18,867		2,506		—		—			21,373
Equity securities	16,366		2,248		—		—			18,614
Non-U.S. sovereign debt	17,126		641		—		—			17,767
Corporate securities and other	675		9,527		70		—			10,272
Total trading account liabilities	53,034		14,922		70		—			68,026
Derivative liabilities ⁽³⁾	4,951		2,129,395		9,755		(2,084,797		)	59,304
Commercial paper and other short-term borrowings	—		5,527		667		—			6,194
Accrued expenses and other liabilities	13,485		2,020		13		—			15,518
Long-term debt	—		45,578		2,657		—			48,235
Total liabilities	$	71,470	$	2,237,653	$	13,162	$	(2,084,797	)	$	237,488


⁽¹⁾	Gross transfers between Level 1 and Level 2 were not significant during the nine months ended September 30, 2011.


⁽²⁾	Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.


⁽³⁾	For further disaggregation of derivative assets and liabilities, see Note 4 – Derivatives.



	December 31, 2010
	Fair Value Measurements
(Dollars in millions)	Level 1 ⁽¹⁾		Level 2 ⁽¹⁾		Level 3		Netting Adjustments ⁽²⁾			Assets/Liabilities at Fair Value
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell	$	—	$	78,599	$	—	$	—		$	78,599
Trading account assets:
U.S. government and agency securities ⁽³⁾	28,237		32,574		—		—			60,811
Corporate securities, trading loans and other	732		40,869		7,751		—			49,352
Equity securities	23,249		8,257		623		—			32,129
Non-U.S. sovereign debt	24,934		8,346		243		—			33,523
Mortgage trading loans and ABS	—		11,948		6,908		—			18,856
Total trading account assets	77,152		101,994		15,525		—			194,671
Derivative assets ⁽⁴⁾	2,627		1,516,244		18,773		(1,464,644		)	73,000
AFS debt securities:
U.S. Treasury securities and agency securities	46,003		3,102		—		—			49,105
Mortgage-backed securities:
Agency	—		191,213		4		—			191,217
Agency-collateralized mortgage obligations	—		37,017		—		—			37,017
Non-agency residential	—		21,649		1,468		—			23,117
Non-agency commercial	—		6,833		19		—			6,852
Non-U.S. securities	1,440		2,696		3		—			4,139
Corporate/Agency bonds	—		5,154		137		—			5,291
Other taxable securities	20		2,354		13,018		—			15,392
Tax-exempt securities	—		4,273		1,224		—			5,497
Total AFS debt securities	47,463		274,291		15,873		—			337,627
Loans and leases	—		—		3,321		—			3,321
Mortgage servicing rights	—		—		14,900		—			14,900
Loans held-for-sale	—		21,802		4,140		—			25,942
Other assets	32,624		31,051		6,856		—			70,531
Total assets	$	159,866	$	2,023,981	$	79,388	$	(1,464,644	)	$	798,591
Liabilities
Interest-bearing deposits in U.S. offices	$	—	$	2,732	$	—	$	—		$	2,732
Federal funds purchased and securities loaned or sold under agreements to repurchase	—		37,424		—		—			37,424
Trading account liabilities:
U.S. government and agency securities	23,357		5,983		—		—			29,340
Equity securities	14,568		914		—		—			15,482
Non-U.S. sovereign debt	14,748		1,065		—		—			15,813
Corporate securities and other	224		11,119		7		—			11,350
Total trading account liabilities	52,897		19,081		7		—			71,985
Derivative liabilities ⁽⁴⁾	1,799		1,492,963		11,028		(1,449,876		)	55,914
Commercial paper and other short-term borrowings	—		6,472		706		—			7,178
Accrued expenses and other liabilities	31,470		931		828		—			33,229
Long-term debt	—		47,998		2,986		—			50,984
Total liabilities	$	86,166	$	1,607,601	$	15,555	$	(1,449,876	)	$	259,446


⁽¹⁾	Gross transfers between Level 1 and Level 2 were approximately $1.3 billion during the year ended December 31, 2010.


⁽²⁾	Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.


⁽³⁾	Certain prior period amounts have been reclassified to conform to current period presentation.


⁽⁴⁾	For further disaggregation of derivative assets and liabilities, see Note 4 – Derivatives.

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, 2011 and 2010, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.



Level 3 – Fair Value Measurements
	Three Months Ended September 30, 2011
										Gross ⁽¹⁾
(Dollars in millions)	Balance July 1 2011 ⁽¹⁾			Gains (Losses) in Earnings			Gains (Losses) in OCI			Purchases		Sales			Issuances			Settlements			Gross Transfers into Level 3 ⁽¹⁾			Gross Transfers out of Level 3 ⁽¹⁾			Balance September 30 2011 ⁽¹⁾
Trading account assets:
Corporate securities, trading loans and other	$	7,452		$	(219	)	$	—		$	1,084	$	(757	)	$	—		$	(561	)	$	635		$	(142	)	$	7,492
Equity securities	608			(8		)	—			103		(92		)	—			(25		)	11			—			597
Non-U.S. sovereign debt	391			(17		)	—			3		(3		)	—			—			1			—			375
Mortgage trading loans and ABS	5,519			(112		)	—			97		(1,378		)	—			(80		)	18			(293		)	3,771
Total trading account assets	13,970			(356		)	—			1,287		(2,230		)	—			(666		)	665			(435		)	12,235
Net derivative assets ⁽²⁾	5,418			3,211			—			154		(200		)	—			(2,950		)	285			374			6,292
AFS debt securities:
Mortgage-backed securities:
Agency	—			—			—			13		—			—			—			—			—			13
Agency-collateralized mortgage obligations	55			—			—			—		—			—			—			—			—			55
Non-agency residential	1,094			(41		)	52			9		(3		)	—			(32		)	1			—			1,080
Non-agency commercial	18			—			—			17		—			—			—			—			—			35
Non-U.S. securities	88			—			—			—		—			—			—			—			(88		)	—
Corporate/Agency bonds	224			(4		)	(1		)	162		(9		)	—			—			—			(8		)	364
Other taxable securities	10,374			(25		)	(42		)	2,068		(2,187		)	—			(846		)	—			—			9,342
Tax-exempt securities	1,609			8			(9		)	2,179		(7		)	—			(234		)	—			(673		)	2,873
Total AFS debt securities	13,462			(62		)	—			4,448		(2,206		)	—			(1,112		)	1			(769		)	13,762
Loans and leases ^{(3, 4)}	9,597			(209		)	—			—		—			451			(194		)	—			(4,345		)	5,300
Mortgage servicing rights ⁽⁴⁾	12,372			(3,860		)	—			—		(218		)	251			(665		)	—			—			7,880
Loans held-for-sale ⁽³⁾	4,012			(142		)	—			15		(200		)	—			(112		)	61			(4		)	3,630
Other assets ⁽⁵⁾	4,549			54			—			1,703		(290		)	—			(266		)	—			—			5,750
Trading account liabilities – Corporate securities and other	(63		)	2			—			18		(3		)	—			—			(24		)	—			(70		)
Commercial paper and other short-term borrowings ⁽³⁾	(744		)	58			—			—		—			—			19			—			—			(667		)
Accrued expenses and other liabilities ⁽³⁾	(777		)	—			—			—		—			—			3			—			761			(13		)
Long-term debt ⁽³⁾	(3,324		)	388			—			125		(17		)	(218		)	366			(679		)	702			(2,657		)


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


⁽²⁾	Net derivatives at September 30, 2011 include derivative assets of $16.0 billion and derivative liabilities of $9.8 billion.


⁽³⁾	Amounts represent items that are accounted for under the fair value option.


⁽⁴⁾	Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales.


⁽⁵⁾	Other assets is primarily comprised of AFS marketable equity securities.

During the three months ended September 30, 2011, the transfers into Level 3 included $665 million of trading account assets and $679 million of long-term debt. Transfers into Level 3 for trading account assets were driven by decreased price observability for certain corporate loans and bonds. Transfers into Level 3 for long-term debt were the result of an increase in unobservable inputs used in the pricing of certain structured liabilities.

During the three months ended September 30, 2011, the transfers out of Level 3 included $769 million of AFS debt securities, $4.3 billion of loans and leases, $761 million of accrued expenses and other liabilities and $702 million of long-term debt. Transfers out of Level 3 for AFS debt securities were driven by increased use of observable inputs in pricing certain municipal securities. Transfers out of Level 3 for loans and leases and accrued expenses and other liabilities were driven by increased observable inputs, primarily liquid comparables, for certain corporate loans and unfunded loan commitments (included in other liabilities) accounted for under the fair value option. Transfers out of Level 3 for long-term debt were due to increased price observability for inputs used in the pricing of certain structured liabilities.



Level 3 – Fair Value Measurements
	Three Months Ended September 30, 2010
(Dollars in millions)	Balance July 1 2010 ⁽¹⁾			Gains (Losses) in Earnings			Gains (Losses) in OCI			Purchases, Sales, Issuances and Settlements			Gross Transfers into Level 3 ⁽¹⁾			Gross Transfers out of Level 3 ⁽¹⁾			Balance September 30 2010 ⁽¹⁾
Trading account assets:
Corporate securities, trading loans and other	$	9,873		$	257		$	—		$	(802	)	$	252		$	(843	)	$	8,737
Equity securities	726			(17		)	—			18			—			(10		)	717
Non-U.S. sovereign debt	952			23			—			(75		)	11			(653		)	258
Mortgage trading loans and ABS	7,508			183			—			175			7			(30		)	7,843
Total trading account assets	19,059			446			—			(684		)	270			(1,536		)	17,555
Net derivative assets ⁽²⁾	9,402			2,684			—			(2,246		)	307			(603		)	9,544
AFS debt securities:
Non-agency MBS:
Residential	1,976			(86		)	108			(567		)	111			—			1,542
Commercial	50			—			(3		)	18			—			—			65
Non-U.S. securities	233			(2		)	14			(222		)	—			—			23
Corporate/Agency bonds	304			—			11			(43		)	—			—			272
Other taxable securities	13,900			2			92			(258		)	—			—			13,736
Tax-exempt securities	1,237			—			—			(7		)	—			—			1,230
Total AFS debt securities	17,700			(86		)	222			(1,079		)	111			—			16,868
Loans and leases ⁽³⁾	3,898			86			—			(300		)	—			—			3,684
Mortgage servicing rights	14,745			(2,315		)	—			(179		)	—			—			12,251
Loans held-for-sale ⁽³⁾	5,981			386			—			(397		)	118			(67		)	6,021
Other assets ⁽⁴⁾	7,702			(201		)	—			(235		)	—			—			7,266
Trading account liabilities:
Non-U.S. sovereign debt	(7		)	—			—			7			—			—			—
Corporate securities and other	(73		)	—			—			(11		)	—			46			(38		)
Total trading account liabilities	(80		)	—			—			(4		)	—			46			(38		)
Commercial paper and other short-term borrowings ⁽³⁾	(700		)	(35		)	—			23			—			—			(712		)
Accrued expenses and other liabilities ⁽³⁾	(918		)	116			—			—			—			—			(802		)
Long-term debt ⁽³⁾	(4,090		)	(190		)	—			174			(477		)	475			(4,108		)


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


⁽²⁾	Net derivatives at September 30, 2010 include derivative assets of $20.4 billion and derivative liabilities of $10.9 billion.


⁽³⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁴⁾	Other assets is primarily comprised of AFS marketable equity securities.

During the three months ended September 30, 2010, there were no significant transfers into Level 3.

During the three months ended September 30, 2010, the transfers out of Level 3 included $1.5 billion of trading account assets driven by increased price verification of corporate debt securities and non-U.S. government and agency securities.



Level 3 – Fair Value Measurements
	Nine Months Ended September 30, 2011
												Gross ⁽¹⁾
(Dollars in millions)	Balance January 1 2011 ⁽¹⁾			Consolidation of VIEs		Gains (Losses) in Earnings			Gains (Losses) in OCI			Purchases		Sales			Issuances			Settlements			Gross Transfers into Level 3 ⁽¹⁾			Gross Transfers out of Level 3 ⁽¹⁾			Balance September 30 2011 ⁽¹⁾
Trading account assets:
Corporate securities, trading loans and other	$	7,751		$	—	$	456		$	—		$	4,664	$	(5,294	)	$	—		$	(1,080	)	$	1,450		$	(455	)	$	7,492
Equity securities	557			—		57			—			278		(284		)	—			(140		)	131			(2		)	597
Non-U.S. sovereign debt	243			—		68			—			125		(18		)	—			(3		)	4			(44		)	375
Mortgage trading loans and ABS	6,908			—		530			—			1,929		(4,624		)	—			(308		)	19			(683		)	3,771
Total trading account assets	15,459			—		1,111			—			6,996		(10,220		)	—			(1,531		)	1,604			(1,184		)	12,235
Net derivative assets ⁽²⁾	7,745			—		5,456			—			1,040		(1,460		)	—			(7,010		)	625			(104		)	6,292
AFS debt securities:
Mortgage-backed securities:
Agency	4			—		—			—			13		—			—			—			—			(4		)	13
Agency-collateralized mortgage obligations	—			—		—			—			56		—			—			(1		)	—			—			55
Non-agency residential	1,468			—		(86		)	24			11		(293		)	—			(321		)	277			—			1,080
Non-agency commercial	19			—		—			—			17		—			—			(1		)	—			—			35
Non-U.S. securities	3			—		—			—			—		—			—			—			88			(91		)	—
Corporate/Agency bonds	137			—		(2		)	(2		)	248		(16		)	—			—			7			(8		)	364
Other taxable securities	13,018			—		27			20			3,518		(2,240		)	—			(5,001		)	2			(2		)	9,342
Tax-exempt securities	1,224			—		14			(42		)	2,862		(79		)	—			(471		)	38			(673		)	2,873
Total AFS debt securities	15,873			—		(47		)	—			6,725		(2,628		)	—			(5,795		)	412			(778		)	13,762
Loans and leases ^{(3, 4)}	3,321			5,194		—			—			21		(376		)	3,118			(1,638		)	5			(4,345		)	5,300
Mortgage servicing rights ⁽⁴⁾	14,900			—		(6,060		)	—			—		(452		)	1,502			(2,010		)	—			—			7,880
Loans held-for-sale ⁽³⁾	4,140			—		43			—			138		(443		)	—			(704		)	502			(46		)	3,630
Other assets ⁽⁵⁾	6,922			—		356			—			1,875		(1,486		)	—			(659		)	375			(1,633		)	5,750
Trading account liabilities – Corporate securities and other	(7		)	—		2			—			94		(135		)	—			—			(24		)	—			(70		)
Commercial paper and other short-term borrowings ⁽³⁾	(706		)	—		(24		)	—			—		—			—			63			—			—			(667		)
Accrued expenses and other liabilities ⁽³⁾	(828		)	—		64			—			—		(4		)	(9		)	3			—			761			(13		)
Long-term debt ⁽³⁾	(2,986		)	—		245			—			340		(72		)	(467		)	754			(1,709		)	1,238			(2,657		)


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


⁽²⁾	Net derivatives at September 30, 2011 include derivative assets of $16.0 billion and derivative liabilities of $9.8 billion.


⁽³⁾	Amounts represent items that are accounted for under the fair value option.


⁽⁴⁾	Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales.


⁽⁵⁾	Other assets is primarily comprised of AFS marketable equity securities.

During the nine months ended September 30, 2011, the transfers into Level 3 included $1.6 billion of trading account assets and $1.7 billion of long-term debt accounted for under the fair value option. Transfers into Level 3 for trading account assets were primarily certain CLOs, corporate loans and bonds that were transferred into Level 3 due to a lack of price transparency. Transfers into Level 3 for long-term debt were the result of an increase in unobservable inputs used in the pricing of certain structured liabilities.

During the nine months ended September 30, 2011, the transfers out of Level 3 included $1.2 billion of trading account assets, $4.3 billion of loans and leases, $1.6 billion of other assets and $1.2 billion of long-term debt. Transfers out of Level 3 for trading account assets were primarily driven by increased price observability on certain RMBS, commercial mortgage-backed securities and consumer ABS portfolios. Transfers out of Level 3 for loans and leases were driven by increased observable inputs, primarily liquid comparables, for certain corporate loans accounted for under the fair value option. Transfers out of Level 3 for other assets were the result of an initial public offering of an equity investment. Transfers out of Level 3 for long-term debt were due to increased price observability for inputs used in the pricing of certain structured liabilities.



Level 3 – Fair Value Measurements
	Nine Months Ended September 30, 2010
(Dollars in millions)	Balance January 1 2010 ⁽¹⁾			Consolidation of VIEs			Gains (Losses) in Earnings			Gains (Losses) in OCI			Purchases, Sales, Issuances and Settlements			Gross Transfers into Level 3 ⁽¹⁾			Gross Transfers out of Level 3 ⁽¹⁾			Balance September 30 2010 ⁽¹⁾
Trading account assets:
Corporate securities, trading loans and other	$	11,080		$	117		$	611		$	—		$	(3,600	)	$	2,441		$	(1,912	)	$	8,737
Equity securities	1,084			—			(50		)	—			(308		)	75			(84		)	717
Non-U.S. sovereign debt	1,143			—			(132		)	—			(155		)	114			(712		)	258
Mortgage trading loans and ABS	7,770			175			340			—			(411		)	396			(427		)	7,843
Total trading account assets	21,077			292			769			—			(4,474		)	3,026			(3,135		)	17,555
Net derivative assets ⁽²⁾	7,863			—			7,675			—			(6,697		)	1,075			(372		)	9,544
AFS debt securities:
Non-agency MBS:
Residential	7,216			(96		)	(601		)	(202		)	(6,396		)	1,809			(188		)	1,542
Commercial	258			—			(13		)	(34		)	(110		)	52			(88		)	65
Non-U.S. securities	468			—			(126		)	(75		)	(300		)	56			—			23
Corporate/Agency bonds	927			—			(3		)	46			(709		)	30			(19		)	272
Other taxable securities	9,854			5,812			21			(27		)	(3,000		)	1,119			(43		)	13,736
Tax-exempt securities	1,623			—			(25		)	(9		)	(568		)	316			(107		)	1,230
Total AFS debt securities	20,346			5,716			(747		)	(301		)	(11,083		)	3,382			(445		)	16,868
Loans and leases ⁽³⁾	4,936			—			(54		)	—			(1,198		)	—			—			3,684
Mortgage servicing rights	19,465			—			(7,011		)	—			(203		)	—			—			12,251
Loans held-for-sale ⁽³⁾	6,942			—			453			—			(1,824		)	517			(67		)	6,021
Other assets ⁽⁴⁾	7,821			—			1,336			—			(1,656		)	—			(235		)	7,266
Trading account liabilities:
Non-U.S. sovereign debt	(386		)	—			23			—			(17		)	—			380			—
Corporate securities and other	(10		)	—			(5		)	—			(20		)	(52		)	49			(38		)
Total trading account liabilities	(396		)	—			18			—			(37		)	(52		)	429			(38		)
Commercial paper and other short-term borrowings ⁽³⁾	(707		)	—			(76		)	—			71			—			—			(712		)
Accrued expenses and other liabilities ⁽³⁾	(891		)	—			166			—			(77		)	—			—			(802		)
Long-term debt ⁽³⁾	(4,660		)	—			598			—			(90		)	(1,374		)	1,418			(4,108		)


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


⁽²⁾	Net derivatives at September 30, 2010 include derivative assets of $20.4 billion and derivative liabilities of $10.9 billion.


⁽³⁾	Amounts represent instruments that are accounted for under the fair value option.


⁽⁴⁾	Other assets is primarily comprised of AFS marketable equity securities.

During the nine months ended September 30, 2010, the transfers into Level 3 included $3.0 billion of trading account assets, $3.4 billion of AFS debt securities, $1.1 billion of net derivative contracts and $1.4 billion of long-term debt. Transfers into Level 3 for trading account assets were driven by reduced price transparency as a result of lower levels of trading activity for certain municipal auction rate securities and corporate debt securities as well as a change in valuation methodology for certain ABS to a discounted cash flow model. Transfers into Level 3 for AFS debt securities were due to an increase in the number of non-agency RMBS and other taxable securities priced using a discounted cash flow model. Transfers into Level 3 for net derivative contracts were primarily related to a lack of price observability for certain credit default and total return swaps. Transfers into Level 3 for long-term debt were the result of an increase in unobservable inputs used in the pricing of certain structured liabilities.

During the nine months ended September 30, 2010, the transfers out of Level 3 were $3.1 billion of trading account assets and $1.4 billion of long-term debt. Transfers out of Level 3 for trading account assets were driven by increased price verification of certain mortgage-backed securities, corporate debt and non-U.S. government and agency securities and increased price observability of index floaters based on the BMA curve held in corporate securities, trading loans and other. Transfers out of Level 3 for long-term debt were due to increased price observability for inputs used in the pricing of certain structured liabilities.

The following tables summarize gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during the three and nine months ended September 30, 2011 and 2010. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.



Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
	Three Months Ended September 30, 2011
(Dollars in millions)	Equity Investment Income (Loss)			Trading Account Profits (Losses)			Mortgage Banking Income (Loss) ⁽¹⁾			Other Income (Loss)			Total
Trading account assets:
Corporate securities, trading loans and other	$	—		$	(219	)	$	—		$	—		$	(219	)
Equity securities	—			(8		)	—			—			(8		)
Non-U.S. sovereign debt	—			(17		)	—			—			(17		)
Mortgage trading loans and ABS	—			(112		)	—			—			(112		)
Total trading account assets	—			(356		)	—			—			(356		)
Net derivative assets	—			2,056			1,155			—			3,211
AFS debt securities:
Non-agency residential MBS	—			—			—			(41		)	(41		)
Corporate/Agency bonds	—			—			—			(4		)	(4		)
Other taxable securities	—			4			—			(29		)	(25		)
Tax-exempt securities	—			—			—			8			8
Total AFS debt securities	—			4			—			(66		)	(62		)
Loans and leases ⁽²⁾	—			—			—			(209		)	(209		)
Mortgage servicing rights	—			—			(3,860		)	—			(3,860		)
Loans held-for-sale ⁽²⁾	—			—			(90		)	(52		)	(142		)
Other assets	(72		)	—			(32		)	158			54
Trading account liabilities – Corporate securities and other	—			2			—			—			2
Commercial paper and other short-term borrowings ⁽²⁾	—			—			58			—			58
Long-term debt ⁽²⁾	—			344			—			44			388
Total	$	(72	)	$	2,050		$	(2,769	)	$	(125	)	$	(916	)

	Three Months Ended September 30, 2010
Trading account assets:
Corporate securities, trading loans and other	$	—		$	257		$	—		$	—		$	257
Equity securities	—			(17		)	—			—			(17		)
Non-U.S. sovereign debt	—			23			—			—			23
Mortgage trading loans and ABS	—			183			—			—			183
Total trading account assets	—			446			—			—			446
Net derivative assets	—			(466		)	3,150			—			2,684
AFS debt securities:
Non-agency residential MBS	—			—			(3		)	(83		)	(86		)
Non-U.S. securities	—			—			—			(2		)	(2		)
Other taxable securities	—			—			—			2			2
Total AFS debt securities	—			—			(3		)	(83		)	(86		)
Loans and leases ⁽²⁾	—			—			—			86			86
Mortgage servicing rights	—			—			(2,315		)	—			(2,315		)
Loans held-for-sale ⁽²⁾	—			—			39			347			386
Other assets	(186		)	—			(15		)	—			(201		)
Commercial paper and other short-term borrowings ⁽²⁾	—			—			(35		)	—			(35		)
Accrued expenses and other liabilities ⁽²⁾	—			(15		)	—			131			116
Long-term debt ⁽²⁾	—			(119		)	—			(71		)	(190		)
Total	$	(186	)	$	(154	)	$	821		$	410		$	891


⁽¹⁾	Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs.


⁽²⁾	Amounts represent instruments that are accounted for under the fair value option.



Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
	Nine Months Ended September 30, 2011
(Dollars in millions)	Equity Investment Income (Loss)		Trading Account Profits (Losses)			Mortgage Banking Income (Loss) ⁽¹⁾			Other Income (Loss)			Total
Trading account assets:
Corporate securities, trading loans and other	$	—	$	456		$	—		$	—		$	456
Equity securities	—		57			—			—			57
Non-U.S. sovereign debt	—		68			—			—			68
Mortgage trading loans and ABS	—		530			—			—			530
Total trading account assets	—		1,111			—			—			1,111
Net derivative assets	—		2,153			3,303			—			5,456
AFS debt securities:
Non-agency residential MBS	—		—			—			(86		)	(86		)
Corporate/Agency bonds	—		—			—			(2		)	(2		)
Other taxable securities	—		16			—			11			27
Tax-exempt securities	—		(3		)	—			17			14
Total AFS debt securities	—		13			—			(60		)	(47		)
Loans and leases ⁽²⁾	—		—			(13		)	13			—
Mortgage servicing rights	—		—			(6,060		)	—			(6,060		)
Loans held-for-sale ⁽²⁾	—		—			(101		)	144			43
Other assets	242		—			(44		)	158			356
Trading account liabilities – Corporate securities and other	—		2			—			—			2
Commercial paper and other short-term borrowings ⁽²⁾	—		—			(24		)	—			(24		)
Accrued expenses and other liabilities ⁽²⁾	—		(10		)	74			—			64
Long-term debt ⁽²⁾	—		242			—			3			245
Total	$	242	$	3,511		$	(2,865	)	$	258		$	1,146

	Nine Months Ended September 30, 2010
Trading account assets:
Corporate securities, trading loans and other	$	—	$	611		$	—		$	—		$	611
Equity securities	—		(50		)	—			—			(50		)
Non-U.S. sovereign debt	—		(132		)	—			—			(132		)
Mortgage trading loans and ABS	—		340			—			—			340
Total trading account assets	—		769			—			—			769
Net derivative assets	—		(800		)	8,475			—			7,675
AFS debt securities:
Non-agency MBS:
Residential	—		—			(16		)	(585		)	(601		)
Commercial	—		—			—			(13		)	(13		)
Non-U.S. securities	—		—			—			(126		)	(126		)
Corporate/Agency bonds	—		—			—			(3		)	(3		)
Other taxable securities	—		—			—			21			21
Tax-exempt securities	—		23			—			(48		)	(25		)
Total AFS debt securities	—		23			(16		)	(754		)	(747		)
Loans and leases ⁽²⁾	—		—			—			(54		)	(54		)
Mortgage servicing rights	—		—			(7,011		)	—			(7,011		)
Loans held-for-sale ⁽²⁾	—		—			98			355			453
Other assets	1,383		—			(47		)	—			1,336
Trading account liabilities:
Non-U.S. sovereign debt	—		23			—			—			23
Corporate securities and other	—		(5		)	—			—			(5		)
Total trading account liabilities	—		18			—			—			18
Commercial paper and other short-term borrowings ⁽²⁾	—		—			(76		)	—			(76		)
Accrued expenses and other liabilities ⁽²⁾	—		(25		)	—			191			166
Long-term debt ⁽²⁾	—		476			—			122			598
Total	$	1,383	$	461		$	1,423		$	(140	)	$	3,127


⁽¹⁾	Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs.


⁽²⁾	Amounts represent instruments that are accounted for under the fair value option.

The following tables summarize changes in unrealized gains (losses) recorded in earnings during the three and nine months ended September 30, 2011 and 2010 for Level 3 assets and liabilities that were still held at September 30, 2011 and 2010. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.



Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
	Three Months Ended September 30, 2011
(Dollars in millions)	Equity Investment Income (Loss)			Trading Account Profits (Losses)			Mortgage Banking Income (Loss) ⁽¹⁾			Other Income (Loss)			Total
Trading account assets:
Corporate securities, trading loans and other	$	—		$	(251	)	$	—		$	—		$	(251	)
Equity securities	—			(20		)	—			—			(20		)
Non-U.S. sovereign debt	—			16			—			—			16
Mortgage trading loans and ABS	—			(136		)	—			—			(136		)
Total trading account assets	—			(391		)	—			—			(391		)
Net derivative assets	—			1,998			616			—			2,614
AFS debt securities:
Non-agency residential MBS	—			—			—			(42		)	(42		)
Corporate/Agency bonds	—			—			—			(6		)	(6		)
Other taxable securities	—			(2		)	—			(44		)	(46		)
Total AFS debt securities	—			(2		)	—			(92		)	(94		)
Loans and leases	—			—			—			(208		)	(208		)
Mortgage servicing rights	—			—			(4,112		)	—			(4,112		)
Loans held-for-sale ⁽²⁾	—			—			(88		)	(73		)	(161		)
Other assets	(265		)	—			(32		)	158			(139		)
Trading account liabilities – Corporate securities and other	—			2			—			—			2
Commercial paper and other short-term borrowings ⁽²⁾	—			—			50			—			50
Long-term debt ⁽²⁾	—			331			—			44			375
Total	$	(265	)	$	1,938		$	(3,566	)	$	(171	)	$	(2,064	)

	Three Months Ended September 30, 2010
Trading account assets:
Corporate securities, trading loans and other	$	—		$	119		$	—		$	—		$	119
Equity securities	—			(4		)	—			—			(4		)
Non-U.S. sovereign debt	—			18			—			—			18
Mortgage trading loans and ABS	—			147			—			—			147
Total trading account assets	—			280			—			—			280
Net derivative assets	—			(318		)	1,814			—			1,496
AFS debt securities:
Non-agency residential MBS	—			—			—			(60		)	(60		)
Other taxable securities	—			(18		)	—			14			(4		)
Total AFS debt securities	—			(18		)	—			(46		)	(64		)
Loans and leases ⁽²⁾	—			—			—			123			123
Mortgage servicing rights	—			—			(2,627		)	—			(2,627		)
Loans held-for-sale ⁽²⁾	—			—			20			252			272
Other assets	(251		)	—			(14		)	—			(265		)
Trading account liabilities – Non-U.S. sovereign debt	—			29			—			—			29
Commercial paper and other short-term borrowings ⁽²⁾	—			—			(24		)	—			(24		)
Accrued expenses and other liabilities ⁽²⁾	—			—			—			57			57
Long-term debt ⁽²⁾	—			(111		)	—			(87		)	(198		)
Total	$	(251	)	$	(138	)	$	(831	)	$	299		$	(921	)


⁽¹⁾	Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs.


⁽²⁾	Amounts represent instruments that are accounted for under the fair value option.



Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
	Nine Months Ended September 30, 2011
(Dollars in millions)	Equity Investment Income (Loss)			Trading Account Profits (Losses)			Mortgage Banking Income (Loss) ⁽¹⁾			Other Income (Loss)			Total
Trading account assets:
Corporate securities, trading loans and other	$	—		$	(13	)	$	—		$	—		$	(13	)
Equity securities	—			(84		)	—			—			(84		)
Non-U.S. sovereign debt	—			86			—			—			86
Mortgage trading loans and ABS	—			104			—			—			104
Total trading account assets	—			93			—			—			93
Net derivative assets	—			2,037			1,232			—			3,269
AFS debt securities:
Non-agency residential MBS	—			—			—			(140		)	(140		)
Corporate/Agency bonds	—			—			—			(6		)	(6		)
Other taxable securities	—			(2		)	—			(44		)	(46		)
Total AFS debt securities	—			(2		)	—			(190		)	(192		)
Loans and leases ⁽²⁾	—			—			—			(105		)	(105		)
Mortgage servicing rights	—			—			(7,129		)	—			(7,129		)
Loans held-for-sale ⁽²⁾	—			3			(135		)	10			(122		)
Other assets	(132		)	—			(43		)	158			(17		)
Trading account liabilities – Corporate securities and other	—			2			—			—			2
Commercial paper and other short-term borrowings ⁽²⁾	—			—			(11		)	—			(11		)
Long-term debt ⁽²⁾	—			229			—			(9		)	220
Total	$	(132	)	$	2,362		$	(6,086	)	$	(136	)	$	(3,992	)

	Nine Months Ended September 30, 2010
Trading account assets:
Corporate securities, trading loans and other	$	—		$	109		$	—		$	—		$	109
Equity securities	—			(40		)	—			—			(40		)
Non-U.S. sovereign debt	—			(144		)	—			—			(144		)
Mortgage trading loans and ABS	—			110			—			—			110
Total trading account assets	—			35			—			—			35
Net derivative assets	—			(953		)	4,654			—			3,701
AFS debt securities:
Non-agency residential MBS	—			—			—			(104		)	(104		)
Other taxable securities	—			—			—			(25		)	(25		)
Total AFS debt securities	—			—			—			(129		)	(129		)
Loans and leases ⁽²⁾	—			—			—			(26		)	(26		)
Mortgage servicing rights	—			—			(8,339		)	—			(8,339		)
Loans held-for-sale ⁽²⁾	—			—			28			256			284
Other assets	375			—			(22		)	—			353
Trading account liabilities – Non-U.S. sovereign debt	—			23			—			—			23
Commercial paper and other short-term borrowings ⁽²⁾	—			—			(40		)	—			(40		)
Accrued expenses and other liabilities ⁽²⁾	—			—			—			(87		)	(87		)
Long-term debt ⁽²⁾	—			80			—			(87		)	(7		)
Total	$	375		$	(815	)	$	(3,719	)	$	(73	)	$	(4,232	)


⁽¹⁾	Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs.


⁽²⁾	Amounts represent instruments that are accounted for under the fair value option.

Nonrecurring Fair Value

Certain assets and liabilities are measured at fair value on a nonrecurring basis and are not included in the previous tables in this Note. These assets and liabilities primarily include LHFS, unfunded loan commitments held-for-sale and foreclosed properties. The amounts below represent only balances measured at fair value during the three and nine months ended September 30, 2011 and 2010, and still held as of the reporting date.



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
	September 30, 2011				Gains (Losses)
(Dollars in millions)	Level 2		Level 3		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Assets
Loans held-for-sale	$	9,284	$	1,465	$	(85	)	$	(19	)
Loans and leases ⁽¹⁾	6		10,368		(1,445		)	(4,153		)
Foreclosed properties ⁽²⁾	—		2,556		(87		)	(233		)
Other assets	20		861		(20		)	(43		)

	September 30, 2010				Gains (Losses)
(Dollars in millions)	Level 2		Level 3		Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
Assets
Loans held-for-sale	$	1,155	$	7,981	$	104		$	403
Loans and leases ⁽¹⁾	58		10,893		(1,319		)	(5,125		)
Foreclosed properties ⁽²⁾	10		1,712		(88		)	(191		)
Other assets	4		92		(7		)	(14		)


⁽¹⁾	Gains (losses) represent charge-offs on real estate-secured loans.


⁽²⁾	Amounts are included in other assets on the Consolidated Balance Sheet and represent fair value and related losses on foreclosed properties that were written down subsequent to their initial classification as foreclosed properties.

- 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

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 5

-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 159

-Paragraph 17-22, 27, 28

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 825

-SubTopic 10

-Section 50

-Paragraph 10

-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 15C, 15D

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 825

-SubTopic 10

-Section 50

-Paragraph 28

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