Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Tables)

v3.10.0.1
Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Assets and Liabilities Carried at Fair Value on a Recurring Basis
Assets and liabilities carried at fair value on a recurring basis at September 30, 2018 and December 31, 2017, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Time deposits placed and other short-term investments
$
1,528

 
$
—

 
$
—

 
$
—

 
$
1,528

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

 
52,524

 
—

 
—

 
52,524

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
39,677

 
1,251

 
—

 
—

 
40,928

Corporate securities, trading loans and other
—

 
27,281

 
1,534

 
—

 
28,815

Equity securities
66,850

 
28,049

 
290

 
—

 
95,189

Non-U.S. sovereign debt
5,667

 
19,524

 
469

 
—

 
25,660

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

 
18,697

 
—

 
—

 
18,697

Mortgage trading loans, ABS and other MBS
—

 
8,350

 
1,479

 
—

 
9,829

Total trading account assets (3)
112,194

 
103,152

 
3,772

 
—

 
219,118

Derivative assets
9,961

 
322,940

 
4,380

 
(291,664
)
 
45,617

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
50,900

 
1,406

 
—

 
—

 
52,306

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency
—

 
136,112

 
—

 
—

 
136,112

Agency-collateralized mortgage obligations
—

 
5,678

 
—

 
—

 
5,678

Non-agency residential
—

 
1,593

 
544

 
—

 
2,137

Commercial
—

 
13,510

 
—

 
—

 
13,510

Non-U.S. securities
759

 
6,317

 
3

 
—

 
7,079

Other taxable securities
—

 
3,869

 
7

 
—

 
3,876

Tax-exempt securities
—

 
18,349

 
1

 
—

 
18,350

Total AFS debt securities
51,659

 
186,834

 
555

 
—

 
239,048

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Non-agency residential
—

 
1,400

 
296

 
—

 
1,696

Non-U.S. securities
9,943

 
945

 
—

 
—

 
10,888

Other taxable securities
—

 
3

 
—

 
—

 
3

Total other debt securities carried at fair value
9,943

 
2,348

 
296

 
—

 
12,587

Loans and leases
—

 
5,321

 
410

 
—

 
5,731

Loans held-for-sale
—

 
2,590

 
526

 
—

 
3,116

Other assets (4)
18,858

 
1,740

 
3,140

 
—

 
23,738

Total assets
$
204,143

 
$
677,449

 
$
13,079

 
$
(291,664
)
 
$
603,007

Liabilities
 

 
 

 
 

 
 

 
 

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

 
$
529

 
$
—

 
$
—

 
$
529

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

 
34,242

 
—

 
—

 
34,242

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
15,403

 
362

 
—

 
—

 
15,765

Equity securities
38,743

 
4,673

 
—

 
—

 
43,416

Non-U.S. sovereign debt
12,496

 
9,863

 
—

 
—

 
22,359

Corporate securities and other
—

 
8,407

 
17

 
—

 
8,424

Total trading account liabilities
66,642

 
23,305

 
17

 
—

 
89,964

Derivative liabilities
9,142

 
309,966

 
4,950

 
(287,869
)
 
36,189

Short-term borrowings
—

 
1,789

 
—

 
—

 
1,789

Accrued expenses and other liabilities
22,667

 
1,849

 
—

 
—

 
24,516

Long-term debt
—

 
27,754

 
923

 
—

 
28,677

Total liabilities
$
98,451

 
$
399,434

 
$
5,890

 
$
(287,869
)
 
$
215,906

(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 $14.2 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4) 
Includes MSRs of $2.2 billion which are classified as Level 3 assets.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
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
$
2,234

 
$
—

 
$
—

 
$
—

 
$
2,234

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

 
52,906

 
—

 
—

 
52,906

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
38,720

 
1,922

 
—

 
—

 
40,642

Corporate securities, trading loans and other
—

 
28,714

 
1,864

 
—

 
30,578

Equity securities
60,747

 
23,958

 
235

 
—

 
84,940

Non-U.S. sovereign debt
6,545

 
15,839

 
556

 
—

 
22,940

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

 
20,586

 
—

 
—

 
20,586

Mortgage trading loans, ABS and other MBS
—

 
8,174

 
1,498

 
—

 
9,672

Total trading account assets (3)
106,012

 
99,193

 
4,153

 
—

 
209,358

Derivative assets
6,305

 
341,178

 
4,067

 
(313,788
)
 
37,762

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
51,915

 
1,608

 
—

 
—

 
53,523

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency
—

 
192,929

 
—

 
—

 
192,929

Agency-collateralized mortgage obligations
—

 
6,804

 
—

 
—

 
6,804

Non-agency residential
—

 
2,669

 
—

 
—

 
2,669

Commercial
—

 
13,684

 
—

 
—

 
13,684

Non-U.S. securities
772

 
5,880

 
25

 
—

 
6,677

Other taxable securities
—

 
5,261

 
509

 
—

 
5,770

Tax-exempt securities
—

 
20,106

 
469

 
—

 
20,575

Total AFS debt securities
52,687

 
248,941

 
1,003

 
—

 
302,631

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Non-agency residential
—

 
2,769

 
—

 
—

 
2,769

Non-U.S. securities
8,191

 
1,297

 
—

 
—

 
9,488

Other taxable securities
—

 
229

 
—

 
—

 
229

Total other debt securities carried at fair value
8,191

 
4,295

 
—

 
—

 
12,486

Loans and leases
—

 
5,139

 
571

 
—

 
5,710

Loans held-for-sale
—

 
1,466

 
690

 
—

 
2,156

Other assets (4)
19,367

 
789

 
2,425

 
—

 
22,581

Total assets
$
194,796

 
$
753,907

 
$
12,909

 
$
(313,788
)
 
$
647,824

Liabilities
 

 
 

 
 

 
 

 
 

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

 
$
449

 
$
—

 
$
—

 
$
449

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

 
36,182

 
—

 
—

 
36,182

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
17,266

 
734

 
—

 
—

 
18,000

Equity securities
33,019

 
3,885

 
—

 
—

 
36,904

Non-U.S. sovereign debt
11,976

 
7,382

 
—

 
—

 
19,358

Corporate securities and other
—

 
6,901

 
24

 
—

 
6,925

Total trading account liabilities
62,261

 
18,902

 
24

 
—

 
81,187

Derivative liabilities
6,029

 
334,261

 
5,781

 
(311,771
)
 
34,300

Short-term borrowings
—

 
1,494

 
—

 
—

 
1,494

Accrued expenses and other liabilities
21,887

 
945

 
8

 
—

 
22,840

Long-term debt
—

 
29,923

 
1,863

 
—

 
31,786

Total liabilities
$
90,177

 
$
422,156

 
$
7,676

 
$
(311,771
)
 
$
208,238


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $21.3 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.
(4) 
Includes MSRs of $2.3 billion which are classified as Level 3 assets.
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2017 (1)
 
 
 
 
Balance
July 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
1,777

$
77

$
—

$
35

$
(79
)
$
5

$
(208
)
$
288

$
(153
)
$
1,742

$
35

Equity securities
229

8

—

3

(3
)
—

—

17

(10
)
244

10

Non-U.S. sovereign debt
506

33

18

—

—

—

(5
)
—

—

552

33

Mortgage trading loans, ABS and other MBS
1,232

10

(1
)
150

(157
)
—

(46
)
83

(19
)
1,252

(2
)
Total trading account assets
3,744

128

17

188

(239
)
5

(259
)
388

(182
)
3,790

76

Net derivative assets (4)
(1,803
)
(252
)
—

150

(367
)
—

278

7

(36
)
(2,023
)
(283
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
139

1

4

7

—

—

(115
)
—

—

36

—

Other taxable securities
483

—

1

—

—

—

(1
)
—

—

483

—

Tax-exempt securities
518

—

1

—

—

—

(7
)
—

(45
)
467

—

Total AFS debt securities
1,140

1

6

7

—

—

(123
)
—

(45
)
986

—

Other debt securities carried at fair value – Non-agency residential MBS
23

—

—

—

—

—

(1
)
—

—

22

—

Loans and leases (5, 6)
667

2

—

2

(24
)
—

(29
)
—

—

618

2

Loans held-for-sale (5)
766

38

10

—

(4
)
—

(93
)
58

—

775

27

Other assets (6, 7)
2,795

124

(43
)
—

(80
)
69

(191
)
—

—

2,674

8

Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(135
)
—

—

—

—

—

135

—

—

—

—

Trading account liabilities – Corporate securities and other
(22
)
1

—

—

(3
)
(1
)
—

—

—

(25
)
—

Accrued expenses and other liabilities (5)
(9
)
—

—

—

—

—

—

—

—

(9
)
—

Long-term debt (5)
(1,646
)
(87
)
(7
)
63

—

(129
)
115

(244
)
45

(1,890
)
(87
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(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 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, 2018 and 2017, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2018 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance
July 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,638

$
14

$
—

$
54

$
(87
)
$
—

$
(175
)
$
269

$
(179
)
$
1,534

$
(14
)
Equity securities
228

8

—

21

—

—

—

43

(10
)
290

8

Non-U.S. sovereign debt
368

10

(13
)
—

—

—

—

109

(5
)
469

11

Mortgage trading loans, ABS and other MBS
1,523

16

(1
)
75

(184
)
—

(29
)
191

(112
)
1,479

8

Total trading account assets
3,757

48

(14
)
150

(271
)
—

(204
)
612

(306
)
3,772

13

Net derivative assets (4)
(1,588
)
(53
)
—

23

(66
)
—

111

20

983

(570
)
(51
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
453

31

(28
)
—

(72
)
—

—

235

(75
)
544

—

Non-U.S. securities
3

—

—

—

—

—

—

—

—

3

—

Other taxable securities
99

(1
)
(3
)
—

(22
)
—

—

—

(66
)
7

—

Tax-exempt securities
1

—

—

—

—

—

—

—

—

1

—

Total AFS debt securities
556

30

(31
)
—

(94
)
—

—

235

(141
)
555

—

Other debt securities carried at fair value – Non-agency residential MBS
287

(23
)
—

—

—

—

—

60

(28
)
296

(10
)
Loans and leases (5, 6)
493

—

—

—

(62
)
—

(21
)
—

—

410

(1
)
Loans held-for-sale (5)
577

12

(4
)
39

—

—

(82
)
12

(28
)
526

9

Other assets (6, 7)
3,184

121

—

—

(22
)
31

(174
)
—

—

3,140

55

Trading account liabilities – Corporate securities and other
(35
)
9

—

9

—

—

—

—

—

(17
)
(6
)
Long-term debt (5)
(1,225
)
11

(1
)
—

—

(11
)
106

(106
)
303

(923
)
13

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(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 for the Nine Months Ended September 30, 2017 (1)
 
 
 
 
Balance
January 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
2,777

$
225

$
—

$
353

$
(679
)
$
5

$
(443
)
$
506

$
(1,002
)
$
1,742

$
72

Equity securities
281

23

—

45

(67
)
—

(10
)
119

(147
)
244

11

Non-U.S. sovereign debt
510

64

12

26

(59
)
—

(73
)
72

—

552

60

Mortgage trading loans, ABS and other MBS
1,211

195

(2
)
747

(846
)
—

(169
)
187

(71
)
1,252

107

Total trading account assets
4,779

507

10

1,171

(1,651
)
5

(695
)
884

(1,220
)
3,790

250

Net derivative assets (4)
(1,313
)
(1,098
)
—

558

(843
)
—

722

36

(85
)
(2,023
)
(561
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
229

2

16

49

—

—

(260
)
—

—

36

—

Other taxable securities
594

3

6

5

—

—

(31
)
—

(94
)
483

—

Tax-exempt securities
542

—

1

—

(56
)
—

(10
)
35

(45
)
467

—

Total AFS debt securities
1,365

5

23

54

(56
)
—

(301
)
35

(139
)
986

—

Other debt securities carried at fair value – Non-agency residential MBS
25

(1
)
—

—

—

—

(2
)
—

—

22

—

Loans and leases (5, 6)
720

20

—

2

(24
)
—

(93
)
—

(7
)
618

18

Loans held-for-sale (5)
656

109

7

2

(159
)
—

(281
)
473

(32
)
775

60

Other assets (6, 7)
2,986

93

(31
)
2

(74
)
207

(573
)
64

—

2,674

(181
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(359
)
(5
)
—

—

—

(12
)
171

(58
)
263

—

(5
)
Trading account liabilities – Corporate securities and other
(27
)
13

—

4

(13
)
(2
)
—

—

—

(25
)
(1
)
Accrued expenses and other liabilities (5)
(9
)
—

—

—

—

—

—

—

—

(9
)
—

Long-term debt (5)
(1,514
)
(160
)
(18
)
81

—

(279
)
398

(530
)
132

(1,890
)
(158
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.  
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(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 for the Nine Months Ended September 30, 2018 (1)
 
 
 
(Dollars in millions)
Balance
January 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,864

$
(14
)
$
(1
)
$
328

$
(298
)
$
—

$
(388
)
$
517

$
(474
)
$
1,534

$
(88
)
Equity securities
235

17

—

29

(11
)
—

(4
)
73

(49
)
290

17

Non-U.S. sovereign debt
556

39

(55
)
7

(50
)
—

(8
)
117

(137
)
469

40

Mortgage trading loans, ABS and other MBS
1,498

157

2

392

(760
)
—

(136
)
541

(215
)
1,479

92

Total trading account assets
4,153

199

(54
)
756

(1,119
)
—

(536
)
1,248

(875
)
3,772

61

Net derivative assets (4)
(1,714
)
203

—

371

(919
)
—

488

87

914

(570
)
(138
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
—

39

(42
)
—

(72
)
—

—

694

(75
)
544

—

Non-U.S. securities
25

—

(1
)
—

(10
)
—

(14
)
3

—

3

—

Other taxable securities
509

1

(5
)
—

(22
)
—

(10
)
60

(526
)
7

—

Tax-exempt securities
469

—

—

—

—

—

—

1

(469
)
1

—

Total AFS debt securities (5)
1,003

40

(48
)
—

(104
)
—

(24
)
758

(1,070
)
555

—

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

(27
)
—

—

(7
)
—

—

358

(28
)
296

(5
)
Loans and leases (6, 7)
571

(20
)
—

—

(71
)
—

(70
)
—

—

410

(17
)
Loans held-for-sale (6)
690

24

(31
)
51

—

—

(160
)
12

(60
)
526

18

Other assets (5, 7, 8)
2,425

389

—

2

(68
)
83

(585
)
929

(35
)
3,140

188

Trading account liabilities – Corporate securities and other
(24
)
11

—

9

(11
)
(2
)
—

—

—

(17
)
(7
)
Accrued expenses and other liabilities (6)
(8
)
—

—

—

—

—

8

—

—

—

—

Long-term debt (6)
(1,863
)
97

2

9

—

(131
)
429

(253
)
787

(923
)
87

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(5) 
Transfer primarily relates to the reclassification of certain securities.
(6) 
Amounts represent instruments that are accounted for under the fair value option.
(7) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(8) 
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.
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2017 (1)
 
 
 
 
Balance
July 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
1,777

$
77

$
—

$
35

$
(79
)
$
5

$
(208
)
$
288

$
(153
)
$
1,742

$
35

Equity securities
229

8

—

3

(3
)
—

—

17

(10
)
244

10

Non-U.S. sovereign debt
506

33

18

—

—

—

(5
)
—

—

552

33

Mortgage trading loans, ABS and other MBS
1,232

10

(1
)
150

(157
)
—

(46
)
83

(19
)
1,252

(2
)
Total trading account assets
3,744

128

17

188

(239
)
5

(259
)
388

(182
)
3,790

76

Net derivative assets (4)
(1,803
)
(252
)
—

150

(367
)
—

278

7

(36
)
(2,023
)
(283
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
139

1

4

7

—

—

(115
)
—

—

36

—

Other taxable securities
483

—

1

—

—

—

(1
)
—

—

483

—

Tax-exempt securities
518

—

1

—

—

—

(7
)
—

(45
)
467

—

Total AFS debt securities
1,140

1

6

7

—

—

(123
)
—

(45
)
986

—

Other debt securities carried at fair value – Non-agency residential MBS
23

—

—

—

—

—

(1
)
—

—

22

—

Loans and leases (5, 6)
667

2

—

2

(24
)
—

(29
)
—

—

618

2

Loans held-for-sale (5)
766

38

10

—

(4
)
—

(93
)
58

—

775

27

Other assets (6, 7)
2,795

124

(43
)
—

(80
)
69

(191
)
—

—

2,674

8

Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(135
)
—

—

—

—

—

135

—

—

—

—

Trading account liabilities – Corporate securities and other
(22
)
1

—

—

(3
)
(1
)
—

—

—

(25
)
—

Accrued expenses and other liabilities (5)
(9
)
—

—

—

—

—

—

—

—

(9
)
—

Long-term debt (5)
(1,646
)
(87
)
(7
)
63

—

(129
)
115

(244
)
45

(1,890
)
(87
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(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 for the Nine Months Ended September 30, 2018 (1)
 
 
 
(Dollars in millions)
Balance
January 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,864

$
(14
)
$
(1
)
$
328

$
(298
)
$
—

$
(388
)
$
517

$
(474
)
$
1,534

$
(88
)
Equity securities
235

17

—

29

(11
)
—

(4
)
73

(49
)
290

17

Non-U.S. sovereign debt
556

39

(55
)
7

(50
)
—

(8
)
117

(137
)
469

40

Mortgage trading loans, ABS and other MBS
1,498

157

2

392

(760
)
—

(136
)
541

(215
)
1,479

92

Total trading account assets
4,153

199

(54
)
756

(1,119
)
—

(536
)
1,248

(875
)
3,772

61

Net derivative assets (4)
(1,714
)
203

—

371

(919
)
—

488

87

914

(570
)
(138
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
—

39

(42
)
—

(72
)
—

—

694

(75
)
544

—

Non-U.S. securities
25

—

(1
)
—

(10
)
—

(14
)
3

—

3

—

Other taxable securities
509

1

(5
)
—

(22
)
—

(10
)
60

(526
)
7

—

Tax-exempt securities
469

—

—

—

—

—

—

1

(469
)
1

—

Total AFS debt securities (5)
1,003

40

(48
)
—

(104
)
—

(24
)
758

(1,070
)
555

—

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

(27
)
—

—

(7
)
—

—

358

(28
)
296

(5
)
Loans and leases (6, 7)
571

(20
)
—

—

(71
)
—

(70
)
—

—

410

(17
)
Loans held-for-sale (6)
690

24

(31
)
51

—

—

(160
)
12

(60
)
526

18

Other assets (5, 7, 8)
2,425

389

—

2

(68
)
83

(585
)
929

(35
)
3,140

188

Trading account liabilities – Corporate securities and other
(24
)
11

—

9

(11
)
(2
)
—

—

—

(17
)
(7
)
Accrued expenses and other liabilities (6)
(8
)
—

—

—

—

—

8

—

—

—

—

Long-term debt (6)
(1,863
)
97

2

9

—

(131
)
429

(253
)
787

(923
)
87

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(5) 
Transfer primarily relates to the reclassification of certain securities.
(6) 
Amounts represent instruments that are accounted for under the fair value option.
(7) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(8) 
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 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, 2018 and 2017, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2018 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance
July 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,638

$
14

$
—

$
54

$
(87
)
$
—

$
(175
)
$
269

$
(179
)
$
1,534

$
(14
)
Equity securities
228

8

—

21

—

—

—

43

(10
)
290

8

Non-U.S. sovereign debt
368

10

(13
)
—

—

—

—

109

(5
)
469

11

Mortgage trading loans, ABS and other MBS
1,523

16

(1
)
75

(184
)
—

(29
)
191

(112
)
1,479

8

Total trading account assets
3,757

48

(14
)
150

(271
)
—

(204
)
612

(306
)
3,772

13

Net derivative assets (4)
(1,588
)
(53
)
—

23

(66
)
—

111

20

983

(570
)
(51
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
453

31

(28
)
—

(72
)
—

—

235

(75
)
544

—

Non-U.S. securities
3

—

—

—

—

—

—

—

—

3

—

Other taxable securities
99

(1
)
(3
)
—

(22
)
—

—

—

(66
)
7

—

Tax-exempt securities
1

—

—

—

—

—

—

—

—

1

—

Total AFS debt securities
556

30

(31
)
—

(94
)
—

—

235

(141
)
555

—

Other debt securities carried at fair value – Non-agency residential MBS
287

(23
)
—

—

—

—

—

60

(28
)
296

(10
)
Loans and leases (5, 6)
493

—

—

—

(62
)
—

(21
)
—

—

410

(1
)
Loans held-for-sale (5)
577

12

(4
)
39

—

—

(82
)
12

(28
)
526

9

Other assets (6, 7)
3,184

121

—

—

(22
)
31

(174
)
—

—

3,140

55

Trading account liabilities – Corporate securities and other
(35
)
9

—

9

—

—

—

—

—

(17
)
(6
)
Long-term debt (5)
(1,225
)
11

(1
)
—

—

(11
)
106

(106
)
303

(923
)
13

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(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 for the Nine Months Ended September 30, 2017 (1)
 
 
 
 
Balance
January 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI (3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
2,777

$
225

$
—

$
353

$
(679
)
$
5

$
(443
)
$
506

$
(1,002
)
$
1,742

$
72

Equity securities
281

23

—

45

(67
)
—

(10
)
119

(147
)
244

11

Non-U.S. sovereign debt
510

64

12

26

(59
)
—

(73
)
72

—

552

60

Mortgage trading loans, ABS and other MBS
1,211

195

(2
)
747

(846
)
—

(169
)
187

(71
)
1,252

107

Total trading account assets
4,779

507

10

1,171

(1,651
)
5

(695
)
884

(1,220
)
3,790

250

Net derivative assets (4)
(1,313
)
(1,098
)
—

558

(843
)
—

722

36

(85
)
(2,023
)
(561
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
229

2

16

49

—

—

(260
)
—

—

36

—

Other taxable securities
594

3

6

5

—

—

(31
)
—

(94
)
483

—

Tax-exempt securities
542

—

1

—

(56
)
—

(10
)
35

(45
)
467

—

Total AFS debt securities
1,365

5

23

54

(56
)
—

(301
)
35

(139
)
986

—

Other debt securities carried at fair value – Non-agency residential MBS
25

(1
)
—

—

—

—

(2
)
—

—

22

—

Loans and leases (5, 6)
720

20

—

2

(24
)
—

(93
)
—

(7
)
618

18

Loans held-for-sale (5)
656

109

7

2

(159
)
—

(281
)
473

(32
)
775

60

Other assets (6, 7)
2,986

93

(31
)
2

(74
)
207

(573
)
64

—

2,674

(181
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(359
)
(5
)
—

—

—

(12
)
171

(58
)
263

—

(5
)
Trading account liabilities – Corporate securities and other
(27
)
13

—

4

(13
)
(2
)
—

—

—

(25
)
(1
)
Accrued expenses and other liabilities (5)
(9
)
—

—

—

—

—

—

—

—

(9
)
—

Long-term debt (5)
(1,514
)
(160
)
(18
)
81

—

(279
)
398

(530
)
132

(1,890
)
(158
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.  
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(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.
Fair Value Inputs, Assets, Quantitative Information
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at September 30, 2018 and December 31, 2017.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2018
 
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
1,615

Discounted cash flow, Market comparables
Yield
0% to 25%
7%
Trading account assets – Mortgage trading loans, ABS and other MBS
353

Prepayment speed
0% to 19% CPR
11%
Loans and leases
410

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

Loss severity
0% to 51%
17%
AFS debt securities, primarily non-agency residential
555

Price
$0 to $141
$75
Other debt securities carried at fair value - Non-agency residential
296

 
 
 
Instruments backed by commercial real estate assets
$
361

Discounted cash flow
Yield
0% to 25%
7%
Trading account assets – Corporate securities, trading loans and other
272

Price
$0 to $102
$78
Trading account assets – Mortgage trading loans, ABS and other MBS
89

 
 
 
Commercial loans, debt securities and other
$
3,293

Discounted cash flow, Market comparables
Yield
1% to 46%
14%
Trading account assets – Corporate securities, trading loans and other
1,262

Prepayment speed
10% to 20%
14%
Trading account assets – Non-U.S. sovereign debt
469

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,037

Loss severity
35% to 40%
38%
Loans held-for-sale
525

Price
$0 to $141
$65
Other assets, primarily auction rate securities
$
950

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

 
 
 
 

 
 
 
 
MSRs
$
2,190

Discounted cash flow
Weighted-average life, fixed rate (4)
0 to 14 years
6 years
 
 
Weighted-average life, variable rate (4)
0 to 10 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
10%
 
 
Option-adjusted spread, variable rate
9% to 15%
12%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(923
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
 
 
Yield
7% to 46%
18%
 
 
Price
$0 to $100
$70
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(304
)
Discounted cash flow, Stochastic recovery correlation model
Yield
2% to 12%
4%
 
 
Upfront points
0 points to 100 points
69 points
 
 
Credit correlation
70%
n/a
 
 
Prepayment speed
15% to 20% CPR
15%
 
 
Default rate
1% to 4% CDR
2%
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $101
$77
Equity derivatives
$
(857
)
Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
Commodity derivatives
$
11

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $11/MMBtu
$3/MMBtu
 
 
Correlation
53% to 89%
78%
 
 
Volatilities
13% to 495%
55%
Interest rate derivatives
$
580

Industry standard derivative pricing (3)
Correlation (IR/IR)
15% to 80%
53%
 
 
Correlation (FX/IR)
0% to 46%
1%
 
 
Long-dated inflation rates
-20% to 38%
2%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(570
)
 
 
 
 
(1) 
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 99: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $469 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities of $555 million, Other debt securities carried at fair value - Non-agency residential of $296 million, Other assets, including MSRs, of $3.1 billion, Loans and leases of $410 million and LHFS of $526 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(4) 
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, 2017
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
871

Discounted cash flow
Yield
0% to 25%
6%
Trading account assets – Mortgage trading loans, ABS and other MBS
298

Prepayment speed
0% to 22% CPR
12%
Loans and leases
570

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

Loss severity
0% to 53%
17%
Instruments backed by commercial real estate assets
$
286

Discounted cash flow
Yield
0% to 25%
9%
Trading account assets – Corporate securities, trading loans and other
244

Price
$0 to $100
$67
Trading account assets – Mortgage trading loans, ABS and other MBS
42

 
 
 
Commercial loans, debt securities and other
$
4,023

Discounted cash flow, Market comparables
Yield
0% to 12%
5%
Trading account assets – Corporate securities, trading loans and other
1,613

Prepayment speed
10% to 20%
16%
Trading account assets – Non-U.S. sovereign debt
556

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,158

Loss severity
35% to 40%
37%
AFS debt securities – Other taxable securities
8

Price
$0 to $145
$63
Loans and leases
1

 
 
 
Loans held-for-sale
687

 
 
 
Auction rate securities
$
977

Discounted cash flow, Market comparables
Price
$10 to $100
$94
Trading account assets – Corporate securities, trading loans and other
7

 
 
 
AFS debt securities – Other taxable securities
501

 
 
 
AFS debt securities – Tax-exempt securities
469

 
 
 
MSRs
$
2,302

Discounted cash flow
Weighted-average life, fixed rate (4)
0 to 14 years
5 years
 
 
Weighted-average life, variable rate (4)
0 to 10 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
10%
 
 
Option-adjusted spread, variable rate
9% to 15%
12%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,863
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (2)
Equity correlation
15% to 100%
63%
 
 
Long-dated equity volatilities
4% to 84%
22%
 
 
Yield
7.5%
n/a
 
 
Price
$0 to $100
$66
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(282
)
Discounted cash flow, Stochastic recovery correlation model
Yield
1% to 5%
3%
 
 
Upfront points
0 points to 100 points
71 points
 
 
Credit correlation
35% to 83%
42%
 
 
Prepayment speed
15% to 20% CPR
16%
 
 
Default rate
1% to 4% CDR
2%
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $102
$82
Equity derivatives
$
(2,059
)
Industry standard derivative pricing (2)
Equity correlation
15% to 100%
63%
 
 
Long-dated equity volatilities
4% to 84%
22%
Commodity derivatives
$
(3
)
Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
 
 
Correlation
71% to 87%
81%
 
 
Volatilities
26% to 132%
57%
Interest rate derivatives
$
630

Industry standard derivative pricing (3)
Correlation (IR/IR)
15% to 92%
50%
 
 
Correlation (FX/IR)
0% to 46%
1%
 
 
Long-dated inflation rates
-14% to 38%
4%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(1,714
)
 
 
 
 

(1) 
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 100: Trading account assets – Corporate securities, trading loans and other of $1.9 billion, Trading account assets – Non-U.S. sovereign debt of $556 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities – Other taxable securities of $509 million, AFS debt securities – Tax-exempt securities of $469 million, Loans and leases of $571 million and LHFS of $690 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(4) 
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
Fair Value Inputs, Liabilities, Quantitative Information
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at September 30, 2018 and December 31, 2017.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2018
 
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
1,615

Discounted cash flow, Market comparables
Yield
0% to 25%
7%
Trading account assets – Mortgage trading loans, ABS and other MBS
353

Prepayment speed
0% to 19% CPR
11%
Loans and leases
410

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

Loss severity
0% to 51%
17%
AFS debt securities, primarily non-agency residential
555

Price
$0 to $141
$75
Other debt securities carried at fair value - Non-agency residential
296

 
 
 
Instruments backed by commercial real estate assets
$
361

Discounted cash flow
Yield
0% to 25%
7%
Trading account assets – Corporate securities, trading loans and other
272

Price
$0 to $102
$78
Trading account assets – Mortgage trading loans, ABS and other MBS
89

 
 
 
Commercial loans, debt securities and other
$
3,293

Discounted cash flow, Market comparables
Yield
1% to 46%
14%
Trading account assets – Corporate securities, trading loans and other
1,262

Prepayment speed
10% to 20%
14%
Trading account assets – Non-U.S. sovereign debt
469

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,037

Loss severity
35% to 40%
38%
Loans held-for-sale
525

Price
$0 to $141
$65
Other assets, primarily auction rate securities
$
950

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

 
 
 
 

 
 
 
 
MSRs
$
2,190

Discounted cash flow
Weighted-average life, fixed rate (4)
0 to 14 years
6 years
 
 
Weighted-average life, variable rate (4)
0 to 10 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
10%
 
 
Option-adjusted spread, variable rate
9% to 15%
12%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(923
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
 
 
Yield
7% to 46%
18%
 
 
Price
$0 to $100
$70
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(304
)
Discounted cash flow, Stochastic recovery correlation model
Yield
2% to 12%
4%
 
 
Upfront points
0 points to 100 points
69 points
 
 
Credit correlation
70%
n/a
 
 
Prepayment speed
15% to 20% CPR
15%
 
 
Default rate
1% to 4% CDR
2%
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $101
$77
Equity derivatives
$
(857
)
Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
Commodity derivatives
$
11

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $11/MMBtu
$3/MMBtu
 
 
Correlation
53% to 89%
78%
 
 
Volatilities
13% to 495%
55%
Interest rate derivatives
$
580

Industry standard derivative pricing (3)
Correlation (IR/IR)
15% to 80%
53%
 
 
Correlation (FX/IR)
0% to 46%
1%
 
 
Long-dated inflation rates
-20% to 38%
2%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(570
)
 
 
 
 
(1) 
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 99: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $469 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities of $555 million, Other debt securities carried at fair value - Non-agency residential of $296 million, Other assets, including MSRs, of $3.1 billion, Loans and leases of $410 million and LHFS of $526 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(4) 
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, 2017
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
871

Discounted cash flow
Yield
0% to 25%
6%
Trading account assets – Mortgage trading loans, ABS and other MBS
298

Prepayment speed
0% to 22% CPR
12%
Loans and leases
570

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

Loss severity
0% to 53%
17%
Instruments backed by commercial real estate assets
$
286

Discounted cash flow
Yield
0% to 25%
9%
Trading account assets – Corporate securities, trading loans and other
244

Price
$0 to $100
$67
Trading account assets – Mortgage trading loans, ABS and other MBS
42

 
 
 
Commercial loans, debt securities and other
$
4,023

Discounted cash flow, Market comparables
Yield
0% to 12%
5%
Trading account assets – Corporate securities, trading loans and other
1,613

Prepayment speed
10% to 20%
16%
Trading account assets – Non-U.S. sovereign debt
556

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,158

Loss severity
35% to 40%
37%
AFS debt securities – Other taxable securities
8

Price
$0 to $145
$63
Loans and leases
1

 
 
 
Loans held-for-sale
687

 
 
 
Auction rate securities
$
977

Discounted cash flow, Market comparables
Price
$10 to $100
$94
Trading account assets – Corporate securities, trading loans and other
7

 
 
 
AFS debt securities – Other taxable securities
501

 
 
 
AFS debt securities – Tax-exempt securities
469

 
 
 
MSRs
$
2,302

Discounted cash flow
Weighted-average life, fixed rate (4)
0 to 14 years
5 years
 
 
Weighted-average life, variable rate (4)
0 to 10 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
10%
 
 
Option-adjusted spread, variable rate
9% to 15%
12%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,863
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (2)
Equity correlation
15% to 100%
63%
 
 
Long-dated equity volatilities
4% to 84%
22%
 
 
Yield
7.5%
n/a
 
 
Price
$0 to $100
$66
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(282
)
Discounted cash flow, Stochastic recovery correlation model
Yield
1% to 5%
3%
 
 
Upfront points
0 points to 100 points
71 points
 
 
Credit correlation
35% to 83%
42%
 
 
Prepayment speed
15% to 20% CPR
16%
 
 
Default rate
1% to 4% CDR
2%
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $102
$82
Equity derivatives
$
(2,059
)
Industry standard derivative pricing (2)
Equity correlation
15% to 100%
63%
 
 
Long-dated equity volatilities
4% to 84%
22%
Commodity derivatives
$
(3
)
Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
 
 
Correlation
71% to 87%
81%
 
 
Volatilities
26% to 132%
57%
Interest rate derivatives
$
630

Industry standard derivative pricing (3)
Correlation (IR/IR)
15% to 92%
50%
 
 
Correlation (FX/IR)
0% to 46%
1%
 
 
Long-dated inflation rates
-14% to 38%
4%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(1,714
)
 
 
 
 

(1) 
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 100: Trading account assets – Corporate securities, trading loans and other of $1.9 billion, Trading account assets – Non-U.S. sovereign debt of $556 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.5 billion, AFS debt securities – Other taxable securities of $509 million, AFS debt securities – Tax-exempt securities of $469 million, Loans and leases of $571 million and LHFS of $690 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(4) 
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
Assets and Liabilities Measured at Fair Value on Nonrecurring Basis
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 nine months ended September 30, 2018 and 2017.
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
 
 
 
September 30, 2018
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
(Dollars in millions)
 
Level 2
 
Level 3
 
Gains (Losses)
Assets
 

 
 

 
 
 
 
Loans held-for-sale
$
45

 
$
12

 
$
(2
)
 
$
(2
)
Loans and leases (1)
—

 
492

 
(63
)
 
(194
)
Foreclosed properties (2, 3)
—

 
87

 
(8
)
 
(22
)
Other assets
294

 
3

 
(22
)
 
(58
)
 
 
 
 
 
 
 
 
 
September 30, 2017
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
Assets
 

 
 

 
 
 
 
Loans held-for-sale
$
70

 
$
16

 
$
—

 
$
(4
)
Loans and leases (1)
—

 
813

 
(152
)
 
(307
)
Foreclosed properties (2, 3)
—

 
79

 
(21
)
 
(35
)
Other assets
353

 
—

 
(1
)
 
(121
)
(1) 
Includes $24 million and $76 million of losses on loans that were written down to a collateral value of zero during the three and nine months ended September 30, 2018, compared to losses of $71 million and $132 million for the same periods in 2017.
(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 $500 million and $879 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at September 30, 2018 and 2017.
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques
The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at September 30, 2018 and December 31, 2017. Loans and leases backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral.
 
 
 
 
 
 
 
 
 
 
Quantitative Information about Nonrecurring Level 3 Fair Value Measurements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inputs
Financial Instrument
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Inputs
 
Ranges of
Inputs
 
Weighted Average
(Dollars in millions)
September 30, 2018
Loans and leases backed by residential real estate assets
$
492

 
Market comparables
 
OREO discount
 
13% to 59%
 
24
%
 
 
 
 
 
Costs to sell
 
8% to 26%
 
9
%
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
Loans and leases backed by residential real estate assets
$
894

 
Market comparables
 
OREO discount
 
15% to 58%
 
23
%
 
 
 
 
 
Costs to sell
 
5% to 49%
 
7
%