Fair Value Measurements

12 Months Ended

Dec. 31, 2019

See Note 1 for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. Marketable equity securities and debt securities available for sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the observability of inputs used in valuing the securities. Such transfers are accounted for as if they occur at the beginning of a reporting period.

The following table presents assets and liabilities measured at estimated fair value on a recurring basis and non-recurring basis as of December 31:



	2019								2018
	Level 1		Level 2		Level 3 ⁽¹⁾		Total Estimated Fair Value		Level 1		Level 2		Level 3 ⁽¹⁾		Total Estimated Fair Value
	(In millions)
Recurring fair value measurements
Debt securities available for sale:
U.S. Treasury securities	$	182	$	—	$	—	$	182	$	280	$	—	$	—	$	280
Federal agency securities	—		43		—		43		—		43		—		43
Mortgage-backed securities (MBS):
Residential agency	—		15,516		—		15,516		—		16,624		—		16,624
Residential non-agency	—		—		1		1		—		—		2		2
Commercial agency	—		4,766		—		4,766		—		3,835		—		3,835
Commercial non-agency	—		647		—		647		—		760		—		760
Corporate and other debt securities	—		1,450		1		1,451		—		1,182		3		1,185
Total debt securities available for sale	$	182	$	22,422	$	2	$	22,606	$	280	$	22,444	$	5	$	22,729
Loans held for sale	$	—	$	436	$	3	$	439	$	—	$	251	$	—	$	251
Marketable equity securities	$	450	$	—	$	—	$	450	$	429	$	—	$	—	$	429
Residential mortgage servicing rights	$	—	$	—	$	345	$	345	$	—	$	—	$	418	$	418
Derivative assets:
Interest rate swaps	$	—	$	376	$	—	$	376	$	—	$	193	$	—	$	193
Interest rate options	—		227		8		235		—		96		5		101
Interest rate futures and forward commitments	—		4		6		10		—		4		—		4
Other contracts	—		47		1		48		2		70		—		72
Total derivative assets	$	—	$	654	$	15	$	669	$	2	$	363	$	5	$	370
Derivative liabilities:
Interest rate swaps	$	—	$	164	$	—	$	164	$	—	$	237	$	—	$	237
Interest rate options	—		9		—		9		—		20		—		20
Interest rate futures and forward commitments	—		11		—		11		—		9		—		9
Other contracts	—		53		5		58		2		69		3		74
Total derivative liabilities	$	—	$	237	$	5	$	242	$	2	$	335	$	3	$	340
Non-recurring fair value measurements
Loans held for sale	$	—	$	—	$	14	$	14	$	—	$	—	$	10	$	10
Equity investments without a readily determinable fair value	—		—		32		32		—		—		27		27
Foreclosed property and other real estate	—		—		42		42		—		16		3		19

_________


(1)	All following disclosures related to Level 3 recurring and non-recurring assets do not include those deemed to be immaterial.

Assets and liabilities in all levels could result in volatile and material price fluctuations. Realized and unrealized gains and losses on Level 3 assets represent only a portion of the risk to market fluctuations in Regions’ consolidated balance sheets. Further, derivatives included in Levels 2 and 3 are used by ALCO in a holistic approach to managing price fluctuation risks.

The following tables illustrate rollforwards for all material assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2019, 2018 and 2017, respectively. The net changes in realized gains (losses) included in earnings related to Level 3 assets and liabilities held at December 31, 2019, 2018, 2017 are not material.

Year Ended December 31, 2019

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Opening
Balance
January 1,
2019

Included

Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

Closing Balance December 31, 2019

(In millions)

Level 3 Instruments Only

Residential mortgage servicing rights

418

(115

)

⁽¹⁾

—

345

Year Ended December 31, 2018

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Opening
Balance
January 1,
2018

Included

in Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

Closing Balance December 31, 2018

(In millions)

Level 3 Instruments Only

Residential mortgage servicing rights

336

(29

)

⁽¹⁾

—

111

—

418

Year Ended December 31, 2017

Total Realized /

Unrealized

Gains or Losses

Purchases

Sales

Issuances

Settlements

Transfers

into

Level 3

Transfers

out of

Level 3

Opening
Balance
January 1,
2017

Included

in Earnings

Included

in Other

Compre-

hensive

Income

(Loss)

Closing Balance December 31, 2017

(In millions)

Level 3 Instruments Only

Residential mortgage servicing rights

324

(52

)

⁽¹⁾

—

336

_________

(1) Included in mortgage income.

The following table presents the fair value adjustments related to non-recurring fair value measurements for the years ended December 31:



	2019			2018
	(In millions)
Loans held for sale	$	(12	)	$	(13	)
Equity investments without a readily determinable fair value	1			8
Foreclosed property and other real estate	(30		)	(15		)

The following tables present detailed information regarding material assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2019, 2018 and 2017. The tables include the valuation techniques and the significant unobservable inputs utilized. The range of each significant unobservable input as well as the weighted-average within the range utilized at December 31, 2019, 2018 and 2017 are included. Following the tables are descriptions of the valuation techniques and the sensitivity of the techniques to changes in the significant unobservable inputs.



	December 31, 2019
	Level 3 Estimated Fair Value at December 31, 2019	Valuation Technique	Unobservable Input(s)	Quantitative Range of Unobservable Inputs and (Weighted-Average)
	(Dollars in millions)
Recurring fair value measurements:
Residential mortgage servicing rights ⁽¹⁾	$345	Discounted cash flow	Weighted-average CPR (%)	7.4% - 26.1% (12.0%)
			OAS (%)	5.2% - 10.2% (6.18%)



	December 31, 2018
	Level 3 Estimated Fair Value at December 31, 2018	Valuation Technique	Unobservable Input(s)	Quantitative Range of Unobservable Inputs and (Weighted-Average)
	(Dollars in millions)
Recurring fair value measurements:
Residential mortgage servicing rights ⁽¹⁾	$418	Discounted cash flow	Weighted-average CPR (%)	4.4% - 42.6% (9.0%)
			OAS (%)	5.7% - 15.0% (7.6%)



	December 31, 2017
	Level 3 Estimated Fair Value at December 31, 2017	Valuation Technique	Unobservable Input(s)	Quantitative Range of Unobservable Inputs and (Weighted-Average)
	(Dollars in millions)
Recurring fair value measurements:
Residential mortgage servicing rights ⁽¹⁾	$336	Discounted cash flow	Weighted-average CPR (%)	7.9% - 28.1% (9.9%)
			OAS (%)	8.1% - 15.0% (8.6%)

_________

(1) See Note 7 for additional disclosures related to assumptions used in the fair value calculation for residential mortgage servicing rights.

RECURRING FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS

Residential mortgage servicing rights

The significant unobservable inputs used in the fair value measurement of residential MSRs are OAS and CPR. This valuation requires generating cash flow projections over multiple interest rate scenarios and discounting those cash flows at a risk adjusted rate. Additionally, the impact of prepayments and changes in the OAS are based on a variety of underlying inputs including servicing costs. Increases or decreases to the underlying cash flow inputs will have a corresponding impact on the value of the MSR asset. The net change in unrealized gains (losses) included in earnings related to MSRs held at period end are disclosed as the changes in valuation inputs or assumptions included in the MSR rollforward table in Note 7.

FAIR VALUE OPTION

Regions has elected the fair value option for all eligible agency residential mortgage loans and certain commercial mortgage loans originated with the intent to sell. These elections allow for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. Regions has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments. Fair values of residential mortgage loans held for sale are based on traded market prices of similar assets where available and/or discounted cash flows at market interest rates, adjusted for securitization activities that include servicing values and market conditions, and are recorded in loans held for sale in the consolidated balance sheets.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans held for sale measured at fair value at December 31:



	2019						2018
	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal		Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
	(In millions)
Mortgage loans held for sale, at fair value	$	439	$	425	$	14	$	251	$	242	$	9

Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest income on loans held for sale in the consolidated statements of income. The following table details net gains and losses resulting from changes in fair value of these loans, which were recorded in mortgage income in the consolidated statements of income for the years presented. These changes in fair value are mostly offset by economic hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.



	2019		2018
	(In millions)
Net gains (losses) resulting from changes in fair value	$	4	$	(2	)

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments as of December 31, 2019 are as follows:



	2019
	Carrying Amount		Estimated Fair Value⁽¹⁾		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and cash equivalents	$	4,114	$	4,114	$	4,114	$	—	$	—
Debt securities held to maturity	1,332		1,372		—		1,372		—
Debt securities available for sale	22,606		22,606		182		22,422		2
Loans held for sale	637		637		—		620		17
Loans (excluding leases), net of unearned income and allowance for loan losses⁽²⁾⁽³⁾	80,841		80,799		—		—		80,799
Other earning assets⁽⁴⁾	1,221		1,221		450		771		—
Derivative assets	669		669		—		654		15
Financial liabilities:
Derivative liabilities	242		242		—		237		5
Deposits	97,475		97,516		—		97,516		—
Short-term borrowings	2,050		2,050		—		2,050		—
Long-term borrowings	7,879		8,275		—		7,442		833
Loan commitments and letters of credit	67		471		—		—		471

_________

(1)

Estimated fair values are consistent with an exit price concept. The assumptions used to estimate the fair values are intended to approximate those that a market participant would use in a hypothetical orderly transaction. In estimating fair value, the Company makes adjustments for estimated changes in interest rates, market liquidity and credit spreads in the periods they are deemed to have occurred.


(2)	The estimated fair value of portfolio loans assumes sale of the loans to a third-party financial investor. Accordingly, the value to the Company if the loans were held to maturity is not reflected in the fair value estimate. The fair value discount on the loan portfolio's net carrying amount at December 31, 2019 was $42 million or 0.1% percent.


(3)	Excluded from this table is the capital lease carrying amount of $1.3 billion at December 31, 2019.


(4)	Excluded from this table is the operating lease carrying amount of $297 million at December 31, 2019.

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments as of December 31, 2018 are as follows:



	2018
	Carrying Amount		Estimated Fair Value⁽¹⁾		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and cash equivalents	$	3,538	$	3,538	$	3,538	$	—	$	—
Debt securities held to maturity	1,482		1,460		—		1,460		—
Debt securities available for sale	22,729		22,729		280		22,444		5
Loans held for sale	304		304		—		287		17
Loans (excluding leases), net of unearned income and allowance for loan losses⁽²⁾⁽³⁾	81,054		79,386		—		—		79,386
Other earning assets ⁽⁴⁾	1,350		1,350		429		921		—
Derivative assets	370		370		2		363		5
Financial liabilities:
Derivative liabilities	340		340		2		335		3
Deposits	94,491		94,531		—		94,531		—
Short-term borrowings	1,600		1,600		—		1,600		—
Long-term borrowings	12,424		12,610		—		12,408		202
Loan commitments and letters of credit	79		435		—		—		435

_________

(1)


(2)	The estimated fair value of portfolio loans assumes sale of the loans to a third-party financial investor. Accordingly, the value to the Company if the loans were held to maturity is not reflected in the fair value estimate. The fair value discount on the loan portfolio's net carrying amount at December 31, 2018 was $1.7 billion or 2.1% percent.


(3)	Excluded from this table is the capital lease carrying amount of $1.1 billion at December 31, 2018.

(4)

Excluded from this table is the operating lease carrying amount of $369 million at December 31, 2018.

- 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.

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