Fair Value Measurements

12 Months Ended

Dec. 31, 2020

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:


	2020								2019
	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	$	183	$	—	$	—	$	183	$	182	$	—	$	—	$	182
Federal agency securities	—		105		—		105		—		43		—		43
Mortgage-backed securities (MBS):
Residential agency	—		19,076		—		19,076		—		15,516		—		15,516
Residential non-agency	—		—		1		1		—		—		1		1
Commercial agency	—		5,999		—		5,999		—		4,766		—		4,766
Commercial non-agency	—		586		—		586		—		647		—		647
Corporate and other debt securities	—		1,200		4		1,204		—		1,450		1		1,451
Total debt securities available for sale	$	183	$	26,966	$	5	$	27,154	$	182	$	22,422	$	2	$	22,606
Loans held for sale	$	—	$	1,446	$	—	$	1,446	$	—	$	436	$	3	$	439
Marketable equity securities	$	388	$	—	$	—	$	388	$	450	$	—	$	—	$	450
Residential mortgage servicing rights	$	—	$	—	$	296	$	296	$	—	$	—	$	345	$	345
Derivative assets (2):
Interest rate swaps	$	—	$	2,750	$	—	$	2,750	$	—	$	1,064	$	—	$	1,064
Interest rate options	—		477		43		520		—		227		8		235
Interest rate futures and forward commitments	—		11		—		11		—		4		6		10
Other contracts	2		65		1		68		—		47		1		48
Total derivative assets	$	2	$	3,303	$	44	$	3,349	$	—	$	1,342	$	15	$	1,357
Equity investments	$	—	$	74	$	—	$	74	$	—	$	—	$	—	$	—
Derivative liabilities (2):
Interest rate swaps	$	—	$	1,464	$	—	$	1,464	$	—	$	739	$	—	$	739
Interest rate options	—		28		—		28		—		9		—		9
Interest rate futures and forward commitments	—		26		—		26		—		11		—		11
Other contracts	2		72		6		80		—		53		5		58
Total derivative liabilities	$	2	$	1,590	$	6	$	1,598	$	—	$	812	$	5	$	817
Non-recurring fair value measurements
Loans held for sale	$	—	$	—	$	4	$	4	$	—	$	—	$	14	$	14
Equity investments without a readily determinable fair value	—		—		12		12		—		—		32		32
Foreclosed property and other real estate	—		—		5		5		—		—		42		42

_________

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

(2)As permitted under U.S. GAAP, variation margin collateral payments made or received for derivatives that are centrally cleared are legally characterized as settled. As such, these derivative assets and derivative liabilities and the related variation margin collateral are presented on a net basis on the balance sheet.

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 residential mortgage servicing rights, which are the only material assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2020, 2019 and 2018, respectively.


	Residential mortgage servicing rights
	For the Years Ended December 31
	2020		2019		2018
	(In millions)
Carrying value, beginning of period	$	345	$	418	$	336
Total realized/unrealized gains (losses) included in earnings (1)	(157)		(115)		(29)
Purchases	108		42		111
Carrying value, end of period	$	296	$	345	$	418

_______

(1) Included in mortgage income. Amounts presented exclude offsetting impact from related derivatives.

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



	2020		2019
	(In millions)
Loans held for sale	$	(8)	$	(12)
Equity investments without a readily determinable fair value	2		1
Foreclosed property and other real estate	(10)		(30)

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, 2020, 2019 and 2018. 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, 2020, 2019 and 2018 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, 2020

Level 3
Estimated Fair Value at
December 31, 2020

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)

$296

Discounted cash flow

Weighted-average CPR (%)

8.1% - 31.2% (15.6%)

OAS (%)

4.8% - 9.5% (5.6%)

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% (6.2%)

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%)

_________

(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 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 Company also elected to measure certain commercial and industrial loans held for sale at fair value, as these loans are actively traded in the secondary market. The Company is able to obtain fair value estimates for substantially all of these loans through a third party valuation service that is broadly used by market participants. While most of the loans are traded in the market, the volume and level of trading activity is subject to variability and the loans are not exchange-traded. The balance of these loans held for sale was immaterial at December 31, 2020.

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:


	2020						2019
	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	$	1,439	$	1,362	$	77	$	439	$	425	$	14

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.


	2020		2019
	(In millions)
Net gains (losses) resulting from changes in fair value of mortgage loans held for sale	$	63	$	4

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, 2020 are as follows:


	2020
	Carrying Amount		Estimated Fair Value(1)		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and cash equivalents	$	17,956	$	17,956	$	17,956	$	—	$	—
Debt securities held to maturity	1,122		1,215		—		1,215		—
Debt securities available for sale	27,154		27,154		183		26,966		5
Loans held for sale	1,905		1,905		—		1,901		4
Loans (excluding leases), net of unearned income and allowance for loan losses(2)(3)	81,597		82,773		—		—		82,773
Other earning assets(4)	1,017		1,017		388		629		—
Derivative assets	3,349		3,349		2		3,303		44
Equity investments	74		74		—		74		—
Financial liabilities:
Derivative liabilities	1,598		1,598		2		1,590		6
Deposits	122,479		122,511		—		122,511		—

Long-term borrowings	3,569		4,063		—		3,592		471
Loan commitments and letters of credit	151		151		—		—		151

_________

(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 premium on the loan portfolio's net carrying amount at December 31, 2020 was $1.2 billion or 1.4 percent.

(3)Excluded from this table is the sales-type, direct financing, and leveraged lease carrying amount of $1.5 billion at December 31, 2020.

(4)Excluded from this table is the operating lease carrying amount of $200 million at December 31, 2020.

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	1,357		1,357		—		1,342		15
Financial liabilities:
Derivative liabilities	817		817		—		812		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		67		—		—		67

_________

(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 sales-type, direct financing, and leveraged 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.

- 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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