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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2016
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
9. | Fair Value Measurements
We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Please refer to “Note 12 — Fair Value Measurements” in our 2015 Form 10-K for a full discussion. During the three and nine months ended September 30, 2016, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments. The following table summarizes the valuation of our financial instruments that are marked-to-market on a recurring basis.
|  | Fair Value Measurements on a Recurring Basis |
|  | September 30, 2016 |  |  | December 31, 2015 |
(Dollars in millions) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency residential mortgage-backed securities |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
Other |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 4 |  |  |  | — |  |  |  | 4 |
Total available-for-sale investments |  |  | — |  |  |  | 4 |  |  |  | — |  |  |  | 4 |  |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | 5 |
Derivative instruments:(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | — |  |  |  | 904 |  |  |  | 26 |  |  |  | 930 |  |  |  | — |  |  |  | 709 |  |  |  | 17 |  |  |  | 726 |
Cross-currency interest rate swaps |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 18 |  |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | 2 |
Other |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total derivative assets(3) |  |  | — |  |  |  | 904 |  |  |  | 45 |  |  |  | 949 |  |  |  | — |  |  |  | 709 |  |  |  | 19 |  |  |  | 728 |
Total |  | $ | — |  |  | $ | 908 |  |  | $ | 45 |  |  | $ | 953 |  |  | $ | — |  |  | $ | 714 |  |  | $ | 19 |  |  | $ | 733 |
Liabilities(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | — |  |  | $ | (207 | ) |  | $ | (65 | ) |  | $ | (272 | ) |  | $ | — |  |  | $ | (99 | ) |  | $ | (61 | ) |  | $ | (160 | )
Floor Income Contracts |  |  | — |  |  |  | (293 | ) |  |  | — |  |  |  | (293 | ) |  |  | — |  |  |  | (365 | ) |  |  | — |  |  |  | (365 | )
Cross-currency interest rate swaps |  |  | — |  |  |  | (10 | ) |  |  | (732 | ) |  |  | (742 | ) |  |  | — |  |  |  | (83 | ) |  |  | (905 | ) |  |  | (988 | )
Other |  |  | — |  |  |  | — |  |  |  | (11 | ) |  |  | (11 | ) |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | (2 | )
Total derivative liabilities(3) |  |  | — |  |  |  | (510 | ) |  |  | (808 | ) |  |  | (1,318 | ) |  |  | — |  |  |  | (547 | ) |  |  | (968 | ) |  |  | (1,515 | )
Total |  | $ | — |  |  | $ | (510 | ) |  | $ | (808 | ) |  | $ | (1,318 | ) |  | $ | — |  |  | $ | (547 | ) |  | $ | (968 | ) |  | $ | (1,515 | )
(1) | Fair value of derivative instruments excludes accrued interest and the value of collateral.
(2) | Borrowings which are the hedged items in a fair value hedge relationship and which are adjusted for changes in value due to benchmark interest rates only are not carried at full fair value and are not reflected in this table.
(3) | See “Note 4 — Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.
The following tables summarize the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.
|  | Three Months Ended September 30, |
|  | 2016 |  |  | 2015 |
|  | Derivative instruments |  |  | Derivative instruments |
(Dollars in millions) |  | Interest Rate Swaps |  |  | Cross Currency Interest Rate Swaps |  |  | Other |  |  | Total Derivative Instruments |  |  | Interest Rate Swaps |  |  | Cross Currency Interest Rate Swaps |  |  | Other |  |  | Total Derivative Instruments |
Balance, beginning of period |  | $ | (37 | ) |  | $ | (801 | ) |  | $ | (7 | ) |  | $ | (845 | ) |  | $ | (82 | ) |  | $ | (654 | ) |  | $ | (15 | ) |  | $ | (751 | )
Total gains/(losses) (realized and unrealized): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings(1) |  |  | (2 | ) |  |  | 64 |  |  |  | (4 | ) |  |  | 58 |  |  |  | 40 |  |  |  | (5 | ) |  |  | 13 |  |  |  | 48 |
Included in other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Settlements |  |  | — |  |  |  | 23 |  |  |  | 1 |  |  |  | 24 |  |  |  | 3 |  |  |  | 3 |  |  |  | — |  |  |  | 6 |
Transfers in and/or out of level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance, end of period |  | $ | (39 | ) |  | $ | (714 | ) |  | $ | (10 | ) |  | $ | (763 | ) |  | $ | (39 | ) |  | $ | (656 | ) |  | $ | (2 | ) |  | $ | (697 | )
Change in unrealized gains/(losses) relating to instruments still held at the reporting date(2) |  | $ | (2 | ) |  | $ | 87 |  |  | $ | (3 | ) |  | $ | 82 |  |  | $ | 37 |  |  | $ | (2 | ) |  | $ | 13 |  |  | $ | 48 |
|  | Nine Months Ended September 30, |
|  | 2016 |  |  | 2015 |
|  | Derivative instruments |  |  | Derivative instruments |
(Dollars in millions) |  | Interest Rate Swaps |  |  | Cross Currency Interest Rate Swaps |  |  | Other |  |  | Total Derivative Instruments |  |  | Interest Rate Swaps |  |  | Cross Currency Interest Rate Swaps |  |  | Other |  |  | Total Derivative Instruments |
Balance, beginning of period |  | $ | (44 | ) |  | $ | (903 | ) |  | $ | (2 | ) |  | $ | (949 | ) |  | $ | (88 | ) |  | $ | (117 | ) |  | $ | (11 | ) |  | $ | (216 | )
Total gains/(losses) (realized and unrealized): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings(1) |  |  | 4 |  |  |  | 129 |  |  |  | (10 | ) |  |  | 123 |  |  |  | 45 |  |  |  | (538 | ) |  |  | 6 |  |  |  | (487 | )
Included in other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Settlements |  |  | 1 |  |  |  | 60 |  |  |  | 2 |  |  |  | 63 |  |  |  | 4 |  |  |  | (1 | ) |  |  | 3 |  |  |  | 6 |
Transfers in and/or out of level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance, end of period |  | $ | (39 | ) |  | $ | (714 | ) |  | $ | (10 | ) |  | $ | (763 | ) |  | $ | (39 | ) |  | $ | (656 | ) |  | $ | (2 | ) |  | $ | (697 | )
Change in unrealized gains/(losses) relating to instruments still held at the reporting date(2) |  | $ | 6 |  |  | $ | 189 |  |  | $ | (8 | ) |  | $ | 187 |  |  | $ | 42 |  |  | $ | (536 | ) |  | $ | 9 |  |  | $ | (485 | )
(1) | “Included in earnings” is comprised of the following amounts recorded in the specified line item in the consolidated statements of income:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in millions) |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Gains (losses) on derivative and hedging activities, net |  | $ | 81 |  |  | $ | 50 |  |  | $ | 183 |  |  | $ | (488 | )
Interest expense |  |  | (23 | ) |  |  | (2 | ) |  |  | (60 | ) |  |  | 1 |
Total |  | $ | 58 |  |  | $ | 48 |  |  | $ | 123 |  |  | $ | (487 | )
(2) | Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.
The following table presents the significant inputs that are unobservable or from inactive markets used in the recurring valuations of the level 3 financial instruments detailed above.
(Dollars in millions) |  | Fair Value at September 30, 2016 |  |  | Valuation Technique |  | Input |  |  | Range (Weighted Average)
Derivatives |  |  |  |  |  |  |  |  |  |  |  |
Consumer Price Index/ LIBOR basis swaps |  | $ | 8 |  |  | Discounted cash flow |  |  | Bid/ask adjustment to discount rate |  |  | .02% — .05% (.05%)
Prime/LIBOR basis swaps |  |  | (47 | ) |  | Discounted cash flow |  |  | Constant prepayment rate |  |  | 6.2%
|  |  |  |  |  |  |  |  | Bid/ask adjustment to discount rate |  |  | .03% — .05% (.05%)
Cross-currency interest rate swaps |  |  | (714 | ) |  | Discounted cash flow |  |  | Constant prepayment rate |  |  | 2.8%
Other |  |  | (10 | ) |  |  |  |  |  |  |  |
Total |  | $ | (763 | ) |  |  |  |  |  |  |  |
The significant inputs that are unobservable or from inactive markets related to our level 3 derivatives detailed in the table above would be expected to have the following impacts to the valuations:
| • |  | Consumer Price Index/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation.
| • |  | Prime/LIBOR basis swaps — These swaps do not actively trade in the markets as indicated by a wide bid/ask spread. A wider bid/ask spread will result in a decrease in the overall valuation. In addition, the unobservable inputs include Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap which will increase the value for swaps in a gain position and decrease the value for swaps in a loss position, everything else equal. The opposite is true for an increase in the input.
| • |  | Cross-currency interest rate swaps — The unobservable inputs used in these valuations are Constant Prepayment Rates of the underlying securitization trust the swap references. A decrease in this input will result in a longer weighted average life of the swap. All else equal in a typical currency market, this will result in a decrease to the valuation due to the delay in the cash flows of the currency exchanges as well as diminished liquidity in the forward exchange markets as you increase the term. The opposite is true for an increase in the input.
The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.
|  | September 30, 2016 |  |  | December 31, 2015 |
(Dollars in millions) |  | Fair Value |  |  | Carrying Value |  |  | Difference |  |  | Fair Value |  |  | Carrying Value |  |  | Difference |
Earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FFELP Loans |  | $ | 88,765 |  |  | $ | 90,146 |  |  | $ | (1,381 | ) |  | $ | 94,377 |  |  | $ | 96,498 |  |  | $ | (2,121 | )
Private Education Loans |  |  | 23,698 |  |  |  | 24,010 |  |  |  | (312 | ) |  |  | 25,772 |  |  |  | 26,394 |  |  |  | (622 | )
Cash and investments(1) |  |  | 5,882 |  |  |  | 5,882 |  |  |  | — |  |  |  | 5,833 |  |  |  | 5,833 |  |  |  | — |
Total earning assets |  |  | 118,345 |  |  |  | 120,038 |  |  |  | (1,693 | ) |  |  | 125,982 |  |  |  | 128,725 |  |  |  | (2,743 | )
Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term borrowings |  |  | 2,648 |  |  |  | 2,637 |  |  |  | (11 | ) |  |  | 2,569 |  |  |  | 2,570 |  |  |  | 1 |
Long-term borrowings |  |  | 112,258 |  |  |  | 116,540 |  |  |  | 4,282 |  |  |  | 118,471 |  |  |  | 124,833 |  |  |  | 6,362 |
Total interest-bearing liabilities |  |  | 114,906 |  |  |  | 119,177 |  |  |  | 4,271 |  |  |  | 121,040 |  |  |  | 127,403 |  |  |  | 6,363 |
Derivative financial instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Floor Income Contracts |  |  | (293 | ) |  |  | (293 | ) |  |  | — |  |  |  | (365 | ) |  |  | (365 | ) |  |  | — |
Interest rate swaps |  |  | 658 |  |  |  | 658 |  |  |  | — |  |  |  | 566 |  |  |  | 566 |  |  |  | — |
Cross-currency interest rate swaps |  |  | (724 | ) |  |  | (724 | ) |  |  | — |  |  |  | (986 | ) |  |  | (986 | ) |  |  | — |
Other |  |  | (10 | ) |  |  | (10 | ) |  |  | — |  |  |  | (2 | ) |  |  | (2 | ) |  |  | — |
Excess of net asset fair value over carrying value |  |  |  |  |  |  |  |  |  | $ | 2,578 |  |  |  |  |  |  |  |  |  |  | $ | 3,620 |
(1) | “Cash and investments” includes available-for-sale investments that consist of investments that are primarily agency securities whose cost basis is $4 million and $4 million at September 30, 2016 and December 31, 2015, respectively, versus a fair value of $4 million and $5 million at September 30, 2016 and December 31, 2015, respectively.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19279-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19190-110258 + Details
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