FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2020

Refer to Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:

TABLE 19.1


(in millions)	Level 1		Level 2		Level 3		Total
September 30, 2020
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	300	$	—	$	—	$	300
U.S. government agencies	—		160		—		160
U.S. government-sponsored entities	—		137		—		137
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,096		—		1,096
Agency collateralized mortgage obligations	—		976		—		976

Commercial mortgage-backed securities	—		416		—		416
States of the U.S. and political subdivisions (municipals)	—		14		—		14
Other debt securities	—		2		—		2
Total debt securities available for sale	300		2,801		—		3,101
Loans held for sale	—		138		—		138





Derivative financial instruments
Trading	—		397		—		397
Not for trading	—		4		22		26
Total derivative financial instruments	—		401		22		423
Total assets measured at fair value on a recurring basis	$	300	$	3,340	$	22	$	3,662
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	42	$	—	$	42
Not for trading	—		3		—		3
Total derivative financial instruments	—		45		—		45
Total liabilities measured at fair value on a recurring basis	$	—	$	45	$	—	$	45


(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2019
Assets Measured at Fair Value
Debt securities available for sale

U.S. government agencies	$	—	$	151	$	—	$	151
U.S. government-sponsored entities	—		226		—		226
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,314		—		1,314
Agency collateralized mortgage obligations	—		1,240		—		1,240

Commercial mortgage-backed securities	—		345		—		345
States of the U.S. and political subdivisions (municipals)	—		11		—		11
Other debt securities	—		2		—		2
Total debt securities available for sale	—		3,289		—		3,289
Loans held for sale	—		41		—		41





Derivative financial instruments
Trading	—		149		—		149
Not for trading	—		2		3		5
Total derivative financial instruments	—		151		3		154
Total assets measured at fair value on a recurring basis	$	—	$	3,481	$	3	$	3,484
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	24	$	—	$	24
Not for trading	—		1		—		1
Total derivative financial instruments	—		25		—		25
Total liabilities measured at fair value on a recurring basis	$	—	$	25	$	—	$	25

The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

TABLE 19.2


(in millions)	Interest Rate Lock Commitments		Total
Nine Months Ended September 30, 2020
Balance at beginning of period	$	3	$	3




Purchases, issuances, sales and settlements:

Issuances	22		22

Settlements	(3)		(3)


Balance at end of period	$	22	$	22
Year Ended December 31, 2019
Balance at beginning of period	$	1	$	1




Purchases, issuances, sales and settlements:

Issuances	3		3

Settlements	(1)		(1)


Balance at end of period	$	3	$	3

We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 2020 or 2019.

From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in 2019 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:

TABLE 19.3


(in millions)	Level 1		Level 2		Level 3		Total
September 30, 2020
Collateral dependent loans	$	—	$	—	$	45	$	45
Other real estate owned	—		—		9		9
Other assets - SBA servicing asset	—		—		3		3
Other assets - MSRs	—		—		34		34
December 31, 2019
Impaired loans	$	—	$	—	$	5	$	5
Other real estate owned	—		—		4		4
Other assets - SBA servicing asset	—		—		3		3
Other assets - MSRs	—		—		30		30

Substantially all of the fair value amounts in the table above were estimated at a date during the nine months or twelve months ended September 30, 2020 and December 31, 2019, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. MSRs measured at fair value on a non-recurring basis of $42.7 million had a valuation allowance of $9.1 million, bringing the September 30, 2020 carrying value to $33.7 million. The valuation allowance includes a provision expense of $7.5 million included in earnings for the nine months ended September 30, 2020.

Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the nine months ended September 30, 2020 had a carrying amount of $45.3 million, which includes an allocated ACL of $25.4 million. The ACL includes a provision applicable to the current period fair value measurements of $32.0 million, which was included in provision for credit losses for the nine months ended September 30, 2020.

OREO with a carrying amount of $10.4 million was written down to $9.2 million, resulting in a loss of $1.2 million, which was included in earnings for the nine months ended September 30, 2020.

Fair Value of Financial Instruments

Refer to Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.

The fair values of our financial instruments are as follows:

TABLE 19.4


					Fair Value Measurements
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2020
Financial Assets
Cash and cash equivalents	$	900	$	900	$	900	$	—	$	—
Debt securities available for sale	3,101		3,101		300		2,801		—
Debt securities held to maturity	2,966		3,072		—		3,072		—
Net loans and leases, including loans held for sale	25,996		25,872		—		138		25,734
Loan servicing rights	37		37		—		—		37

Derivative assets	423		423		—		401		22
Accrued interest receivable	90		90		90		—		—
Financial Liabilities
Deposits	28,836		28,882		24,811		4,071		—
Short-term borrowings	1,899		1,904		1,904		—		—
Long-term borrowings	1,397		1,379		—		—		1,379
Derivative liabilities	45		45		—		45		—
Accrued interest payable	14		14		14		—		—
December 31, 2019
Financial Assets
Cash and cash equivalents	$	599	$	599	$	599	$	—	$	—
Debt securities available for sale	3,289		3,289		—		3,289		—
Debt securities held to maturity	3,275		3,305		—		3,305		—
Net loans and leases, including loans held for sale	23,144		22,930		—		41		22,889
Loan servicing rights	46		48		—		—		48

Derivative assets	154		154		—		151		3
Accrued interest receivable	109		109		109		—		—
Financial Liabilities
Deposits	24,786		24,797		20,058		4,739		—
Short-term borrowings	3,216		3,219		3,219		—		—
Long-term borrowings	1,340		1,355		—		—		1,355
Derivative liabilities	25		25		—		25		—
Accrued interest payable	21		21		21		—		—

- 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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