FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

Refer to Note 26 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 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
June 30, 2023
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	306	$	—	$	—	$	306
U.S. government agencies	—		93		—		93
U.S. government-sponsored entities	—		254		—		254
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,112		—		1,112
Agency collateralized mortgage obligations	—		892		—		892

Commercial mortgage-backed securities	—		460		—		460
States of the U.S. and political subdivisions (municipals)	—		29		—		29
Other debt securities	—		31		—		31
Total debt securities available for sale	306		2,871		—		3,177
Loans held for sale	—		82		—		82





Derivative financial instruments
Trading	—		101		—		101
Not for trading	—		2		—		2
Total derivative financial instruments	—		103		—		103
Total assets measured at fair value on a recurring basis	$	306	$	3,056	$	—	$	3,362
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	383	$	—	$	383
Not for trading	—		3		2		5
Total derivative financial instruments	—		386		2		388
Total liabilities measured at fair value on a recurring basis	$	—	$	386	$	2	$	388


(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2022
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	257	$	—	$	—	$	257
U.S. government agencies	—		108		—		108
U.S. government-sponsored entities	—		262		—		262
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,232		—		1,232
Agency collateralized mortgage obligations	—		972		—		972

Commercial mortgage-backed securities	—		395		—		395
States of the U.S. and political subdivisions (municipals)	—		29		—		29
Other debt securities	—		20		—		20
Total debt securities available for sale	257		3,018		—		3,275
Loans held for sale	—		91		—		91





Derivative financial instruments
Trading	—		95		—		95
Not for trading	—		1		—		1
Total derivative financial instruments	—		96		—		96
Total assets measured at fair value on a recurring basis	$	257	$	3,205	$	—	$	3,462
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	396	$	—	$	396
Not for trading	—		3		12		15
Total derivative financial instruments	—		399		12		411
Total liabilities measured at fair value on a recurring basis	$	—	$	399	$	12	$	411

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)	Other Debt Securities		Interest Rate Lock Commitments		Total
Six Months Ended June 30, 2023
Balance at beginning of period	$	—	$	—	$	—




Purchases, issuances, sales and settlements:

Issuances	—		1		1

Settlements	—		(1)		(1)


Balance at end of period	$	—	$	—	$	—
Year Ended December 31, 2022
Balance at beginning of period	$	—	$	9	$	9




Purchases, issuances, sales and settlements:
Purchases	2		—		2


Settlements	(1)		(9)		(10)
Transfers from Level 3	(1)		—		(1)

Balance at end of period	$	—	$	—	$	—

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 six months of 2023 or 2022.

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 26, "Fair Value Measurements" to the Consolidated Financial Statements included in 2022 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
June 30, 2023
Collateral dependent loans	$	—	$	—	$	47	$	47

Other assets - SBA servicing asset	—		—		2		2
Other real estate owned	—		—		2		2
December 31, 2022
Collateral dependent loans	$	—	$	—	$	34	$	34

Other assets - SBA servicing asset	—		—		2		2
Other real estate owned	—		—		3		3

The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the six months or twelve months ended June 30, 2023 and December 31, 2022, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the six months ended June 30, 2023 had a carrying amount of $46.7 million, which includes an allocated ACL of $23.4 million. The ACL includes a credit to the provision applicable to the current period fair value measurements of $27.6 million, which was included in provision for credit losses for the six months ended June 30, 2023.

SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $1.7 million. During 2023, the valuation allowance decreased $0.3 million to $1.3 million as of June 30, 2023, down from $1.6 million at December 31, 2022, which is reflected in the year-to-date provision expense.

OREO measured at fair value on a non-recurring basis during 2023 had a carrying amount of $2.4 million, which included a valuation allowance of $0.6 million, as of June 30, 2023. The valuation allowance includes a loss of $0.6 million, which was included in earnings for the six months ended June 30, 2023.

Fair Value of Financial Instruments

Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 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
June 30, 2023
Financial Assets
Cash and cash equivalents	$	1,704	$	1,704	$	1,704	$	—	$	—
Debt securities available for sale	3,177		3,177		306		2,871		—
Debt securities held to maturity	3,988		3,587		—		3,587		—
Net loans and leases, including loans held for sale	31,035		30,246		—		82		30,164
Loan servicing rights	58		74		—		—		74

Derivative assets	103		103		—		103		—
Accrued interest receivable	137		137		137		—		—
Financial Liabilities
Deposits	33,825		33,737		28,490		5,247		—
Short-term borrowings	2,391		2,390		2,390		—		—
Long-term borrowings	1,981		1,926		—		1,190		736
Derivative liabilities	388		388		—		386		2
Accrued interest payable	55		55		55		—		—
December 31, 2022
Financial Assets
Cash and cash equivalents	$	1,674	$	1,674	$	1,674	$	—	$	—
Debt securities available for sale	3,275		3,275		257		3,018		—
Debt securities held to maturity	4,087		3,687		—		3,687		—
Net loans and leases, including loans held for sale	29,977		29,008		—		91		28,917
Loan servicing rights	55		71		—		—		71

Derivative assets	96		96		—		96		—
Accrued interest receivable	126		126		126		—		—
Financial Liabilities
Deposits	34,770		34,673		31,158		3,515		—
Short-term borrowings	1,372		1,369		1,369		—		—
Long-term borrowings	1,093		1,061		—		—		1,061
Derivative liabilities	411		411		—		399		12
Accrued interest payable	31		31		31		—		—

- 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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