FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTSRefer 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 | | | — | | | — | |
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