We use fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. Securities AFS, mortgage loans held for sale accounted for under FVO and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a non-recurring basis, such as certain impaired loans, OREO and certain other assets.

Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.

In determining fair value, we use various valuation approaches, including market, income and cost approaches. We follow an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from independent sources. Unobservable inputs reflect our assumptions about the assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:


Measurement Category						Definition

Level 1						Valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

Level 2						Valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

Level 3						Valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

We closely monitor market conditions involving assets that have become less actively traded. If the fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume, and do not require significant adjustment using unobservable inputs, those assets are classified as Level 1 or Level 2; if not, they are classified as Level 3. Making this assessment requires significant judgment.

We use prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of AFS securities. We validate prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by

We determine fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity and uses observable market-based inputs, including interest rate curves and implied volatilities.

We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives and IRLCs utilize Level 3 inputs. Credit valuation estimates of current credit spreads are used to evaluate the likelihood of our default and the default of our counterparties. However, as of December 31, 2023 and 2022, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our non-IRLC derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The fair value of IRLCs is based upon the estimated fair value of the underlying mortgage loan, including the expected cash flows related to MSRs and the estimated percentage of IRLCs that will result in a closed mortgage loan, and is classified as Level 3.

Residential mortgage loans held for sale are carried at fair value under the FVO, an irrevocable election at time of origination. Fair value for residential mortgage loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2. Residential mortgage loans held for sale that subsequently are not sold on the secondary market, are carried at fair value under the FVO and classified as Level 3.

SBA loans held for sale are carried at lower of cost or fair value, for which, periodically, it may be necessary to record non-recurring fair value adjustments. Fair value for SBA loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2.

Indirect installment loans held for sale are carried at lower of cost or fair value, for which, periodically, it may be necessary to record non-recurring fair value adjustments. Fair value for indirect loans held for sale, when recorded, is based on the estimated sale price and classified as Level 3.

For commercial loans in default which are greater than or equal to $1.0 million, individual reserves are determined based on an analysis of the present value of the loan's expected future cash flows, the loan's observable market value, or the fair value of the collateral less costs to sell. For commercial and consumer loans in default which are below $1.0 million, an established LGD percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

We determine the fair value of real estate based on appraisals by licensed or certified appraisers. The value of business assets is generally based on amounts reported on the business’ financial statements. Management must rely on the financial statements prepared and certified by the borrower or their accountants in determining the value of these business assets on an ongoing basis, which may be subject to significant change over time. Based on the quality of information or statements provided, management may require the use of business asset appraisals and site-inspections to better value these assets. We may discount appraised and reported values based on management’s historical knowledge, changes in market conditions from the time of valuation or management’s knowledge of the borrower and the borrower’s business. Since not all valuation inputs are observable, we classify these non-recurring fair value determinations as Level 2 or Level 3 based on the lowest level of input that is significant to the fair value measurement.

OREO is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations and these properties are subject to federal regulatory holding period requirements. OREO acquired in settlement of indebtedness is recorded at fair value less costs to sell. Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell. Accordingly, it may be necessary to record non-recurring fair value adjustments. Fair value is generally based upon appraisals by licensed or certified appraisers and other market information and is classified as Level 3.

We carry MSRs at the lower of cost or fair value, and therefore, they are subject to fair value measurements on a non-recurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. As such we rely primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of our MSRs. We utilize a third-party vendor to perform the modeling to estimate the fair value of our MSRs. Since the valuation model uses significant unobservable inputs, we classify MSRs within Level 3.

We retain the servicing rights on SBA-guaranteed loans sold to investors. The standard sale structure under the SBA Secondary Participation Guaranty Agreement provides for us to retain a portion of the cash flow from the interest payment received on the SBA guaranteed portion of the loan, which is commonly known as a servicing spread. We utilize a third-party vendor to perform the modeling to estimate the fair value of our SBA servicing asset. Since the valuation model uses significant unobservable inputs, we classify SBA servicing assets within Level 3.


(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2023
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	420	$	—	$	—	$	420
U.S. government agencies	—		79		—		79
U.S. government-sponsored entities	—		223		—		223
Residential mortgage-backed securities
Agency mortgage-backed securities	—		752		—		752
Agency collateralized mortgage obligations	—		832		—		832

Commercial mortgage-backed securities	—		884		—		884
States of the U.S. and political subdivisions (municipals)	—		27		—		27
Other debt securities	—		37		—		37
Total debt securities available for sale	420		2,834		—		3,254
Loans held for sale	—		150		—		150





Derivative financial instruments
Trading	—		109		—		109
Not for trading	—		2		5		7
Total derivative financial instruments	—		111		5		116
Total assets measured at fair value on a recurring basis	$	420	$	3,095	$	5	$	3,520
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	324	$	—	$	324
Not for trading	—		4		—		4
Total derivative financial instruments	—		328		—		328
Total liabilities measured at fair value on a recurring basis	$	—	$	328	$	—	$	328


(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


(in millions)	Other Debt Securities		Interest Rate Lock Commitments		Total
Year Ended December 31, 2023
Balance at beginning of period	$	—	$	—	$	—




Purchases, issuances, sales and settlements:

Issuances	—		6		6

Settlements	—		(1)		(1)


Balance at end of period	$	—	$	5	$	5
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. See the “Securities Available for Sale” discussion within this footnote for information relating to determining Level 3 fair values. There were no transfers of assets or liabilities between the hierarchy levels during 2023. During 2022, we transferred $1.0 million in other debt securities out of the Level 3 hierarchy level into the Level 2 hierarchy level.

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 previously described. 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:


(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2023
Collateral dependent loans	$	—	$	—	$	35	$	35
Indirect installment loans held for sale	—		—		338		338
Other assets - MSRs	—		—		12		12
Other assets - SBA servicing asset	—		—		1		1
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

as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during 2023 had a carrying amount of $35.0 million which includes an allocated ACL of $8.2 million. The ACL includes a provision applicable to the current period fair value measurements of $49.3 million, which was included in provision for credit losses for 2023.

MSRs measured at fair value on a non-recurring basis had a carrying value of $12.4 million, which included a valuation allowance of $0.2 million, as of December 31, 2023. The valuation allowance includes a provision of $0.2 million included in earnings for 2023. SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $1.4 million. During 2023, the valuation allowance decreased $0.4 million to $1.2 million as of December 31, 2023, down from $1.6 million at December 31, 2022, which is reflected in the year-to-date provision expense.

Securities. For both securities AFS and securities HTM, fair value equals the quoted market price from an active market, if available, and is classified within Level 1. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or pricing models, and is classified as Level 2. Where there is limited market activity or significant valuation inputs are unobservable, securities are classified within Level 3. Under current market conditions, assumptions used to determine the fair value of Level 3 securities have greater subjectivity due to the lack of observable market transactions.

Loans and Leases. The fair value of fixed rate loans and leases is estimated by discounting the future cash flows using the current rates at which similar loans and leases would be made to borrowers with similar credit ratings and for the same remaining maturities less an illiquidity discount, as the fair value measurement represents an exit price from a market participants' viewpoint. The fair value of variable and adjustable-rate loans and leases approximates the carrying amount. Due to the significant judgment involved in evaluating credit quality, loans and leases are classified within Level 3 of the fair value hierarchy.

Loan Servicing Rights. For both MSRs and SBA servicing rights, both classified as Level 3 assets, fair value is determined using a discounted cash flow valuation method. These models use significant unobservable inputs including discount rates, prepayment rates and cost to service which have greater subjectivity due to the lack of observable market transactions.

Deposits. The estimated fair value of demand deposits, savings accounts and certain money market deposits is the carrying amount at the reporting date because of the customers’ ability to withdraw funds immediately. While the deposits, given their nature, are not traded on an active market, they are payable on demand and offer floating market-based interest rates. As a result, given the value associated with our base deposits is not permitted to be captured in this estimate of fair value, the fair values presented contain little to no estimation uncertainty and are consistent with other Level 1 instruments. The fair value of fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

Loan Commitments and Standby Letters of Credit. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans, typically are non-binding, and fees are not normally assessed on these balances.

Nature of Estimates. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable to other financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Further, because the disclosed fair value amounts were estimated as of the Balance Sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.


					Fair Value Measurements
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
December 31, 2023
Financial Assets
Cash and cash equivalents	$	1,576	$	1,576	$	1,576	$	—	$	—
Debt securities available for sale	3,254		3,254		420		2,834		—
Debt securities held to maturity	3,911		3,593		—		3,593		—
Net loans and leases, including loans held for sale	32,405		30,641		—		150		30,491
Loan servicing rights	61		73		—		—		73

Derivative assets	116		116		—		111		5
Accrued interest receivable	160		160		160		—		—
Financial Liabilities
Deposits	34,711		34,654		28,496		6,158		—
Short-term borrowings	2,506		2,505		2,505		—		—
Long-term borrowings	1,971		1,928		—		1,192		736
Derivative liabilities	328		328		—		328		—
Accrued interest payable	69		69		69		—		—
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		—		—