Fair Value Measures

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measures

Fair Value Measures

U.S. generally accepted accounting principles sets forth a definition of fair value, establishes a consistent framework for measuring fair value, and requires disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. U.S. generally accepted accounting principles also clarifies that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, U.S. generally accepted accounting principles establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

•Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability.

A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, and that were included in the Company’s Consolidated Statements of Condition at those dates:

	June 30, 2024
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Mortgage-related Debt Securities Available for Sale:
GSE certificates	$	—		$	1,153	$	—	$	1,153
GSE collateralized mortgage obligations	—			7,130		—		7,130
Private label collateralized mortgage obligations	—			135		33		168
Total mortgage-related debt securities	$	—		$	8,418	$	33	$	8,451
Other Debt Securities Available for Sale:
GSE debentures	$	—		$	1,344	$	—	$	1,344
Asset-backed securities	—			269		—		269
Municipal bonds	—			6		—		6
Corporate bonds	—			341		—		341
Foreign notes	—			35		—		35
Capital trust notes	—			89		—		89
Total other debt securities	$	—		$	2,084	$	—	$	2,084
Total debt securities available for sale	$	—		$	10,502	$	33	$	10,535
Equity securities:
Mutual funds and common stock	$	—		$	14	$	—	$	14
Total equity securities	$	—		$	14	$	—	$	14
Total securities	$	—		$	10,516	$	33	$	10,549
Loans held for sale
Residential first mortgage loans	$	—		$	1,259	$	—	$	1,259
Acquisition, development, and construction	—			158		—		158
Commercial and industrial loans	—		—	34		—		34
Loans held-for-investment
Residential first mortgage loans	—			68		—		68
Derivative assets
Interest rate swaps and swaptions	—			111		—		111
Rate lock commitments (fallout-adjusted)	—			—		9		9
Mortgage-backed securities forwards	—			9		—		9
Mortgage servicing rights	—			—		1,122		1,122
Total assets at fair value	$	—		$	12,155	$	1,164	$	13,319
Derivative liabilities
Mortgage-backed securities forwards	$	—		$	9	$	—	$	9
Interest rate swaps and swaptions	—			63		—		63
Rate lock commitments (fallout-adjusted)	—			—		5		5
Total liabilities at fair value	$	—		$	72	$	5	$	77

	December 31, 2023
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Mortgage-related Debt Securities Available for Sale:
GSE certificates	$	—	$	1,221		$	—	$	1,221
GSE collateralized mortgage obligations	—		5,162			—		5,162
Private label collateralized mortgage obligations	—		148			32		180
Total mortgage-related debt securities	$	—	$	6,531		$	32	$	6,563
Other Debt Securities Available for Sale:
U. S. Treasury obligations	$	198	$	—		$	—	$	198
GSE debentures	—		1,609			—		1,609
Asset-backed securities	—		302			—		302
Municipal bonds	—		6			—		6
Corporate bonds	—		343			—		343
Foreign notes	—		34			—		34
Capital trust notes	—		90			—		90
Total other debt securities	$	198	$	2,384		$	—	$	2,582
Total debt securities available for sale	$	198	$	8,915		$	32	$	9,145
Equity securities:
Mutual funds and common stock	—		14			—		14
Total equity securities	$	—	$	14		$	—	$	14
Total securities	$	198	$	8,929		$	32	$	9,159
Loans held for sale
Residential first mortgage loans	$	—	$	770		$	—	$	770
Acquisition, development, and construction	—		123			—		$	123
Commercial and industrial loans	—		9			—		$	9
Derivative assets
Interest rate swaps and swaptions	—		115			—		115
Rate lock commitments (fallout-adjusted)	—		—			12		12
Mortgage-backed securities forwards	—		11			—		11
Mortgage servicing rights	—		—			1,111		1,111
Total assets at fair value	$	198	$	9,957		$	1,155	$	11,310
Derivative liabilities
Mortgage-backed securities forwards	—		32			—		32
Futures			1					1
Interest rate swaps and swaptions	—		59			—		59
Rate lock commitments (fallout-adjusted)	—		—		.	3		3
Total liabilities at fair value	$	—	$	92		$	3	$	95

The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may result in a reclassification from one hierarchy level to another.

A description of the methods and significant assumptions utilized in estimating the fair values of securities follows:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and exchange-traded securities.

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would

generally be classified within Level 2 of the valuation hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities.

Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing service valuations that appear to be unusual or unexpected.

While the Company believes its valuation methods are appropriate, and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair values of certain financial instruments could result in different estimates of fair values at a reporting date.

Fair Value Measurements Using Significant Unobservable Inputs

The following tables include a roll forward of the Consolidated Statements of Condition amounts (including the change in fair value) for financial instruments classified by us within Level 3 of the valuation hierarchy:

(dollars in millions)	Balance at Beginning of Period		Total Gains / (Losses) Recorded in Earnings (1)		Purchases / Originations		Sales		Settlement		Transfers In (Out)		Balance at End of Period
Three Months Ended June 30, 2024
Assets
Mortgage servicing rights (1)	$	1,092	$	(28)	$	58	$	—	—		—		$	1,122
Private label collateralized mortgage obligations	33		—		—		—		—		—		33
Rate lock commitments (net) (1)(2)	8		(2)		17		—		—		(19)		4
Totals	$	1,133	$	(30)	$	75	$	—	$	—	$	(19)	$	1,159
Three Months Ended June 30, 2023
Assets
Mortgage servicing rights (1)	$	1,034	$	5	$	43	$	(51)	—		—		$	1,031
Rate lock commitments (net) (1)(2)	8		(17)		25						(16)		—
Totals	$	1,042	$	(12)	$	68	$	(51)	$	—	$	(16)	$	1,031
Six Months Ended June 30, 2024
Assets
Mortgage servicing rights (1)	$	1,111	$	(20)	$	100	$	(69)	$	—	$	—	$	1,122
Private label collateralized mortgage obligations	—		—		—		—		—		33		33
Rate lock commitments (net) (1)(2)	9		(3)		29		—		—		(31)		4
Totals	$	1,120	$	(23)	$	129	$	(69)	$	—	$	2	$	1,159
Six Months Ended June 30, 2023
Assets
Mortgage servicing rights (1)	$	1,033	$	(32)	$	81	$	(51)			—		$	1,031
Rate lock commitments (net) (1)(2)	(1)		(28)		60		—		—		(31)		—
Totals	$	1,032	$	(60)	$	141	$	(51)	$	—	$	(31)	$	1,031

(1)We utilized swaptions, futures, forward agency and loan sales and interest rate swaps to manage the risk associated with mortgage servicing rights and rate lock commitments. Gains and losses for individual lines do not reflect the effect of our risk management activities related to such Level 3 instruments.

(2)Rate lock commitments are reported on a fallout-adjusted basis. Transfers out of Level 3 represent the settlement value of the commitments that are transferred to loans held for sale, which are classified as Level 2 assets.

The following tables present the quantitative information about recurring Level 3 fair value financial instruments and the fair value measurements as of June 30, 2024 and December 31, 2023:

June 30, 2024	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(dollars in millions)
Assets
Mortgage servicing rights	$	1,122	Discounted cash flows	Option adjusted spread	4.7% - 21.6% (5.1%)
				Constant prepayment rate	—% - 10.3% (7.9%)
				Weighted average cost to service per loan	$65 - $90 ($68)
Private Label collateralized mortgage obligations	$	33	Discounted cash flows	Constant default rates	0.10% - 0.20%
				Weighted average life	7.88 - 11.30
Rate lock commitments (net)	$	4	Consensus pricing	Origination pull-through rate	69.10%

December 31, 2023	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(dollars in millions)
Assets
Mortgage servicing rights	$	1,111	Discounted cash flows	Option adjusted spread	5.0% - 21.7% (5.4%)
				Constant prepayment rate	—% - 10.0% (7.9%)
				Weighted average cost to service per loan	$65 - $90 ($69)
Private Label collateralized mortgage obligations	$	32	Discounted cash flows	Constant default rates	0.10% - 0.30%
				Weighted average life	8.2 - 11.8
Rate lock commitments (net)	$	9	Consensus pricing	Origination pull-through rate	64.30%

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets that were measured at fair value on a non-recurring basis as of June 30, 2024 and December 31, 2023, and that were included in the Company’s Consolidated Statements of Condition at those dates:

	Fair Value Measurements at June 30, 2024 Using
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans (2)					$	1,951	$	1,951
Other assets(1)					52		52
Total	$	—	$	—	$	2,003	$	2,003

(1)Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets and equity securities without readily determinable fair values. These equity securities are classified as Level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

(2)Represents the fair value of impaired loans, based on the value of the collateral.

	Fair Value Measurements at December 31, 2023 Using
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans (2)	$	—	$	—	$	197	$	197
Other assets (1)	—		—		50		50
Total	$	—	$	—	$	247	$	247

(1)Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets and equity securities without readily determinable fair values. These equity securities are classified as Level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

(2)Represents the fair value of impaired loans, based on the value of the collateral.

The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate and other market data.

Other Fair Value Disclosures

For the disclosure of fair value information about the Company’s on- and off-balance sheet financial instruments, when available, quoted market prices are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.

Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments.

The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at June 30, 2024 and December 31, 2023:

	June 30, 2024
					Fair Value Measurement Using
(in millions)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	18,990	$	18,990	$	18,990
FHLB and FRB stock (1)	1,565		1,565		—			1,565
Loans and leases held for investment, net	73,284		68,431		—						68,431
Financial Liabilities:
Deposits	$	79,032	$	78,660	$	50,252	(2)	$	28,408	(3)
Borrowed funds	28,892		28,770					28,770

(1)Carrying value and estimated fair value are at cost.

(2)Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)Certificates of deposit.

	December 31, 2023
					Fair Value Measurement Using
(in millions)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	11,475	$	11,475	$	11,475		$	—		$	—
FHLB and FRB stock (1)	1,392		1,392		—			1,392			—
Loans and leases held for investment, net	83,627		79,333		—			—			79,333
Financial Liabilities:
Deposits	$	81,526	$	81,247	$	59,972	(2)	$	21,275	(3)	$	—
Borrowed funds	21,267		21,082		—			21,082			—

(1)Carrying value and estimated fair value are at cost.

(2)Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)Certificates of deposit.

The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow:

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.

Securities

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturities and cash flow assumptions.

Federal Home Loan Bank Stock

Ownership in equity securities of the FHLB is generally restricted and there is no established liquid market for their resale. The carrying amount approximates the fair value.

Loans and leases

The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan basis. The discount rates reflect current market rates for loans with similar terms to borrowers having similar credit quality on an exit price basis. For those loans where a discounted cash flow technique was not considered reliable, the Company used a quoted market price for each individual loan.

Mortgage Servicing Rights

The significant unobservable inputs used in the fair value measurement of the mortgage servicing rights are option adjusted spreads, prepayment rates and cost to service. Significant increases (decreases) in all three assumptions in isolation result in a significantly lower (higher) fair value measurement. Weighted average life (in years) is used to determine the change in fair value of mortgage servicing rights. For June 30, 2024, the weighted average life (in years) for the entire portfolio was 7.09.

Rate lock commitments

The significant unobservable input used in the fair value measurement of the rate lock commitments is the pull through rate. The pull through rate is a statistical analysis of our actual rate lock fallout history to determine the sensitivity of the residential mortgage loan pipeline compared to interest rate changes and other deterministic values. New market prices are applied based on updated loan characteristics and new fallout ratios (i.e. the inverse of the pull through rate) are applied accordingly. Significant increases (decreases) in the pull through rate in isolation result in a significantly higher (lower) fair value measurement.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a portion of the Company’s deposit base.

Borrowed Funds

The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures.

Off-Balance Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at June 30, 2024 and December 31, 2023.

Fair Value Option

We elected the fair value option for certain items as discussed throughout the Notes to the Consolidated Financial Statements to more closely align the accounting method with the underlying economic exposure. Interest income on loans held for sale is accrued on the principal outstanding primarily using the "simple-interest" method.

The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:

(in millions)	Three Months Ended,				Six Months Ended,
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Assets
Loans held for sale
Net gain on loan sales	$	12	$	1	$	15	$	29

The following table reflects the difference between the aggregate fair value and aggregate remaining contractual principal balance outstanding for assets and liabilities for which the fair value option has been elected:

	June 30, 2024						December 31, 2023
(dollars in millions)	Unpaid Principal Balance		Fair Value		Fair Value Over / (Under) UPB		Unpaid Principal Balance			Fair Value		Fair Value Over / (Under) UPB
Assets:
Non-accrual loans:
Loans held for sale	$	16	$	16	$	—	$	2		$	2	$	—
Total non-accrual loans	16		16		—		2			2		—
Other performing loans:
Loans held for sale	1,410		1,435		25		869			894		25
Loans held-for-investment	70		68		(2)		—			—		—
Total other performing loans	1,480		1,503		23		869			894		25
Total loans:
Loans held for sale	1,426		1,451		25		871			896		25
Loans held-for-investment	70		68		(2)		—		—	—		—
Total loans	$	1,496	$	1,519	$	23	$	871		$	896	$	25