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FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES
14. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
ASC 820-10, Fair Value Measurement (ASC 820-10) defines fair value as 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. ASC 820-10 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:
•Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
•Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.
•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The following tables present financial instruments carried at fair value as of September 30, 2022 and December 31, 2021 by level in the valuation hierarchy (as described above):
September 30, 2022
(Dollars in thousands)Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total Fair
Value
Assets measured at fair value on a recurring basis:
Available-for-sale securities:
CMO$— $522,383 $— $522,383 
FNMA MBS— 3,294,230 — 3,294,230 
FHLMC MBS— 123,017 — 123,017 
GNMA MBS— 36,737 — 36,737 
GSE agency notes— 177,248 — 177,248 
Other assets— 163,144 85 163,229 
Total assets measured at fair value on a recurring basis$— $4,316,759 $85 $4,316,844 
Liabilities measured at fair value on a recurring basis:
Other liabilities$— $161,856 $17,579 $179,435 
Assets measured at fair value on a nonrecurring basis:
Other investments$— $— $25,122 $25,122 
Other real estate owned— — 840 840 
Loans held for sale— 61,671 — 61,671 
Total assets measured at fair value on a nonrecurring basis$— $61,671 $25,962 $87,633 
December 31, 2021
(Dollars in thousands)Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total Fair
Value
Assets measured at fair value on a recurring basis:
Available-for-sale securities:
CMO$— $575,766 $— $575,766 
FNMA MBS— 4,245,684 — 4,245,684 
FHLMC MBS— 145,528 — 145,528 
GNMA MBS— 17,936 — 17,936 
GSE agency notes— 220,397 — 220,397 
Other assets— 5,153 — 5,153 
Total assets measured at fair value on a recurring basis$— $5,210,464 $— $5,210,464 
Liabilities measured at fair value on a recurring basis:
Other liabilities$— $3,039 $20,252 $23,291 
Assets measured at fair value on a nonrecurring basis
Other investments$— $— $10,518 $10,518 
Other real estate owned— — 2,320 2,320 
Loans held for sale— 113,349 — 113,349 
Total assets measured at fair value on a nonrecurring basis$— $113,349 $12,838 $126,187 
Fair value is based on quoted market prices, where available. If such quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include unobservable parameters. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Available-for-sale securities
Securities classified as available-for-sale are reported at fair value using Level 2 inputs. The Company believes that this Level 2 designation is appropriate under ASC 820-10, as these securities are GSEs and GNMA securities with almost all fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.
Other investments
Other investments includes equity investments without readily determinable fair values and equity method investments, which are categorized as Level 3. The Company’s equity investments without readily determinable fair values are held at cost, and are adjusted for any observable transactions during the reporting period and its equity method investments are initially recorded at cost based on the Company’s percentage ownership in the investee, and are adjusted to reflect the recognition of the Company’s proportionate share of income or loss of the investee based on the investee’s earnings.
Other real estate owned
Other real estate owned consists of loan collateral which has been repossessed through foreclosure or other measures. Initially, foreclosed assets are recorded at the fair value of the collateral less estimated selling costs. Subsequent to foreclosure, valuations are updated periodically and the assets may be marked down further, reflecting a new cost basis. The fair value of other real estate owned was estimated using Level 3 inputs based on appraisals obtained from third parties.
Loans held for sale
The fair value of loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities.
Other assets
Other assets include the fair value of interest rate products, derivatives on the residential mortgage held for sale loan pipeline, and risk participation agreements. Valuation of interest rate products is obtained from an independent pricing service and also from the derivative counterparty. Valuation of the derivative related to the residential mortgage held for sale loan pipeline is based on valuation of the loans held for sale portfolio as described above in Loans held for sale. Valuation of risk participation agreements are obtained from an independent pricing service.
Other liabilities
Other liabilities include the fair value of interest rate products, derivatives on the residential mortgage held for sale loan pipeline, foreign exchange forward contracts, risk participation agreements, and derivative related to the sale of certain Visa Class B common shares. Valuation of interest rate products is obtained from an independent pricing service and also from the derivative counterparty. Valuation of the derivative related to the residential mortgage held for sale loan pipeline is based on valuation of the loans held for sale portfolio as described above in Loans held for sale. Valuation of foreign exchange forward contracts and risk participation agreements are obtained from an independent pricing service. Valuation of the derivative related to the sale of certain Visa Class B common shares is based on: (i) the agreed upon graduated fee structure; (ii) the length of time until the resolution of the Visa covered litigation; and (iii) the estimated impact of dilution in the conversion ratio of Class B shares resulting from changes in the Visa covered litigation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of factors. In certain cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions regarding the amount and timing of estimated future cash flows that are discounted to reflect current market rates and varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of period-end or that will be realized in the future.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash, cash equivalents, and restricted cash
For cash and short-term investment securities, including due from banks, federal funds sold or purchased under agreements to resell and interest-bearing deposits with other banks, the carrying amount is a reasonable estimate of fair value.
Investment securities
Investment securities include debt securities classified as held-to-maturity or available-for-sale. Fair value is estimated using quoted prices for similar securities, which the Company obtains from a third party vendor. The Company uses one of the largest providers of securities pricing to the industry and management periodically assesses the inputs used by this vendor to price the various types of securities owned by the Company to validate the vendor’s methodology as described above in available-for-sale securities.
Other investments
Other investments includes equity investments without readily determinable fair values (see discussion in “Fair Value of Financial Assets and Liabilities” section above).
Loans held for sale
Loans held for sale are carried at their fair value (see discussion in “Fair Value of Financial Assets and Liabilities” section above).
Loans and leases
Loans and leases are segregated by portfolio segments with similar financial characteristics. The fair values of loans and leases, with the exception of reverse mortgages, are estimated by discounting expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit ratings and for similar remaining maturities. The fair values of reverse mortgages are based on the net present value of the expected cash flows using a discount rate specific to the reverse mortgages portfolio. The fair value of nonperforming loans is based on recent external appraisals of the underlying collateral, if the loan is collateral dependent. Estimated cash flows, discounted using a rate commensurate with current rates and the risk associated with the estimated cash flows, are used if appraisals are not available. This technique does contemplate an exit price.
Stock in the Federal Home Loan Bank (FHLB) of Pittsburgh
The fair value of FHLB stock is assumed to be equal to its cost basis, since the stock is non-marketable but redeemable at its par value.
Accrued interest receivable
The carrying amounts of interest receivable approximate fair value.
Other assets
Other assets include the fair value of interest rate products, derivatives on the residential mortgage held for sale loan pipeline, and risk participation agreements (see discussion in “Fair Value of Financial Assets and Liabilities” section above).
Deposits
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, money market and interest-bearing demand deposits, is assumed to be equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using rates currently offered for deposits with comparable remaining maturities.
Borrowed funds
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Off-balance sheet instruments
The fair value of off-balance sheet instruments, including swap guarantees of $11.5 million at September 30, 2022 and $13.1 million at December 31, 2021, respectively, and standby letters of credit, approximates the recorded net deferred fee amounts. Because letters of credit are generally not assignable by either the Company or the borrower, they only have value to the Company and the borrower. In determining the fair value of the swap guarantees, the Company assesses the underlying credit risk exposure for each borrower in a paying position to the third-party financial institution.
Accrued interest payable
The carrying amounts of interest payable approximate fair value.
Other liabilities
Other liabilities include the fair value of interest rate products, derivatives on the residential mortgage held for sale loan pipeline, foreign exchange forward contracts, risk participation agreements, and derivative related to the sale of certain Visa Class B common shares (see discussion in “Fair Value of Financial Assets and Liabilities” section above).
Financial instruments measured at fair value using significant unobservable inputs (Level 3)
The following table provides a description of the valuation technique and significant unobservable inputs for the Company's financial instruments classified as Level 3:
September 30, 2022
Financial InstrumentFair ValueValuation Technique(s)Unobservable InputRange
(Weighted Average)
Other investments$25,122 Observed market comparable transactionsPeriod of observed transactions
May 2022
Other real estate owned840 Fair market value of collateralCosts to sell
10.0%
Other assets (Risk participation agreements purchased)85
Credit Value Adjustment
CDS Spread and Loss Given Default (LGD)
CDS spread: 110 - 250 bps
LGD: 30%
Other liabilities (Risk participation agreements sold)2 
Credit Value Adjustment
CDS Spread and Loss Given Default (LGD)
CDS spread: 1 - 250 bps
LGD: 30%
Other liabilities (Financial derivative related to
sales of certain Visa Class B shares)		17,577 Discounted cash flowTiming of Visa litigation resolution
1.00 - 6.00 years (3.75 years or 4Q 2025)
The book value and estimated fair value of the Company's financial instruments are as follows:
 
September 30, 2022December 31, 2021
(Dollars in thousands)Fair Value
Measurement		Book ValueFair ValueBook ValueFair Value
Financial assets:
Cash, cash equivalents, and restricted cashLevel 1$1,031,391 $1,031,391 $1,532,939 $1,532,939 
Investment securities available-for-saleLevel 24,153,615 4,153,615 5,205,311 5,205,311 
Investment securities held-to-maturity, netLevel 21,121,895 1,041,163 90,642 94,131 
Other investmentsLevel 325,122 25,122 10,518 10,518 
Loans, held for saleLevel 261,671 61,671 113,349 113,349 
Loans and leases, net(1)
Level 311,559,195 11,471,216 7,791,482 7,723,867 
Stock in FHLB of PittsburghLevel 224,117 24,117 6,073 6,073 
Accrued interest receivableLevel 263,393 63,393 41,596 41,596 
Other assetsLevel 2163,229 163,229 5,153 5,153 
Financial liabilities:
DepositsLevel 216,725,208 16,677,292 13,240,062 13,236,816 
Borrowed fundsLevel 2374,367 347,388 239,477 225,119 
Standby letters of credit
Level 3596 596 674 674 
Accrued interest payableLevel 25,568 5,568 736 736 
Other liabilitiesLevels 2, 3179,435 179,435 23,291 23,291 
 (1) Includes reverse mortgage loans.
At September 30, 2022 and December 31, 2021 the Company had no commitments to extend credit measured at fair value.