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Note 21 - Fair Value Measurement

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 21. FAIR VALUE MEASUREMENT

Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.

Debt Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing service regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, as in the case of certain corporate securities, these securities are classified in Level 3 of the hierarchy.

Derivative instruments. The fair values of derivatives are determined based on a valuation pricing model using readily available observable market parameters such as interest rate curves, adjusted for counterparty credit risk. These measurements are classified as level 2 within the valuation hierarchy.

Loans Individually Evaluated. Loans individually evaluated are measured and reported at fair value when full payment under the loan terms is not probable. Loans individually evaluated are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Loans individually evaluated are subject to nonrecurring fair value adjustment upon initial recognition or subsequent individual evaluation. A portion of the allowance for credit losses is allocated to loans individually evaluated if the value of such loans is deemed to be less than the unpaid balance. The range of fair value adjustments and weighted average adjustments as of December 31, 2023 was 0% to 66% and 25%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022 was 0% to 82% and 19.5%, respectively. Loans individually evaluated are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized to write-down individually evaluated loans that are measured at fair value on a nonrecurring basis was $16.6 million and $4.2 million during the years ended December 31, 2023 and 2022, respectively.

Other Real Estate Owned and Repossessed Assets. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for credit losses subsequent to foreclosure. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. The range of fair value adjustments and weighted average adjustment as of December 31, 2023 was 25% to 100% and 38.3%, respectively. The range of fair value adjustments and weighted average adjustment as of December 31, 2022 was 0% to 100% and 53.3% respectively. These measurements are classified as Level 3 within the valuation hierarchy. Net losses on the sale and write-downs of OREO of $7,000 and $153,000 was recognized during the years ended December 31, 2023 and 2022, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO is classified within Level 3 of the hierarchy.

There were three residential real estate loan foreclosures for $360,000 classified as OREO as of December 31, 2023, compared to two residential real estate loan foreclosures for $248,000 as of December 31, 2022.

There were three residential real estate loans $292,000 that were in the process of being foreclosed as of December 31, 2023. There were no residential real estate loan that was in the process of being foreclosed as of December 31, 2022.

The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of December 31, 2023 and 2022. There were no liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022.

		Fair Value Measurements at December 31, 2023 Using
		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical				Observable Inputs				Unobservable
		Assets (Level 1)				(Level 2)				Inputs (Level 3)				Total
		(In Thousands)
Assets Measured on a Recurring Basis:
Available-for-sale debt securities:
U.S. Treasury securities		$	340,807			$	-			$	-			$	340,807
Mortgage-backed securities			-				215,485				-				215,485
State and municipal securities			-				10,223				-				10,223
Corporate debt			-				326,808				6,860				333,668
Total available-for-sale debt securities			340,807				552,516				6,860				900,183
Total assets at fair value		$	340,807			$	552,516			$	6,860			$	900,183

		Fair Value Measurements at December 31, 2022 Using
		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical				Observable Inputs				Unobservable
		Assets (Level 1)				(Level 2)				Inputs (Level 3)				Total
		(In Thousands)
Assets Measured on a Recurring Basis:
Available-for-sale debt securities:
U.S. Treasury securities		$	2,969			$	-			$	-			$	2,969
Government agency securities			-				9				-				9
Mortgage-backed securities			-				249,703				-				249,703
State and municipal securities			-				13,609				-				13,609
Corporate debt			-				367,665				10,860				378,525
Total available-for-sale debt securities			2,969				630,986				10,860				644,815
Interest rate cap derivative			-				4,201				-				4,201
Total assets at fair value		$	2,969			$	635,187			$	10,860			$	649,016

The carrying amount and estimated fair value of the Company’s financial instruments measured on a nonrecurring basis were as follows:

		Fair Value Measurements at December 31, 2023 Using
		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical				Observable				Unobservable
		Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)				Total
		(In Thousands)
Assets Measured on a Nonrecurring Basis:
Loans individually evaluated		$	-			$	-			$	70,735			$	70,735
Other real estate owned and repossessed assets			-				-				995				995
Total assets at fair value		$	-			$	-			$	71,730			$	71,730

		Fair Value Measurements at December 31, 2022 Using
		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical				Observable				Unobservable
		Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)				Total
		(In Thousands)
Assets Measured on a Nonrecurring Basis:
Loans individually evaluated		$	-			$	-			$	73,017			$	73,017
Other real estate owned and repossessed assets			-				-				248				248
Total assets at fair value		$	-			$	-			$	73,265			$	73,265

There were no liabilities measured at fair value on a non-recurring basis as of December 31, 2023 and 2022.

In the case of the debt securities portfolio, the Company monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the year ended December 31, 2023, there was one transfer from Level 3 to Level 2.

The table below includes a rollforward of the balance sheet amounts for the years ended December 31, 2023 and 2022 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology:

		For the year ended December 31,
		2023				2022
		Available-for-sale Securities				Available-for-sale Securities
		(In Thousands)
Fair value, beginning of period		$	10,860			$	16,992
Transfers into Level 3			-				4,860
Total realized gains included in income			-				-
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end			160				(805	)
Purchases			-				-
Transfers out of Level 3			(4,160	)			(10,187	)
Fair value, end of period		$	6,860			$	10,860

The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

		December 31,
		2023								2022
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
		(In Thousands)
Financial Assets:
Level 1 Inputs:
Cash and cash equivalents		$	2,030,513			$	2,030,513			$	814,538			$	814,538
Held-to-maturity U.S. Treasury securities			508,985				484,267				507,151				470,954

Level 2 Inputs:
Federal funds sold			100,575				100,575				1,515				1,515
Held-to-maturity debt securities			473,429				422,674				526,720				464,749
Mortgage loans held for sale			5,071				5,071				1,607				1,604
Restricted equity securities			10,226				10,226				7,734				7,734

Level 3 Inputs:
Held-to-maturity debt securities			250				250				250				250
Loans, net			11,505,512				11,032,819				11,541,671				11,265,517

Financial Liabilities:
Level 2 Inputs:
Deposits		$	13,273,511			$	13,266,640			$	11,546,805			$	11,529,647
Federal funds purchased			1,256,724				1,256,724				1,618,798				1,618,798
Other borrowings			64,735				58,083				64,726				57,101

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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