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Note 15 - Fair Value Measurements | 12 Months Ended
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Dec. 31, 2018
Notes to Financial Statements |
Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block] |
15. | Fair Value Measurements
The Company adopted ASC Topic 820 on January 1, 2008, and determined the fair values of our financial instruments based on the following:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities.
| ● | Level 2 – Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.
| ● | Level 3 – Unobservable inputs based on the Company’s own judgments about the assumptions that a market participant would use.
The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis: Securities Available for Sale and Equity Securities . For certain actively traded agency preferred stocks, mutual funds, U.S. Treasury securities, and other equity securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, corporate bonds and trust preferred securities. Warrants . The Company measures the fair value of warrants based on unobservable inputs based on assumption and management judgment, a Level 3 measurement. Currency Option Contracts and Foreign Exchange Contracts . The Company measures the fair value of currency option and foreign exchange contracts based on observable market rates on a recurring basis, a Level 2 measurement. Interest Rate Swaps . The Company measures the fair value of interest rate swaps using third party models with observable market data, a Level 2 measurement. Assets measured at estimated fair value on a non-recurring basis: Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the year ended December 31, 2018 and December 31, 2017, there were no material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP. The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis at December 31, 2018, and at December 31, 2017:
As of December 31, 2018 |  | Fair Value Measurements Using |  |  | Total at |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
|  | (In thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 124,751 |  |  | $ | - |  |  | $ | - |  |  | $ | 124,751 |
U.S. government agency entities |  |  | - |  |  |  | 5,871 |  |  |  | - |  |  |  | 5,871 |
U.S. government sponsored entities |  |  | - |  |  |  | 388,363 |  |  |  | - |  |  |  | 388,363 |
Mortgage-backed securities |  |  | - |  |  |  | 656,744 |  |  |  | - |  |  |  | 656,744 |
Collateralized mortgage obligations |  |  | - |  |  |  | 977 |  |  |  | - |  |  |  | 977 |
Corporate debt securities |  |  | - |  |  |  | 65,803 |  |  |  | - |  |  |  | 65,803 |
Total securities available-for-sale |  |  | 124,751 |  |  |  | 1,117,758 |  |  |  | - |  |  |  | 1,242,509 |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual funds |  |  | 6,094 |  |  |  | - |  |  |  | - |  |  |  | 6,094 |
Preferred stock of government sponsored entities |  |  | 7,822 |  |  |  | - |  |  |  | - |  |  |  | 7,822 |
Other equity securities |  |  | 11,182 |  |  |  | - |  |  |  | - |  |  |  | 11,182 |
Total equity securities |  |  | 25,098 |  |  |  | - |  |  |  | - |  |  |  | 25,098 |
Warrants |  |  | - |  |  |  | - |  |  |  | 184 |  |  |  | 184 |
Interest rate swaps |  |  | - |  |  |  | 7,810 |  |  |  | - |  |  |  | 7,810 |
Foreign exchange contracts |  |  | - |  |  |  | 397 |  |  |  | - |  |  |  | 397 |
Total assets |  | $ | 149,849 |  |  | $ | 1,125,965 |  |  | $ | 184 |  |  | $ | 1,275,998 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option contracts |  | $ | - |  |  | $ | 6 |  |  | $ | - |  |  | $ | 6 |
Interest rate swaps |  |  | - |  |  |  | 1,543 |  |  |  | - |  |  |  | 1,543 |
Foreign exchange contracts |  |  | - |  |  |  | 1,763 |  |  |  | - |  |  |  | 1,763 |
Total liabilities |  | $ | - |  |  | $ | 3,312 |  |  | $ | - |  |  | $ | 3,312 |
As of December 31, 2017 |  | Fair Value Measurements Using |  |  | Total at |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
|  | (In thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 249,520 |  |  | $ | - |  |  | $ | - |  |  | $ | 249,520 |
U.S. government agency entities |  |  | - |  |  |  | 8,988 |  |  |  | - |  |  |  | 8,988 |
U.S. government sponsored entities |  |  | - |  |  |  | 390,336 |  |  |  | - |  |  |  | 390,336 |
State and municipal securities |  |  | - |  |  |  | 1,914 |  |  |  | - |  |  |  | 1,914 |
Mortgage-backed securities |  |  | - |  |  |  | 571,969 |  |  |  | - |  |  |  | 571,969 |
Collateralized mortgage obligations |  |  | - |  |  |  | 1,516 |  |  |  | - |  |  |  | 1,516 |
Corporate debt securities |  |  | - |  |  |  | 81,281 |  |  |  | - |  |  |  | 81,281 |
Mutual funds |  |  | 6,230 |  |  |  | - |  |  |  | - |  |  |  | 6,230 |
Preferred stock of government sponsored entities |  |  | 10,102 |  |  |  | - |  |  |  | - |  |  |  | 10,102 |
Other equity securities |  |  | 11,770 |  |  |  | - |  |  |  | - |  |  |  | 11,770 |
Total securities available-for-sale |  |  | 277,622 |  |  |  | 1,056,004 |  |  |  | - |  |  |  | 1,333,626 |
Warrants |  |  | - |  |  |  | - |  |  |  | 91 |  |  |  | 91 |
Interest rate swaps |  |  | - |  |  |  | 5,218 |  |  |  | - |  |  |  | 5,218 |
Foreign exchange contracts |  |  | - |  |  |  | 1,832 |  |  |  | - |  |  |  | 1,832 |
Total assets |  | $ | 277,622 |  |  | $ | 1,063,054 |  |  | $ | 91 |  |  | $ | 1,340,767 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option contracts |  | $ | - |  |  | $ | 9 |  |  | $ | - |  |  | $ | 9 |
Interest rate swaps |  |  | - |  |  |  | 2,699 |  |  |  | - |  |  |  | 2,699 |
Foreign exchange contracts |  |  | - |  |  |  | 453 |  |  |  | - |  |  |  | 453 |
Total liabilities |  | $ | - |  |  | $ | 3,161 |  |  | $ | - |  |  | $ | 3,161 |
For financial assets measured at fair value on a nonrecurring basis that were still reflected in the balance sheet at December 31, 2018 and 2017, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at December 31, 2018, and at December 31, 2017, and the total losses for the periods indicated:
|  | As of December 31, 2018 |  |  | Total Losses/(Gains) |
|  | Fair Value Measurements Using |  |  |  |  |  | For the Twelve Months Ended |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total at Fair Value |  |  | December 31, 2018 |  |  | December 31, 2017 |
|  | (In thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans by type: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  | $ | - |  |  | $ | - |  |  | $ | 4,733 |  |  | $ | 4,733 |  |  | $ | - |  |  | $ | 25 |
Commercial mortgage loans |  |  | - |  |  |  | - |  |  |  | 26,186 |  |  |  | 26,186 |  |  |  | - |  |  |  | - |
Residential mortgage and equity lines |  |  | - |  |  |  | - |  |  |  | 6,850 |  |  |  | 6,850 |  |  |  | - |  |  |  | - |
Total impaired loans |  |  | - |  |  |  | - |  |  |  | 37,769 |  |  |  | 37,769 |  |  |  | - |  |  |  | 25 |
Other real estate owned (1) |  |  | - |  |  |  | 9,023 |  |  |  | 4,343 |  |  |  | 13,366 |  |  |  | (619 | ) |  |  | 457 |
Investments in venture capital |  |  | - |  |  |  | - |  |  |  | 2,162 |  |  |  | 2,162 |  |  |  | 330 |  |  |  | 392 |
Total assets |  | $ | - |  |  | $ | 9,023 |  |  | $ | 44,274 |  |  | $ | 53,297 |  |  | $ | (289 | ) |  | $ | 874 |
( 1 ) Other real estate owned balance of $12.7 million in the Consolidated Balance Sheets is net of estimated disposal costs.
|  | As of December 31, 2017 |  |  | Total Losses/(Gains) |
|  | Fair Value Measurements Using |  |  |  |  |  | For the Twelve Months Ended |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total at Fair Value |  |  | December 31, 2017 |  |  | December 31, 2016 |
|  | (In thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans by type: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  | $ | - |  |  | $ | - |  |  | $ | 18,097 |  |  | $ | 18,097 |  |  | $ | 25 |  |  | $ | 322 |
Commercial mortgage loans |  |  | - |  |  |  | - |  |  |  | 31,459 |  |  |  | 31,459 |  |  |  | - |  |  |  | - |
Residential mortgage and equity lines |  |  | - |  |  |  | - |  |  |  | 11,355 |  |  |  | 11,355 |  |  |  | - |  |  |  | - |
Total impaired loans |  |  | - |  |  |  | - |  |  |  | 60,911 |  |  |  | 60,911 |  |  |  | 25 |  |  |  | 322 |
Other real estate owned (1) |  |  | - |  |  |  | 5,677 |  |  |  | 4,322 |  |  |  | 9,999 |  |  |  | 457 |  |  |  | 9 |
Investments in venture capital |  |  | - |  |  |  | - |  |  |  | 2,583 |  |  |  | 2,583 |  |  |  | 392 |  |  |  | 976 |
Total assets |  | $ | - |  |  | $ | 5,677 |  |  | $ | 67,816 |  |  | $ | 73,493 |  |  | $ | 874 |  |  | $ | 1,307 |
( 1 ) Other real estate owned balance of $9.4 million in the Consolidated Balance Sheets is net of estimated disposal costs.
The significant unobservable (Level 3 ) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans was primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every six months. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from 55% in the case of accounts receivable collateral to 65% in the case of inventory collateral. The significant unobservable inputs used in the fair value measurement of other real estate owned (“OREO”) was primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commission ranging from 3% to 6% of collateral value of impaired loans, quoted price or loan sale price of loans held for sale, and appraised value of OREOs. The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are the expected life of warrant ranging from 1 to 6 years, risk-free interest rate from 2.69% to 3.00%, and stock volatility of the Company from 13.01% to 18.04%.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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