XML 33 R19.htm IDEA: XBRL DOCUMENT v3.24.2.u1
Note 12 - Fair Value Measurements and Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

12. Fair Value Measurements and Fair Value of Financial Instruments

 

The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.

 

The Company used valuation methodologies to measure assets at fair value under ASC Topic 820 and ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03, to estimate the fair value of financial instruments not recorded at fair value. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories:

 

 

●

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 judgment about the assumptions that a market participant would use.

 

The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements.

 

Financial assets and liabilities measured at fair value on a recurring basis:

 

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, U.S. Government sponsored entities, state and municipal securities, mortgage-backed securities (“MBS”), collateralized mortgage obligations and corporate bonds.

 

Warrants - The Company measures the fair value of warrants based on unobservable inputs based on assumptions and management judgment, a Level 3 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.

 

Currency Option Contracts and Foreign Exchange Contracts - The Company measures the fair value of currency option contracts and foreign exchange contracts based on observable market rates on a recurring basis, a Level 2 measurement.

 

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024, and December 31, 2023:

 

  

June 30, 2024

     
  

Fair Value Measurements Using

  

Total Fair Value

 
  

Level 1

  

Level 2

  

Level 3

  

Measurements

 
  

(In thousands)

 

Assets

                

Securities AFS

                

U.S. Treasury securities

 $545,000  $—  $—  $545,000 

U.S. government agency entities

  —   11,010   —   11,010 

U.S. government sponsored entities

  —   79,734   —   79,734 

Mortgage-backed securities

  —   728,764   —   728,764 

Collateralized mortgage obligations

  —   26,079   —   26,079 

Corporate debt securities

  —   258,144   —   258,144 

Total securities AFS

  545,000   1,103,731   —   1,648,731 
                 

Equity securities

                

Mutual funds

  5,503   —   —   5,503 

Preferred stock of government sponsored entities

  3,033   —   —   3,033 

Other equity securities

  21,413   —   —   21,413 

Total equity securities

  29,949   —   —   29,949 
                 

Interest rate swaps

  —   52,192   —   52,192 

Foreign exchange contracts

  —   226   —   226 

Total assets

 $574,949  $1,156,149  $—  $1,731,098 
                 

Liabilities

                

Interest rate swaps

 $—  $39,962  $—  $39,962 

Foreign exchange contracts

  —   241   —   241 

Total liabilities

 $—  $40,203  $—  $40,203 

 

  

December 31, 2023

     
  

Fair Value Measurements Using

  

Total Fair Value

 
  

Level 1

  

Level 2

  

Level 3

  

Measurements

 
  

(In thousands)

 

Assets

                

Securities AFS

                

U.S. Treasury securities

 $495,300  $—  $—  $495,300 

U.S. government agency entities

  —   48,169   —   48,169 

Mortgage-backed securities

  —   786,723   —   786,723 

Collateralized mortgage obligations

  —   28,044   —   28,044 

Corporate debt securities

  —   246,334   —   246,334 

Total securities AFS

  495,300   1,109,270   —   1,604,570 
                 

Equity securities

                

Mutual funds

  5,585   —   —   5,585 

Preferred stock of government sponsored entities

  1,821   —   —   1,821 

Other equity securities

  33,000   —   —   33,000 

Total equity securities

  40,406   —   —   40,406 
                 

Interest rate swaps

  —   54,268   —   54,268 

Foreign exchange contracts

  —   379   —   379 

Total assets

 $535,706  $1,163,917  $—  $1,699,623 
                 

Liabilities

                

Interest rate swaps

 $—  $45,762  $—  $45,762 

Foreign exchange contracts

  —   175   —   175 

Total liabilities

 $—  $45,937  $—  $45,937 

 

Financial assets and liabilities 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 periods ended June 30, 2024, and December 31, 2023, 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.

 

During the second quarter of 2024, the Company entered into a restructuring support agreement and received equity securities for equity interest in a private company, a Level 3 measurement.  The fair value of the Company’s Level 3 equity security was measured using the private company’s projected earnings plus cash on hand. The primary inputs and assumptions used in the fair value measurement was derived from the issuer’s projected earnings and collateral, which included cash on hand, the financial standing of the issuer, the business and financial plan of the issuer, among other factors. Significant increases or decreases in any of the inputs or assumptions could result in a significant increase or decrease in the fair value measurement.

 

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the Consolidated Balance Sheets as of June 30, 2024, and December 31, 2023, the following tables set forth the level of valuation assumptions used to determine each adjustment, the carrying value of the related individual assets as of June 30, 2024, and December 31, 2023, and the total losses for the periods indicated:

 

  

As of June 30, 2024

  

Total Losses

 
  

Fair Value Measurements Using

  

Total Fair Value

  

For the Three Months Ended

  

For the Six Months Ended

 
  

Level 1

  

Level 2

  

Level 3

  

Measurements

  

June 30, 2024

  

June 30, 2023

  

June 30, 2024

  

June 30, 2023

 
  

(In thousands)

 

Assets

                                

Non accrual loans by type:

                                

Commercial loans

 $—  $—  $129  $129  $1,038  $34  $1,038  $2,037 

Commercial real estate loans

  —   —   19,804   19,804   251   1,202   251   5,192 

Total non accrual loans

  —   —   19,933   19,933   1,289   1,236   1,289   7,229 

Other real estate owned (1)

  —   —   19,246   19,246   —   —   —   — 

Other equity securities

  —   —   1,539   1,539   —   —   —   — 

Investments in venture capital

  —   —   93   93   —   —   —   — 

Total assets

 $—  $—  $40,811  $40,811  $1,289  $1,236  $1,289  $7,229 
                                 

(1) Other real estate owned balance of $18.3 million in the Consolidated Balance Sheets is net of estimated disposal costs.

 

 

  

As of December 31, 2023

  

Total Losses

 
  

Fair Value Measurements Using

  

Total Fair Value

  

For the Twelve Months Ended

 
  

Level 1

  

Level 2

  

Level 3

  

Measurements

  

December 31, 2023

  

December 31, 2022

 
  

(In thousands)

 

Assets

                        

Non accrual loans by type:

                        

Commercial loans

 $—  $—  $191  $191  $—  $1,786 

Commercial real estate loans

  —   —   6,882   6,882   4,069   2,091 

Total non accrual loans

  —   —   7,073   7,073   4,069   3,877 

Other real estate owned (1)

  —   —   20,446   20,446   —   — 

Investments in venture capital

  —   —   237   237   227   268 

Total assets

 $—  $—  $27,756  $27,756  $4,296  $4,145 
                         

(1) Other real estate owned balance of $19.4 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 individually evaluated loans are primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every twelve months as appropriate. 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. In the current year, the Company used borrower specific collateral discounts with various discount levels.

 

The fair value of individually evaluated loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent individually evaluated loans are recorded based on the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value using discounted future cash flows or old appraisals which are then adjusted based on recent market trends, a Level 3 measurement.

 

Loans held for sale are recorded at the lower of cost or fair value upon transfer. Loans held for sale may be measured at fair value on a nonrecurring basis when fair value is less than cost. Fair value is generally determined based on available market data for similar loans and therefore, are classified as Level 2 measurement.

 

The significant unobservable inputs (Level 3) used in the fair value measurement of other real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3% to 6% of the collateral value of individually evaluated loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.

 

Fair value is estimated in accordance with ASC Topic 825. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

The following table sets forth the carrying and notional amounts and estimated fair value of financial instruments as of June 30, 2024, and December 31, 2023:

 

  

June 30, 2024

  

December 31, 2023

 
  

Carrying

      

Carrying

     
  

Amount

  

Fair Value

  

Amount

  

Fair Value

 
  

(In thousands)

 

Financial Assets

                

Cash and due from banks

 $160,389  $160,389  $173,988  $173,988 

Short-term investments

  944,612   944,612   654,813   654,813 

Securities AFS

  1,648,731   1,648,731   1,604,570   1,604,570 

Loans held for investment, net

  19,193,335   19,530,559   19,382,858   19,605,152 

Equity securities

  31,488   31,488   40,406   40,406 

Investment in Federal Home Loan Bank stock

  17,250   17,250   17,746   17,746 

 

  

Notional

      

Notional

     
  

Amount

  

Fair Value

  

Amount

  

Fair Value

 

Foreign exchange contracts

 $192,452  $226  $124,452  $379 

Interest rate swaps

  1,125,574   52,192   1,406,879   54,268 

 

  

Carrying

      

Carrying

     
  

Amount

  

Fair Value

  

Amount

  

Fair Value

 

Financial Liabilities

                

Deposits

 $19,773,017  $19,775,767  $19,325,447  $19,347,070 

Advances from Federal Home Loan Bank

  165,000   164,997   540,000   536,996 

Other borrowings

  17,838   15,339   15,787   13,978 

Long-term debt

  119,136   74,294   119,136   72,304 

 

  

Notional

      

Notional

     
  

Amount

  

Fair Value

  

Amount

  

Fair Value

 

Foreign exchange contracts

 $116,939  $241  $101,378  $175 

Interest rate swaps

  976,427   39,962   1,078,880   45,762 

 

  

Notional

      

Notional

     
  

Amount

  

Fair Value

  

Amount

  

Fair Value

 

Off-Balance Sheet Financial Instruments

                

Commitments to extend credit

 $3,919,636  $(19,634) $3,808,620  $(14,344)

Standby letters of credit

  402,402   (3,051)  368,618   (2,821)

Other letters of credit

  16,755   (12)  11,308   (10)

 

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of June 30, 2024, and December 31, 2023, excluding financial instruments recorded at fair value on a recurring basis already presented in other tables in this note:

 

  

As of June 30, 2024

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 
  

(In thousands)

 

Financial Assets

                

Cash and due from banks

 $160,389  $160,389  $—  $— 

Short-term investments

  944,612   944,612   —   — 

Loans held for investment, net

  19,530,559   —   —   19,530,559 

Equity securities

  29,949   29,949   —   — 

Investment in Federal Home Loan Bank stock

  17,250   —   17,250   — 

Financial Liabilities

                

Deposits

  19,775,767   —   —   19,775,767 

Advances from Federal Home Loan Bank

  164,997   —   164,997   — 

Other borrowings

  15,339   —   —   15,339 

Long-term debt

  74,294   —   74,294   — 

 

  

As of December 31, 2023

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 
  

(In thousands)

 

Financial Assets

                

Cash and due from banks

 $173,988  $173,988  $—  $— 

Short-term investments

  654,813   654,813   —   — 

Loans held for investment, net

  19,605,152   —   —   19,605,152 

Equity securities

  40,406   40,406   —   — 

Investment in Federal Home Loan Bank stock

  17,746   —   17,746   — 

Financial Liabilities

                

Deposits

  19,347,070   —   —   19,347,070 

Advances from Federal Home Loan Bank

  536,996   —   536,996   — 

Other borrowings

  13,978   —   —   13,978 

Long-term debt

  72,304   —   72,304   —