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Note 12 - Fair Value Measurements and Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2025
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.

 

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 September 30, 2025, and December 31, 2024:

 

   

September 30, 2025

          
   

Fair Value Measurements Using

    

Total Fair Value

  
   

Level 1

    

Level 2

    

Level 3

    

Measurements

  
   

($ In thousands)

  

Assets

                                

Securities AFS

                                

U.S. Treasury securities

   $ 776,833     $ —     $ —     $ 776,833  

U.S. government agency entities

     —       6,860       —       6,860  

U.S. government sponsored entities

     —       25,005       —       25,005  

Mortgage-backed securities

     —       645,575       —       645,575  

Collateralized mortgage obligations

     —       23,302       —       23,302  

Corporate debt securities

     —       165,875       —       165,875  

Total securities AFS

     776,833       866,617       —       1,643,450  
                                 

Equity securities

                                

Mutual funds

     5,686       —       —       5,686  

Preferred stock of government sponsored entities

     10,278       —       —       10,278  

Other equity securities

     14,608       —       —       14,608  

Total equity securities

     30,572       —       —       30,572  
                                 

Interest rate swaps

     —       29,162       —       29,162  

Foreign exchange contracts

     —       321       —       321  

Total assets

   $ 807,405     $ 896,100     $ —     $ 1,703,505  
                                 

Liabilities

                                

Interest rate swaps

   $ —     $ 31,815     $ —     $ 31,815  

Foreign exchange contracts

     —       185       —       185  

Total liabilities

   $ —     $ 32,000     $ —     $ 32,000  

 

   

December 31, 2024

          
   

Fair Value Measurements Using

    

Total Fair Value

  
   

Level 1

    

Level 2

    

Level 3

    

Measurements

  
   

($ In thousands)

  

Assets

                                

Securities AFS

                                

U.S. Treasury securities

   $ 621,462     $ —     $ —     $ 621,462  

U.S. government agency entities

     —       9,149       —       9,149  

Mortgage-backed securities

     —       684,016       —       684,016  

Collateralized mortgage obligations

     —       24,556       —       24,556  

Corporate debt securities

     —       207,945       —       207,945  

Total securities AFS

     621,462       925,666       —       1,547,128  
                                 

Equity securities

                                

Mutual funds

     5,532       —       —       5,532  

Preferred stock of government sponsored entities

     7,287       —       —       7,287  

Other equity securities

     20,071       —       —       20,071  

Total equity securities

     32,890       —       —       32,890  
                                 

Interest rate swaps

     —       39,958       —       39,958  

Foreign exchange contracts

     —       490       —       490  

Total assets

   $ 654,352     $ 966,114     $ —     $ 1,620,466  
                                 

Liabilities

                                

Interest rate swaps

   $ —     $ 36,319     $ —     $ 36,319  

Foreign exchange contracts

     —       785       —       785  

Total liabilities

   $ —     $ 37,104     $ —     $ 37,104  

 

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 September 30, 2025, and December 31, 2024, 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 September 30, 2025, and December 31, 2024, 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 September 30, 2025, and December 31, 2024, and the total losses for the periods indicated:

 

   

As of September 30, 2025

    

Total Losses

  
   

Fair Value Measurements Using

    

Total Fair Value

    

For the Three Months Ended

    

For the Nine Months Ended

  
   

Level 1

    

Level 2

    

Level 3

    

Measurements

    

September 30, 2025

    

September 30, 2024

    

September 30, 2025

    

September 30, 2024

  
   

($ In thousands)

  

Assets

                                                                

Non-accrual loans by type:

                                                                

Commercial loans

   $ —     $ —     $ 5,741     $ 5,741     $ 9,028     $ 1,923     $ 9,115     $ 2,961  

Commercial real estate loans

     —       —       32,095       32,095       314       1,746       4,153       1,997  

Residential mortgage loans and equity lines

     —       —       222       222       —       59       —       59  

Total non-accrual loans

     —       —       38,058       38,058       9,342       3,728       13,268       5,017  

Other real estate owned (1)

     —       —       34,746       34,746       —       —       —       —  

Other equity securities

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

Investments in venture capital

     —       —       84       84       —       —       —       —  

Total assets

   $ —     $ —     $ 74,427     $ 74,427     $ 9,342     $ 3,728     $ 13,268     $ 5,017  
                                                                 

(1) Other real estate owned balance of $33.0 million in the Consolidated Balance Sheets is net of estimated disposal costs.

  

 

   

As of December 31, 2024

    

Total Losses

  
   

Fair Value Measurements Using

    

Total Fair Value

    

For the Twelve Months Ended

  
   

Level 1

    

Level 2

    

Level 3

    

Measurements

    

December 31, 2024

    

December 31, 2023

  
   

($ In thousands)

  

Assets

                                                

Non-accrual loans by type:

                                                

Commercial loans

   $ —     $ —     $ 10,896     $ 10,896     $ 5,654     $ —  

Commercial real estate loans

     —       —       15,320       15,320       4,049       4,069  

Residential mortgage loans and equity lines

     —       —       243       243       59       —  

Total non-accrual loans

     —       —       26,459       26,459       9,762       4,069  

Other real estate owned (1)

     —       —       24,126       24,126       —       —  

Other equity securities

     —       —       1,539       1,539       —       —  

Investments in venture capital

     —       —       86       86       147       227  

Total assets

   $ —     $ —     $ 52,210     $ 52,210     $ 9,909     $ 4,296  
                                                 

(1) Other real estate owned balance of $23.1 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, 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 of 5% 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 September 30, 2025, and December 31, 2024:

 

   

September 30, 2025

    

December 31, 2024

  
   

Carrying

            

Carrying

          
   

Amount

    

Fair Value

    

Amount

    

Fair Value

  
   

($ In thousands)

  

Financial Assets

                                

Cash and due from banks

   $ 166,167     $ 166,167     $ 157,167     $ 157,167  

Short-term investments

     1,141,886       1,141,886       882,353       882,353  

Securities AFS

     1,643,450       1,643,450       1,547,128       1,547,128  

Loans held for investment, net

     19,903,082       20,447,466       19,203,649       19,500,647  

Equity securities

     32,111       32,111       34,429       34,429  

Investment in Federal Home Loan Bank stock

     17,250       17,250       17,250       17,250  

 

   

Notional

            

Notional

          
   

Amount

    

Fair Value

    

Amount

    

Fair Value

  

Foreign exchange contracts

   $ 114,395     $ 321     $ 62,794     $ 490  

Interest rate swaps

     1,064,539       29,162       1,065,580       39,958  

 

   

Carrying

            

Carrying

          
   

Amount

    

Fair Value

    

Amount

    

Fair Value

  

Financial Liabilities

                                

Deposits

   $ 20,521,149     $ 20,506,029     $ 19,686,199     $ 19,670,327  

Advances from Federal Home Loan Bank

     190,000       189,312       60,000       59,606  

Other borrowings

     17,628       15,338       17,740       15,281  

Long-term debt

     119,136       78,627       119,136       73,752  

 

   

Notional

            

Notional

          
   

Amount

    

Fair Value

    

Amount

    

Fair Value

  

Foreign exchange contracts

   $ 122,381     $ 185     $ 171,945     $ 785  

Interest rate swaps

     1,542,988       31,815       1,198,471       36,319  

 

   

Notional

            

Notional

          
   

Amount

    

Fair Value

    

Amount

    

Fair Value

  

Off-Balance Sheet Financial Instruments

                                

Commitments to extend credit

   $ 3,670,598     $ (18,620 )   $ 3,470,296     $ (18,226 )

Standby letters of credit

     510,886       (3,225 )     439,769       (2,900 )

Other letters of credit

     6,452       (7 )     12,347       (14 )

 

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, 2025, and December 31, 2024, excluding financial instruments recorded at fair value on a recurring basis already presented in other tables in this note:

 

   

As of September 30, 2025

  
   

Fair Value

    

Level 1

    

Level 2

    

Level 3

  
   

($ In thousands)

  

Financial Assets

                                

Cash and due from banks

   $ 166,167     $ 166,167     $ —     $ —  

Short-term investments

     1,141,886       1,141,886       —       —  

Loans held for investment, net

     20,447,466       —       —       20,447,466  

Equity securities

     1,539       —       —       1,539  

Investment in Federal Home Loan Bank stock

     17,250       —       17,250       —  

Financial Liabilities

                                

Deposits

     20,506,029       —       —       20,506,029  

Advances from Federal Home Loan Bank

     189,312       —       189,312       —  

Other borrowings

     15,338       —       —       15,338  

Long-term debt

     78,627       —       78,627       —  

 

   

As of December 31, 2024

  
   

Fair Value

    

Level 1

    

Level 2

    

Level 3

  
   

($ In thousands)

  

Financial Assets

                                

Cash and due from banks

   $ 157,167     $ 157,167     $ —     $ —  

Short-term investments

     882,353       882,353       —       —  

Loans held for investment, net

     19,500,647       —       —       19,500,647  

Equity securities

     1,539       —       —       1,539  

Investment in Federal Home Loan Bank stock

     17,250       —       17,250       —  

Financial Liabilities

                                

Deposits

     19,670,327       —       —       19,670,327  

Advances from Federal Home Loan Bank

     59,606       —       59,606       —  

Other borrowings

     15,281       —       —       15,281  

Long-term debt

     73,752       —       73,752       —