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Note 7 - FAIR VALUE | 9 Months Ended
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Sep. 30, 2023
FAIR VALUE |
FAIR VALUE | ​ NOTE 7 – FAIR VALUE ​ Accounting guidance on fair value measurement uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:
| ● | Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;
| ● | Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
| ● | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Assets and liabilities measured at fair value on a recurring basis comprise the following at September 30, 2023 and December 31, 2022: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements at Reporting Date Using
​ | ​ | ​ | ​ | ​ | Quoted Prices | ​ | Significant | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | in Active | ​ | Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | Markets for | ​ | Observable | ​ | Unobservable
​ | ​ | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs
​ |  | Fair Value |  | (Level 1) |  | (Level 2) |  | (Level 3)
​ | ​ | (dollars in thousands)
September 30, 2023: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Securities AFS: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
U.S. treasuries and govt. sponsored agency securities | ​ | $ | 16,002 | ​ | $ | — | ​ | $ | 16,002 | ​ | $ | —
Residential mortgage-backed and related securities | ​ |  | 57,946 | ​ |  | — | ​ |  | 57,946 | ​ |  | —
Municipal securities | ​ |  | 149,772 | ​ |  | — | ​ |  | 149,772 | ​ |  | —
Asset-backed securities | ​ | ​ | 16,326 | ​ | ​ | — | ​ | ​ | 16,326 | ​ | ​ | —
Other securities | ​ |  | 41,233 | ​ |  | — | ​ |  | 41,233 | ​ |  | —
Derivatives | ​ |  | 291,295 | ​ |  | — | ​ |  | 291,295 | ​ |  | —
Total assets measured at fair value | ​ | $ | 572,574 | ​ | $ | — | ​ | $ | 572,574 | ​ | $ | —
​ | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Derivatives | ​ | $ | 320,220 | ​ | $ | — | ​ | $ | 320,220 | ​ | $ | —
Total liabilities measured at fair value | ​ | $ | 320,220 | ​ | $ | — | ​ | $ | 320,220 | ​ | $ | —
​ | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
​ | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
December 31, 2022: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Securities AFS: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
U.S. govt. sponsored agency securities | ​ | $ | 16,981 | ​ | $ | — | ​ | $ | 16,981 | ​ | $ | —
Residential mortgage-backed and related securities | ​ |  | 66,215 | ​ |  | — | ​ |  | 66,215 | ​ |  | —
Municipal securities | ​ |  | 193,178 | ​ |  | — | ​ |  | 193,178 | ​ |  | —
Asset-backed securities | ​ | ​ | 18,728 | ​ | ​ | — | ​ | ​ | 18,728 | ​ | ​ | —
Other securities | ​ |  | 45,858 | ​ |  | — | ​ |  | 45,858 | ​ |  | —
Derivatives | ​ |  | 177,631 | ​ |  | — | ​ |  | 177,631 | ​ |  | —
Total assets measured at fair value | ​ | $ | 518,591 | ​ | $ | — | ​ | $ | 518,591 | ​ | $ | —
​ | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Derivatives | ​ | $ | 200,701 | ​ | $ | — | ​ | $ | 200,701 | ​ | $ | —
Total liabilities measured at fair value | ​ | $ | 200,701 | ​ | $ | — | ​ | $ | 200,701 | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ The securities AFS portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs). Interest rate caps, swaps and collars are used for the purpose of hedging interest rate risk on various financial assets and liabilities, further described in Note 4 to the Consolidated Financial Statements. Interest rate swaps are also executed for select commercial customers. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level 2 inputs). Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when a loan/lease is collaterally dependent). Assets measured at fair value on a non-recurring basis comprised the following at September 30, 2023 and December 31, 2022: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Fair Value Measurements at Reporting Date Using
​ | ​ | ​ | ​ | ​ | Quoted Prices | ​ | Significant | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | in Active | ​ | Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | Markets for | ​ | Observable | ​ | Unobservable
​ | ​ | ​ | ​ | ​ | Identical Assets | ​ | Inputs | ​ | Inputs
​ |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
September 30, 2023: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Loans/leases evaluated individually | ​ | $ | 35,197 | ​ | $ | — | ​ | $ | — | ​ | $ | 35,197
Loans receivable held for sale in preparation for securitization | ​ | ​ | 277,995 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 277,995
OREO | ​ |  | 120 | ​ |  | — | ​ |  | — | ​ |  | 120
​ | ​ | $ | 313,312 | ​ | $ | — | ​ | $ | — | ​ | $ | 313,312
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
December 31, 2022: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Loans/leases evaluated individually | ​ | $ | 30,765 | ​ | $ | — | ​ | $ | — | ​ | $ | 30,765
OREO | ​ |  | 144 | ​ |  | — | ​ |  | — | ​ |  | 144
​ | ​ | $ | 30,909 | ​ | $ | — | ​ | $ | — | ​ | $ | 30,909
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ Loans/leases evaluated individually are valued at the lower of cost or fair value and are classified as Level 3 in the fair value hierarchy. Fair value is measured based on the value of the collateral securing these loans/leases. Collateral may be comprised of real estate and/or business assets, including equipment, inventory and/or accounts receivable, and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values are discounted based on management's historical knowledge, changes in market conditions from the time of valuation, and/or management's expertise and knowledge of the client and client's business. Loans receivable held for sale in preparation for securitization are valued at the lower of cost or fair value in the aggregate by type and are classified as Level 3 in the fair value hierarchy. Fair value is estimated considering the loans have a floating interest rate with a spread that is commensurate with current market pricing, in addition to factoring in a discount for credit risk. OREO in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy. The estimated fair value of the property are generally determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property. The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Quantitative Information about Level Fair Value Measurements |
​ | ​ | Fair Value | ​ | Fair Value | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
​ | ​ | September 30, | ​ | December 31, | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
​ |  | 2023 |  | 2022 |  | Valuation Technique |  | Unobservable Input |  | Range | ​
​ | ​ | (dollars in thousands) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Loans/leases evaluated individually | ​ | $ | 35,197 | ​ | $ | 30,765 |  | Appraisal of collateral |  | Appraisal adjustments |  | -10.00 | % | to |  | -30.00 | %
Loans receivable held for sale in preparation for securitization | ​ | ​ | 277,995 | ​ | ​ | — | ​ | Market prices for similar loans | ​ | Market price adjustments | ​ | ​ | ​ | n/a | ​ | ​ | ​
OREO | ​ |  | 130 | ​ |  | 144 |  | Appraisal of collateral |  | Appraisal adjustments |  | 0.00 | % | to |  | -35.00 | %
​ For the loans/leases evaluated individually, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs. For the loans receivable held for sale in preparation for securitization, the Company records carrying value at fair value factoring in a discount for credit risk. There have been no changes in valuation techniques used for any assets or liabilities measured at fair value during the three and nine months ended September 30, 2023 and 2022. The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company's consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value | ​ | As of September 30, 2023 | ​ | As of December 31, 2022
​ | ​ | Hierarchy | ​ | Carrying | ​ | Estimated | ​ | Carrying | ​ | Estimated
​ |  | Level |  | Value |  | Fair Value |  | Value |  | Fair Value
​ | ​ | ​ | ​ | (dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and due from banks |  | Level 1 | ​ | $ | 104,265 | ​ | $ | 104,265 | ​ | $ | 59,723 | ​ | $ | 59,723
Federal funds sold |  | Level 2 | ​ |  | 20,300 | ​ |  | 20,300 | ​ |  | 56,910 | ​ |  | 56,910
Interest-bearing deposits at financial institutions |  | Level 2 | ​ |  | 60,350 | ​ |  | 60,350 | ​ |  | 67,360 | ​ |  | 67,360
Investment securities: |  |  | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​
HTM |  | Level 2 | ​ |  | 615,115 | ​ |  | 524,819 | ​ |  | 587,142 | ​ |  | 535,636
AFS |  | Level 2 | ​ |  | 281,279 | ​ |  | 281,279 | ​ |  | 340,960 | ​ |  | 340,960
Loans/leases receivable, net |  | Level 3 | ​ |  | 310,585 | ​ |  | 313,192 | ​ |  | 28,486 | ​ |  | 30,765
Loans/leases receivable, net |  | Level 2 | ​ |  | 6,208,053 | ​ |  | 5,907,226 | ​ |  | 6,022,679 | ​ |  | 5,896,443
Derivatives |  | Level 2 | ​ |  | 291,295 | ​ |  | 291,295 | ​ |  | 177,631 | ​ |  | 177,631
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits: |  |  | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​
Nonmaturity deposits |  | Level 2 | ​ |  | 5,522,283 | ​ |  | 5,522,283 | ​ |  | 5,199,633 | ​ |  | 5,199,633
Time deposits |  | Level 2 | ​ |  | 972,569 | ​ |  | 966,026 | ​ |  | 784,584 | ​ |  | 766,294
Short-term borrowings |  | Level 2 | ​ |  | 470 | ​ |  | 470 | ​ |  | 129,630 | ​ |  | 129,630
FHLB advances |  | Level 2 | ​ |  | 430,000 | ​ |  | 429,450 | ​ |  | 415,000 | ​ |  | 415,000
Subordinated notes | ​ | Level 2 | ​ | ​ | 232,958 | ​ | ​ | 249,002 | ​ | ​ | 232,662 | ​ | ​ | 250,613
Junior subordinated debentures |  | Level 2 | ​ |  | 48,698 | ​ |  | 40,204 | ​ |  | 48,602 | ​ |  | 41,545
Derivatives |  | Level 2 | ​ |  | 320,220 | ​ |  | 320,220 | ​ |  | 200,701 | ​ |  | 200,701
​

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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