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Note 14 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

14. Fair Value of Financial Instruments

The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Short-term Investments and interest-bearing deposits - For short-term investments and interest-bearing deposits, the carrying amount is assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Securities Available for Sale - For certain U.S. Treasury 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.

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. Equity securities are comprised of mutual funds, preferred stock of government-sponsored entities and other equity securities.

Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair values are based primarily on third-party vendor pricing to determine fair values based on the exit price notion.

The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 measurement.

The fair value of impaired 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 impaired loans are recorded based on the current appraised value or adjusted appraised value of the collateral, a Level 2 or Level 3 measurement.

Loans Held-for-Sale – The Company records loans held for sale at fair value based on quoted prices from third party sale analysis, existing sale agreements, or appraisal reports adjusted by sales commission assumption, a Level 3 measurement.

FHLB Stock - These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Deposit Liabilities - The fair value of demand deposits, savings accounts, and certain money market deposits is assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities, a Level 3 measurement.

Advances from FHLB - The fair value of the advances is based on quotes from the FHLB to settle the advances, a Level 2 measurement.

Other Borrowings - This category includes borrowings from other financial institutions. The fair value of other borrowings is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Long-term Debt - The fair value of long-term debt is estimated based on the quoted market prices or dealer quotes, a Level 2 measurement.

Currency Option and Foreign Exchange Contracts - The Company measures the fair value of currency option and foreign exchange contracts based on dealer quotes, a Level 2 measurement.

Interest Rate Swaps - Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.

Off-Balance-Sheet Financial Instruments - The fair value of commitments to extend credit, standby letters of credit, and financial guarantees written is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of off-balance-sheet financial instruments is based on the assumptions that a market participant would use, a Level 3 measurement.

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, 2019 and December 31, 2018:

		September 30, 2019								December 31, 2018
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
		(In thousands)
Financial Assets
Cash and due from banks		$	257,189			$	257,189			$	225,333			$	225,333
Short-term investments			567,957				567,957				374,957				374,957
Securities available-for-sale			1,427,438				1,427,438				1,242,509				1,242,509
Loans held-for-sale			36,778				36,778				—				—
Loans, net			14,601,565				15,004,114				13,871,832				13,928,162
Equity securities			32,862				32,862				25,098				25,098
Investment in Federal Home Loan Bank stock			17,250				17,250				17,250				17,250
Warrants			31				31				184				184

		Notional								Notional
		Amount				Fair Value				Amount				Fair Value
Foreign exchange contracts		$	70,955			$	965			$	86,875			$	397
Interest rate swaps			139,466				1,697				467,410				7,810


		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Financial Liabilities
Deposits		$	14,658,269			$	14,703,977			$	13,702,340			$	13,754,028
Advances from Federal Home Loan Bank			600,000				603,014				530,000				529,500
Other borrowings			38,369				31,844				35,756				34,031
Long-term debt			160,386				113,409				189,448				132,615


		Notional								Notional
		Amount				Fair Value				Amount				Fair Value
Option contracts		$	1,172			$	6			$	1,215			$	6
Foreign exchange contracts			121,769				2,435				94,977				1,763
Interest rate swaps			581,496				17,734				265,166				1,543


		Notional								Notional
		Amount				Fair Value				Amount				Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit		$	3,097,207			$	(9,291	)		$	2,691,579			$	(8,843	)
Standby letters of credit			264,059				(2,537	)			245,087				(2,662	)
Other letters of credit			29,230				(28	)			35,759				(30	)
Bill of lading guarantees			743				—				730				—

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, 2019, and December 31, 2018.

		As of September 30, 2019
		Estimated
		Fair Value
		Measurements				Level 1				Level 2				Level 3
		(In thousands)
Financial Assets
Cash and due from banks		$	257,189			$	257,189			$	—			$	—
Short-term investments			567,957				567,957				—				—
Securities available-for-sale			1,427,438				—				1,427,438				—
Loans held-for-sale			36,778				—				—				36,778
Loans, net			15,004,114				—				—				15,004,114
Equity securities			32,862				32,862				—				—
Investment in Federal Home Loan Bank stock			17,250				—				17,250				—
Warrants			31				—				—				31
Financial Liabilities
Deposits			14,703,977				—				—				14,703,977
Advances from Federal Home Loan Bank			603,014				—				603,014				—
Other borrowings			31,844				—				—				31,844
Long-term debt			113,409				—				113,409				—

		As of December 31, 2018
		Estimated
		Fair Value
		Measurements				Level 1				Level 2				Level 3
		(In thousands)
Financial Assets
Cash and due from banks		$	225,333			$	225,333			$	—			$	—
Short-term investments			374,957				374,957				—				—
Securities available-for-sale			1,242,509				124,751				1,117,758				—
Loans, net			13,928,162				—				—				13,928,162
Equity securities			25,098				25,098				—				—
Investment in Federal Home Loan Bank stock			17,250				—				17,250				—
Warrants			184				—				—				184
Financial Liabilities
Deposits			13,754,028				—				—				13,754,028
Advances from Federal Home Loan Bank			529,500				—				529,500				—
Other borrowings			34,031				—				—				34,031
Long-term debt			132,615				—				132,615				—

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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