Note 15 - Fair Value Measurements

12 Months Ended

Dec. 31, 2019

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, 2019 and December 31, 2018, 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, 2019, and at December 31, 2018:

As of December 31, 2019	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	$	74,936	$	—	$	—	$	74,936
U.S. government agency entities		—		90,796		—		90,796
U.S. government sponsored entities		—		224,443		—		224,443
Mortgage-backed securities		—		887,790		—		887,790
Collateralized mortgage obligations		—		552		—		552
Corporate debt securities		—		173,325		—		173,325
Total securities available-for-sale		74,936		1,376,906		—		1,451,842
Equity securities
Mutual funds		6,277		—		—		6,277
Preferred stock of government sponsored entities		10,529		—		—		10,529
Other equity securities		11,199		—		—		11,199
Total equity securities		28,005		—		—		28,005
Warrants		—		—		39		39
Interest rate swaps		—		2,181		—		2,181
Foreign exchange contracts		—		2,411		—		2,411
Total assets	$	102,941	$	1,381,498	$	39	$	1,484,478
Liabilities
Option contracts	$	—	$	7	$	—	$	7
Interest rate swaps		—		14,229		—		14,229
Foreign exchange contracts		—		1,415		—		1,415
Total liabilities	$	—	$	15,651	$	—	$	15,651

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

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the balance sheet at December 31, 2019 and 2018, 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, 2019, and at December 31, 2018, and the total losses for the periods indicated:

	As of December 31, 2019								Total Losses/(Gains)
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2019		December 31, 2018
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	—	$	—	$	6,196	$	6,196	$	—	$	—
Commercial mortgage loans		—		—		25,566		25,566		—		—
Residential mortgage and equity lines		—		—		5,320		5,320		—		—
Total impaired loans		—		—		37,082		37,082		—		—
Other real estate owned (1)		—		6,490		4,343		10,833		681		(619	)
Investments in venture capital		—		—		1,604		1,604		167		330
Total assets	$	—	$	6,490	$	43,029	$	49,519	$	848	$	(289	)

(1) Other real estate owned balance of $10.2 million in the Consolidated Balance Sheets is net of estimated disposal costs.

	As of December 31, 2018								Total Losses/(Gains)
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		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.

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 on an annual basis. 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 2018 reported period, collateral discounts ranged from 55% in the case of accounts receivable collateral to 65% in the case of inventory collateral. In the current year, the Company began using borrower specific collateral discounts with various discount levels.

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 one to five years, risk-free interest rate from 1.72% to 1.86%, and stock volatility of the Company from 13.76% to 17.36%.