Note 14 - Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

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.

Short-term and 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 March 31, 2020 and December 31, 2019:

	March 31, 2020				December 31, 2019
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial Assets
Cash and due from banks	$	136,350	$	136,350	$	177,240	$	177,240
Short-term investments		363,666		363,666		416,538		416,538
Securities available-for-sale		1,355,173		1,355,173		1,451,842		1,451,842
Loans, net		15,385,662		15,588,186		14,951,631		15,444,752
Equity securities		18,790		18,790		28,005		28,005
Investment in Federal Home Loan Bank stock		17,250		17,250		18,090		18,090
Warrants		24		24		39		39

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Foreign exchange contracts	$	110,465	$	1,157	$	146,397	$	2,411
Interest rate swaps		32,346		3,210		130,401		2,181

	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Liabilities
Deposits	$	15,090,150	$	15,133,137	$	14,692,308	$	14,719,452
Short-term borrowings		12,898		12,898		25,683		25,683
Advances from Federal Home Loan Bank		495,000		502,934		670,000		674,530
Other borrowings		36,697		31,323		36,666		30,764
Long-term debt		119,136		56,317		119,136		76,058

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Option contracts	$	2,496	$	14	$	908	$	7
Foreign exchange contracts		216,401		4,211		127,003		1,415
Interest rate swaps		713,337		32,304		602,291		14,229

	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	2,934,789	$	(9,176	)	$	3,077,081	$	(9,826	)
Standby letters of credit		261,096		(2,180	)		282,352		(2,431	)
Other letters of credit		19,878		(17	)		22,209		(20	)
Bill of lading guarantees		89		—			319		(1	)

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of March 31, 2020 and December 31, 2019.

	As of March 31, 2020
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	136,350	$	136,350	$	—	$	—
Short-term investments		363,666		363,666		—		—
Securities available-for-sale		1,355,173		—		1,355,173		—
Loans, net		15,588,186		—		—		15,588,186
Equity securities		18,790		18,790		—		—
Investment in Federal Home Loan Bank stock		17,250		—		17,250		—
Warrants		24		—		—		24
Financial Liabilities
Deposits		15,133,137		—		—		15,133,137
Short-term borrowings		12,898		—		—		12,898
Advances from Federal Home Loan Bank		502,934		—		502,934		—
Other borrowings		31,323		—		—		31,323
Long-term debt		56,317		—		56,317		—

	As of December 31, 2019
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	177,240	$	177,240	$	—	$	—
Short-term investments		416,538		416,538		—		—
Securities available-for-sale		1,451,842		74,936		1,376,906		—
Loans, net		15,444,752		—		—		15,444,752
Equity securities		28,005		28,005		—		—
Investment in Federal Home Loan Bank stock		18,090		—		18,090		—
Warrants		39		—		—		39
Financial Liabilities
Deposits		14,719,452		—		—		14,719,452
Short-term borrowings		25,683		—		—		25,683
Advances from Federal Home Loan Bank		674,530		—		674,530		—
Other borrowings		30,764		—		—		30,764
Long-term debt		76,058		—		76,058		—