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Note 14 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 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 September 30, 2020 and December 31, 2019:

		September 30, 2020								December 31, 2019
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
		(In thousands)
Financial Assets
Cash and due from banks		$	128,896			$	128,896			$	177,240			$	177,240
Short-term investments			1,305,170				1,305,170				416,538				416,538
Securities available-for-sale			1,080,540				1,080,540				1,451,842				1,451,842
Loans, net			15,382,439				16,030,529				14,951,631				15,444,752
Equity securities			22,964				22,964				28,005				28,005
Investment in Federal Home Loan Bank stock			17,250				17,250				18,090				18,090
Warrants			20				20				39				39

			Notional								Notional
			Amount				Fair Value				Amount				Fair Value
Foreign exchange contracts			$	107,071			$	3,236			$	146,397			$	2,411
Interest rate swaps				72,717				3,992				130,401				2,181

		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Financial Liabilities
Deposits		$	16,034,248			$	16,061,257			$	14,692,308			$	14,719,452
Short-term borrowings			—				—				25,683				25,683
Advances from Federal Home Loan Bank			230,000				238,509				670,000				674,530
Other borrowings			23,788				19,550				36,666				30,764
Long-term debt			119,136				64,296				119,136				76,058

			Notional								Notional
			Amount				Fair Value				Amount				Fair Value
Option contracts			$	850			$	6			$	908			$	7
Foreign exchange contracts				160,489				1,592				127,003				1,415
Interest rate swaps				686,785				31,525				602,291				14,229

		Notional								Notional
		Amount				Fair Value				Amount				Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit		$	3,033,685			$	(8,847	)		$	3,077,081			$	(9,826	)
Standby letters of credit			255,173				(1,647	)			282,352				(2,431	)
Other letters of credit			24,591				(21	)			22,209				(20	)
Bill of lading guarantees			221				—				319				(1	)

The following tables set forth the level in the fair value hierarchy for the estimated fair values of financial instruments as of September 30, 2020 and December 31, 2019.

		As of September 30, 2020
		Estimated
		Fair Value
		Measurements				Level 1				Level 2				Level 3
		(In thousands)
Financial Assets
Cash and due from banks		$	128,896			$	128,896			$	—			$	—
Short-term investments			1,305,170				1,305,170				—				—
Securities available-for-sale			1,080,540				99,980				980,560				—
Loans, net			16,030,529				—				—				16,030,529
Equity securities			22,964				22,964				—				—
Investment in Federal Home Loan Bank stock			17,250				—				17,250				—
Warrants			20				—				—				20
Financial Liabilities
Deposits			16,061,257				—				—				16,061,257
Advances from Federal Home Loan Bank			238,509				—				238,509				—
Other borrowings			19,550				—				—				19,550
Long-term debt			64,296				—				64,296				—

		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				—

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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