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Note 8 - FAIR VALUE

3 Months Ended

Mar. 31, 2024

NOTE 8 – 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:

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Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;

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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

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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 March 31, 2024 and December 31, 2023:


					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)
March 31, 2024:
Securities AFS:
U.S. treasuries and govt. sponsored agency securities		$	14,442		$	—		$	14,442		$	—
Residential mortgage-backed and related securities			56,071			—			56,071			—
Municipal securities			166,693			—			166,693			—
Asset-backed securities			14,285			—			14,285			—
Other securities			39,489			—			39,489			—
Securities trading			22,258			—			—			22,258
Derivatives			183,888			—			183,888			—
Total assets measured at fair value		$	497,126		$	—		$	474,868		$	22,258

Derivatives		$	211,677		$	—		$	211,677		$	—
Total liabilities measured at fair value		$	211,677		$	—		$	211,677		$	—


December 31, 2023:
Securities AFS:
U.S. govt. sponsored agency securities		$	14,973		$	—		$	14,973		$	—
Residential mortgage-backed and related securities			59,196			—			59,196			—
Municipal securities			170,987			—			170,987			—
Asset-backed securities			15,423			—			15,423			—
Other securities			39,076			—			39,076			—
Securities trading			22,369			—			—			22,369
Derivatives			187,341			—			187,341			—
Total assets measured at fair value		$	509,365		$	—		$	486,996		$	22,369

Derivatives		$	215,735		$	—		$	215,735		$	—
Total liabilities measured at fair value		$	215,735		$	—		$	215,735		$	—

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, SOFR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).

Trading securities consist of retained beneficial interests from securitizations and are classified as a Level 3 in the fair value hierarchy. Fair values are estimated using the discounted cash flow method, including discount rates which are deemed to be significant unobservable inputs. As of March 31, 2024, the discount rates ranged from 5.84% to 7.55%.

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 March 31, 2024 and December 31, 2023:


					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)

March 31, 2024:
Loans/leases evaluated individually		$	33,949		$	—		$	—		$	33,949
Loans receivable held for sale in preparation for securitization			274,816			—			—			274,816
OREO			847			—			—			847
Other repossessed assets			1,082			—			—			1,082
		$	310,694		$	—		$	—		$	310,694

December 31, 2023:
Loans/leases evaluated individually		$	33,656		$	—		$	—		$	33,656
OREO			1,455			—			—			1,455
		$	35,111		$	—		$	—		$	35,111

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 settlement 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 acquired is 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.

Other repossessed assets in the table above consists of equipment acquired through repossession and settlement 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 acquired is generally determined based on current average auction prices database used by a national auction company hired by the Company.

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
		March 31,			December 31,
		2024			2023			Valuation Technique		Unobservable Input		Range

		(dollars in thousands)

Loans/leases evaluated individually		$	33,949		$	33,656		Appraisal of collateral		Appraisal adjustments		-10.00	%	to		-30.00	%
Loans receivable held for sale in preparation for securitization			274,816			—		Market prices for similar loans		Market price adjustments				n/a
OREO			847			1,455		Appraisal of collateral		Appraisal adjustments		0.00	%	to		-35.00	%
Other repossessed assets			1,082			—		Average auction prices		Market price adjustments				n/a

For the loans/leases evaluated individually and OREO, 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 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 months ended March 31, 2024 and 2023.

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 March 31, 2024						As of December 31, 2023
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value

				(dollars in thousands)

Cash and due from banks		Level 1		$	80,988		$	80,988		$	97,123		$	97,123
Federal funds sold		Level 2			4,150			4,150			35,450			35,450
Interest-bearing deposits at financial institutions		Level 2			72,870			72,870			104,919			104,919
Investment securities:
HTM		Level 2			718,623			696,170			683,504			680,279
AFS		Level 2			290,980			290,980			299,655			299,655
Trading		Level 3			22,258			22,258			22,369			22,369
Loans/leases receivable, net		Level 3			31,434			33,949			31,163			33,656
Loans/leases receivable, net		Level 2			6,532,432			6,255,402			6,425,053			6,125,433
Derivatives		Level 2			183,888			183,888			187,341			187,341

Deposits:
Nonmaturity deposits		Level 2			5,669,912			5,669,912			5,504,323			5,504,323
Time deposits		Level 2			1,136,863			1,129,488			1,009,682			996,746
Short-term borrowings		Level 2			2,700			2,700			1,500			1,500
FHLB advances		Level 2			205,000			205,962			435,000			437,178
Subordinated notes		Level 2			233,170			239,256			233,064			240,235
Junior subordinated debentures		Level 2			48,763			40,567			48,731			40,397
Derivatives		Level 2			211,677			211,677			215,735			215,735

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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