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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2023

Schedule of fair value assets and liabilities measured on recurring basis

The following presents assets and liabilities measured on a recurring basis as of the dates noted (dollars in thousands):


June 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Reported Balance
Financial Assets
Mortgage loans held for sale	$	—	$	19,746	$	—	$	19,746
Loans held at fair value	$	—	$	—	$	17,523	$	17,523
Forward commitments and FSC	$	—	$	233	$	—	$	233
Equity securities	$	627	$	122	$	—	$	749
Guarantee asset	$	—	$	—	$	166	$	166
IRLC, net	$	—	$	—	$	453	$	453
Equity warrants	$	—	$	—	$	825	$	825
Swap derivative asset	$	—	$	729	$	—	$	729
Financial Liabilities

Swap derivative liabilities	$	—	$	45	$	—	$	45


December 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Reported Balance
Financial Assets
Mortgage loans held for sale	$	—	$	8,839	$	—	$	8,839
Loans held for sale	$	1,965	$	—	$	—	$	1,965
Loans held at fair value	$	—	$	—	$	23,321	$	23,321
Forward commitments and FSC	$	—	$	46	$	—	$	46
Equity securities	$	627	$	122	$	—	$	749
Guarantee asset	$	—	$	—	$	143	$	143
IRLC, net	$	—	$	—	$	229	$	229
Equity warrants	$	—	$	—	$	825	$	825

Schedule of loans measured at fair value under fair value option


	June 30, 2023
	Total Loans						Non Accruals						90 Days or More Past Due
	Fair Value Carrying Amount		Unpaid Principal Balance		Difference		Fair Value Carrying Amount		Unpaid Principal Balance		Difference		Fair Value Carrying Amount		Unpaid Principal Balance		Difference
Mortgage loans held for sale	$	19,746	$	19,529	$	217	$	—	$	—	$	—	$	—	$	—	$	—

Loans held for investment	17,523		18,274		(751)		148		157		(9)		148		157		(9)
	$	37,269	$	37,803	$	(534)	$	148	$	157	$	(9)	$	148	$	157	$	(9)


	December 31, 2022
	Total Loans						Non Accruals						90 Days or More Past Due
	Fair Value Carrying Amount		Unpaid Principal Balance		Difference		Fair Value Carrying Amount		Unpaid Principal Balance		Difference		Fair Value Carrying Amount		Unpaid Principal Balance		Difference
Mortgage loans held for sale	$	8,839	$	8,750	$	89	$	—	$	—	$	—	$	—	$	—	$	—
Loans held for sale	1,965		1,984		(19)		—		—		—		—		—		—
Loans held for investment	23,321		23,415		(94)		139		140		(1)		139		140		(1)
	$	34,125	$	34,149	$	(24)	$	139	$	140	$	(1)	$	139	$	140	$	(1)

Schedule of changes in fair value of loans

The following presents the changes in fair value of loans accounted for under the fair value option as of the dates noted (dollars in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Mortgage loans held for sale	$	60	$	(1,086)	$	128	$	(419)
Loans held for sale	—		—		(20)		—
Loans held for investment	(507)		328		(657)		328
	$	(447)	$	(758)	$	(549)	$	(91)

The following summarizes the activity pertaining to loans accounted for under the fair value option as of the dates noted (dollars in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
Mortgage loans held for sale	2023		2022		2023		2022
Balance at beginning of period	$	9,873	$	33,663	$	8,839	$	30,620
Loans originated	97,117		279,412		151,189		470,494
Fair value changes	59		(1,086)		128		(419)
Sales	(87,303)		(285,777)		(140,403)		(474,443)
Settlements	—		(10)		(7)		(50)
Balance at end of period	$	19,746	$	26,202	$	19,746	$	26,202


	Three Months Ended June 30,				Six Months Ended June 30,
Loans held for sale	2023		2022		2023		2022
Balance at beginning of period	$	—	$	—	$	1,965	$	—
Loans transferred from held for investment	—		—		39,221		—
Fair value changes	—		—		(20)		—
Sales	—		—		(40,761)		—
Settlements	—		—		(405)		—
Balance at end of period	$	—	$	—	$	—	$	—


	Three Months Ended June 30,				Six Months Ended June 30,
Loans held for investment	2023		2022		2023		2022
Balance at beginning of period	$	20,807	$	6,380	$	23,321	$	—
Loans acquired	—		17,869		1,162		24,249
Fair value changes	(507)		328		(657)		328
Net charge-offs	(617)		—		(1,009)		—
Settlements	(2,160)		(3,100)		(5,294)		(3,100)
Balance at end of period	$	17,523	$	21,477	$	17,523	$	21,477

Summary of assets measured at fair value on nonrecurring basis

The following presents assets measured on a nonrecurring basis as of the dates noted (dollars in thousands):


June 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Reported Balance
Collateral dependent loans:
Commercial and Industrial	$	—	$	—	$	6,744	$	6,744

Summary of assets and liability for level 3 instruments measured at fair value on recurring basis

The following presents a reconciliation for Level 3 instruments measured at fair value on a recurring basis as of the dates noted (dollars in thousands):


Three Months Ended June 30, 2023	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	20,807	$	—	$	235	$	723	$	825
Acquisitions	—		—		—		—		454		—
Originations	—		—		—		9		(692)		—

Gains/(losses) in net income, net	—		(507)		—		(78)		(32)		—
Settlements	—		(2,777)		—		—		—		—
Ending balance	$	—	$	17,523	$	—	$	166	$	453	$	825


Three Months Ended June 30, 2022	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	6,215	$	6,380	$	—	$	206	$	990	$	402
Acquisitions	—		17,869		—		—		1,083		—
Originations	—		—		—		—		(2,063)		—
Gains/(losses) in net income, net	—		328		—		(32)		826		323
Transfer to held-to-maturity	(6,215)		—		—		—		—		—
Settlements	—		(3,100)		—		—		—		—
Ending balance	$	—	$	21,477	$	—	$	174	$	836	$	725


Six Months Ended June 30, 2023	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	23,321	$	—	$	143	$	229	$	825
Acquisitions	—		1,162		—		—		1,340		—
Originations	—		—		—		14		(2,178)		—

Gains/(losses) in net income, net	—		(657)		—		9		1,062		—


Settlements	—		(6,303)		—		—		—		—
Ending balance	$	—	$	17,523	$	—	$	166	$	453	$	825


Six Months Ended June 30, 2022	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	2,113	$	—	$	(9)	$	237	$	1,473	$	160
Acquisitions	4,000		24,249		9		—		2,697		242
Originations	—		—		—		—		(3,417)		—
Gains/(losses) in net income, net	—		328		—		(63)		83		323
Unrealized gains, net	102		—		—		—		—		—
Transfer to held-to-maturity	(6,215)		—		—		—		—		—
Settlements	—		(3,100)		—		—		—		—
Ending balance	$	—	$	21,477	$	—	$	174	$	836	$	725

Summary of assets and liabilities measured at fair value on a recurring or nonrecurring, the significant unobservable inputs

The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of the dates noted (dollars in thousands):

Quantitative Information about Level 3 Fair Value Measurements as of June 30, 2023

Fair Value

Valuation
Technique

Significant
Unobservable Input

Range
(Weighted Average)

Recurring fair value

Loans held for investment at fair value

17,523

Discounted cash flow

Discount rate

8% to 9% (8%)

Guarantee asset

166

Discounted cash flow

Discount rate
Prepayment rate

5% (5%)

IRLC, net

453

Best execution model

Pull through

54% to 100% (90%)

Equity warrants

825

Black-Scholes option pricing model

Volatility
Risk-free interest rate
Remaining life

32.7% to 88.9% (43.6%)

4.59% (4.59%)

0 to 3 years

Nonrecurring fair value

Collateral dependent loans:

Commercial and Industrial

6,575

Credit enhancement - guarantee asset value

Market rate adjustments

44% (27%)

Commercial and Industrial

169

Sales comparison,
Market approach -
guideline transaction
method

Loss given default

35% to 61% (50)%

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2022

Fair Value

Valuation
Technique

Significant
Unobservable Input

Range
(Weighted Average)

Recurring fair value

Loans held for investment at fair value

23,321

Discounted cash flow

Discount rate

4% to 18%

(8)%

Guarantee asset

143

Discounted cash flow

Discount rate
Prepayment rate

5% (5%)

4% (4%)

IRLC, net

229

Best execution model

Pull through

73% to 100%

(91%)

Equity warrants

825

Black-Scholes option pricing model

Volatility
Risk-free interest rate
Remaining life

32.7% to 88.9% (34.8%)

4.04% to 4.14% (4.05%)

0 to 4 years

Summary of carrying amounts and estimated fair values of financial instruments

The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of the dates noted (dollars in thousands):


	Carrying Amount		Fair Value Measurements Using:
June 30, 2023			Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	297,568	$	297,568	$	—	$	—
Held-to-maturity securities, net of ACL	77,469		237		61,516		7,798
Loans, net(1)	2,456,015		—		—		2,370,315
Accrued interest receivable	11,135		11,135		—		—
Liabilities:
Deposits	2,375,394		1,999,248		—		392,455
Borrowings:
FHLB borrowings – fixed rate	308,364		—		308,316		—
Federal Reserve borrowings – fixed rate	4,236		4,236		—		—
Subordinated notes – fixed-to-floating rate	52,223		—		—		55,794
Accrued interest payable	1,788		1,788		—		—


	Carrying Amount		Fair Value Measurements Using:
December 31, 2022			Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	196,512	$	196,512	$	—	$	—
Held-to-maturity securities	81,056		234		67,433		7,051
Loans, net(1)	2,428,909		—		—		2,356,085
Accrued interest receivable	10,445		10,445		—		—
Liabilities:
Deposits	2,405,229		2,181,139		—		228,868
Borrowings:
FHLB borrowings – fixed rate	141,498		—		141,867		—
Federal Reserve borrowings – fixed rate	5,388		5,388		—		—
Subordinated notes – fixed-to-floating rate	52,132		—		—		60,384
Accrued interest payable	1,125		1,125		—		—

(1) Excludes loans accounted for under the fair value option of $17.5 million and $23.2 million as of June 30, 2023 and December 31, 2022, respectively, as these are carried at fair value.