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FAIR VALUE (Tables)

9 Months Ended

Sep. 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):


September 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	$	—	$	12,105	$	—	$	12,105
Loans held at fair value	$	—	$	—	$	15,464	$	15,464
Forward commitments and FSC	$	—	$	261	$	—	$	261
Equity securities	$	607	$	122	$	—	$	729
Guarantee asset	$	—	$	—	$	158	$	158
IRLC, net	$	—	$	—	$	319	$	319
Equity warrants	$	—	$	—	$	825	$	825
Swap derivative asset	$	—	$	1,490	$	—	$	1,490
Financial Liabilities

Swap derivative liabilities	$	—	$	537	$	—	$	537


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

The following provides more information about the fair value carrying amount and unpaid principal outstanding of loans accounted for under the fair value option as of the dates noted (dollars in thousands):


	September 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	$	12,105	$	12,051	$	54	$	—	$	—	$	—	$	—	$	—	$	—

Loans held for investment	15,464		16,105		(641)		286		299		(13)		286		299		(13)
	$	27,569	$	28,156	$	(587)	$	286	$	299	$	(13)	$	286	$	299	$	(13)


	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Mortgage loans held for sale	$	(163)	$	(556)	$	(35)	$	(975)
Loans held for sale	—		—		(20)		—
Loans held for investment	110		(105)		(547)		223
	$	(53)	$	(661)	$	(602)	$	(752)

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 September 30,				Nine Months Ended September 30,
Mortgage loans held for sale	2023		2022		2023		2022
Balance at beginning of period	$	19,746	$	26,202	$	8,839	$	30,620
Loans originated	66,586		82,372		217,774		377,631
Fair value changes	(163)		(556)		(35)		(975)
Sales	(74,064)		(95,053)		(214,467)		(394,261)
Settlements	—		(222)		(6)		(272)
Balance at end of period	$	12,105	$	12,743	$	12,105	$	12,743


	Three Months Ended September 30,				Nine Months Ended September 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 September 30,				Nine Months Ended September 30,
Loans held for investment	2023		2022		2023		2022
Balance at beginning of period	$	17,523	$	21,477	$	23,321	$	—
Loans acquired	—		7,860		1,162		32,109
Fair value changes	110		(105)		(547)		223
Net charge-offs	(363)		—		(1,371)		—
Settlements	(1,806)		(6,361)		(7,101)		(9,461)
Balance at end of period	$	15,464	$	22,871	$	15,464	$	22,871

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):


September 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	$	—	$	—	$	4,575	$	4,575

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 September 30, 2023	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	17,523	$	—	$	166	$	453	$	825
Acquisitions	—		—		—		—		312		—
Originations	—		—		—		6		(606)		—

Gains/(losses) in net income, net	—		110		—		(8)		160		—
Settlements	—		(2,169)		—		(6)		—		—
Ending balance	$	—	$	15,464	$	—	$	158	$	319	$	825


Three Months Ended September 30, 2022	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	21,477	$	—	$	174	$	990	$	725
Acquisitions	—		7,867		(11)		—		170		102
Originations	—		—		—		—		(720)		—
Gains/(losses) in net income, net	—		(134)		—		(15)		(302)		—

Settlements	—		(6,339)		—		—		—		—
Ending balance	$	—	$	22,871	$	(11)	$	159	$	138	$	827


Nine Months Ended September 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		—		—		1,652		—
Originations	—		—		—		20		(2,784)		—

Gains/(losses) in net income, net	—		(547)		—		11		1,222		—


Settlements	—		(8,472)		—		(16)		—		—
Ending balance	$	—	$	15,464	$	—	$	158	$	319	$	825


Nine Months Ended September 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		32,599		(2)		—		1,253		344
Originations	—		—		—		—		(2,783)		—
Gains/(losses) in net income, net	—		(289)		—		(78)		195		323
Unrealized gains, net	102		—		—		—		—		—
Transfer to held-to-maturity	(6,215)		—		—		—		—		—
Settlements	—		(9,439)		—		—		—		—
Ending balance	$	—	$	22,871	$	(11)	$	159	$	138	$	827

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 September 30, 2023

Fair Value

Valuation
Technique

Significant
Unobservable Input

Range
(Weighted Average)

Recurring fair value

Loans held for investment at fair value

15,464

Discounted cash flow

Discount rate

8% to 9% (8%)

Guarantee asset

158

Discounted cash flow

Discount rate
Prepayment rate

6% (6%)

5% (5%)

IRLC, net

319

Best execution model

Pull through

53% to 100% (91%)

Equity warrants

825

Black-Scholes option pricing model

Volatility
Risk-free interest rate
Remaining life

32.7% to 88.9% (43.6%)

4.92% (4.92%)

0 to 3 years

Nonrecurring fair value

Collateral dependent loans:

Commercial and Industrial

4,575

Credit enhancement - guarantee asset value

Market rate
adjustments

38% (21%)

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:
September 30, 2023			Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	271,484	$	271,484	$	—	$	—
Held-to-maturity securities, net of ACL	75,539		239		58,120		8,128
Loans, net(1)	2,491,820		—		—		2,383,883
Accrued interest receivable	11,633		11,633		—		—
Liabilities:
Term deposits(2)	373,459		322,144		—		50,460
Non-term deposits	2,046,537		2,046,537		—		—
Borrowings:
FHLB borrowings – fixed rate	175,067		—		175,269		—
FHLB borrowings – floating rate	50,000		—		49,978		—
Federal Reserve borrowings – fixed rate	34,863		3,865		30,862		—
Subordinated notes – fixed-to-floating rate	52,279		—		—		47,370
Accrued interest payable	3,203		3,203		—		—


	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:
Term deposits(2)	224,090		181,036		—		43,586
Non-term deposits	2,181,139		2,181,139		—		—
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 $15.5 million and $23.3 million as of September 30, 2023 and December 31, 2022, respectively, as these are carried at fair value.

(2) Term deposits due within one year totaling $322.1 million and $181.0 million as of September 30, 2023 and December 31, 2022, respectively, are classified under Level 1 fair value measurement.