FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2022

FAIR VALUE

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):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2022	(Level 1)		(Level 2)		(Level 3)		Balance
Mortgage loans held for sale	$	—	$	12,743	$	—	$	12,743
Loans held at fair value	$	—	$	—	$	22,871	$	22,871
Forward commitments and FSC	$	—	$	1,139	$	(11)	$	1,128
Equity securities	$	626	$	122	$	—	$	748
Guarantee asset	$	—	$	—	$	159	$	159
IRLC, net	$	—	$	—	$	138	$	138
Equity warrants	$	—	$	—	$	827	$	827

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	247	$	—	$	—	$	247
U.S. Government Agency		—		3,522		—		3,522
Corporate bonds		—		6,212		2,113		8,325
GNMA mortgage-backed securities - residential		—		26,650		—		26,650
FNMA mortgage-backed securities - residential		—		14,443		—		14,443
Government CMO and MBS		—		878		—		878
Corporate CMO and MBS		—		1,497		—		1,497
Total securities available-for-sale	$	247	$	53,202	$	2,113	$	55,562
Mortgage loans held for sale	$	—	$	30,620	$	—	$	30,620
Forward commitments and FSC	$	—	$	(65)	$	(9)	$	(74)
Equity securities	$	709	$	489	$	—	$	1,198
Guarantee asset	$	—	$	—	$	237	$	237
IRLC, net	$	—	$	—	$	1,473	$	1,473
Equity warrants	$	—	$	—	$	160	$	160

Schedule of loans measured at fair value under fair value option

	September 30, 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
Loans held for sale	$	12,743	$	12,955	$	(212)	$	—	$	—	$	—	$	—	$	—	$	—
Loans held for investment		22,871		22,648		223		59		56		3		59		56		3
	$	35,614	$	35,603	$	11	$	59	$	56	$	3	$	59	$	56	$	3

	December 31, 2021
	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
Loans held for sale	$	30,620	$	29,857	$	763	$	—	$	—	$	—	$	—	$	—	$	—
Loans held for investment		—		—		—		—		—		—		—		—		—
	$	30,620	$	29,857	$	763	$	—	$	—	$	—	$	—	$	—	$	—

Schedule of gain or loss on fair value of loans

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2022		2021		2022		2021
Loans held for sale	$	(556)	$	(213)	$	(975)	$	(4,378)
Loans held for investment		(105)		—		223		—
	$	(661)	$	(213)	$	(752)	$	(4,378)

Summary of activity pertaining to loans under fair value option

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				Nine Months Ended
	September 30,				September 30,
Loans held for sale		2022		2021		2022		2021
Balance at beginning of period	$	26,202	$	48,563	$	30,620	$	161,843
Loans originated		82,372		256,284		377,631		1,082,120
Fair value changes		(556)		(213)		(975)		(4,378)
Sales		(95,053)		(252,242)		(394,261)		(1,183,876)
Settlements		(222)		(1,083)		(272)		(4,400)
Balance at end of period	$	12,743	$	51,309	$	12,743	$	51,309

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Loans held for investment		2022		2021		2022		2021
Balance at beginning of period	$	21,477	$	—	$	—	$	—
Loans acquired		7,860		—		32,109		—
Fair value changes		(105)		—		223		—
Settlements		(6,361)		—		(9,461)		—
Balance at end of period	$	22,871	$	—	$	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):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2022	(Level 1)		(Level 2)		(Level 3)		Balance
OREO:
Commercial properties	$	—	$	—	$	187	$	187

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	439	$	439

______________________________________

⁽¹⁾ One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.

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, 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

Three Months Ended September 30, 2021	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	—	$	—	$	196	$	2,809	$	—
Acquisitions		—		—		(17)		—		6,617		—
Originations		—		—		—		—		(7,705)		—
Gains/(losses) in net income, net		—		—		—		35		464		—
Ending balance	$	—	$	—	$	(17)	$	231	$	2,185	$	—

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

Nine Months Ended September 30, 2021	Corporate Bonds		Loans Held at Fair Value		FSC		Guarantee Asset		IRLC		Equity Warrants
Beginning balance	$	—	$	—	$	(89)	$	232	$	9,841	$	—
Acquisitions		—		—		(190)		—		15,123		—
Originations		—		—		—		2		(20,702)		—
Gains/(losses) in net income, net		—		—		262		(3)		(2,077)		—
Ending balance	$	—	$	—	$	(17)	$	231	$	2,185	$	—

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, 2022
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Recurring fair value
Loans held for investment at fair value	$	22,871		Discounted cash flow		Discount rate		4% to 18% (9%)
FSC		(11)		Internal pricing model		Market Differential		56 bps to 67 bps (62 bps)
Guarantee asset		159		Discounted cash flow		Discount rate Prepayment rate		5% (5%) 6% (6%)
IRLC, net		138		Best execution model		Pull through		73% to 100% (94%)
Equity warrants		827		Black-Scholes option pricing model		Volatility Risk-free interest rate Remaining life		31.2% to 32.4% (31.4%) 1.78% to 4.14% (3.68%) 0 to 4 years
Nonrecurring fair value
OREO:
Commercial properties		187		Appraisal value		Commission, cost to sell, closing costs		9% (9%)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Recurring fair value
Corporate Bonds	$	2,113		Discounted cash flow		Discount rate		7% (7%)
FSC		(9)		Internal pricing model		Market Differential		-14bps to -2 bps (-6bps)
Guarantee asset		237		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 18% (18%)
IRLC, net		1,473		Best execution model		Pull through		71% to 100% (88%)
Equity warrants		160		Black-Scholes option pricing model		Volatility Risk-free interest rate Remaining life		24% to 37% (32%) 0.30% to 1.10% (0.97%) 0 to 4 years
Nonrecurring fair value
Impaired loans(1):
Commercial and Industrial		439		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 45% (39%)

______________________________________

⁽¹⁾ One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.

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		Fair Value Measurements Using:
September 30, 2022	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	165,248	$	165,248	$	—	$	—
Held-to-maturity securities		84,257		232		69,927		8,465
Loans, net		2,335,241		—		—		2,315,505
Accrued interest receivable		8,451		3		440		8,008
Liabilities:
Deposits		2,167,447		1,980,757		—		189,552
Borrowings:
FHLB borrowings – fixed rate		267,432		—		267,211		—
Federal Reserve borrowings – fixed rate		5,793		—		5,793		—
Subordinated notes – fixed-to-floating rate		32,584		—		—		35,030
Accrued interest payable		664		—		404		260

	Carrying		Fair Value Measurements Using:
December 31, 2021	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	386,983	$	386,983	$	—	$	—
Loans, net		1,935,405		—		—		1,919,625
Accrued interest receivable		7,151		2		203		6,946
Liabilities:
Deposits		2,205,703		2,035,212		—		172,240
Borrowings:
FHLB borrowings – fixed rate		15,000		—		14,990		—
Federal Reserve borrowings – fixed rate		23,629		—		23,629		—
Subordinated notes – fixed-to-floating rate		39,031		—		—		40,325
Accrued interest payable		355		9		77		269