v3.25.2
FAIR VALUE
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
FAIR VALUE FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1:Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2:Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3:Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Recurring Fair Value
Equity Securities: Fair value of equity securities represents the market value of mutual funds based on quoted market prices (Level 1) and the value of stock held in other companies, which is based on recent market transactions or quoted rates that are not actively traded (Level 2).
Equity Warrants: Fair value of equity warrants of private companies are priced using a Black-Scholes option pricing model to estimate the asset fair value by using strike prices, option expiration dates, risk-free interest rates, and option volatility assumptions (Level 3).
Guarantee Asset and Liability: The guarantee asset represents the fair value of the consideration received in exchange for the credit enhancement fee. The guarantee liability represents a financial guarantee to cover the second layer of any losses on loans sold to FHLB under the MPF 125 loan sales agreement. The guarantee liability value on day one is equivalent to the guarantee asset fair value, which is the consideration for the credit enhancement fee paid over the life of the loans. The liability is then carried at amortized cost. Significant inputs in the valuation analysis for the asset are Level 3, due to the nature of this asset and the lack of market quotes. The fair value of the guarantee asset is determined using a discounted cash flow model, for which significant unobservable inputs include assumed future prepayment rates, also known as the Conditional Prepayment Rate, and market discount rate (Level 3). An increase in prepayment rates or discount rate would generally reduce the estimated fair value of the guarantee asset.
Derivatives: Derivatives include our swap derivatives, which are compromised of cash flow hedges and derivatives not designated as hedges. The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Mortgage Related Derivatives: Mortgage related derivatives include our IRLC, FSC, and the forward commitments on our loans held for sale pipeline. The fair value estimate of our IRLC is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date and pull through assumptions (Level 2). The FSC fair value estimate reflects the potential pair off fee associated with mandatory trades and is estimated by using a market differential and pair off penalty assessed by the investor (Level 3). The fair value estimate of the forward commitments is based on market prices of similar securities to the underlying MBS (Level 2).
Loans Held at Fair Value: The fair value of loans held for investment are typically determined based on discounted cash flow analysis using market-based interest rate spreads. Discounted cash flow analyses are adjusted, as appropriate, to reflect current market conditions and borrower specific credit risk. Due to the nature of the valuation inputs, loans held for investment are classified within Level 3 of the valuation hierarchy.
Mortgage Loans Held for Sale: The fair value of mortgage loans held for sale is estimated based upon quotes from third party investors for similar assets resulting in a Level 2 classification.
Loans Held for Sale: The fair value of loans held for sale is determined using actual quoted commitments from third party investors resulting in Level 1 classification. Where commitments are not yet available, fair value is estimated based on quotes for similar assets resulting in Level 2 classification.
The following presents assets and liabilities measured on a recurring basis as of the dates noted (dollars in thousands):
June 30, 2025Quoted
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$— $24,151 $— $24,151 
Loans held at fair value$— $— $5,099 $5,099 
Equity securities$641 $122 $— $763 
Guarantee asset$— $— $244 $244 
IRLC, net$— $734 $— $734 
Equity warrants$— $— $765 $765 
Swap derivative assets$— $1,048 $— $1,048 
Financial Liabilities
Forward commitments and FSC$— $262 $— $262 
Swap derivative liabilities$— $1,037 $— $1,037 
December 31, 2024Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Reported
Balance
Financial Assets
Mortgage loans held for sale$— $25,455 $— $25,455 
Loans held for sale$— $251 $— $251 
Loans held at fair value$— $— $7,283 $7,283 
Forward commitments and FSC$— $225 $— $225 
Equity securities$630 $122 $— $752 
Guarantee asset$— $— $235 $235 
IRLC, net$— $358 $— $358 
Equity warrants$— $— $765 $765 
Swap derivative asset$— $1,060 $— $1,060 
Financial Liabilities
Forward commitments and FSC$— $13 $— $13 
Swap derivative liabilities$— $956 $— $956 
There were no transfers between levels during the six months ended June 30, 2025 or year ended December 31, 2024.
As of June 30, 2025, equity securities, equity warrants, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item in the Condensed Consolidated Balance Sheets. All changes are recorded in Non-interest income in the Condensed Consolidated Statements of Income.
Fair Value Option
The Company has elected to account for certain purchased whole loans held for investment under the fair value option in order to align the accounting presentation with the Company’s viewpoint of the economics of the loans. Interest income on loans held for investment accounted for under the fair value option is recognized within Interest and dividend income in the accompanying Condensed Consolidated Statements of Income. Not electing fair value generally results in a larger discount being recorded on the date of the loan purchase. The discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Additionally, management has elected the fair value option for mortgage loans originated and held for sale.
In the first quarter of 2025, the Company deemed a loan held for sale with a carrying value of $0.3 million and a principal balance of $0.6 million as unsellable. As such, the Company reversed the write-down recorded in the fourth quarter of 2024 and reclassified its principal balance of $0.6 million from Loans held for sale into Loans held for investment. Subsequent to the transfer into Loans held for investment, the loan was charged off through the ACL in the first quarter of 2025. During the year ended December 31, 2024, the Company reclassified $5.8 million of loans held for investment to loans held for sale. The transfers occurred at the point in time the Company decided to sell the loans. During the year ended December 31, 2024, a total of $5.4 million reclassified loans held for sale were sold. As of June 30, 2025 and December 31, 2024, there were $0.0 and $0.3 million of loans held for sale, respectively.
As of June 30, 2025, there were 11 loans totaling $10 thousand, accounted for under the fair value option that were on non-accrual. As of December 31, 2024, there were 37 loans totaling $0.1 million, accounted for under the fair value option that were on non-accrual. During the three months ended June 30, 2025 and 2024, the Company recorded net charge-offs of $0.0 million and $0.4 million, respectively, on loans accounted for under the fair value option to Net gain/(loss) on loans accounted for under the fair value option on the Condensed Consolidated Statements of Income. During the six months ended June 30, 2025 and 2024, the Company recorded net charge-offs of $0.1 million and $0.7 million, respectively, on loans accounted for under the fair value option.
The following provide 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:
June 30, 2025
Total LoansNon Accruals90 Days or More Past Due
(dollars in thousands)
Fair Value Carrying
Amount		Unpaid Principal
Balance		DifferenceFair Value Carrying
Amount		Unpaid Principal
Balance		DifferenceFair Value Carrying
Amount		Unpaid Principal
Balance		Difference
Mortgage loans held for sale$24,151 $23,629 $522 $— $— $— $— $— $— 
Loans held for investment5,099 5,234 (135)10 10 — 10 10 — 
$29,250 $28,863 $387 $10 $10 $— $10 $10 $— 
December 31, 2024
Total LoansNon Accruals90 Days or More Past Due
(dollars in thousands)
Fair Value Carrying
Amount		Unpaid Principal
Balance		DifferenceFair Value Carrying
Amount		Unpaid Principal
Balance		DifferenceFair Value Carrying
Amount		Unpaid Principal
Balance		Difference
Mortgage loans held for sale$25,455 $25,217 $238 $— $— $— $— $— $— 
Loans held for sale251 594 (343)251 594 (343)251 594 (343)
Loans held for investment7,283 7,507 (224)47 52 (5)47 52 (5)
$32,989 $33,318 $(329)$298 $646 $(348)$298 $646 $(348)
The following presents the changes in fair value of loans accounted for under the fair value option as of the dates noted:
Three Months Ended
June 30,		Six Months Ended
June 30,
(dollars in thousands)
2025202420252024
Mortgage loans held for sale$348 $283 $255 $362 
Loans held for sale— — 222 — 
Loans held for investment32 50 89 100 
$380 $333 $566 $462 
Level 3 Analysis
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, 2025Loans Held at Fair ValueGuarantee AssetEquity Warrants
Beginning balance$6,112 $261 $765 
Originations— 9 — 
Gains/(losses) in net income, net32 (4)— 
Net charge-offs(6)— — 
Settlements(1,039)(22)— 
Ending balance$5,099 $244 $765 
Three Months Ended June 30, 2024Loans Held at Fair ValueGuarantee Asset Equity Warrants
Beginning balance$11,922 $199 $795 
Originations— 34 — 
Gains/(losses) in net income, net50 6 — 
Net charge-offs(365)— — 
Settlements(1,417)(11)— 
Ending balance$10,190 $228 $795 
Six Months Ended June 30, 2025Loans Held at Fair ValueGuarantee AssetEquity Warrants
Beginning balance$7,283 $235 $765 
Originations— 20 — 
Gains/(losses) in net income, net89 32 — 
Net charge-offs(57)— — 
Settlements(2,216)(43)— 
Ending balance$5,099 $244 $765 
Six Months Ended June 30, 2024Loans Held at Fair ValueGuarantee AssetEquity Warrants
Beginning balance$13,726 $189 $795 
Originations— 47 — 
Gains/(losses) in net income, net100 11 — 
Net charge-offs(717)— — 
Settlements(2,919)(19)— 
Ending balance$10,190 $228 $795 
Nonrecurring Fair Value
Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. OREO is evaluated quarterly for additional impairment and adjusted accordingly.
Collateral Dependent Loans, net of ACL: The fair value of collateral dependent loans individually analyzed and not included in the pooled loan analysis under the ACL is generally based on recent appraisals and the value of any credit enhancements associated with the loan. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Collateral dependent loans are analyzed monthly and adjusted accordingly if needed.
Appraisals for both collateral-dependent loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.
The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of the dates noted:
Quantitative Information about Level 3 Fair Value Measurements as of June 30, 2025
(dollars in thousands)Fair ValueValuation
Technique		Significant
Unobservable Input		Range
(Weighted Average)
Recurring fair value
Loans held for investment at fair value$5,099 Discounted cash flowDiscount rate
7% to 8% (7%)
Guarantee asset244 Discounted cash flowDiscount rate
Prepayment rate
6% (6%)
12% (12%)
Equity warrants765 Black-Scholes option pricing modelVolatility
Risk-free interest rate
Remaining life
21.3% to 63.8% (30.2%)
4.05% to 4.16% (4.14%)
2 years
Nonrecurring fair value
OREO:
1-4 Family Residential4,385 Appraisal valueCommission, cost to sell, closing costs
5% (5 %)
Collateral dependent loans, net of ACL:
Commercial and Industrial93 Sales comparison, Market approach - guideline transaction methodLoss given default
47% (47%)
Commercial and Industrial, 1-4 Family Residential1,212 
Appraisal value
Commission, cost to sell
7% (7%)
Commercial and Industrial9,734 
Appraisal value
Commission
Receiver costs
10% to 20% (18%)
2% (2%)
Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2024
(dollars in thousands)Fair ValueValuation
Technique		Significant
Unobservable Input		Range
(Weighted Average)
Recurring fair value
Loans held for investment at fair value$7,283 Discounted cash flowDiscount rate
7% to 8% (7%)
Guarantee asset235 Discounted cash flowDiscount rate
Prepayment rate
5% (5%)
15% (15%)
Equity warrants765 Black-Scholes option pricing modelVolatility
Risk-free interest rate
Remaining life
21.3% to 63.8% (30.2%)
4.05% to 4.16% (4.14%)
2 years
Nonrecurring fair value
OREO:
1-4 Family Residential10,314 Appraisal valueCommission, cost to sell, closing costs
5% (5%)
Commercial and Industrial25,615 Appraisal valueCommission, cost to sell, closing costs
6% (6%)
Collateral dependent loans, net of ACL:
Commercial and Industrial784 Sales Comparison-Market Value ApproachMarket rate adjustments
11% (11%)
Commercial and Industrial36 Sales comparison, Market approach - guideline transaction methodLoss given default
80% (80%)
Estimated Fair Value of Other 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, 2025Level 1Level 2Level 3
Assets:
Cash and cash equivalents$232,314 $232,314 $— $— 
Held-to-maturity securities, net of ACL99,825 247 85,436 8,296 
Loans, net(1)
2,516,003 — — 2,454,131 
Accrued interest receivable10,783 10,783 — — 
Liabilities:    
Term deposits(2)
397,006 352,536 — 44,862 
Non-term deposits2,132,123 2,132,123 — — 
Borrowings:    
FHLB borrowings – fixed rate112,131 112,131 — — 
FHLB borrowings – floating rate50,000 — 50,000 — 
Federal Reserve borrowings – fixed rate1,285 1,285 — — 
Subordinated notes – fixed-to-floating rate44,673 — — 42,401 
Accrued interest payable1,406 1,406 — — 
Carrying
Amount		Fair Value Measurements Using:
December 31, 2024Level 1Level 2Level 3
Assets:
Cash and cash equivalents$236,041 $236,041 $— $— 
Held-to-maturity securities, net of ACL75,724 242 60,044 7,875 
Loans, net(1)
2,399,952 — — 2,325,081 
Accrued interest receivable10,364 10,364 — — 
Liabilities:
Term deposits(2)
471,415 429,008 — 42,764 
Non-term deposits2,042,794 2,042,794 — — 
Borrowings:
FHLB borrowings – fixed rate5,000 5,000 — — 
FHLB borrowings – floating rate50,000 — 50,000 — 
Federal Reserve borrowings – fixed rate2,038 2,038 — — 
Subordinated notes – fixed-to-floating rate52,565 — — 48,451 
Accrued interest payable1,995 1,995 — — 
______________________________________
(1) Excludes loans accounted for under the fair value option of $5.1 million and $7.3 million as of June 30, 2025 and December 31, 2024, respectively, as these are carried at fair value.
(2) Term deposits due within one year totaling $352.5 million and $429.0 million as of June 30, 2025 and December 31, 2024, respectively, are classified under Level 1 fair value measurement.
The fair value estimates presented and discussed above are based on pertinent information available to management as of the dates specified. The estimated fair value amounts are based on the exit price notion set forth by ASU 2016-01. Although management is not aware of any factors that would significantly affect the estimated fair values, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since the balance sheet dates. Therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
Cash and Cash Equivalents and Restricted Cash: The carrying amounts of cash and cash equivalents and restricted cash approximate fair values as maturities are less than 90 days and balances are generally in accounts bearing current market interest rates.
Held-to-maturity securities: The fair values for HTM investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities is not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Loans, net: The fair values for all fixed-rate and variable-rate performing loans were estimated using the income approach and by discounting the projected cash flows of such loans. Principal and interest cash flows were projected based on the contractual terms of the loans, including maturity, contractual amortization and adjustments for prepayments and expected losses, where appropriate. A discount rate was developed based on the relative risk of the cash flows, considering the loan type, maturity and a required return on capital.
Accrued Interest Receivable and Payable: The carrying amounts of accrued interest approximate fair value due to their short-term nature.
Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting dates. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Fixed and Floating Rate Borrowings: Borrowings with fixed rates are valued using inputs such as discounted cash flows and current interest rates for similar instruments and borrowers with similar credit ratings.
Fixed-to-Floating Rate Borrowings: Borrowings with fixed-to-floating rates are valued using inputs such as discounted cash flows and current interest rates for similar instruments and assume the Company will redeem the instrument prior to the first interest rate reset date.