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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Record Amount of Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

March 31, 2020	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US treasury securities	$	5,043	$	—	$	5,043	$	—
US government agencies		23,079		—		23,079		—
Mortgage-backed securities		537,291		—		537,291		—
Municipal bonds¹		8,755		—		8,662		93
Loans held for sale		19,151		—		—		19,151
Loans held for investment		831,426		—		—		831,426
Servicing assets²		33,532		—		—		33,532
Mutual fund		2,141		—		2,141		—
Equity warrant assets³		702		—		—		702
Total assets at fair value	$	1,461,120	$	—	$	576,216	$	884,904

December 31, 2019	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US treasury securities	$	5,015	$	—	$	5,015	$	—
US government agencies		22,779		—		22,779		—
Mortgage-backed securities		503,297		—		503,297		—
Municipal bonds¹		8,954		—		8,862		92
Loans held for sale		16,198		—		—		16,198
Loans held for investment		824,520		—		—		824,520
Servicing assets²		35,365		—		—		35,365
Mutual fund		2,206		—		2,206		—
Equity warrant assets³		570		—		—		570
Total assets at fair value	$	1,418,904	$	—	$	542,159	$	876,745

1	During the three months ended March 31, 2020, the Company recorded a fair value adjustment gain of $1 thousand. During the three months ended March 31, 2019, the Company sold $900 thousand of a municipal bond to a third party and recorded a fair value adjustment loss of $9 thousand.

2	See Note 7 for a rollforward of recurring Level 3 fair values for servicing assets.

During the three months ended March 31, 2020, the Company entered into equity warrant assets with a fair value of $164 thousand at the time of issuance and recorded net losses on derivative instruments of $32 thousand. During the three months ended March 31, 2019, the Company recorded net gains on derivative instruments of $255 thousand.

Summary of Fair Value Carrying Amount and Unpaid Principal Outstanding of Loans Under Fair Value Option

The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of loans accounted for under the fair value option at March 31, 2020 and December 31, 2019.

	March 31, 2020
	Total Loans							Nonaccruals							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
Fair Value Option Elections
Loans held for sale	$	19,151	$	20,056	$	(905	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		831,426		858,577		(27,151	)		60,558		65,303		(4,745	)		39,102		40,876		(1,774	)
	$	850,577	$	878,633	$	(28,056	)	$	60,558	$	65,303	$	(4,745	)	$	39,102	$	40,876	$	(1,774	)

	December 31, 2019
	Total Loans							Nonaccruals							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
Fair Value Option Elections
Loans held for sale	$	16,198	$	17,230	$	(1,032	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		824,520		842,456		(17,936	)		49,739		54,370		(4,631	)		26,644		28,137		(1,493	)
	$	840,718	$	859,686	$	(18,968	)	$	49,739	$	54,370	$	(4,631	)	$	26,644	$	28,137	$	(1,493	)

Schedule of Net Gains (Losses) from Changes in Fair Value

The following table presents the net gains (losses) from changes in fair value.

	Three Months Ended March 31,
Gains (Losses) on Loans Accounted for under the Fair Value Option	2020			2019
Loans held for sale	$	120		$	(351	)
Loans held for investment		(10,758	)		2,434
	$	(10,638	)	$	2,083

Summary of the Activity Pertaining to Loans Accounted for Under Fair Value Option

The following tables summarize the activity pertaining to loans accounted for under the fair value option.

	Three Months Ended March 31,
Loans held for sale	2020			2019
Balance at beginning of period	$	16,198		$	17,745
Issuances		3,045			13,635
Fair value changes		120			(351	)
Sales		—			(5,700	)
Settlements		(212	)		(36	)
Balance at end of period	$	19,151		$	25,293

	Three Months Ended March 31,
Loans held for investment	2020			2019
Balance at beginning of period	$	824,520		$	885,527
Issuances		61,611			30,108
Fair value changes		(10,758	)		2,434
Settlements		(43,947	)		(49,415	)
Balance at end of period	$	831,426		$	868,654

Recorded Amount of Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a non-recurring basis.

March 31, 2020	Total		Level 1		Level 2		Level 3
Collateral dependent loans	$	2,349	$	—	$	—	$	2,349
Foreclosed assets		6,744		—		—		6,744
Total assets at fair value	$	9,093	$	—	$	—	$	9,093

December 31, 2019	Total		Level 1		Level 2		Level 3
Collateral dependent loans	$	1,245	$	—	$	—	$	1,245
Foreclosed assets		5,612		—		—		5,612
Equity security investment with a non-readily determinable fair value		8,738		8,738		—		—
Total assets at fair value	$	15,595	$	8,738	$	—	$	6,857

Analysis of Level 3 Valuation Techniques

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2020 and December 31, 2019 the significant unobservable inputs used in the fair value measurements were as follows:

March 31, 2020

Level 3 Assets with Significant Unobservable Inputs	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range
Recurring fair value
Municipal bond	$	93	Discounted expected cash flows	Discount rate Prepayment speed	4.2% 5.0%
Loans held for sale	$	19,151	Discounted expected cash flows	Discount rate Prepayment speed	7.1% to 15.4% WAVG 17.9%
Loans held for investment	$	831,426	Discounted expected cash flows Discounted appraisals	Loss rate Discount rate Prepayment speed Appraisal adjustments	0.0% to 82.5% (WAVG 1.8%) 7.1% to 15.4% WAVG 17.9% 10% to 50%
Equity warrant assets	$	702	Black-Scholes option pricing model	Volatility Risk-free interest rate Marketability discount Remaining life	24.7 to 85.4% 0.7% 20.0% 7-10 years
Non-recurring fair value
Collateral dependent loans	$	2,349	Discounted appraisals	Appraisal adjustments ⁽¹⁾	10.0% to 55.0%
Foreclosed assets	$	6,744	Discounted appraisals	Appraisal adjustments ⁽¹⁾	4.0% to 14.5%

December 31, 2019

Level 3 Assets with Significant Unobservable Inputs	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range
Recurring fair value
Municipal bond	$	92	Discounted expected cash flows	Discount rate Prepayment speed	4.6% 5.0%
Loans held for sale	$	16,198	Discounted expected cash flows	Discount rate Prepayment speed	7.7% to 21.4% WAVG 13.1%
Loans held for investment	$	824,520	Discounted expected cash flows Discounted appraisals	Loss rate Discount rate Prepayment speed Appraisal adjustments	0.0% to 10.9% (WAVG 1.3%) 7.7% to 21.4% WAVG 13.1% 10.0% to 70.0%
Equity warrant assets	$	570	Black-Scholes option pricing model	Volatility Risk-free interest rate Marketability discount Remaining life	21.0-75.0% 1.90% 20.0% 8-10 years
Non-recurring fair value
Collateral dependent loans	$	1,245	Discounted appraisals	Appraisal adjustments ⁽¹⁾	10.0% to 57.0%
Foreclosed assets	$	5,612	Discounted appraisals	Appraisal adjustments ⁽¹⁾	10.0% to 37.0%

(1)	Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

Carrying Amount and Estimated Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:

March 31, 2020	Carrying Amount		Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Financial assets
Cash and due from banks	$	256,824	$	256,824	$	—	$	—	$	256,824
Federal funds sold		158,226		158,226		—		—		158,226
Certificates of deposit with other banks		7,250		7,755		—		—		7,755
Loans held for sale		976,899		—		—		1,044,207		1,044,207
Loans and leases, net of allowance for credit losses on loans and leases		1,950,159		—		—		2,053,965		2,053,965
Financial liabilities
Deposits		4,642,148		—		4,717,676		—		4,717,676
Borrowings		50,012		—		—		50,301		50,301

December 31, 2019	Carrying Amount		Quoted Price In Active Markets for Identical Assets /Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Financial assets
Cash and due from banks	$	126,752	$	126,752	$	—	$	—	$	126,752
Federal funds sold		96,787		96,787		—		—		96,787
Certificates of deposit with other banks		7,250		7,568		—		—		7,568
Loans held for sale		950,249		—		—		1,004,135		1,004,135
Loans and leases, net of allowance for credit losses on loans and leases		1,774,532		—		—		1,822,569		1,822,569
Financial liabilities
Deposits		4,229,122		—		4,213,657		—		4,213,657
Borrowings		14		—		—		14		14