There are three levels of inputs in the fair value hierarchy that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.

The table below provides a rollforward of the Level 3 equity warrant asset fair values.

	Three Months Ended March 31,
Equity Warrant Assets	2022		2021
Balance at beginning of period	$	1,672	$	908
Issuances		656		21
Net gains on derivative instruments		—		385
Settlements		—		—
Balance at end of period	$	2,328	$	1,314

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

March 31, 2022	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US government agencies	$	10,503	$	—	$	10,503	$	—
Mortgage-backed securities		828,222		—		828,222		—
Municipal bonds⁽¹⁾		3,352		—		3,258		94
Other debt securities		2,500		—		2,500		—
Loans held for sale		25,056		—		—		25,056
Loans held for investment		600,571		—		—		600,571
Servicing assets⁽²⁾		36,286		—		—		36,286
Mutual fund		2,327		—		2,327		—
Equity warrant assets		2,328		—		—		2,328
Total assets at fair value	$	1,511,145	$	—	$	846,810	$	664,335

December 31, 2021	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale
US government agencies	$	10,637	$	—	$	10,637	$	—
Mortgage-backed securities		889,339		—		889,339		—
Municipal bonds⁽¹⁾		3,576		—		3,480		96
Other debt securities		2,500		—		2,500		—
Loans held for sale		25,310		—		—		25,310
Loans held for investment		645,201		—		—		645,201
Servicing assets⁽²⁾		33,574		—		—		33,574
Mutual fund		2,379		—		2,379		—
Equity warrant assets		1,672		—		—		1,672
Total assets at fair value	$	1,614,188	$	—	$	908,335	$	705,853

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities that are measured at fair value on a recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.

The Company has historically elected to account for retained participating interests of all government guaranteed loans 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 is recognized in the same manner on loans reported at fair value as on non-fair value loans, except in regard to origination fees and costs which are recognized immediately upon fair value election. Beginning in the first quarter of 2021, the Company chose not to elect fair value for all retained participating interests arising from new government guaranteed loan sales. Not electing fair value generally results in a larger discount being recorded on the date of the sale. This discount is subsequently accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this change of election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. In accordance with GAAP, any loans for which fair value was previously elected will continue to be measured as such.

There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest at March 31, 2022 or December 31, 2021. The unpaid principal balance of unguaranteed exposure for nonaccruals was $6.0 million and $6.9 million at March 31, 2022 and December 31, 2021, respectively.

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, 2022 and December 31, 2021.

	March 31, 2022
	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	$	25,056	$	26,747	$	(1,691	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		600,571		620,121		(19,550	)		35,301		40,012		(4,711	)		17,411		20,845		(3,434	)
	$	625,627	$	646,868	$	(21,241	)	$	35,301	$	40,012	$	(4,711	)	$	17,411	$	20,845	$	(3,434	)

	December 31, 2021
	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	$	25,310	$	26,831	$	(1,521	)	$	—	$	—	$	—		$	—	$	—	$	—
Loans held for investment		645,201		666,066		(20,865	)		38,262		42,841		(4,579	)		24,057		25,633		(1,576	)
	$	670,511	$	692,897	$	(22,386	)	$	38,262	$	42,841	$	(4,579	)	$	24,057	$	25,633	$	(1,576	)

Gains/(losses) related to borrower-specific credit risk were $(2.1) million and $191 thousand for the three months ended March 31, 2022 and 2021, respectively.

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	2022			2021
Balance at beginning of period	$	25,310		$	36,111
Issuances & repurchases		65			—
Fair value changes		(170	)		36
Sales		—			—
Settlements		(149	)		(211	)
Balance at end of period	$	25,056		$	35,936

	Three Months Ended March 31,
Loans held for investment	2022			2021
Balance at beginning of period	$	645,201		$	815,374
Repurchases		1,525			5,570
Fair value changes		686			4,184
Settlements		(46,841	)		(34,331	)
Balance at end of period	$	600,571		$	790,797

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

March 31, 2022	Total		Level 1		Level 2		Level 3
Collateral-dependent loans	$	2,486	$	—	$	—	$	2,486
Foreclosed assets		198		—		—		198
Total assets at fair value	$	2,684	$	—	$	—	$	2,684

December 31, 2021	Total		Level 1		Level 2		Level 3
Collateral-dependent loans	$	1,567	$	—	$	—	$	1,567
Foreclosed assets		620		—		—		620
Total assets at fair value	$	2,187	$	—	$	—	$	2,187

For additional information on the valuation techniques and significant inputs for Level 2 and Level 3 assets that are measured at fair value on a non-recurring basis, see Note 10. Fair Value of Financial Instruments in the Company’s 2021 Form 10-K.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2022 and December 31, 2021 the significant unobservable inputs used in the fair value measurements were as follows:

Level 3 Assets with Significant Unobservable Inputs	Fair Value		Valuation Technique	Significant Unobservable Inputs	Range
Recurring fair value
Municipal bond	$	94	Discounted expected cash flows	Discount rate Prepayment speed	5.3% 5.0%
Loans held for sale	$	25,056	Discounted expected cash flows	Discount rate Prepayment speed	6.3% to 20.8% WAVG 17.2%
Loans held for investment	$	600,571	Discounted expected cash flows Discounted appraisals	Loss rate Discount rate Prepayment speed Appraisal adjustments	0% to 70.2% (WAVG 1.6%) 6.3% to 20.8% WAVG 17.2% 10.0% to 81.0%
Equity warrant assets	$	2,328	Black-Scholes option pricing model	Volatility Risk-free interest rate Marketability discount Remaining life	26.6-88.0% 2.5% 20.0% 3 - 10 years
Non-recurring fair value
Collateral-dependent loans	$	2,486	Discounted appraisals	Appraisal adjustments ⁽¹⁾	10.0% to 99.0%
Foreclosed assets	$	198	Discounted appraisals	Appraisal adjustments ⁽¹⁾	10.0%

Level 3 Assets with Significant

Unobservable Inputs

Fair Value

Valuation Technique

Significant

Unobservable

Inputs

Range

Recurring fair value

Municipal bond

Discounted expected cash flows

Discount rate

Prepayment speed

4.8%

5.0%

Loans held for sale

25,310

Discounted expected cash flows

Discount rate

Prepayment speed

6.2% to 21.9%

WAVG 17.4%

Loans held for

investment

645,201

Discounted expected cash flows

Discounted appraisals

Loss rate

Discount rate

Prepayment speed

Appraisal adjustments

0.0% to 70.2%

(WAVG 1.5%)

6.2% to 21.9%

WAVG 17.4%

10.0% to 85.0%

Equity warrant assets

1,672

Black-Scholes option pricing model

Volatility

Risk-free interest rate

Marketability discount

Remaining life

26.2-88.2%

1.3% to 1.5%

20.0%

4 - 10 years

Non-recurring fair value

Collateral-dependent

loans

1,567

Discounted appraisals

Appraisal adjustments ⁽¹⁾

10.0% to 99.0%

Foreclosed assets

620

Discounted appraisals

Appraisal adjustments ⁽¹⁾

9.0% to 10.0%

GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Unaudited Condensed Consolidated Balance Sheets.

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, 2022	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	$	477,778	$	477,778	$	—	$	—	$	477,778
Federal funds sold		29,993		29,993		—		—		29,993
Certificates of deposit with other banks		4,250		4,316		—		—		4,316
Loans held for sale		1,003,579		—		—		1,074,381		1,074,381
Loans and leases held for investment, net of allowance for credit losses on loans and leases		5,074,612		—		—		5,176,365		5,176,365
Financial liabilities
Deposits		7,637,163		—		7,247,748		—		7,247,748
Borrowings		196,911		—		—		188,221		188,221

December 31, 2021	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	$	187,203	$	187,203	$	—	$	—	$	187,203
Federal funds sold		16,547		16,547		—		—		16,547
Certificates of deposit with other banks		4,750		4,930		—		—		4,930
Loans held for sale		1,091,209		—		—		1,197,307		1,197,307
Loans and leases held for investment, net of allowance for credit losses on loans and leases		4,812,477		—		—		4,958,875		4,958,875
Financial liabilities
Deposits		7,112,044		—		6,942,512		—		6,942,512
Borrowings		318,289		—		—		312,036		312,036