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Fair Value Disclosures
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Disclosures FAIR VALUE DISCLOSURES
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.
The methods of determining the fair value of assets and liabilities presented in this note are consistent with the methodologies disclosed in Note 17 of the Company’s 2022 Form 10-K.
Assets and liabilities measured at fair value on a recurring basis are summarized in the table below.
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
June 30, 2023Level 1Level 2Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
Mortgage-backed securities, residential$— $45,829 $— $45,829 
Asset-backed securities— 1,252 — 1,252 
State and municipal— 5,195 — 5,195 
CLO securities— 249,079 — 249,079 
Corporate bonds— 760 — 760 
SBA pooled securities— 1,664 — 1,664 
$— $303,779 $— $303,779 
Equity securities with readily determinable fair values
Mutual fund$4,426 $— $— $4,426 
Loans held for sale$— $95 $— $95 
Indemnification asset$— $— $1,905 $1,905 
Revenue share asset$— $— $3,053 $3,053 
Liabilities measured at fair value on a recurring basis
Return of premium liability$— $— $376 $376 
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2022Level 1Level 2Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
Mortgage-backed securities, residential$— $50,633 $— $50,633 
Asset-backed securities— 6,331 — 6,331 
State and municipal— 13,438 — 13,438 
CLO Securities— 181,011 — 181,011 
Corporate bonds— 1,263 — 1,263 
SBA pooled securities— 1,828 — 1,828 
$— $254,504 $— $254,504 
Equity securities with readily determinable fair values
Mutual fund$5,191 $— $— $5,191 
Loans held for sale$— $5,641 $— $5,641 
Indemnification asset$— $— $3,896 $3,896 
Revenue share asset$— $— $5,515 $5,515 
Liabilities measured at fair value on a recurring basis
Return of premium liability$— $— $575 $575 
There were no transfers between levels during 2023 or 2022.
Indemnification Asset
The fair value of the indemnification asset is calculated as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio acquired during 2020. The cash flows are discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The indemnification asset fair value is considered a Level 3 classification. At June 30, 2023 and December 31, 2022, the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio were approximately $2,006,000 and $4,101,000, respectively, and a discount rate of 5.0% and 5.0%, respectively, was applied to calculate the present value of the indemnification asset. A reconciliation of the opening balance to the closing balance of the fair value of the indemnification asset is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2023202220232022
Beginning balance$3,691 $4,582 $3,896 $4,786 
Indemnification asset recognized in business combination— — — — 
Change in fair value of indemnification asset recognized in earnings(121)(205)(326)(409)
Indemnification reduction(1,665)— (1,665)— 
Ending balance$1,905 $4,377 $1,905 $4,377 
Revenue Share Asset
On June 30, 2022 and September 6, 2022, the Company entered into and closed two separate agreements to sell two separate portfolios of factored receivables. The June 30, 2022 agreement contains revenue share provisions that entitles the Company to an amount equal to fifteen percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. The September 6, 2022 agreement contains revenue share provisions that entitles the Company to an amount ranging from fifteen to twenty percent, depending on the client, of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. The fair value of the revenue share assets is calculated each reporting period, and changes in the fair value of the revenue share assets are recorded in noninterest income in the consolidated statements of income. The revenue share asset fair value is considered a Level 3 classification.
At June 30, 2023 and December 31, 2022, the estimated cash payments expected to be received from the purchaser for the Company's share of future gross monthly revenue as $4,060,000 and $7,613,000, respectively, and a discount rate of 10.0% was applied to calculate the present value of the revenue share asset. A reconciliation of the opening balance to the closing balance of the fair value of the revenue share asset is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2023202220232022
Beginning balance$4,532 $— $5,515 $— 
Revenue share asset recognized — 5,210 — 5,210 
Change in fair value of revenue share asset recognized in earnings(1,169)— (1,789)— 
Revenue share payments received(310)— (673)— 
Ending balance$3,053 $5,210 $3,053 $5,210 
Return of Premium Liability
On June 23, 2022, the Company made the decision to sell and closed on the sale of a portfolio of equipment loans for cash consideration. The associated agreement contains a provision that in the event that a sold loan is prepaid in full prior to the due date of the final scheduled contractual payment, the Company will return a pro-rata portion of the premium calculated as of the date of such prepayment in full. The fair value of the return of premium liability is calculated each reporting period, and changes in the fair value of the return of premium liability are recorded in noninterest income in the consolidated statements of income. The return of premium liability is considered a Level 3 classification. At June 30, 2023 and December 31, 2022, the fair value of the estimated premium expected to be returned to the purchaser for sold loans prepaid in full was calculated as the difference between the discounted cash flows of each sold loan assuming no prepayments and the discounted cash flows of each sold loan assuming an 11.0% and 11.0% prepayment speed, respectively; consistent with management's expected prepayment speed. A reconciliation of the opening balance to the closing balance of the fair value of the return of premium liability is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2023202220232022
Beginning balance$476 $— $575 $— 
Return of premium liability recognized— 708 — 708 
Change in fair value of return of premium liability recognized in earnings(100)— (199)— 
Return of premium payments made— — — — 
Ending balance$376 $708 $376 $708 
Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022.
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
June 30, 2023Level 1Level 2Level 3
Collateral dependent loans
Commercial real estate$— $— $84 $84 
1-4 family residential— — 79 79 
Commercial— — 2,227 2,227 
Factored receivables— — 28,947 28,947 
$— $— $31,337 $31,337 
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2022Level 1Level 2Level 3
Collateral dependent loans
Commercial real estate$— $— $269 $269 
1-4 family residential— — 46 46 
Commercial— — 6,994 6,994 
Factored receivables— — 29,367 29,367 
Equity investment without readily determinable fair value38,088 — — 38,088 
$38,088 $— $36,676 $74,764 
Collateral Dependent Loans Specific Allocation of ACL:    A loan is considered to be a collateral dependent loan when, based on current information and events, the Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the borrower is experiencing financial difficulty as of the measurement date. The ACL is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.
The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at June 30, 2023 and December 31, 2022 were as follows:
(Dollars in thousands)Carrying
Amount		Fair Value Measurements UsingTotal
Fair Value
June 30, 2023Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$417,375 $417,375 $— $— $417,375 
Securities - held to maturity3,380 — — 4,750 4,750 
Loans not previously presented, gross4,293,421 146,940 — 4,069,012 4,215,952 
FHLB and other restricted stock20,099  N/A  N/A  N/A N/A
Accrued interest receivable27,619 27,619 — — 27,619 
Financial liabilities:
Deposits4,293,466 — 4,283,892 — 4,283,892 
Federal Home Loan Bank advances280,000 — 280,000 — 280,000 
Subordinated notes108,234 — 91,355 — 91,355 
Junior subordinated debentures41,444 — 43,151 — 43,151 
Accrued interest payable4,514 4,514 — — 4,514 

(Dollars in thousands)Carrying
Amount		Fair Value Measurements UsingTotal
Fair Value
December 31, 2022Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$408,182 $408,182 $— $— $408,182 
Securities - held to maturity4,077 — — 5,476 5,476 
Loans not previously presented, gross4,088,411 187,729 — 3,805,701 3,993,430 
FHLB and other restricted stock6,252 N/AN/AN/AN/A
Accrued interest receivable21,977 21,977 — — 21,977 
Financial liabilities:
Deposits4,171,336 — 4,159,695 — 4,159,695 
Customer repurchase agreements340 — 340 — 340 
Federal Home Loan Bank advances30,000 — 30,000 — 30,000 
Subordinated notes107,800 — 104,400 — 104,400 
Junior subordinated debentures41,158 — 42,721 — 42,721 
Accrued interest payable2,830 2,830 — — 2,830