The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. The fair value of financial instruments presented in this note are based on the same methodology as presented in Note 21 of the Notes to Consolidated Financial Statements contained in the Company’s 2020 Form 10-K.

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored enterprises, municipal bonds, and corporate debt securities. The Company has no Level 3 securities.

The Company does not record loans at fair value on a recurring basis. From time to time, however, a loan is individually evaluated and an allowance for credit loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are individually evaluated. Once a loan is identified, the fair value is estimated using one of two ways, which include collateral value and discounted cash flows. The Company reviews all individually evaluated loans each quarter to determine if an allowance is necessary. Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

Loans are considered collateral dependent if repayment is expected solely from the collateral. For these collateral dependent loans, the Company obtains updated appraisals at least annually. These appraisals are reviewed for appropriateness and then discounted for estimated closing costs to determine if an allowance is necessary. As part of the quarterly review of individually evaluated loans, the Company reviews these appraisals to determine if any additional discounts to the fair value are necessary. If a current appraisal is not obtained, the Company determines whether a discount is needed to the value from the original appraisal based on the decline in value of similar properties with recent appraisals. For loans that are not collateral dependent, estimated fair value is based on the present value of expected future cash flows using the interest rate implicit in the original agreement. Impaired loans where a charge-off has occurred or an allowance is established during the period being reported require classification in the fair value hierarchy. The Company records such loans as a nonrecurring Level 3 in the fair value hierarchy.

Loans held for sale are adjusted to lower of cost or fair value. Fair value is based on commitments on hand from investors or, if commitments have not yet been obtained, what investors are currently offering for loans with similar characteristics. The Company considers all loans held for sale carried at fair value as nonrecurring Level 3.

REO is considered held for sale and is adjusted to fair value less estimated selling costs upon transfer of the loan to foreclosed assets. Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral. The Company considers all REO that has been charged off or received an allowance during the period as nonrecurring Level 3.


	September 30, 2020
Description	Total		Level 1		Level 2		Level 3
U.S Government Agencies	$	4,164	$	—	$	4,164	$	—
Residential MBS of U.S. Government Agencies and GSEs	44,181		—		44,181		—
Municipal Bonds	14,841		—		14,841		—
Corporate Bonds	32,973		—		32,973		—

Total	$	96,159	$	—	$	96,159	$	—


	June 30, 2020
Description	Total		Level 1		Level 2		Level 3
U.S Government Agencies	$	4,173	$	—	$	4,173	$	—
Residential MBS of U.S. Government Agencies and GSEs	48,335		—		48,335		—
Municipal Bonds	16,631		—		16,631		—
Corporate Bonds	58,378		—		58,378		—

Total	$	127,517	$	—	$	127,517	$	—

Nonrecurring measurements:

Fair Value at September 30, 2020

Valuation
Techniques

Unobservable
Input

Range

Weighted
Average

Individually evaluated loans

5,150

Discounted appraisals and discounted cash flows

Collateral discounts
and discount spread

0% - 63%

2% - 3%

12%


	September 30, 2020
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and interest-bearing deposits	$	171,144	$	171,144	$	171,144	$	—	$	—
Commercial paper	204,867		204,867		204,867		—		—
Certificates of deposit in other banks	52,361		52,361		—		52,361		—
Securities available for sale	96,159		96,159		—		96,159		—
Loans, net	2,726,264		2,688,377		—		—		2,688,377
Loans held for sale	124,985		126,670		—		—		126,670
FHLB stock	23,309		23,309		23,309		—		—
FRB stock	7,371		7,371		7,371		—		—
SBIC investments	8,269		8,269		—		—		8,269
Accrued interest receivable	10,648		10,648		—		789		9,859
Liabilities:
Noninterest-bearing and NOW deposits	1,067,125		1,067,125		—		1,067,125		—
Money market accounts	826,970		826,970		—		826,970		—
Savings accounts	202,787		202,787		—		202,787		—
Certificates of deposit	645,164		649,685		—		649,685		—
Borrowings	475,000		490,822		—		490,822		—
Accrued interest payable	719		719		—		719		—


	June 30, 2020
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and interest-bearing deposits	$	121,622	$	121,622	$	121,622	$	—	$	—
Commercial paper	304,967		304,967		304,967		—		—
Certificates of deposit in other banks	55,689		55,689		—		55,689		—
Securities available for sale	127,537		127,537		—		127,537		—
Loans, net	2,741,047		2,692,265		—		—		2,692,265
Loans held for sale	77,177		78,129		—		—		78,129
FHLB stock	23,309		23,309		23,309		—		—
FRB stock	7,368		7,368		7,368		—		—
SBIC investments	8,269		8,269		—		—		8,269
Accrued interest receivable	12,312		12,312		208		744		11,360
Liabilities:
Noninterest-bearing and NOW deposits	1,012,200		1,012,200		—		1,012,200		—
Money market accounts	836,738		836,738		—		836,738		—
Savings accounts	197,676		197,676		—		197,676		—
Certificates of deposit	739,142		745,078		—		745,078		—
Borrowings	475,000		511,529		—		511,529		—
Accrued interest payable	1,087		1,087		—		1,087		—

The Company had off-balance sheet financial commitments, which included approximately $631,469 and $598,136 of commitments to originate loans, undisbursed portions of interim construction loans, and unused lines of credit at September 30, 2020 and June 30, 2020, respectively (see Note 10). Since these commitments are based on current rates, the carrying amount approximates the fair value.

Loans held for sale – The fair value of mortgage loans held for sale is determined by outstanding commitments from investors on a "best efforts" basis or current investor yield requirements, calculated on the aggregate loan basis. The fair value of SBA loans and HELOCs held for sale is based on what investors are currently offering for loans with similar characteristics.

Loans, net – Fair values for loans are estimated by segregating the portfolio by type of loan and discounting scheduled cash flows using current market interest rates for loans with similar terms and credit quality. A prepayment assumption is used as an estimate of the portion of loans that will be repaid prior to their scheduled maturity. A liquidity premium assumption is used as an estimate for the additional return required by an investor of assets that are potentially considered illiquid.

FHLB and FRB stock – No ready market exists for these stocks and they have no quoted market value. However, redemptions of these securities have historically been at par value. Accordingly, cost is deemed to be a reasonable estimate of fair value.

SBIC investments – No ready market exists for these investments and they have no quoted market value. SBIC investments are valued at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions of identical or similar investments. Accordingly, cost is deemed to be a reasonable estimate of fair value.

Deposits – Fair values for demand deposits, money market accounts, and savings accounts are the amounts payable on demand. The fair value of certificates of deposit is estimated by discounting the contractual cash flows using current market interest rates for accounts with similar maturities.

Limitations – Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.