FASB ASC No. 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.

FASB ASC 820-10 also establishes a fair value hierarchy and describes three levels of inputs that may be used to measure fair values. The three levels within the fair value hierarchy are as follows:

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. In addition, the 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 the estimates.

Assets Measured at Fair Value on a Recurring Basis

The following table summarizes assets measured at fair value on a recurring basis:


	September 30, 2022
			Fair Value Measurements Using:
			Quoted Prices In				Significant
			Active Markets		Significant Other		Unobservable
	Carrying		for Identical Assets		Observable Inputs		Inputs
(in thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available-for-sale securities:
U.S. GSE residential mortgage-backed securities	$	242	$	—	$	242	$	—
Corporate bonds		12,043		—		12,043		—
Loan servicing rights		4,353		—		—		4,353
Total	$	16,638	$	—	$	12,285	$	4,353


	September 30, 2021
			Fair Value Measurements Using:
			Quoted Prices In
			Active Markets				Significant
			for Identical		Significant Other		Unobservable
	Carrying		Assets		Observable Inputs		Inputs
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available-for-sale securities:
U.S. GSE residential mortgage-backed securities	$	833	$	—	$	833	$	—
Corporate bonds		6,914		—		6,914		—
Loan servicing rights		3,690		—		—		3,690
Total	$	11,437	$	—	$	7,747	$	3,690

The fair value for the securities available-for-sale were obtained from an independent broker based upon matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. The Company has determined these are classified as Level 2 inputs within the fair value hierarchy.

The fair value of mortgage servicing rights are based on a valuation model that calculates the present value of estimated future servicing income. The valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income. Fair value of loan servicing rights related to residential mortgage loans at September 30, 2022 was determined based on discounted expected future cash flows using discount rates ranging from 12.0% to 14.5%, prepayment speed of 26.25% and a weighted average life ranging from 1.2 to 3.0 years. Fair value at September 30, 2021 for mortgage servicing rights was determined based on discounted expected future cash flows using discount rates ranging from 12.0% to 14.5%, prepayment speeds ranging from 24.18% to 24.33% and a weighted average life ranging from 1.96 to 3.3 years.

The fair value of loan servicing rights for SBA loans at September 30, 2022 was determined based on discounted expected future cash flows using discount rates ranging from 5.78% to 26.72%, prepayment speeds ranging from 8.42% to 24.00% and a weighted average life ranging from 1.47 to 5.79 years. The fair value of loan servicing rights for SBA loans at September 30, 2021 was determined based on discounted expected future cash flows using discount rates ranging from 4.64% to 21.81%, prepayment speeds ranging from 11.87% to 26.26% and a weighted average life ranging from 0.39 to 5.85 years.

The Company has determined these are mostly unobservable inputs and considers then Level 3 inputs within the fair value hierarchy.

The following table presents the changes in loan servicing rights for the periods presented:


	Year Ended September 30,
(in thousands)	2022		2021
Balance at beginning of period	$	3,690	$	155
Loan servicing rights obtained from acquisition of Savoy		—		3,777
Additions		1,158		10
Adjustment to fair value		(495)		(252)
Balance at end of period	$	4,353	$	3,690

Assets Measured at Fair Value on a Non-recurring Basis

There were no assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2022 and 2021 and for the years then ended.

Financial Instruments Not Measured at Fair Value

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not carried at fair value at September 30, 2022 and 2021:


	September 30, 2022
			Fair Value Measurements Using:
			Quoted Prices In
			Active Markets				Significant
			for Identical		Significant Other		Unobservable
	Carrying		Assets		Observable Inputs		Inputs		Total Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Cash and cash equivalents	$	149,947	$	149,947	$	—	$	—	$	149,947
Securities held-to-maturity		4,414		—		4,095		—		4,095
Loans, net		1,610,687		—		—		1,564,991		1,564,991
Accrued interest receivable		8,546		—		219		8,327		8,546

Financial liabilities:
Time deposits		339,073		—		328,964		—		328,964
Demand and other deposits		1,189,033		1,189,033		—		—		1,189,033
Borrowings		101,752		—		99,597		—		99,597
Subordinated debentures		24,568		—		24,199		—		24,199
Accrued interest payable		915		1		914		—		915


	September 30, 2021
			Fair Value Measurements Using:
			Quoted Prices In
			Active Markets				Significant
			for Identical		Significant Other		Unobservable
	Carrying		Assets		Observable Inputs		Inputs		Total Fair
(In thousands)	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Cash and cash equivalents	$	166,544	$	166,544	$	—	$	—	$	166,544
Securities held-to-maturity		8,611		—		8,865		—		8,865
Loans, net		1,238,573		—		—		1,278,056		1,278,056
Accrued interest receivable		9,363		—		211		9,152		9,363

Financial liabilities:
Time deposits		377,836		—		378,333		—		378,333
Demand and other deposits		786,826		786,826		—		—		786,826
Borrowings		159,642		—		159,608		—		159,608
Subordinated debentures		24,513		—		27,092		—		27,092
Accrued interest payable		1,290		1		713		576		1,290