FAIR VALUE

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an 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. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:



Level 1:		Quoted prices in active markets for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:		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 for substantially the full term of the assets or liabilities. Level 2 assets include securities with quoted prices that are traded less frequently than exchange-traded instruments and whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3:		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models such as discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

When available, the Company generally uses quoted market prices to determine fair value. In some cases where a market price is available, the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified in Level 2.

The Company considers relevant and observable market prices in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the nature of the participants are some of the factors the Company uses to help determine whether a market is active and orderly or inactive and not orderly. Price quotes based upon transactions that are not orderly are not considered to be determinative of fair value and are given little, if any, weight in measuring fair value.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, credit spreads, housing value forecasts, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair-value hierarchy in which each instrument is generally classified:

Securities—trading. Trading securities are recorded at fair value. The trading portfolio consists of two different issues of floating-rate debt securities collateralized by pools of bank trust preferred securities. Liquidity and economic uncertainty have made the market for collateralized debt obligations less active or inactive. As quoted market prices are not available, the Level 3 fair values for these securities are determined by the Company utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities from the underlying assets. The Company’s expected cash flows are calculated for each security and include the impact of actual and forecasted bank defaults within each collateral pool as well as structural features of the security’s tranche such as lock outs, subordination and over-collateralization. The forecast of underlying bank defaults in each pool is based upon a quarterly financial update including the trend in non-performing assets, the allowance for loan and lease losses and the underlying bank’s capital ratios. Also a factor is the Company’s loan and lease loss experience in the local economy in which the bank operates. At June 30, 2017, the Company’s forecast of cash flows for both securities includes actual and forecasted defaults and deferrals totaling 17.2% of all banks in the collateral pools, compared to 17.1% of the banks actually in default as of June 30, 2017. The expected cash flows reflect the Company’s best estimate of all pool losses which are then applied to the over-collateralization reserve and the subordinated tranches to determine the cash flows. The Company selects a discount rate margin based upon the spread between U.S. Treasury rates and the market rates for active credit grades for financial companies. The discount margin when added to the U.S. Treasury rate determines the discount rate, reflecting primarily market liquidity and interest rate risk since expected credit loss is included in the cash flows. At June 30, 2017, the Company used a weighted average discount margin of 450 basis points above U.S. Treasury rates to calculate the net present value of the expected cash flows and the fair value of its trading securities.

The Level 3 fair values determined by the Company for its trading securities rely heavily on management’s assumptions as to the future credit performance of the collateral banks, the impact of the global and regional economic factors, the timing of forecasted defaults and the discount rate applied to cash flows. The fair value of the trading securities at June 30, 2017 is sensitive to an increase or decrease in the discount rate. An increase in the discount margin of 100 basis points would have reduced the total fair value of the trading securities and decreased net income before income tax by $828. A decrease in the discount margin of 100 basis points would have increased the total fair value of the trading securities and increased net income before income tax by $956.

Securities—available-for-sale and held-to-maturity. Available-for-sale securities are recorded at fair value and consist of residential mortgage-backed securities (“RMBS”) issued by U.S. agencies, RMBS issued by non-agencies, municipal securities as well as other debt securities. Held-to-maturity securities are recorded at amortized cost and consist of RMBS issued by U.S. agencies, RMBS issued by non-agencies, as well as municipal securities. Fair value for U.S. agency securities and municipal securities are generally based on quoted market prices of similar securities used to form a dealer quote or a pricing matrix. There continues to be significant illiquidity in the market for RMBS issued by non-agencies, impacting the availability and reliability of transparent pricing. As orderly quoted market prices are not available, the Level 3 fair values for these securities are determined by the Company utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities from the underlying mortgage assets. The Company computes Level 3 fair values for each non-agency RMBS in the same manner (as described below) whether available-for-sale or held-to-maturity.

To determine the performance of the underlying mortgage loan pools, the Company estimates prepayments, defaults, and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates and borrower attributes such as credit score and loan documentation at the time of origination. The Company inputs for each security a projection of monthly default rates, loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of the security to determine the expected cash flows. The projections of default rates are derived by the Company from the historic default rate observed in the pool of loans collateralizing the security, increased by and decreased by the forecasted increase or decrease in the national unemployment rate. The projections of loss severity rates are derived by the Company from the historic loss severity rate observed in the pool of loans, increased by or decreased by the forecasted increase or decrease in the national home price appreciation (“HPA”) index. The largest factors influencing the Company’s modeling of the monthly default rate are unemployment and HPA, as a strong correlation exists. The most updated unemployment rate reported in May 2017 was 4.3%. Consensus estimates for unemployment are that the rate will continue to decline. Going forward, the Company is projecting lower monthly default rates. The Company projects that severities will continue to improve.

To determine the discount rates used to compute the present value of the expected cash flows for these non-agency RMBS securities, the Company separates the securities by the borrower characteristics in the underlying pool. Specifically, “prime” securities generally have borrowers with higher FICO scores and better documentation of income. “Alt-A” securities generally have borrowers with a lower FICO and less documentation of income. “Pay-option ARMs” are Alt-A securities with borrowers that tend to pay the least amount of principal (or increase their loan balance through negative amortization). The Company calculates separate discount rates for prime, Alt-A and Pay-option ARM non-agency RMBS securities using market-participant assumptions for risk, capital and return on equity. The range of annual default rates used in the Company’s projections at June 30, 2017 are from 2.5% up to 23.4% with prime securities tending toward the lower end of the range and Alt-A and Pay-option ARMs tending toward the higher end of the range. The range of loss severity rates applied to each default used in the Company’s projections at June 30, 2017 are from 40.0% up to 68.8% based upon individual bond historical performance. The default rates and the severities are projected for every non-agency RMBS security held by the Company and will vary monthly based upon the actual performance of the security and the macroeconomic factors discussed above. The Company applies its discount rates to the projected monthly cash flows, which already reflect the full impact of all forecasted losses using the assumptions described above. When calculating present value of the expected cash flows at June 30, 2017, the Company computed its discount rates as a spread between 264 and 584 basis points over the LIBOR Index using the LIBOR forward curve with prime securities tending toward the lower end of the range and Alt-A and Pay-option ARMs tending toward the higher end of the range.

The Bank’s estimate of fair value for non-agency securities using Level 3 pricing is highly subjective and is based on the Bank’s estimate of voluntary prepayments, default rates, severities and discount margins, which are forecasted monthly over the remaining life of each security. Changes in one or more of these assumptions can cause a significant change in the estimated fair value. For further details see the table later in this note that summarizes quantitative information about level 3 fair value measurements.

Loans Held for Sale. Loans held for sale at fair value are primarily single-family residential loans. The fair value of residential loans held for sale is determined by pricing for comparable assets or by existing forward sales commitment prices with investors.

Impaired Loans and Leases. Impaired loans and leases are loans and leases which are inadequately protected by the current net worth and paying capacity of the borrowers or the collateral pledged. The accrual of interest income has been discontinued for impaired loans and leases. The impaired loans and leases are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The Company assesses loans and leases individually and identifies impairment when the loan or lease is classified as impaired or has been restructured or management has serious doubts about the future collectibility of principal and interest, even though the loans and leases may currently be performing. The fair value of an impaired loan or lease is determined based on an observable market price or current appraised value of the underlying collateral. The fair value of impaired loans and leases with specific write-offs or allocations of the allowance for loan and lease losses are generally based on recent real estate appraisals or internal valuation analyses consistent with the methodology used in real estate appraisals and include other third-party valuations and analysis of cash flows. These appraisals and analyses are updated at least on an annual basis. The Company primarily obtains real estate appraisals and in the rare cases where an appraisal cannot be obtained, the Company performs an internal valuation analysis. These appraisals and analyses may utilize a single valuation approach or a combination of approaches including comparable sales and income approaches. The sales comparison approach uses at least three recent similar property sales to help determine the fair value of the property being appraised. The income approach is calculated by taking the net operating income generated by the collateral property of the rent collected and dividing it by an assumed capitalization rate. Adjustments are routinely made in the process by the appraisers to account for differences between the comparable sales and income data available. When measuring the fair value of the impaired loan or lease based upon the projected sale of the underlying collateral, the Company subtracts the costs expected to be incurred for the transfer of the underlying collateral, which includes items such as sales commissions, delinquent taxes and insurance premiums. These adjustments to the estimated fair value of non-performing loans and leases may result in increases or decreases to the provision for loan and lease losses recorded in current earnings. Such adjustments are typically significant and result in a Level 3 classification for the inputs for determining fair value.

Other Real Estate Owned. Non-recurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Mortgage Servicing Rights. The Company initially records all mortgage servicing rights (“MSRs”) at fair value and accounts for MSRs at fair value during the life of the MSR, with changes in fair value recorded through current period earnings. Fair value adjustments encompass market-driven valuation changes as well as modeled amortization involving the run-off of value that occurs due to the passage of time as individual loans are paid by borrowers. Market expectations about loan duration, and correspondingly the expected term of future servicing cash flows, may vary from time to time due to changes in expected prepayment activity, especially when interest rates rise or fall. Market expectations of increased loan prepayment speeds may negatively impact the fair value of the single family MSRs. Fair value is also dependent on the discount rate used in calculating present value, which is imputed from observable market activity and market participants and results in Level 3 classification. Management reviews and adjusts the discount rate on an ongoing basis. An increase in the discount rate would reduce the estimated fair value of the MSRs asset.

Mortgage Banking Derivatives. Fair value for mortgage banking derivatives are either securities based upon prices in active markets for identical securities or based on quoted market prices of similar assets used to form a dealer quote or a pricing matrix, resulting in a Level 2 classification, or derivatives requiring unobservable inputs resulting in Level 3 classification.

The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with or, in some cases, more conservative than other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the relevant reporting date.

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:



	June 30, 2017
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Collateralized Debt Obligations	$	—	$	—	$	8,327	$	8,327
Securities—Available-for-Sale:
Agency RMBS	—		27,206		—		27,206
Non-Agency RMBS	—		—		71,503		71,503
Municipal	—		27,163		—		27,163
Other Debt Securities	—		138,598		—		138,598
Total—Securities—Available-for-Sale	$	—	$	192,967	$	71,503	$	264,470
Loans Held for Sale	$	—	$	18,738	$	—	$	18,738
Mortgage servicing rights	$	—	$	—	$	7,200	$	7,200
Other assets—Derivative instruments	$	—	$	—	$	1,194	$	1,194
LIABILITIES:
Other liabilities—Derivative instruments	$	—	$	—	$	168	$	168


	June 30, 2016
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Collateralized Debt Obligations	$	—	$	—	$	7,584	$	7,584
Securities—Available-for-Sale:
Agency RMBS	—		33,722		—		33,722
Non-Agency RMBS	—		—		9,364		9,364
Municipal	—		34,719		—		34,719
Other Debt Securities	—		187,642		—		187,642
Total—Securities—Available-for-Sale	$	—	$	256,083	$	9,364	$	265,447
Loans Held for Sale	$	—	$	20,871	$	—	$	20,871
Mortgage servicing rights	$	—	$	—	$	3,943	$	3,943
Other assets—Derivative Instruments	$	—	$	—	$	2,202	$	2,202
LIABILITIES:
Other liabilities—Derivative instruments	$	—	$	—	$	884	$	884

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:



	Year Ended June 30, 2017
(Dollars in thousands)	Securities- Trading: Collateralized Debt Obligations		Securities- Available-for- Sale: Non- Agency RMBS¹			Mortgage Servicing Rights		Derivative Instruments, net			Total
Assets:
Opening Balance	$	7,584	$	9,364		$	3,943	$	1,318		$	22,209
Transfers into Level 3	—		124,547			—		—			124,547
Transfers out of Level 3	—		—			—		—			—
Total gains or losses for the period:
Included in earnings—Sale of mortgage-backed securities	—		(1,509		)	—		—			(1,509		)
Included in earnings—Fair value gain(loss) on trading securities	743		—			—		—			743
Included in earnings—Mortgage banking income	—		—			697		(292		)	405
Included in other comprehensive income	—		13,933			—		—			13,933
Purchases, issues, sales and settlements:											—
Purchases	—		—			2,560		—			2,560
Issues	—		—			—		—			—
Sales	—		(59,896		)	—		—			(59,896		)
Settlements	—		(12,972		)	—		—			(12,972		)
Other-than-temporary impairment	—		(1,964		)	—		—			(1,964		)
Closing balance	$	8,327	$	71,503		$	7,200	$	1,026		$	88,056
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	743	$	(1,509	)	$	697	$	(292	)	$	(361	)

¹ See Note 3 – “Securities” for further information on transfers.



	Year Ended June 30, 2016
(Dollars in thousands)	Securities- Trading: Collateralized Debt Obligations			Securities- Available-for- Sale: Non- Agency RMBS			Mortgage Servicing Rights			Derivative Instruments, net			Total
Assets:
Opening Balance	$	7,832		$	26,633		$	2,098		$	2,261		$	38,824
Transfers into Level 3	—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—
Total gains or losses for the period:
Included in earnings—Sale of mortgage-backed securities	—			(1,174		)	—			—			(1,174		)
Included in earnings—Fair value gain(loss) on trading securities	(248		)	—			—			—			(248		)
Included in earnings—Mortgage banking income	—			—			(889		)	(943		)	(1,832		)
Included in other comprehensive income	—			(2,380		)	—			—			(2,380		)
Purchases, issues, sales and settlements:													—
Purchases	—			—			2,734			—			2,734
Issues	—			—			—			—			—
Sales	—			(6,974		)	—			—			(6,974		)
Settlements	—			(6,313		)	—			—			(6,313		)
Other-than-temporary impairment	—			(428		)	—			—			(428		)
Closing balance	$	7,584		$	9,364		$	3,943		$	1,318		$	22,209
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	(248	)	$	(1,174	)	$	(889	)	$	(943	)	$	(3,254	)

The table below summarizes the quantitative information about Level 3 fair value measurements at the periods indicated:



	June 30, 2017
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Securities – Trading	$	8,327	Discounted Cash Flow	Total Projected Defaults, Discount Rate over Treasury	12.2 to 21.8% (16.8%) 4.5 to 4.5% (4.5%)
Securities – Non-agency MBS	$	71,503	Discounted Cash Flow	Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate over LIBOR	2.5 to 23.4% (12.5%) 1.5 to 18.9% (5.3%) 40.0 to 68.8% (57.9%) 2.6 to 5.8% (3.3%)
Mortgage Servicing Rights	$	7,200	Discounted Cash Flow	Projected Constant Prepayment Rate, Life (in years), Discount Rate	6.3 to 26.9% (9.5%) 2.5 to 7.8 (6.6) 9.5 to 13.0% (9.7%)
Derivative Instruments	$	1,026	Sales Comparison Approach	Projected Sales Profit of Underlying Loans	0.3 to 0.6% (0.5%)



	June 30, 2016
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Securities – Trading	$	7,584	Discounted Cash Flow	Total Projected Defaults, Discount Rate over Treasury	11.7 to 21.0% (16.5%) 5.0 to 5.0% (5.0%)
Securities – Non-agency MBS	$	9,364	Discounted Cash Flow	Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate over LIBOR	9.1 to 20.6% (14.2%) 1.5 to 13.6% (6.1%) 40.0 to 68.8% (51.5%) 2.5 to 2.9% (2.8%)
Mortgage Servicing Rights	$	3,943	Discounted Cash Flow	Projected Constant Prepayment Rate, Life (in years), Discount Rate	7.8 to 21.8% (10.6%) 3.5 to 7.1 (6.2) 9.5 to 10.5% (9.5%)
Derivative Instruments	$	1,318	Sales Comparison Approach	Projected Sales Profit of Underlying Loans	0.3 to 0.6% (0.4%)

The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.

The table below summarizes changes in unrealized gains and losses and interest income recorded in earnings for Level 3 trading assets and liabilities that are still held at the periods indicated:



	Year Ended June 30,
(Dollars in thousands)	2017		2016			2015
Interest income on investments	$	311	$	245		$	223
Fair value adjustment	743		(248		)	(234		)
Total	$	1,054	$	(3	)	$	(11	)

The table below summarizes the fair value of assets measured for impairment on a non-recurring basis:



	June 30, 2017
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Impaired loans and leases:
Single family real estate secured:
Mortgage	$	—	$	—	$	23,377	$	23,377
Home equity	—		—		16		16
Multifamily real estate secured	—		—		4,255		4,255
Auto and RV secured	—		—		157		157
Commercial & Industrial	—		—		314		314
Other	—		—		274		274
Total	$	—	$	—	$	28,393	$	28,393
Other real estate owned and foreclosed assets:
Single family real estate	$	—	$	—	$	1,353	$	1,353
Autos and RVs	—		—		60		60
Total	$	—	$	—	$	1,413	$	1,413


	June 30, 2016
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Impaired loans and leases:
Single family real estate secured:
Mortgage	$	—	$	—	$	28,610	$	28,610
Home equity	—		—		33		33
Multifamily real estate secured	—		—		2,218		2,218
Commercial real estate secured	—		—		254		254
Auto and RV secured	—		—		278		278
Other	—		—		676		$	676
Total	$	—	$	—	$	32,069	$	32,069
Other real estate owned and foreclosed assets:
Multifamily real estate	—		—		207		207
Autos and RVs	—		—		45		45
Total	$	—	$	—	$	252	$	252
HTM Securities – Non-agency MBS	$	—	$	—	$	79,164	$	79,164

Impaired loans and leases measured for impairment on a non-recurring basis using the fair value of the collateral for collateral-dependent loans have a carrying amount of $28,393 at June 30, 2017 and life to date charge-offs of $3,691. Impaired loans had a related allowance of $1,058 at June 30, 2017. At June 30, 2016, such impaired loans had a carrying amount of $32,069 and life to date charge-offs of $4,990, and a related allowance of $692.

Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $1,413 after charge-offs of $332 at June 30, 2017. Our other real estate owned and foreclosed assets had a net carrying amount was $252 after charge-offs of $116 during the year ended June 30, 2016.

There were no held-to-maturity securities at June 30, 2017. At June 30, 2016 held-to-maturity securities measured for impairment on a non-recurring basis had a carrying amount of $77,122 after charges to income of $137 and charges to other comprehensive income of $4,467 during the fiscal year ended June 30, 2016. These held-to-maturity securities are valued using Level 3 inputs.

The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on non-accrual as of June 30, 2017 and June 30, 2016.

The aggregate fair value, contractual balance (including accrued interest), and gain was as follows:



	At June 30,
(Dollars in thousands)	2017		2016		2015
Aggregate fair value	$	18,738	$	20,871	$	25,430
Contractual balance	18,311		20,226		24,886
Gain	$	427	$	645	$	544

The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:



	At June 30,
(Dollars in thousands)	2017			2016			2015
Interest income	$	602		$	826		$	671
Change in fair value	(514		)	(846		)	1,505
Total change in fair value	$	88		$	(20	)	$	2,176

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:



	June 30, 2017
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)¹
Impaired loans and leases:
Single family real estate secured:
Mortgage	$	23,377	Sales comparison approach	Adjustment for differences between the comparable sales	-38.5 to 79.8% (6.4%)
Home equity	$	16	Sales comparison approach	Adjustment for differences between the comparable sales	-6.1 to 26.1% (7.8%)
Multifamily real estate secured	$	4,255	Sales comparison approach and income approach	Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate	-24.2 to 48.7% (2.4%)
Auto and RV secured	$	157	Sales comparison approach	Adjustment for differences between the comparable sales	-17.2 to 42.4% (-5.5%)
Commercial & Industrial	$	314	Discounted cash flow	Discount Rate	34.8 to 34.8% (34.8%)
Other	$	274	Discounted cash flow	Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate	0.0 to 0.0% (0.0%) 0.0 to 10.0% (5.0%) 100.0 to 100.0% (100.0%) 4.5 to 5.2% (4.9%)
Other real estate owned and foreclosed assets:
Single family real estate	$	1,353	Sales comparison approach	Adjustment for differences between the comparable sales	-10.5 to 12.5% (0.1%)
Autos and RVs	$	60	Sales comparison approach	Adjustment for differences between the comparable sales	-17.0 to 20.5% (6.2%)

¹For impaired loans and other real estate owned the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.



	June 30, 2016
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)¹
Impaired loans and leases:
Single family real estate secured:
Mortgage	$	28,610	Sales comparison approach	Adjustment for differences between the comparable sales	-40.6 to 69.5% (6.2%)
Home equity	$	33	Sales comparison approach	Adjustment for differences between the comparable sales	-27.2 to 0.0% (-11.1%)
Multifamily real estate secured	$	2,218	Sales comparison approach and income approach	Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate	-29.7 to 58.0% (3.0%)
Commercial real estate secured	$	254	Sales comparison approach and income approach	Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate	0.0 to 66.7% (33.3%)
Auto and RV secured	$	278	Sales comparison approach	Adjustment for differences between the comparable sales	0.0 to 22.8% (10.6%)
Other	$	676	Discounted cash flow	Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate	0.0 to 0.0% (0.0%) 0.0 to 10.0% (5.0%) 100.0 to 100.0% (100.0%) 6.6 to 8.0% (7.3%)
Other real estate owned and foreclosed assets:
Multifamily real estate	$	207	Sales comparison approach and income approach	Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate	0.0 to 25.0% (12.5%)
Autos and RVs	$	45	Sales comparison approach	Adjustment for differences between the comparable sales	0.0 to 20.6% (10.2%)
HTM Securities – Non-agency MBS	$	79,164	Discounted cash flow	Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate over LIBOR	2.6 to 48.8% (12.0%) 1.5 to 17.8% (5.7%) 40.0 to 65.9% (56.5%) 2.9 to 8.2% (5.7%)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair values of financial instruments at year-end were as follows:



	June 30, 2017
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	643,541	$	643,541	$	—	$	—	$	643,541
Securities trading	8,327		—		—		8,327		8,327
Securities available-for-sale	264,470		—		192,967		71,503		264,470
Loans held for sale, at fair value	18,738		—		18,738		—		18,738
Loans held for sale, at lower of cost or fair value	6,669		—		—		7,328		7,328
Loans and leases held for investment—net	7,374,493		—		—		7,521,281		7,521,281
Accrued interest receivable	20,781		—		—		20,781		20,781
Mortgage servicing rights	7,200		—		—		7,200		7,200
Financial liabilities:
Total deposits	6,899,507		—		6,544,056		—		6,544,056
Securities sold under agreements to repurchase	20,000		—		20,152		—		20,152
Advances from the Federal Home Loan Bank	640,000		—		645,339		—		645,339
Subordinated notes and debentures	54,463		—		52,930		—		52,930
Accrued interest payable	1,284		—		1,284		—		1,284



	June 30, 2016
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	486,727	$	486,727	$	—	$	—	$	486,727
Securities trading	7,584		—		—		7,584		7,584
Securities available-for-sale	265,447		—		256,083		9,364		265,447
Securities held-to-maturity	199,174		—		77,415		125,262		202,677
Loans held for sale, at fair value	20,871		—		20,871		—		20,871
Loans held for sale, at lower of cost or fair value	33,530		—		—		33,530		33,530
Loans and leases held for investment—net	6,354,679		—		—		6,640,918		6,640,918
Accrued interest receivable	26,201		—		—		26,201		26,201
Mortgage servicing rights	3,943		—		—		3,943		3,943
Financial liabilities:
Total deposits	6,044,051		—		5,946,991		—		5,946,991
Securities sold under agreements to repurchase	35,000		—		36,391		—		36,391
Advances from the Federal Home Loan Bank	727,000		—		747,940		—		747,940
Subordinated notes and debentures	58,066		—		58,299		—		58,299
Accrued interest payable	1,667		—		1,667		—		1,667

The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans and leases or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans and leases, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found earlier in this footnote. The carrying amount of stock of the Federal Home Loan Bank (“FHLB”) approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.