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FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Mar. 31, 2024

FAIR VALUES OF FINANCIAL INSTRUMENTS

ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs - 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 significant assumptions are observable in the market.

Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

Debt Securities Available for Sale and Held to Maturity. Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost.

The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity.

Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).

The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis.


	At March 31, 2024
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS
Corporate securities	$	18,125	$	—	$	18,125	$	—
SBA securities	84,797		—		84,797		—
Obligations of states and political subdivisions	507		—		507		—
Non-bank qualified obligations of states and political subdivisions	222,669		—		222,669		—
Asset-backed securities	223,414		—		223,414		—
Mortgage-backed securities	1,229,946		—		1,229,946		—
Total debt securities AFS	$	1,779,458	$	—	$	1,779,458	$	—
Common equities and mutual funds(1)	$	4,334	$	4,334	$	—	$	—
Non-marketable equity securities(2)	$	10,000	$	—	$	—	$	—

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024.

(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.


	At September 30, 2023
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS
Corporate securities	$	18,250	$	—	$	18,250	$	—
SBA securities	85,242		—		85,242		—
Obligations of states and political subdivisions	2,289		—		2,289		—
Non-bank qualified obligations of states and political subdivisions	226,723		—		226,723		—
Asset-backed securities	246,199		—		246,199		—
Mortgage-backed securities	1,225,525		—		1,225,525		—
Total debt securities AFS	$	1,804,228	$	—	$	1,804,228	$	—
Common equities and mutual funds(1)	$	3,378	$	3,378	$	—	$	—
Non-marketable equity securities(2)	$	8,389	$	—	$	—	$	—

(1) Equity securities at fair value are included within other assets on the Consolidated Statements of Financial Condition at September 30, 2023.

(2) Consists of certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. However, if a loan or lease is individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a nonrecurring basis. Fair value is determined by the fair value of the underlying collateral less estimated costs to sell. The fair value of the collateral is determined based on the internal estimates and/or assessment provided by third-party appraisers and the valuation relies on discount rates ranging from 3% to 44%.

The following tables summarize the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a nonrecurring basis:


	At March 31, 2024
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases, net individually evaluated for credit loss







Commercial finance	$	9,234	$	—	$	—	$	9,234





Total loans and leases, net individually evaluated for credit loss	9,234		—		—		9,234

Total	$	9,234	$	—	$	—	$	9,234


	At September 30, 2023
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Loans and leases, net individually evaluated for credit loss







Commercial finance	$	21,829	$	—	$	—	$	21,829





Total loans and leases, net individually evaluated for credit loss	21,829		—		—		21,829

Total	$	21,829	$	—	$	—	$	21,829

Quantitative Information About Level 3 Fair Value Measurements

(Dollars in thousands)

Fair Value at

March 31, 2024

Fair Value at

September 30, 2023

Valuation
Technique

Unobservable Input

Range of Inputs

Loans and leases, net individually evaluated for credit loss

9,234

21,829

Market approach

Appraised values(1)

3% - 44%

(1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 3% to 44%.

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at March 31, 2024 and September 30, 2023 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:


	At March 31, 2024
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	347,888	$	347,888	$	347,888	$	—	$	—
Debt securities available for sale	1,779,458		1,779,458		—		1,779,458		—
Debt securities held to maturity	34,682		31,113		—		31,113		—
Common equities and mutual funds(1)	4,334		4,334		4,334		—		—
Non-marketable equity securities(1)(2)	20,522		20,522		—		10,522		—
Loans held for sale	25,946		25,946		—		25,946		—
Loans and leases	4,402,408		4,339,150		—		—		4,339,150
Federal Reserve Bank and Federal Home Loan Bank stocks	25,844		25,844		—		25,844		—
Accrued interest receivable	30,294		30,294		30,294		—		—
Financial liabilities

Deposits	6,368,344		6,368,058		6,267,603		100,455		—
Overnight federal funds purchased	31,000		31,000		31,000		—		—

Other short- and long-term borrowings	33,373		31,297		—		31,297		—
Accrued interest payable	1,961		1,961		1,961		—		—

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.


	At September 30, 2023
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	375,580	$	375,580	$	375,580	$	—	$	—
Debt securities available for sale	1,804,228		1,804,228		—		1,804,228		—
Debt securities held to maturity	36,591		31,425		—		31,425		—
Common equities and mutual funds(1)	3,378		3,378		3,378		—		—
Non-marketable equity securities(1)(2)	20,453		20,453		—		12,064		—
Loans held for sale	77,779		77,779		—		77,779		—
Loans and leases	4,359,681		4,223,010		—		—		4,223,010
Federal Reserve Bank and Federal Home Loan Bank stocks	28,210		28,210		—		28,210		—
Accrued interest receivable	23,282		23,282		23,282		—		—
Financial liabilities
Deposits	6,589,182		6,589,065		6,583,648		5,417		—
Overnight federal funds purchased	13,000		13,000		13,000		—		—

Other short- and long-term borrowings	33,873		31,187		—		31,187		—
Accrued interest payable	247		247		247		—		—

(1) Equity securities at fair value are included within other assets on the Consolidated Statements of Financial Condition at September 30, 2023.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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