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FAIR VALUE MEASUREMENTS
 9 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“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 (1) quoted prices for similar instruments in active markets, (2) quoted prices for identical or similar instruments in markets that are not active and (3) 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.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Debt Securities Available for Sale and Equity Securities. Debt securities available for sale and equity securities are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using an independent pricing service. For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments. The Company’s Level 1 securities include equity securities and mutual funds. Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds and corporate debt securities.  The Company had no Level 3 securities at June 30, 2019 or September 30, 2018.

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation 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 2 inputs). The Company considers these valuations supplied by a third party provider which utilizes several sources for valuing fixed-income securities. These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology, and the third party provider’s own matrix and desk pricing.  The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value. Sources utilized by the third party provider include but are not limited to pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.
 
The following table summarizes the fair values of debt securities available for sale and equity securities at June 30, 2019 and September 30, 2018, as they are measured at fair value on a recurring basis.
 
Fair Value At June 30, 2019
(Dollars in Thousands)
Total
 
Level 1
 
Level 2
 
Level 3
Debt securities AFS
 
 
 
 
 
 
 
SBA securities
$
193,066

 
$
—

 
$
193,066

 
$
—

Obligations of states and political subdivisions
875

 
—

 
875

 
—

Non-bank qualified obligations of states and political subdivisions
460,660

 
—

 
460,660

 
—

Asset-backed securities
307,296

 
—

 
307,296

 
—

Mortgage-backed securities
395,201

 
—

 
395,201

 
—

Total debt securities AFS
$
1,357,098

 
$
—

 
$
1,357,098

 
$
—

Common equities and mutual funds(1)(2)
$
4,419

 
$
4,419

 
$
—

 
$
—

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2019 and September 30, 2018.
(2) ASU 2016-01 adopted on October 1, 2018, on a prospective basis, removed equity securities from AFS category at June 30, 2019.
 
Fair Value At September 30, 2018
(Dollars in Thousands)
Total
 
Level 1
 
Level 2
 
Level 3
Debt securities AFS
 
 
 
 
 
 
 
SBA securities
$
44,337

 
$
—

 
$
44,337

 
$
—

Obligations of states and political subdivisions
16,910

 
—

 
16,910

 
—

Non-bank qualified obligations of states and political subdivisions
1,109,885

 
—

 
1,109,885

 
—

Asset-backed securities
313,028

 
—

 
313,028

 
—

Mortgage-backed securities
364,065

 
—

 
364,065

 
—

Total debt securities AFS
1,848,225

 
—

 
1,848,225

 
—

Common equities and mutual funds(1)
3,800

 
3,800

 
—

 
—

Total securities
$
1,852,025

 
$
3,800

 
$
1,848,225

 
$
—


(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2019 and September 30, 2018.

The Company did not transfer any AFS debt securities or equity securities between fair value hierarchy categories at June 30, 2019 or September 30, 2018.

Loans and Leases.  The Company does not record loans and leases at fair value on a recurring basis.  If a loan or lease is identified as individually impaired, management then measures impairment in accordance with ASC 310, Receivables. See Note 4 Loans and Leases, Net for further information.

The following table summarizes the assets of the Company that were measured at fair value in the consolidated statements of financial condition on a non-recurring basis as of June 30, 2019 and September 30, 2018.
 
Fair Value At June 30, 2019
(Dollars in Thousands)
Total
 
Level 1
 
Level 2
 
Level 3
Impaired Loans and Leases, net
 
 
 
 
 
 
 
Asset based lending
$
83

 
$
—

 
$
—

 
$
83

Factoring
3,960

 
—

 
—

 
3,960

Commercial finance
4,043

 
—

 
—

 
4,043

Total National Lending
4,043

 
—

 
—

 
4,043

     Total impaired loans and leases
4,043

 
—

 
—

 
4,043

Foreclosed assets, net
29,514

 
—

 
—

 
29,514

Total
$
33,557

 
$
—

 
$
—

 
$
33,557


 
Fair Value At September 30, 2018
(Dollars in Thousands)
Total
 
Level 1
 
Level 2
 
Level 3
Impaired loans and leases, net
 
 
 
 
 
 
 
Asset based lending
$
57

 
$
—

 
$
—

 
$
57

Factoring
1,899

 
—

 
—

 
1,899

Lease financing
2,869

 
—

 
—

 
2,869

Commercial finance
4,825

 
—

 
—

 
4,825

Total National Lending
4,825

 
—

 
—

 
4,825

     Total impaired loans and leases
4,825

 
—

 
—

 
4,825

Foreclosed assets, net
31,638

 
—

 
—

 
31,638

Total
$
36,463

 
$
—

 
$
—

 
$
36,463


 
Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)
Fair Value at
June 30, 2019
 
Fair Value at
September 30, 2018
 
Valuation
Technique
 
Unobservable Input
 
Range of Inputs
Impaired loans and leases, net
$
4,043

 
4,825

 
Market approach
 
Appraised values(1)
 
4.00 - 10.00%
Foreclosed assets, net
$
29,514

 
31,638

 
Market approach
 
Appraised values(1)
 
4.00 - 30.00%
(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 4% to 30%.

The following table discloses the Company’s estimated fair value amounts of its financial instruments as of the dates set forth below.  It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of June 30, 2019 and September 30, 2018, as more fully described below.  The operations of the Company are managed from a going concern basis and not a liquidation basis.  As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations.  Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value.  Neither of these components have been given consideration in the presentation of fair values below.

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at June 30, 2019 and September 30, 2018.
 
June 30, 2019
(Dollars in Thousands)
Carrying
Amount
 
Estimated
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
100,732

 
$
100,732

 
$
100,732

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Debt securities available for sale
1,357,098

 
1,357,098

 
—

 
1,357,098

 
—

Debt securities held to maturity
145,542

 
142,938

 
—

 
142,938

 
—

Equity securities(1)
4,419

 
4,419

 
4,419

 
—

 
—

Total securities
1,507,059

 
1,504,455

 
4,419

 
1,500,036

 
—

 
 
 
 
 
 
 
 
 
 
Loans held for sale
62,839

 
62,839

 
—

 
62,839

 
—

 
 
 
 
 
 
 
 
 
 
Loans and leases:
 
 
 
 
 
 
 
 
 
Asset based lending
615,309

 
599,664

 
—

 
—

 
599,664

Factoring
320,344

 
316,278

 
—

 
—

 
316,278

Lease financing
341,957

 
338,804

 
—

 
—

 
338,804

Insurance premium finance
358,772

 
358,401

 
—

 
—

 
358,401

SBA/USDA
99,791

 
94,391

 
—

 
—

 
94,391

Other commercial finance
99,677

 
101,145

 
—

 
—

 
101,145

Commercial finance
1,835,850

 
1,808,683

 
—

 
—

 
1,808,683

Consumer credit products
155,539

 
156,539

 
—

 
—

 
156,539

Other consumer finance
164,727

 
160,239

 
—

 
—

 
160,239

Consumer finance
320,266

 
316,778

 
—

 
—

 
316,778

Tax services
24,410

 
8,985

 
—

 
—

 
8,985

Warehouse finance
250,003

 
250,053

 
—

 
—

 
250,053

Total National Lending
2,430,529

 
2,384,499

 
—

 
—

 
2,384,499

Commercial real estate and operating
877,412

 
867,725

 
—

 
—

 
867,725

Consumer one to four family real estate and other
256,853

 
258,359

 
—

 
—

 
258,359

Agricultural real estate and operating
61,169

 
59,270

 
—

 
—

 
59,270

Total Community Banking
1,195,434

 
1,185,354

 
—

 
—

 
1,185,354

Total loans and leases
3,625,963

 
3,569,853

 
—

 
—

 
3,569,853

 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank stock
17,236

 
17,236

 
—

 
17,236

 
—

Accrued interest receivable
19,722

 
19,722

 
19,722

 
—

 
—

 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
2,751,931

 
2,751,931

 
2,751,931

 
—

 
—

Interest-bearing demand deposits, savings, and money markets
278,585

 
278,585

 
278,585

 
—

 
—

Time certificates of deposits
116,698

 
116,657

 
—

 
116,657

 
—

Wholesale non-maturing deposits
216,598

 
216,598

 
216,598

 
—

 
—

Wholesale time certificates of deposits
1,411,402

 
1,412,931

 
—

 
1,412,931

 
—

Total deposits
4,775,214

 
4,776,702

 
3,247,114

 
1,529,588

 
—

 
 
 
 
 
 
 
 
 
 
Overnight federal funds purchased
135,000

 
135,000

 
135,000

 
—

 
—

Long-term Federal Home Loan Bank advances
110,000

 
110,578

 
—

 
110,578

 
—

Securities sold under agreements to repurchase
3,658

 
3,658

 
—

 
3,658

 
—

Capital leases
1,972

 
1,972

 
—

 
1,972

 
—

Trust preferred securities
13,661

 
13,879

 
—

 
13,879

 
—

Subordinated debentures
73,605

 
76,875

 
—

 
76,875

 
—

Other borrowings
18,482

 
18,307

 
—

 
18,307

 
—

Accrued interest payable
12,350

 
12,350

 
12,350

 
—

 
—

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2019 and September 30, 2018.
 
September 30, 2018
(Dollars in Thousands)
Carrying
Amount
 
Estimated
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
99,977

 
$
99,977

 
$
99,977

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Securities available for sale
1,852,025

 
1,852,025

 
3,800

 
1,848,225

 
—

Securities held to maturity
172,154

 
160,974

 
—

 
160,974

 
—

Total securities
2,024,179

 
2,012,999

 
3,800

 
2,009,199

 
—

 
 
 
 
 
 
 
 
 
 
Loans held for sale
15,606

 
15,606

 
—

 
15,606

 
—

 
 
 
 
 
 
 
 
 
 
Loans and leases:
 
 
 
 
 
 
 
 
 
Asset based lending
477,917

 
477,471

 
—

 
—

 
477,471

Factoring
284,221

 
283,424

 
—

 
—

 
283,424

Lease financing
265,315

 
264,679

 
—

 
—

 
264,679

Insurance premium finance
337,877

 
337,212

 
—

 
—

 
337,212

SBA/USDA
59,374

 
61,072

 
—

 
—

 
61,072

Other commercial finance
85,145

 
83,111

 
—

 
—

 
83,111

Commercial finance
1,509,849

 
1,506,969

 
—

 
—

 
1,506,969

Consumer credit products
80,605

 
80,633

 
—

 
—

 
80,633

Other consumer finance
189,756

 
197,320

 
—

 
—

 
197,320

Consumer finance
270,361

 
277,953

 
—

 
—

 
277,953

Tax services
1,073

 
1,073

 
—

 
—

 
1,073

Warehouse finance
65,000

 
64,978

 
—

 
—

 
64,978

Total National Lending
1,846,283

 
1,850,973

 
—

 
—

 
1,850,973

Commercial real estate and operating
790,890

 
773,203

 
—

 
—

 
773,203

Consumer one to four family real estate and other
247,318

 
244,730

 
—

 
—

 
244,730

Agricultural real estate and operating
60,498

 
58,849

 
—

 
—

 
58,849

Total Community Banking
1,098,706

 
1,076,782

 
—

 
—

 
1,076,782

Total loans and leases
2,944,989

 
2,927,755

 
—

 
—

 
2,927,755

 
 
 
 
 
 
 
 
 
 
Federal Home Loan Bank stock
23,400

 
23,400

 
—

 
23,400

 
—

Accrued interest receivable
22,016

 
22,016

 
22,016

 
—

 
—

 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
2,405,274

 
2,405,274

 
2,405,274

 
—

 
—

Interest-bearing demand deposits, savings, and money markets
218,347

 
218,347

 
218,347

 
—

 
—

Time certificates of deposits
276,180

 
273,800

 
—

 
273,800

 
—

Wholesale non-maturing deposits
94,384

 
94,384

 
94,384

 
—

 
—

Wholesale time certificates of deposits
1,436,802

 
1,432,146

 
—

 
1,432,146

 
—

Total deposits
4,430,987

 
4,423,951

 
2,718,005

 
1,705,946

 
—

 
 
 
 
 
 
 
 
 
 
Overnight federal funds purchased
422,000

 
422,000

 
422,000

 
—

 
—

Securities sold under agreements to repurchase
3,694

 
3,694

 
—

 
3,694

 
—

Capital leases
1,876

 
1,876

 
—

 
1,876

 
—

Trust preferred securities
13,661

 
13,866

 
—

 
13,866

 
—

Subordinated debentures
73,491

 
75,563

 
—

 
75,563

 
—

Accrued interest payable
7,794

 
7,794

 
7,794

 
—

 
—





The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at June 30, 2019 and September 30, 2018.
 
CASH AND CASH EQUIVALENTS
The carrying amount of cash and short-term investments is assumed to approximate the fair value.
 
DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES
Debt securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair values for these investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or 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.

LOANS HELD FOR SALE
The carrying amount of loans held for sale is assumed to approximate the fair value.

LOANS AND LEASES, NET
Upon adoption of ASU 2016-01, the fair value of loans and leases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk. In comparison, loan and lease fair values as of September 30, 2018 were estimated on an entrance price methodology, which discounts future cash flows using the then-current rates at which a similar loan would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of non-impaired loans and leases as of June 30, 2019 and September 30, 2018 are not comparable.

FEDERAL HOME LOAN BANK (“FHLB”) STOCK
The fair value of FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.
 
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.
 
DEPOSITS
The carrying values of noninterest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits. In accordance with Subtopic 825-10, Financial Instruments, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under Subtopic 825-10.
 
ADVANCES FROM FHLB
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.
 
FEDERAL FUNDS PURCHASED
The carrying amount of federal funds purchased is assumed to approximate the fair value.
 
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, SUBORDINATED DEBENTURES AND OTHER BORROWINGS
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.
 
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
 
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument.  Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments.  These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time.  Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be 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 a high level of precision.  Changes in assumptions as well as tax considerations could significantly affect the estimates.  Accordingly, based on the limitations described above, 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.