Fair Value of Financial Instruments

9 Months Ended

Mar. 31, 2022

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Debt 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 Company measures the fair value of loans receivable under the exit price notion. The fair value of nonperforming loans is based on the underlying value of the collateral.

Fair Value Hierarchy

The Company groups assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets.

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.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with the methodologies disclosed in Note 20 of the 2021 Form 10-K.

Financial Assets Recorded at Fair Value

The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:


	March 31, 2022
	Total		Level 1		Level 2		Level 3
U.S government agencies	$	18,576	$	—	$	18,576	$	—
MBS, residential	34,063		—		34,063		—
Municipal bonds	5,667		—		5,667		—
Corporate bonds	48,009		—		48,009		—

Total	$	106,315	$	—	$	106,315	$	—


	June 30, 2021
	Total		Level 1		Level 2		Level 3
U.S government agencies	$	19,073	$	—	$	19,073	$	—
MBS, residential	43,404		—		43,404		—
Municipal bonds	9,551		—		9,551		—
Corporate bonds	84,431		—		84,431		—

Total	$	156,459	$	—	$	156,459	$	—

There were no transfers between levels during the nine months ended March 31, 2022 and 2021.

The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:


	March 31, 2022
	Total		Level 1		Level 2		Level 3
Collateral dependent loans:
Commercial real estate	$	—	$	—	$	—	$	—
Commercial and industrial	164		—		—		164
Total	$	164	$	—	$	—	$	164


	June 30, 2021
	Total		Level 1		Level 2		Level 3
Collateral dependent loans:
Commercial real estate	$	4,841	$	—	$	—	$	4,841
Equipment finance	275		—		—		275
Total	$	5,116	$	—	$	—	$	5,116

A loan is considered to be collateral dependent when, based on current information and events, the Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the borrower is experiencing financial difficulty as of the measurement date. For real estate loans, the fair value of the loan's collateral is determined by a third party appraisal, which is then adjusted for the estimated selling and closing costs related to liquidation of the collateral (typically ranging from 8% to 12% of the appraised value). For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. Additional discounts of 5% to 15% may be applied depending on the age of the appraisals. The unobservable inputs may vary depending on the individual asset with no one of the three methods being the predominant approach. For non-real estate loans, the fair value of the loan's collateral may be determined using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the customer and customer's business.

The stated carrying value and estimated fair value amounts of financial instruments as of March 31, 2022 and June 30, 2021, are summarized below:


	March 31, 2022
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	52,050	$	52,050	$	52,050	$	—	$	—
Commercial paper	312,918		312,918		312,918		—		—
Certificates of deposit in other banks	28,125		28,125		—		28,125		—
Debt securities available for sale	106,315		106,315		—		106,315		—
Loans held for sale	85,263		86,338		—		—		86,338
Loans, net	2,668,504		2,620,750		—		—		2,620,750
FHLB stock	3,038		N/A		N/A		N/A		N/A
FRB stock	7,413		N/A		N/A		N/A		N/A
SBIC investments	12,589		12,589		—		—		12,589
Accrued interest receivable	7,980		7,980		—		553		7,427
Liabilities:
Noninterest-bearing and NOW accounts	1,356,921		1,356,921		—		1,356,921		—
Money market accounts	1,026,595		1,026,595		—		1,026,595		—
Savings accounts	232,831		232,831		—		232,831		—
Certificates of deposit	442,810		439,407		—		439,407		—
Borrowings	30,000		29,997		—		29,997		—
Accrued interest payable	45		45		—		45		—


	June 30, 2021
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	50,990	$	50,990	$	50,990	$	—	$	—
Commercial paper	189,596		189,596		189,596		—		—
Certificates of deposit in other banks	40,122		40,122		—		40,122		—
Debt securities available for sale	156,459		156,459		—		156,459		—
Loans held for sale	93,539		94,779		—		—		94,779
Loans, net	2,697,799		2,668,570		—		—		2,668,570
FHLB stock	6,153		N/A		N/A		N/A		N/A
FRB stock	7,386		N/A		N/A		N/A		N/A
SBIC investments	10,171		10,171		—		—		10,171
Accrued interest receivable	7,933		7,933		52		542		7,339
Liabilities:
Noninterest-bearing and NOW accounts	1,281,372		1,281,372		—		1,281,372		—
Money market accounts	975,001		975,001		—		975,001		—
Savings accounts	226,391		226,391		—		226,391		—
Certificates of deposit	472,777		474,397		—		474,397		—
Borrowings	115,000		115,000		—		115,000		—
Accrued interest payable	52		52		—		52		—

The Company had off-balance sheet financial commitments, which included approximately $902,187 and $940,249 of commitments to originate loans, undisbursed portions of construction loans, unused lines of credit, and standby letters of credit at March 31, 2022 and June 30, 2021, respectively (see "Note 9 – Commitments and Contingencies"). Since these commitments are based on current rates, the carrying amount approximates the fair value.