Fair Value Measurements

12 Months Ended

Jun. 30, 2024

Fair Value Measurements

Fair Value Measurements

NOTE 15: Fair Value Measurements

ASC Topic 820, Fair Value Measurements, 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. 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

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active 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 3 – Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities

Recurring Measurements. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2024 and 2023:

	Fair Value Measurements at June 30, 2024, Using:
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
(dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Obligations of state and political subdivisions	$	27,753	$	—	$	27,753	$	—
Corporate obligations		31,277		—		31,277		—
Asset backed securities		58,679		—		58,679		—
Other securities		5,333		—		5,333		—
MBS and CMOs		304,861		—		304,861		—
Mortgage servicing rights		2,448		—		—		2,448
Derivative financial instruments		20		—		20
Liabilities:
Derivative financial instruments		15		—		15		—

	Fair Value Measurements at June 30, 2023, Using:
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
(dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Obligations of state and political subdivisions	$	42,568	$	—	$	42,568	$	—
Corporate obligations		32,538		—		32,538		—
Asset backed securities		68,626		—		68,626		—
Other securities		3,570		—		3,570		—
MBS and CMOs		270,252		—		270,252		—

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2024.

Available-for-sale Securities. When quoted market prices are available in an active market, securities are classified within Level 1. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, our Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps on loans accounted for as fair value hedges. The fair value of interest rate swaps was determined by discounting the expected cash flows of the interest rate swaps. This valuation reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs. The inputs used to value the Company’s interest rate swaps fall within Level 2 of the fair value hierarchy and as a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy. See information regarding the Company’s derivative financial agreements in Note 16: Derivative Financial Instruments of these Notes to Consolidated Financial Statements.

Mortgage servicing rights: The Company records MSR at fair value on a recurring basis with subsequent remeasurement of MSR based on change in fair value. An estimate of the fair value of the Company’s MSR is

determined by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of the Company’s MSR are classified as Level 3.

Nonrecurring Measurements. The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at June 30, 2024 and 2023:

	Fair Value Measurements at June 30, 2024, Using:
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
(dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Foreclosed and repossessed assets held for sale	$	759	$	—	$	—	$	759
Collateral dependent loans		12,994		—		—		12,994

	Fair Value Measurements at June 30, 2023, Using:
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
(dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Foreclosed and repossessed assets held for sale	$	1,472	$	—	$	—	$	1,472

The following table presents losses recognized on assets measured on a non-recurring basis for the years ended June 30, 2024 and 2023:

(dollars in thousands)	2024		2023
Foreclosed and repossessed assets held for sale	$	74	$	60
Total losses on assets measured on a non-recurring basis	$	74	$	60

The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarch. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.

Foreclosed and Repossessed Assets Held for Sale. Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified.

Collateral-Dependent Loans. The Company records collateral-dependent loans as Nonrecurring Level 3. If a loan’s fair value as estimated by the Company is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a reserve within the allowance for credit losses specific to the loan.

Unobservable (Level 3) Inputs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at June 30, 2024 and 2023.

					Range
	Fair value at		Valuation	Unobservable	of		Weighted-average
(dollars in thousands)	June 30, 2024		technique	inputs	inputs applied		inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$	759	Third party appraisal	Marketability discount	17.9 - 44.9	%	20.3	%
Collateral dependent loans		12,994	Collateral value	Marketability discount	14.5 -52.3	%	43.7	%

					Range
	Fair value at		Valuation	Unobservable	of		Weighted-average
(dollars in thousands)	June 30, 2023		technique	inputs	inputs applied		inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$	1,472	Third party appraisal	Marketability discount	14.9 - 14.9	%	14.9	%

Fair Value of Financial Instruments. The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fell at June 30, 2024 and 2023:

	June 30, 2024
			Quoted Prices
			in Active				Significant
			Markets for		Significant Other		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
(dollars in thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	60,904	$	60,904	$	—	$	—
Interest-bearing time deposits		491		—		491		—
Stock in FHLB		8,713		—		8,713		—
Stock in Federal Reserve Bank of St. Louis		9,089		—		9,089		—
Loans receivable, net		3,797,287		—		—		3,639,657
Accrued interest receivable		23,826		—		23,826		—
Mortgage servicing assets		2,448						2,448
Derivative financial instruments		20		—		20		—
Financial liabilities
Deposits		3,952,457		2,607,653		—		1,338,215
Advances from FHLB		102,050		—		100,468		—
Accrued interest payable		12,868		—		12,868		—
Subordinated debt		23,156		—		—		20,576
Derivative financial instruments		15		—		15		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Letters of credit		—		—		—		—
Lines of credit		—		—		—		—

	June 30, 2023
			Quoted Prices
			in Active				Significant
			Markets for		Significant Other		Unobservable
	Carrying		Identical Assets		Observable Inputs		Inputs
(dollars in thousands)	Amount		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	53,979	$	53,979	$	—	$	—
Interest-bearing time deposits		1,242		—		1,242		—
Stock in FHLB		11,540		—		11,540		—
Stock in Federal Reserve Bank of St. Louis		9,061		—		9,061		—
Loans receivable, net		3,571,078		—		—		3,393,791
Accrued interest receivable		18,871		—		18,871		—
Financial liabilities
Deposits		3,725,540		2,661,479		—		1,053,650
Advances from FHLB		133,514		—		131,821		—
Accrued interest payable		4,723		—		4,723		—
Subordinated debt		23,105		—		—		20,318
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Letters of credit		—		—		—		—
Lines of credit		—		—		—		—