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Fair Value of Financial Instruments | 3 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. 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 fair value of financial instruments presented in this note are based on the same methodology as presented in Note 21 of the Notes to Consolidated Financial Statements contained in the Company’s 2019 Form 10-K. 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.
Following is a description of valuation methodologies used for assets recorded at fair value. The Company does not have any liabilities recorded at fair value. Investment Securities Available for Sale Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored enterprises, municipal bonds, and corporate debt securities. The Company has no Level 3 securities. Impaired Loans The Company does not record loans at fair value on a recurring basis. From time to time, however, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The Company reviews all impaired loans each quarter to determine if an allowance is necessary. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Once a loan is identified as individually impaired, the fair value is estimated using one of two methods, which include collateral value and discounted cash flows. Loans are considered collateral dependent if repayment is expected solely from the collateral. For these collateral dependent impaired loans, the Company obtains updated appraisals at least annually. These appraisals are reviewed for appropriateness and then discounted for estimated closing costs to determine if an allowance is necessary. As part of the quarterly review of impaired loans, the Company reviews these appraisals to determine if any additional discounts to the fair value are necessary. If a current appraisal is not obtained, the Company determines whether a discount is needed to the value from the original appraisal based on the decline in value of similar properties with recent appraisals. For loans that are not collateral dependent, estimated fair value is based on the present value of expected future cash flows using the interest rate implicit in the original agreement. Impaired loans where a charge-off has occurred or an allowance is established during the period being reported require classification in the fair value hierarchy. The Company records such impaired loans as a nonrecurring Level 3 in the fair value hierarchy. Loans Held for Sale Loans held for sale are adjusted to lower of cost or fair value. Fair value is based on commitments on hand from investors or, if commitments have not yet been obtained, what investors are currently offering for loans with similar characteristics. The Company considers all loans held for sale carried at fair value as nonrecurring Level 3. Real Estate Owned REO is considered held for sale and is adjusted to fair value less estimated selling costs upon transfer of the loan to foreclosed assets. Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral. The Company considers all REO that has been charged off or received an allowance during the period as nonrecurring Level 3. Financial Assets Recorded at Fair Value on a Recurring Basis The following table presents financial assets measured at fair value on a recurring basis at the dates indicated:
| September 30, 2019
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
U.S Government Agencies | $ | 14,261 |  |  | $ | — |  |  | $ | 14,261 |  |  | $ | — |
Residential MBS of U.S. Government Agencies and GSEs | 73,093 |  |  | — |  |  | 73,093 |  |  | — |
Municipal Bonds | 24,377 |  |  | — |  |  | 24,377 |  |  | — |
Corporate Bonds | 53,983 |  |  | — |  |  | 53,983 |  |  | — |
Total | $ | 165,714 |  |  | $ | — |  |  | $ | 165,714 |  |  | $ | — |
| June 30, 2019
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
U.S Government Agencies | $ | 15,210 |  |  | $ | — |  |  | $ | 15,210 |  |  | $ | — |
Residential MBS of U.S. Government Agencies and GSEs | 75,180 |  |  | — |  |  | 75,180 |  |  | — |
Municipal Bonds | 25,312 |  |  | — |  |  | 25,312 |  |  | — |
Corporate Bonds | 6,084 |  |  | — |  |  | 6,084 |  |  | — |
Total | $ | 121,786 |  |  | $ | — |  |  | $ | 121,786 |  |  | $ | — |
There were no transfers between levels during the three months ended September 30, 2019. The following table presents financial assets measured at fair value on a non-recurring basis at the dates indicated:
| September 30, 2019
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
Impaired loans | $ | 995 |  |  | $ | — |  |  | $ | — |  |  | $ | 995 |
REO | 80 |  |  | — |  |  | — |  |  | 80 |
Total | $ | 1,075 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,075 |
| June 30, 2019
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
Impaired loans | $ | 9,071 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,071 |
REO | 1,804 |  |  | — |  |  | — |  |  | 1,804 |
Total | $ | 10,875 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,875 |
Quantitative information about Level 3 fair value measurements during the period ended September 30, 2019 is shown in the table below:
| Fair Value at September 30, 2019 |  | Valuation Techniques |  | Unobservable Input |  | Range |  | Weighted Average
Nonrecurring measurements: |  |  |  |  |  |  |  |  |
Impaired loans, net | $ | 995 |  |  | Discounted appraisals and discounted cash flows |  | Collateral discounts and discount spread |  | 0% - 28% 0% - 3% |  | 5%
REO | $ | 80 |  |  | Discounted appraisals |  | Collateral discounts |  | 8% - 15% |  | 12%
The stated carrying value and estimated fair value amounts of financial instruments as of September 30, 2019 and June 30, 2019, are summarized below:
| September 30, 2019
| Carrying Value |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |
Cash and interest-bearing deposits | $ | 117,093 |  |  | $ | 117,093 |  |  | $ | 117,093 |  |  | $ | — |  |  | $ | — |
Commercial paper | 254,302 |  |  | 254,302 |  |  | 254,302 |  |  | — |  |  | — |
Certificates of deposit in other banks | 50,117 |  |  | 50,117 |  |  | — |  |  | 50,117 |  |  | — |
Securities available for sale | 165,714 |  |  | 165,714 |  |  | — |  |  | 165,714 |  |  | — |
Loans, net | 2,487,416 |  |  | 2,427,833 |  |  | — |  |  | — |  |  | 2,427,833 |
Loans held for sale | 289,319 |  |  | 291,481 |  |  | — |  |  | — |  |  | 291,481 |
FHLB stock | 32,181 |  |  | 32,181 |  |  | 32,181 |  |  | — |  |  | — |
FRB stock | 7,345 |  |  | 7,345 |  |  | 7,345 |  |  | — |  |  | — |
SBIC investments | 6,374 |  |  | 6,374 |  |  | — |  |  | — |  |  | 6,374 |
Accrued interest receivable | 10,434 |  |  | 10,434 |  |  | — |  |  | 1,292 |  |  | 9,142 |
Liabilities: |  |  |  |  |  |  |  |  |
Noninterest-bearing and NOW deposits | 776,994 |  |  | 776,994 |  |  | — |  |  | 776,994 |  |  | — |
Money market accounts | 769,000 |  |  | 769,000 |  |  | — |  |  | 769,000 |  |  | — |
Savings accounts | 169,872 |  |  | 169,872 |  |  | — |  |  | 169,872 |  |  | — |
Certificates of deposit | 778,328 |  |  | 779,555 |  |  | — |  |  | 779,555 |  |  | — |
Borrowings | 685,000 |  |  | 698,451 |  |  | — |  |  | 698,451 |  |  | — |
Accrued interest payable | 2,416 |  |  | 2,416 |  |  | — |  |  | 2,416 |  |  | — |
| June 30, 2019
| Carrying Value |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |
Cash and interest-bearing deposits | $ | 71,043 |  |  | $ | 71,043 |  |  | $ | 71,043 |  |  | $ | — |  |  | $ | — |
Commercial paper | 241,446 |  |  | 241,446 |  |  | 241,446 |  |  | — |  |  | — |
Certificates of deposit in other banks | 52,005 |  |  | 52,005 |  |  | — |  |  | 52,005 |  |  | — |
Securities available for sale | 121,786 |  |  | 121,786 |  |  | — |  |  | 121,786 |  |  | — |
Loans, net | 2,683,761 |  |  | 2,604,827 |  |  | — |  |  | — |  |  | 2,604,827 |
Loans held for sale | 18,175 |  |  | 18,591 |  |  | — |  |  | — |  |  | 18,591 |
FHLB stock | 31,969 |  |  | 31,969 |  |  | 31,969 |  |  | — |  |  | — |
FRB stock | 7,335 |  |  | 7,335 |  |  | 7,335 |  |  | — |  |  | — |
SBIC investments | 6,074 |  |  | 6,074 |  |  | — |  |  | — |  |  | 6,074 |
Accrued interest receivable | 10,533 |  |  | 10,533 |  |  | 350 |  |  | 750 |  |  | 9,433 |
Liabilities: |  |  |  |  |  |  |  |  |
Noninterest-bearing and NOW deposits | 746,617 |  |  | 746,617 |  |  | — |  |  | 746,617 |  |  | — |
Money market accounts | 691,172 |  |  | 691,172 |  |  | — |  |  | 691,172 |  |  | — |
Savings accounts | 177,278 |  |  | 177,278 |  |  | — |  |  | 177,278 |  |  | — |
Certificates of deposit | 712,190 |  |  | 712,485 |  |  | — |  |  | 712,485 |  |  | — |
Borrowings | 680,000 |  |  | 688,418 |  |  | — |  |  | 688,418 |  |  | — |
Accrued interest payable | 2,252 |  |  | 2,252 |  |  | — |  |  | 2,252 |  |  | — |
The Company had off-balance sheet financial commitments, which included approximately $627,375 and $628,572 of commitments to originate loans, undisbursed portions of interim construction loans, and unused lines of credit at September 30, 2019 and June 30, 2019, respectively (see Note 9). Since these commitments are based on current rates, the carrying amount approximates the fair value. Estimated fair values were determined using the following methods and assumptions: Cash and interest-bearing deposits – The stated amounts approximate fair values as maturities are less than 90 days. Commercial paper – The stated amounts approximate fair value due to the short-term nature of these investments. Certificates of deposit in other banks – The stated amounts approximate fair values. Securities available for sale – Fair values are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans held for sale – The fair value of mortgage loans held for sale is determined by outstanding commitments from investors on a "best efforts" basis or current investor yield requirements, calculated on the aggregate loan basis. The fair value of U.S. Small Business Administration ("SBA") loans held for sale is based on what investors are currently offering for loans with similar characteristics. Loans, net – Fair values for loans are estimated by segregating the portfolio by type of loan and discounting scheduled cash flows using current market interest rates for loans with similar terms and credit quality. A prepayment assumption is used as an estimate of the portion of loans that will be repaid prior to their scheduled maturity. A liquidity premium assumption is used as an estimate for the additional return required by an investor of assets that are potentially considered illiquid. FHLB and FRB stock – No ready market exists for these stocks and they have no quoted market value. However, redemptions of these securities have historically been at par value. Accordingly, cost is deemed to be a reasonable estimate of fair value. SBIC investments – No ready market exists for these investments and they have no quoted market value. SBIC investments are valued at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions of identical or similar investments. Accordingly, cost is deemed to be a reasonable estimate of fair value. Deposits – Fair values for demand deposits, money market accounts, and savings accounts are the amounts payable on demand. The fair value of certificates of deposit is estimated by discounting the contractual cash flows using current market interest rates for accounts with similar maturities. Borrowings – The fair value of advances from the FHLB is estimated based on current rates for borrowings with similar terms. Accrued interest receivable and payable – The stated amounts of accrued interest receivable and payable approximate the fair value. Limitations – Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are 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 precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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