Fair Value of Financial Instruments

3 Months Ended

Sep. 30, 2022

Fair value is the exchange price that would be received for an asset or paid transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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 19 of the 2022 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:


	September 30, 2022
	Total		Level 1		Level 2		Level 3
U.S government agencies	$	17,316	$	—	$	17,316	$	—
MBS, residential	91,507		—		91,507		—
Municipal bonds	5,420		—		5,420		—
Corporate bonds	47,498		—		47,498		—

Total	$	161,741	$	—	$	161,741	$	—


	June 30, 2022
	Total		Level 1		Level 2		Level 3
U.S government agencies	$	18,459	$	—	$	18,459	$	—
MBS, residential	47,233		—		47,233		—
Municipal bonds	5,558		—		5,558		—
Corporate bonds	55,728		—		55,728		—

Total	$	126,978	$	—	$	126,978	$	—

There were no transfers between levels during the three months ended September 30, 2022 and 2021.

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


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Collateral dependent loans

Commercial loans
Commercial and industrial	$	344	$	—	$	—	$	344


	June 30, 2022
	Total		Level 1		Level 2		Level 3
Collateral dependent loans
Commercial loans
Commercial and industrial	$	415	$	—	$	—	$	415

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 September 30, 2022 and June 30, 2022, are summarized below:


	September 30, 2022
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	94,159	$	94,159	$	94,159	$	—	$	—
Commercial paper, net	85,296		85,296		85,296		—		—
Certificates of deposit in other banks	27,535		27,535		—		27,535		—
Debt securities available for sale	161,741		161,741		—		161,741		—
Loans held for sale	76,252		77,513		—		—		77,513
Loans, net	2,829,482		2,756,169		—		—		2,756,169
FHLB and FRB stock	9,404		N/A		N/A		N/A		N/A
SBIC investments	12,235		12,235		—		—		12,235
Accrued interest receivable	9,667		9,667		—		777		8,890
Liabilities
Noninterest-bearing and NOW deposits	1,431,101		1,431,101		—		1,431,101		—
Money market accounts	960,150		960,150		—		960,150		—
Savings accounts	240,412		240,412		—		240,412		—
Certificates of deposit	471,005		462,500		—		462,500		—

Accrued interest payable	193		193		—		193		—


	June 30, 2022
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	105,119	$	105,119	$	105,119	$	—	$	—
Commercial paper, net	194,427		194,427		194,427		—		—
Certificates of deposit in other banks	23,551		23,551		—		23,551		—
Debt securities available for sale	126,978		126,978		—		126,978		—
Loans held for sale	79,307		80,489		—		—		80,489
Loans, net	2,734,605		2,687,293		—		—		2,687,293
FHLB and FRB stock	9,326		N/A		N/A		N/A		N/A
SBIC investments	12,758		12,758		—		—		12,758
Accrued interest receivable	8,573		8,573		24		580		7,969
Liabilities
Noninterest-bearing and NOW deposits	1,400,727		1,400,727		—		1,400,727		—
Money market accounts	969,661		969,661		—		969,661		—
Savings accounts	238,197		238,197		—		238,197		—
Certificates of deposit	491,176		485,452		—		485,452		—

Accrued interest payable	80		80		—		80		—

The Company had off-balance sheet financial commitments, which included approximately $962,986 and $921,239 of commitments to originate loans, undisbursed portions of construction loans, unused lines of credit, and standby letters of credit at September 30, 2022 and June 30, 2022, respectively (see "Note 9 – Commitments and Contingencies"). Since these commitments are based on current rates, the carrying amount approximates the fair value.