Fair Value of Financial Instruments

9 Months Ended

Mar. 31, 2023

Fair value is the exchange price that would be received for an asset or paid to 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: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of valuation methodologies used for assets recorded at fair value. As of both March 31, 2023 and June 30, 2022, the Company did not have any liabilities recorded at fair value.

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:


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Debt securities available for sale
U.S government agencies	$	15,565	$	—	$	15,565	$	—
MBS, residential	101,131		—		101,131		—
Municipal bonds	3,432		—		3,432		—
Corporate bonds	34,590		—		34,590		—
Total debt securities available for sale	$	154,718	$	—	$	154,718	$	—

Loans held for sale	$	1,209	$	—	$	1,209	$	—


	June 30, 2022
	Total		Level 1		Level 2		Level 3
Debt securities available for sale
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 debt securities available for sale	$	126,978	$	—	$	126,978	$	—

Loans held for sale carried at fair value are valued at the individual loan level using quoted secondary market prices.

There were no transfers between levels during the nine months ended March 31, 2023 and June 30, 2022.

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


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Collateral dependent loans
Commercial real estate
Commercial real estate - owner occupied	$	920	$	—	$	—	$	920
Commercial real estate - non-owner occupied	2,971		—		—		2,971
Commercial loans
Commercial and industrial	336		—		—		336


Total	$	4,227	$	—	$	—	$	4,227


	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 March 31, 2023 and June 30, 2022, are summarized below:


	March 31, 2023
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	314,413	$	314,413	$	314,413	$	—	$	—

Certificates of deposit in other banks	33,102		33,102		—		33,102		—
Debt securities available for sale, at fair value	154,718		154,718		—		154,718		—
FHLB and FRB stock	19,125		N/A		N/A		N/A		N/A
SBIC investments, at cost	13,620		13,620		—		—		13,620
Loans held for sale, at fair value	1,209		1,209		—		1,209		—
Loans held for sale, at the lower of cost or fair value	89,172		91,040		—		—		91,040
Loans, net	3,601,830		3,468,167		—		—		3,468,167
Accrued interest receivable	13,813		13,813		—		786		13,027
Liabilities
Noninterest-bearing and NOW deposits	1,550,670		1,550,670		—		1,550,670		—
Money market accounts	1,299,503		1,299,503		—		1,299,503		—
Savings accounts	228,390		228,390		—		228,390		—
Certificates of deposit	597,036		588,776		—		588,776		—
Junior subordinated debt	9,945		9,980		—		9,980		—
Borrowings	320,263		320,261		—		320,261		—
Accrued interest payable	1,660		1,660		—		1,660		—


	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		—
FHLB and FRB stock	9,326		N/A		N/A		N/A		N/A
SBIC investments, at cost	12,758		12,758		—		—		12,758
Loans held for sale	79,307		80,489		—		—		80,489
Loans, net	2,734,605		2,687,293		—		—		2,687,293
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 $993,018 and $921,239 of commitments to originate loans, undisbursed portions of construction loans, unused lines of credit, and standby letters of credit at March 31, 2023 and June 30, 2022, respectively (see "Note 12 – Commitments and Contingencies"). Since these commitments are based on current rates, the carrying amount approximates the fair value.