FAIR VALUE

3 Months Ended

Sep. 30, 2021

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an 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. ASC Topic 820, Fair Value Measurement, 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 following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and June 30, 2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


	September 30, 2021
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Municipal	$	—	$	1,941	$	—	$	1,941
Securities—Available-for-Sale:
Agency Debt1	$	—	$	—	$	—	$	—
Agency MBS1	—		24,526		—		24,526
Non-Agency MBS2	—		—		59,851		59,851
Municipal	—		3,501		—		3,501
Asset-backed securities and structured notes	—		48,118		—		48,118
Total—Securities—Available-for-Sale	$	—	$	76,145	$	59,851	$	135,996
Loans Held for Sale	$	—	$	33,344	$	—	$	33,344
Mortgage servicing rights	$	—	$	—	$	18,438	$	18,438
Other assets—Derivative instruments	$	—	$	—	$	2,292	$	2,292
LIABILITIES:
Other liabilities—Derivative instruments	$	—	$	—	$	66	$	66

	June 30, 2021
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Municipal	$	—	$	1,983	$	—	$	1,983
Securities—Available-for-Sale:
Agency Debt1	$	—	$	—	$	—	$	—
Agency MBS1	—		23,913		—		23,913
Non-Agency MBS2	—		—		67,615		67,615
Municipal	—		3,565		—		3,565
Asset-backed securities and structured notes	—		92,242		—		92,242
Total—Securities—Available-for-Sale	$	—	$	119,720	$	67,615	$	187,335
Loans Held for Sale	$	—	$	29,768	$	—	$	29,768
Mortgage servicing rights	$	—	$	—	$	17,911	$	17,911
Other assets—Derivative instruments	$	—	$	—	$	2,280	$	2,280
LIABILITIES:
Other liabilities—Derivative instruments	$	—	$	—	$	75	$	75

1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.

2Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:


	For the Three Months Ended
	September 30, 2021
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights		Derivative Instruments, net		Total
Opening balance	$	67,615	$	17,911	$	2,205	$	87,731





Included in earnings—Mortgage banking income	—		(1,185)		21		(1,164)
Included in other comprehensive income	(112)		—		—		(112)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	—		1,712		—		1,712


Settlements	(7,652)		—		—		(7,652)

Closing balance	$	59,851	$	18,438	$	2,226	$	80,515

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(1,185)	$	21	$	(1,164)


	For the Three Months Ended
	September 30, 2020
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights		Derivative Instruments, net		Total

Opening balance	$	18,332	$	10,675	$	7,416	$	36,423





Included in earnings—Mortgage banking income	—		(1,795)		5,583		3,788
Included in other comprehensive income	(323)		—		—		(323)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	—		3,250		—		3,250


Settlements	(397)		—		—		(397)

Closing balance	$	17,612	$	12,130	$	12,999	$	42,741

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(1,795)	$	5,583	$	3,788

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:

September 30, 2021

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency MBS

59,851

Discounted Cash Flow

Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR

0.0 to 33.9% (2.3%)

0.0 to 4.7% (0.4%)

0.0 to 68.3% (9.4%)

2.7 to 6.3% (3.0%)

Mortgage Servicing Rights

18,438

Discounted Cash Flow

Projected Constant Prepayment Rate,
Life (in years),
Discount Rate

6.9 to 37.2% (11.2%)

1.6 to 7.7 (6.5)

9.5 to 14.0% (9.6%)

Derivative Instruments

2,226

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

0.2 to 0.9% (0.5%)

June 30, 2021

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency MBS

67,615

Discounted Cash Flow

Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR

0.0 to 25.0% (2.7%)

0.0 to 5.6% (0.6%)

0.0 to 100.0% (19.4%)

2.7 to 7.2% (3.1%)

Mortgage Servicing Rights

17,911

Discounted Cash Flow

Projected Constant Prepayment Rate,
Life (in years),
Discount Rate

7.5 to 37.4% (11.5%)

1.7 to 7.5 (6.4)

9.5 to 13.0% (9.6%)

Derivative Instruments

2,205

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

0.2 to 0.5% (0.3%)

The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.

The table below summarizes assets measured for impairment on a non-recurring basis:


	September 30, 2021
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate	$	—	$	—	$	6,114	$	6,114



Autos and RVs	—		—		206		206
Total	$	—	$	—	$	6,320	$	6,320


	June 30, 2021
(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Other real estate owned and foreclosed assets:

Single family real estate	$	—	$	—	$	6,547	$	6,547


Autos and RVs	—		—		235		235
Total	$	—	$	—	$	6,782	$	6,782

Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $6,320 after charge-offs of $12 for the three months ended September 30, 2021.

The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2021 and June 30, 2021.

As of September 30, 2021 and June 30, 2021, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:


(Dollars in thousands)	September 30, 2021		June 30, 2021
Aggregate fair value	$	33,344	$	29,768
Contractual balance	32,494		28,940
Unrealized gain	$	850	$	828

The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:


	For the Three Months Ended
	September 30,
(Dollars in thousands)	2021		2020
Interest income	$	200	$	382
Change in fair value	43		6,885
Total	$	243	$	7,267

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:

September 30, 2021

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and foreclosed assets:

Single family real estate

6,114

Sales comparison approach

Adjustment for differences between the comparable sales

(3.8) to 0.9% (0.1%)

Autos and RVs

206

Sales comparison approach

Adjustment for differences between the comparable sales

1.5 to 21.5% (1.5%)

June 30, 2021

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and foreclosed assets:

Single family real estate

6,547

Sales comparison approach

Adjustment for differences between the comparable sales

(1.5) to 6.1% (2.0%)

Autos and RVs

235

Sales comparison approach

Adjustment for differences between the comparable sales

(2.1) to 14.7% (2.1%)

1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

Fair value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2021 and June 30, 2021 were as follows:


	September 30, 2021
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	1,269,434	$	1,269,434	$	—	$	—	$	1,269,434
Securities — trading	1,941		—		1,941		—		1,941
Securities — available-for-sale	135,996		—		76,145		59,851		135,996

Loans held for sale, at fair value	33,344		—		33,344		—		33,344
Loans held for sale, at lower of cost or fair value	11,949		—		—		12,041		12,041
Loans held for investment—net	11,879,021		—		—		12,252,262		12,252,262
Securities borrowed	457,282		—		—		457,282		457,282
Customer, broker-dealer and clearing receivables	427,169		—		—		427,297		427,297

Mortgage servicing rights	18,438		—		—		18,438		18,438
Financial liabilities:
Total deposits	11,747,442		—		11,191,110		—		11,191,110

Advances from the Federal Home Loan Bank	157,500		—		157,500		—		157,500
Borrowings, subordinated notes and debentures	255,896		—		251,279		—		251,279
Securities loaned	539,505		—		—		541,339		541,339
Customer, broker-dealer and clearing payables	510,040		—		—		510,040		510,040


	June 30, 2021
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	1,037,777	$	1,037,777	$	—	$	—	$	1,037,777
Securities — trading	1,983		—		1,983		—		1,983
Securities — available-for-sale	187,335		—		119,720		67,615		187,335


Loans held for sale, at fair value	29,768		—		29,768		—		29,768
Loans held for sale, at lower of cost or fair value	12,294		—		—		12,336		12,336
Loans held for investment—net	11,414,814		—		—		11,833,102		11,833,102
Securities borrowed	619,088		—		—		619,274		619,274
Customer, broker-dealer and clearing receivables	369,815		—		—		369,815		369,815

Mortgage servicing rights	17,911		—		—		17,911		17,911
Financial liabilities:
Total deposits	10,815,797		—		10,297,450		—		10,297,450

Advances from the Federal Home Loan Bank	353,500		—		353,500		—		353,500
Borrowings, subordinated notes and debentures	221,358		—		210,196		—		210,196
Securities loaned	728,988		—		—		731,467		731,467
Customer, broker-dealer and clearing payables	535,425		—		—		535,425		535,425

The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found in Note 3 – “Fair Value” of our Form 10-K for the year ended June 30, 2021. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details