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FAIR VALUE

9 Months Ended

Mar. 31, 2023

The Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and June 30, 2022 are classified in their entirety based on the lowest level of input significant to the fair value measurement.


	March 31, 2023
(Dollars in thousands)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Municipal		$	400	$	—	$	400
Securities—Available-for-sale:

Agency MBS1		22,782		—		22,782
Non-Agency MBS2		—		206,300		206,300
Municipal		3,384		—		3,384
Asset-backed securities and structured notes		47,146		—		47,146
Total—Securities—Available-for-sale		$	73,312	$	206,300	$	279,612
Loans held for sale		$	7,920	$	—	$	7,920
Mortgage servicing rights		$	—	$	25,396	$	25,396
Other assets—Derivative instruments		$	—	$	381	$	381
LIABILITIES:
Other liabilities—Derivative instruments		$	—	$	1,037	$	1,037

	June 30, 2022
(Dollars in thousands)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Securities—Trading: Municipal		$	1,758	$	—	$	1,758
Securities—Available-for-sale:

Agency MBS1		25,325		—		25,325
Non-Agency MBS2		—		186,814		186,814
Municipal		3,248		—		3,248
Asset-backed securities and structured notes		47,131		—		47,131
Total—Securities—Available-for-sale		$	75,704	$	186,814	$	262,518
Loans held for sale		$	4,973	$	—	$	4,973
Mortgage servicing rights		$	—	$	25,213	$	25,213
Other assets—Derivative instruments		$	—	$	464	$	464
LIABILITIES:
Other liabilities—Derivative instruments		$	—	$	—	$	—

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

2 Private 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.

Additional information is presented below about assets measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:


	For the Three Months Ended
	March 31, 2023
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights1		Derivative Instruments, net		Total
Opening balance	$	175,123	$	25,526	$	18	$	200,667


Total gains or losses for the period:


Included in earnings—Mortgage banking income	—		(282)		(674)		(956)
Included in other comprehensive income	1,231		—		—		1,231
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	30,000		152		—		30,152


Settlements	(54)		—		—		(54)

Closing balance	$	206,300	$	25,396	$	(656)	$	231,040

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(282)	$	(674)	$	(956)

	For the Nine Months Ended
	March 31, 2023
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights1		Derivative Instruments, net		Total
Opening Balance	$	186,814	$	25,213	$	464	$	212,491


Total gains or losses for the period:


Included in earnings—Mortgage banking income	—		(375)		(1,120)		(1,495)
Included in other comprehensive income	(3,384)		—		—		(3,384)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	30,000		558		—		30,558


Settlements	(7,130)		—		—		(7,130)

Closing balance	$	206,300	$	25,396	$	(656)	$	231,040

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(375)	$	(1,120)	$	(1,495)

1 Earnings from mortgage servicing rights (“MSR”) were attributable to: Time and payoffs, representing a decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.2 million and $0.7 million for the three and nine months ended March 31, 2023, respectively, and a decrease in MSR value resulting from market-driven changes in interest rates of $0.1 million for the three months ended March 31, 2023 and an increase of $0.3 million for the nine months ended March 31, 2023. Additions to mortgage servicing rights were retained upon sale of loans held for sale.


	For the Three Months Ended
	March 31, 2022
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights1		Derivative Instruments, net		Total
Opening balance	$	58,752	$	20,110	$	1,377	$	80,239


Total gains or losses for the period:


Included in earnings—Mortgage banking income	—		2,316		(227)		2,089
Included in other comprehensive income	(1,841)		—		—		(1,841)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	95,000		1,093		—		96,093


Settlements	(432)		—		—		(432)

Closing balance	$	151,479	$	23,519	$	1,150	$	176,148

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	2,316	$	(227)	$	2,089

	For the Nine Months Ended
	March 31, 2022
(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights1		Derivative Instruments, net		Total
Opening Balance	$	67,615	$	17,911	$	2,205	$	87,731


Total gains or losses for the period:


Included in earnings—Mortgage banking income	—		1,229		(1,055)		174
Included in other comprehensive income	(2,480)		—		—		(2,480)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	95,000		4,379		—		99,379


Settlements	(8,656)		—		—		(8,656)

Closing balance	$	151,479	$	23,519	$	1,150	$	176,148

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	1,229	$	(1,055)	$	174

1 Earnings from mortgage servicing rights were attributable to: Time and payoffs, representing a decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.8 million and $3.6 million for the three and nine months ended March 31, 2022, respectively, and an increase in MSR value resulting from market-driven changes in interest rates of $3.1 million and $4.9 million for the three and nine months ended March 31, 2022, respectively. Additions to mortgage servicing rights were retained upon sale of loans held for sale.

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

March 31, 2023

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency MBS

206,300

Discounted Cash Flow

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

0.0 to 30.0% (23.0%)

0.0 to 5.1% (2.3%)

0.0 to 68.7% (28.5%)

2.6 to 6.4% (2.7%)

Mortgage Servicing Rights

25,396

Discounted Cash Flow

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

4.6 to 33.1% (9.8%)

0.4 to 15.9 (9.3)

9.5 to 11.5% (9.6%)

Derivative Instruments

(656)

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

-1.6 to 0.7% (-0.1%)

June 30, 2022

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency MBS

186,814

Discounted Cash Flow

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

0.0 to 30.0% (21.4%)

0.0 to 7.9% (2.2%)

0.0 to 68.4% (26.7%)

2.7 to 9.3% (2.8%)

Mortgage Servicing Rights

25,213

Discounted Cash Flow

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

7.9 to 56.3% (11.0%)

1.2 to 9.9 (8.4)

9.5 to 11.5% (9.5%)

Derivative Instruments

464

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

-3.1 to 0.8% (-1.2%)

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, projected loss severity in the event of default and discount rate over LIBOR. 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:


	March 31, 2023
(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 repossessed vehicles:
Single family real estate	$	—	$	—	$	4,344	$	4,344



Autos	$	—	$	—	$	958	$	958
Total	$	—	$	—	$	5,302	$	5,302


	June 30, 2022
(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 repossessed vehicles:




Autos	—		—		798		798
Total	$	—	$	—	$	798	$	798

Non-recurring fair value measurements for other real estate owned and repossessed vehicles represent charge-offs of $535 thousand and $30 thousand for the three months ended March 31, 2023 and March 31, 2022, respectively, and $1,499 thousand and $79 thousand for the nine months ended March 31, 2023 and March 31, 2022, respectively.

The Company has elected the fair value option for Agency loans held for sale. Given these loans are intended for sale, fair value is considered to be the best indicator of the amount to be realized from these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans. None of these loans are 90 days or more past due nor on nonaccrual as of March 31, 2023 and June 30, 2022.

As of March 31, 2023 and June 30, 2022, 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)	March 31, 2023		June 30, 2022
Aggregate fair value	$	7,920	$	4,973
Contractual balance	7,663		4,881
Unrealized gain	$	257	$	92

Gains and losses from changes in fair value included in earnings for loans held for sale for the periods indicated below were:


	For the Three Months Ended				For the Nine Months Ended
	March 31,				March 31,
(Dollars in thousands)	2023		2022		2023		2022
Interest income	$	99	$	204	$	252	$	598
Change in fair value	51		(1,041)		(280)		(2,019)
Total	$	150	$	(837)	$	(28)	$	(1,421)

The following table presents quantitative information about level 3 fair value measurements for other real estate owned and repossessed vehicles measured at fair value on a non-recurring basis at the periods indicated:

March 31, 2023

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and repossessed vehicles:

Single family real estate

4,344

Sales comparison approach

Adjustment for differences between the comparable sales

3.5 to 12.1% (4.1%)

Autos

958

Sales comparison approach

Adjustment for differences between the comparable sales

-15.6 to 0.0% (-5.3%)

June 30, 2022

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and repossessed vehicles:

Autos

798

Sales comparison approach

Adjustment for differences between the comparable sales

-17.2 to 4.6% (-7.5%)

1 For other real estate owned and repossessed vehicles 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 asset being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

Fair Value of Financial Instruments

Carrying amounts and estimated fair values of financial instruments at March 31, 2023 and June 30, 2022 were:


	March 31, 2023
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	2,504,224	$	2,504,224	$	—	$	—	$	2,504,224
Securities—trading	400		—		400		—		400
Securities—available-for-sale	279,612		—		73,312		206,300		279,612

Loans held for sale, at fair value	7,920		—		7,920		—		7,920
Loans held for sale, at lower of cost or fair value	303		—		—		303		303
Loans held for investment—net	15,836,255		—		—		15,866,421		15,866,421
Securities borrowed	87,293		—		—		95,263		95,263
Customer, broker-dealer and clearing receivables	323,359		—		—		336,843		336,843

Mortgage servicing rights	25,396		—		—		25,396		25,396
Financial liabilities:
Total deposits	16,738,869		—		16,675,440		—		16,675,440

Advances from the Federal Home Loan Bank	90,000		—		83,681		—		83,681
Borrowings, subordinated notes and debentures	334,330		—		299,981		—		299,981
Securities loaned	114,613		—		—		114,556		114,556
Customer, broker-dealer and clearing payables	406,092		—		—		406,092		406,092


	June 30, 2022
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	1,574,699	$	1,574,699	$	—	$	—	$	1,574,699
Securities—trading	1,758		—		1,758		—		1,758
Securities—available-for-sale	262,518		—		75,704		186,814		262,518


Loans held for sale, at fair value	4,973		—		4,973		—		4,973
Loans held for sale, at lower of cost or fair value	10,938		—		—		10,985		10,985
Loans held for investment—net	14,091,061		—		—		14,015,157		14,015,157
Securities borrowed	338,980		—		—		329,963		329,963
Customer, broker-dealer and clearing receivables	417,417		—		—		414,383		414,383

Mortgage servicing rights	25,213		—		—		25,213		25,213
Financial liabilities:
Total deposits	13,946,422		—		12,812,512		—		12,812,512

Advances from the Federal Home Loan Bank	117,500		—		117,500		—		117,500
Borrowings, subordinated notes and debentures	445,244		—		416,947		—		416,947
Securities loaned	474,400		—		—		473,831		473,831
Customer, broker-dealer and clearing payables	511,654		—		—		471,859		471,859

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 the 2022 Form 10-K. The carrying amount of stock of regulatory agencies approximates the estimated fair value of these investments. The fair value of off-balance sheet items is not 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.

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