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Fair Value Measurements and Fair Value of Financial Instruments | 6 Months Ended
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Dec. 31, 2022
Fair Value Measurements and Fair Value of Financial Instruments [Abstract] |
Fair Value Measurements and Fair Value of Financial Instruments | (6) Fair Value Measurements and Fair Value of Financial Instruments Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of December 31, 2022 and June 30, 2022 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
|  |  |  |  | Fair Value Measurements Using |
|  |  |  |  | Quoted Prices In Active Markets For Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
(In thousands) |  | December 31, 2022 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored enterprises |  | $ | 10,729 |  |  | $ | - |  |  | $ | 10,729 |  |  | $ | - |
U.S. Treasury securities |  |  | 16,106 |  |  |  | - |  |  |  | 16,106 |  |  |  | - |
State and political subdivisions |  |  | 193,897 |  |  |  | - |  |  |  | 193,897 |  |  |  | - |
Mortgage-backed securities-residential |  |  | 26,696 |  |  |  | - |  |  |  | 26,696 |  |  |  | - |
Mortgage-backed securities-multi-family |  |  | 71,631 |  |  |  | - |  |  |  | 71,631 |  |  |  | - |
Corporate debt securities |  |  | 16,059 |  |  |  | - |  |  |  | 16,059 |  |  |  | - |
Securities available-for-sale |  |  | 335,118 |  |  | $ | - |  |  |  | 335,118 |  |  |  | - |
Equity securities |  |  | 281 |  |  |  | 281 |  |  |  | - |  |  |  | - |
Total securities measured at fair value |  | $ | 335,399 |  |  | $ | 281 |  |  | $ | 335,118 |  |  | $ | - |
|  |  |  |  | Fair Value Measurements Using |
|  |  |  |  | Quoted Prices In Active Markets For Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
(In thousands) |  | June 30, 2022 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored enterprises |  | $ | 11,319 |  |  | $ | - |  |  | $ | 11,319 |  |  | $ | - |
U.S. Treasury securities |  |  | 18,427 |  |  |  | - |  |  |  | 18,427 |  |  |  | - |
State and political subdivisions |  |  | 248,076 |  |  |  | - |  |  |  | 248,076 |  |  |  | - |
Mortgage-backed securities-residential |  |  | 29,897 |  |  |  | - |  |  |  | 29,897 |  |  |  | - |
Mortgage-backed securities-multi-family |  |  | 83,709 |  |  |  | - |  |  |  | 83,709 |  |  |  | - |
Corporate debt securities |  |  | 16,634 |  |  |  | - |  |  |  | 16,634 |  |  |  | - |
Securities available-for-sale |  |  | 408,062 |  |  |  | - |  |  |  | 408,062 |  |  |  | - |
Equity securities |  |  | 273 |  |  |  | 273 |  |  |  | - |  |  |  | - |
Total securities measured at fair value |  | $ | 408,335 |  |  | $ | 273 |  |  | $ | 408,062 |  |  | $ | - |
Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations. Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses. Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.
|  |  |  |  |  |  |  |  |  |  | Fair Value Measurements Using |
(In thousands) |  | Recorded Investment |  |  | Related Allowance |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 8,768 |  |  | $ | 2,617 |  |  | $ | 6,151 |  |  | $ | - |  |  | $ | - |  |  | $ | 6,151 |
June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 9,401 |  |  | $ | 2,347 |  |  | $ | 7,054 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,054 |
Foreclosed real estate |  |  | 68 |  |  |  | - |  |  |  | 68 |  |  |  | - |  |  |  | - |  |  |  | 68 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value:
(Dollars in thousands) |  | Fair Value |  | Valuation Technique | Unobservable Input |  | Range |  |  | Weighted Average |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Impaired Loans |  | $ | 4,578 |  | Appraisal of collateral(1) | Appraisal adjustments(2) |  |  | 7.06%-33.73 | % |  |  | 19.70 | %
|  |  |  |  |  | Liquidation expenses(3) |  |  | 3.98%-5.58 | % |  |  | 4.33 | %
|  |  | 1,573 |  | Discounted cash flow | Discount rate |  |  | 3.79%-11.95 | % |  |  | 6.63 | %
June 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 4,333 |  | Appraisal of collateral(1) | Appraisal adjustments(2) |  |  | 7.06%-33.73 | % |  |  | 21.67 | %
|  |  |  |  |  | Liquidation expenses(3) |  |  | 3.98%-5.58 | % |  |  | 4.72 | %
|  |  | 2,721 |  | Discounted cash flow | Discount rate |  |  | 4.19%-11.95 | % |  |  | 6.21 | %
Foreclosed real estate |  |  | 68 |  | Appraisal of collateral(1) | Appraisal adjustments(2) |  |  | 10.46 | % |  |  | 10.46 | %
| (1) | Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.
| (2) | Appraisals may be adjusted downwards by management for qualitative factors such as economic conditions. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received or age of the appraisal.
| (3) | Appraisals are adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.
No other financial assets or liabilities were re-measured during the year on a nonrecurring basis. The carrying amounts reported in the statements of financial condition for total cash and cash equivalents, long term certificates of deposit, accrued interest receivable and accrued interest payable approximate their fair values. Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature. The fair values for loans are measured using the “exit price” notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value. Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date. The carrying amounts for variable rate money market deposits approximate fair values at the reporting date. Fair values for long term certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates. Fair value for Federal Home Loan Bank long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings. The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value. Fair value for subordinated notes payable is estimated based on a discounted cash flow methodology or observations of recent highly-similar transactions. The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At December 31, 2022 and June 30, 2022, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below. The carrying amounts and estimated fair value of financial instruments are as follows:
|  | December 31, 2022 |  |  | Fair Value Measurements Using |
(In thousands) |  | Carrying Amount |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Cash and cash equivalents |  | $ | 60,816 |  |  | $ | 60,816 |  |  | $ | 60,816 |  |  | $ | - |  |  | $ | - |
Long term certificates of deposit |  |  | 4,096 |  |  |  | 3,939 |  |  |  | - |  |  |  | 3,939 |  |  |  | - |
Securities available-for-sale |  |  | 335,118 |  |  |  | 335,118 |  |  |  | - |  |  |  | 335,118 |  |  |  | - |
Securities held-to-maturity |  |  | 742,470 |  |  |  | 682,210 |  |  |  | - |  |  |  | 682,210 |  |  |  | - |
Equity securities |  |  | 281 |  |  |  | 281 |  |  |  | 281 |  |  |  | - |  |  |  | - |
Federal Home Loan Bank stock |  |  | 6,159 |  |  |  | 6,159 |  |  |  | - |  |  |  | 6,159 |  |  |  | - |
Net loans receivable |  |  | 1,367,866 |  |  |  | 1,262,902 |  |  |  | - |  |  |  | - |  |  |  | 1,262,902 |
Accrued interest receivable |  |  | 12,068 |  |  |  | 12,068 |  |  |  | - |  |  |  | 12,068 |  |  |  | - |
Deposits |  |  | 2,265,394 |  |  |  | 2,265,600 |  |  |  | - |  |  |  | 2,265,600 |  |  |  | - |
Borrowings |  |  | 107,600 |  |  |  | 107,808 |  |  |  | - |  |  |  | 107,808 |  |  |  | - |
Subordinated notes payable, net |  |  | 49,403 |  |  |  | 46,057 |  |  |  | - |  |  |  | 46,057 |  |  |  | - |
Accrued interest payable |  |  | 816 |  |  |  | 816 |  |  |  | - |  |  |  | 816 |  |  |  | - |
|  | June 30, 2022 |  |  | Fair Value Measurements Using |
(In thousands) |  | Carrying Amount |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Cash and cash equivalents |  | $ | 69,009 |  |  | $ | 69,009 |  |  | $ | 69,009 |  |  | $ | - |  |  | $ | - |
Long term certificates of deposit |  |  | 4,107 |  |  |  | 3,993 |  |  |  | - |  |  |  | 3,993 |  |  |  | - |
Securities available-for-sale |  |  | 408,062 |  |  |  | 408,062 |  |  |  | - |  |  |  | 408,062 |  |  |  | - |
Securities held-to-maturity |  |  | 761,852 |  |  |  | 710,453 |  |  |  | - |  |  |  | 710,453 |  |  |  | - |
Equity securities |  |  | 273 |  |  |  | 273 |  |  |  | 273 |  |  |  | - |  |  |  | - |
Federal Home Loan Bank stock |  |  | 6,803 |  |  |  | 6,803 |  |  |  | - |  |  |  | 6,803 |  |  |  | - |
Net loans receivable |  |  | 1,229,355 |  |  |  | 1,170,960 |  |  |  | - |  |  |  | - |  |  |  | 1,170,960 |
Accrued interest receivable |  |  | 8,917 |  |  |  | 8,917 |  |  |  | - |  |  |  | 8,917 |  |  |  | - |
Deposits |  |  | 2,212,604 |  |  |  | 2,212,743 |  |  |  | - |  |  |  | 2,212,743 |  |  |  | - |
Borrowings |  |  | 123,700 |  |  |  | 123,793 |  |  |  | - |  |  |  | 123,793 |  |  |  | - |
Subordinated notes payable, net |  |  | 49,310 |  |  |  | 49,168 |  |  |  | - |  |  |  | 49,168 |  |  |  | - |
Accrued interest payable |  |  | 603 |  |  |  | 603 |  |  |  | - |  |  |  | 603 |  |  |  | - |

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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