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Disclosures about Fair Value of Assets

12 Months Ended

Jun. 30, 2021

Note 18: Disclosures about Fair Value of Assets

Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:


		Level 1		Quoted prices in active markets for identical assets

		Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets

		Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2021 and 2020:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2021:
Available-for-sale securities:
US Treasury	$	996	$	—	$	996	$	—
US Government and federal agency		8,039		—		8,039		—
Mortgage-backed securities – GSE residential		170,415		—		170,415		—
Small Business Administration		9,190		—		9,190		—
State and political subdivisions		1,251		—		1,251		—
Mortgage servicing rights		1,013		—		—		1,013


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020:
Available-for-sale securities:
US Government and federal agency	$	8,236	$	—	$	8,236	$	—
Mortgage-backed securities – GSE residential		148,855		—		148,855		—
Small Business Administration		3,640		—		3,640		—
State and political subdivisions		1,663		—		1,663		—
Mortgage servicing rights		715		—		—		715

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2021. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-sale

Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. There were no Level 1 securities as of June 30, 2021 or 2020. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads,

two-sided

markets, benchmark securities, bid, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and federal agency, mortgage-backed securities (GSE—residential) and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. There were no Level 3 securities as of June 30, 2021 or 2020.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Management measures mortgage servicing rights through the completion of a proprietary model. Inputs to the model are developed by the accounting staff and are reviewed by management. The model is tested annually using baseline data to check its accuracy.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:


	Mortgage Servicing Rights
Balance, July 1, 2019	$	853
Total realized and unrealized gains and losses included in net income		(294	)
Servicing rights that result from asset transfers		255
Payments received and loans refinanced		(99	)

Balance, June 30, 2020		715

Total realized and unrealized gains and losses included in net income		164
Servicing rights that result from asset transfers		433
Payments received and loans refinanced		(299	)

Balance, June 30, 2021	$	1,013

Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	164

Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as noninterest income.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2021 and 2020:


			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2021:
Foreclosed assets	$	191	$	—	$	—	$	191
June 30, 2020:
Foreclosed assets	$	200	$	—	$	—	$	200

The following table presents (losses)/recoveries recognized on assets measured on a

non-recurring

basis for the years ended June 30, 2021 and 2020:


	2021			2020
Impaired loans (collateral dependent)	$	—		$	13
Foreclosed and repossessed assets held for sale		(9	)		(19	)

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-dependent Impaired Loans, Net of the Allowance for Loan Losses

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the senior lending officer. Appraisals are reviewed for accuracy and consistency by the senior lending officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the senior lending officer by comparison to historical results.

Foreclosed assets

Foreclosed assets are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of foreclosed assets are based on appraisals or evaluations and are classified within Level 3 of the fair value hierarchy.

Appraisals of foreclosed assets are obtained when the real estate is acquired and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency and are selected from the list of approved appraisers maintained by management.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.


	Fair Value at June 30, 2021		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	1,013	Discounted cash flow	Discount rate	9.5% – 11.5% (9.5%)
				Constant prepayment rate	9.8% – 14.4% (11.9%)
				Probability of default	0.00% – 0.14% (0.12%)
Foreclosed assets		191	Market comparable properties	Comparability adjustments (%)	11.6% (11.6%)


	Fair Value at June 30, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	715	Discounted cash flow	Discount rate	9.5% – 11.5% (9.5%)
				Constant prepayment rate	13.5% – 17.7% (13.8%)
				Probability of default	0.04% – 0.12% (0.11%)
Foreclosed assets		200	Market comparable properties	Comparability adjustments (%)	11.1% (11.1%)

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2021 and 2020.


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2021:
Financial assets
Cash and cash equivalents	$	62,735	$	62,735	$	—	$	—
Interest-bearing time deposits in banks		2,250		2,250		—		—
Loans, net of allowance for loan losses		513,371		—		—		515,515
Federal Home Loan Bank stock		4,198		—		4,198		—
Accrued interest receivable		1,897		—		1,897		—
Financial liabilities
Deposits		667,632		—		405,664		262,603
Repurchase agreements		6,245		—		6,245		—
Federal Home Loan Bank advances		25,000		—		25,673		—
Lines of credit		3,000		—		3,000		—
Advances from borrowers for taxes and insurance		928		—		928		—
Accrued interest payable		199		—		199		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—


			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020:
Financial assets
Cash and cash equivalents	$	33,467	$	33,467	$	—	$	—
Interest-bearing time deposits in banks		3,000		3,000		—		—
Loans, net of allowance for loan losses		509,817		—		—		513,221
Federal Home Loan Bank stock		3,028		—		3,028		—
Accrued interest receivable		1,908		—		1,908		—
Financial liabilities
Deposits		601,700		—		320,209		283,304
Repurchase agreements		3,738		—		3,738		—
Federal Home Loan Bank advances		34,500		—		35,472		—
Lines of credit		3,000		—		3,000		—
Advances from borrowers for taxes and insurance		519		—		519		—
Accrued interest payable		537		—		537		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—

In accordance with the Company’s adoption of ASU

2016-01

as of July 1, 2018, the methods utilized to measure the fair value of financial instruments at June 30, 2021 represent an approximation of exit price; however, an actual exit price may differ.

- 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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