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Disclosures about Fair Value of Assets

12 Months Ended

Jun. 30, 2023

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, 2023 and 2022:


			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, 2023:
Available-for-sale securities:
US Treasury	$	438	$	—	$	438	$	—
US Government and federal agency		6,477		—		6,477		—
Mortgage-backed securities – GSE residential		175,726		—		175,726		—
Small Business Administration		15,233		—		15,233		—
State and political subdivisions		3,425		—		1,064		2,361

Mortgage servicing rights		1,482		—		—		1,482

			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, 2022:
Available-for-sale securities:
US Treasury	$	3,400	$	—	$	3,400	$	—
US Government and federal agency		9,121		—		9,121		—
Mortgage-backed securities – GSE residential		188,185		—		188,185		—
Small Business Administration		16,442		—		16,442		—
State and political subdivisions		3,758		—		1,096		2,662

Mortgage servicing rights		1,463		—		—		1,463

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, 2023. 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, 2023 or 2022. 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. Treasury, U.S. Government and federal agency, mortgage-backed securities (GSE - residential), Small Business Administration, 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.

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:


	State and Political Subdivision
Balance, July 1, 2021	$	—

Transfers into Level 3		1,110
Transfers out of Level 3		—
Total realized and unrealized gains and losses included in net income		—
Purchases		1,552
Sales		—
Settlements		—

Balance, June 30, 2022		2,662

Transfers into Level 3		—
Transfers out of Level 3		—
Total realized and unrealized gains and losses included in net income		—
Purchases		—
Sales		—
Settlements		(301	)

Balance, June 30, 2023	$	2,361

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	$	—


	Mortgage Servicing Rights
Balance, July 1, 2021	$	1,013

Total realized and unrealized gains and losses included in net income		426
Servicing rights that result from asset transfers		287
Payments received and loans refinanced		(263	)

Balance, June 30, 2022		1,463

Total realized and unrealized gains and losses included in net income		101
Servicing rights that result from asset transfers		89
Payments received and loans refinanced		(171	)

Balance, June 30, 2023	$	1,482

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	$	101

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.

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, 2023		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	1,482	Discounted cash flow	Discount rate Constant prepayment rate Probability of default	9.5% (9.5%) 6.0% - 7.0% (6.9%) 0.09% - 0.12% (0.12%)

State and political subdivision	$	2,361	Discounted cash flow	Maturity/Call Date Weighted average coupon Marketability yield adjustment	1 month – 9 years 2.97% - 3.08% (3.04%) 1.0% - 2.0% (1.6%)


	Fair Value at June 30, 2022		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	1,463	Discounted cash flow	Discount rate Constant prepayment rate Probability of default	9.5% (9.5%) 6.0% - 6.7% (6.7%) 0.10% - 0.14% (0.12%)

State and political subdivision	$	2,662	Discounted cash flow	Maturity/Call Date Weighted average coupon Marketability yield adjustment	1 month – 10 years 2.97% - 3.08% (3.03%) 1.0% - 2.0% (1.6%)

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, 2023 and 2022.


			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, 2023:
Financial assets
Cash and cash equivalents	$	10,988	$	10,988	$	—	$	—
Interest-bearing time deposits in banks		1,250		1,250		—		—
Loans, net of allowance for credit losses		587,457		—		—		564,432
Federal Home Loan Bank stock		3,127		—		3,127		—
Accrued interest receivable		2,781		—		2,781		—

Financial liabilities
Deposits		735,314		—		451,718		282,351
Repurchase agreements		10,787		—		10,787		—
Federal Home Loan Bank advances		19,500		—		19,382		—
Advances from borrowers for taxes and insurance		1,233		—		1,233		—
Accrued interest payable		1,666		—		1,666		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—


	Carrying Amount		Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2022:
Financial assets
Cash and cash equivalents	$	75,811	$	75,811	$	—	$	—
Interest-bearing time deposits in banks		1,500		1,500		—		—
Loans, net of allowance for loan losses		518,931		—		—		512,643
Federal Home Loan Bank stock		3,142		—		3,142		—
Accrued interest receivable		2,023		—		2,023		—

Financial liabilities
Deposits		752,020		—		501,544		250,650
Repurchase agreements		9,244		—		9,244		—
Federal Home Loan Bank advances		15,000		—		14,903		—
Advances from borrowers for taxes and insurance		503		—		503		—
Accrued interest payable		176		—		176		—
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, 2023 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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