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Disclosures About Fair Value of Assets and Liabilities
 6 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Disclosures About Fair Value of Assets and Liabilities

5. Disclosures About Fair Value of Assets and Liabilities

 

ASC topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (exit price) at the measurement date. ASC topic 820 also 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 standard describes six levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active 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 or liabilities.

 

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

 

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Securities

 

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics. Level 2 securities include agency mortgage-backed securities and agency bonds.

 

Impaired Loans

 

At the time a loan is considered impaired, it is evaluated for loss based on the fair value of collateral securing the loan if the loan is collateral dependent. If a loss is identified, a specific allocation will be established as part of the allowance for loan losses such that the loan’s net carrying value is at its estimated fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Other Real Estate

 

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

Financial assets measured at fair value on a recurring basis are summarized below:

  

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted Prices in Active Markets for Identical Assets
(Level 1)		   Significant Other Observable Inputs
(Level 2)		   Significant Unobservable Inputs
(Level 3)		 
                 
December 31, 2018                
Agency mortgage-backed: residential  $44   $       --   $44   $       -- 
Agency bonds   503    --    503    -- 
   $547   $--   $547   $-- 
                     
June 30, 2018                    
Agency mortgage-backed: residential  $48   $--   $48   $-- 

  

Assets measured at fair value on a non-recurring basis are summarized below:

 

   Fair Value Measurements Using 
(in thousands)  Fair Value   Quoted Prices in Active Markets for Identical Assets
(Level 1)		   Significant Other Observable Inputs
(Level 2)		   Significant Unobservable Inputs
(Level 3)		 
                 
December 31, 2018                
Loans                    
One- to four-family  $492   $       --   $       --   $492 
                     
Other real estate owned, net                    
One- to four-family  $266    --    --   $266 
                     
June 30, 2018                    
Loans                    
One- to four-family  $513   $--   $--   $513 
                     
Other real estate owned, net                    
One- to four-family  $5   $--   $--   $5 

 

There were seven impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at December 31, 2018, and five impaired loans at June 30, 2018. There was a charge off of $23,000 made for the six month period ended December 31, 2018 and no charge off for the six month period ended December 31, 2017.

 

Other real estate owned measured at fair value less costs to sell, had carrying amounts of $355,000 and $5,000 at December 31, 2018 and June 30, 2018, respectively. Other real estate owned was written down $54,000 and $0 during the six months ended December 31, 2018 and 2017, respectively.

  

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 December 31, 2018 and June 30, 2018:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
December 31, 2018  (in thousands)   Technique(s)  Input(s)  Average)
              
Loans:              
One- to four-family  $       492   Sales comparison approach  Adjustments for differences between comparable sales  -11.6% to 12.6%
(-4.4%)
               
Foreclosed and repossessed assets:              
One- to four-family  $266   Sales comparison approach  Adjustments for differences between comparable sales  8.6% to 34.6%
(17.4%)

  

             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2018  (in thousands)   Technique(s)  Input(s)  Average)
              
Loans:              
One- to four-family $       513   Sales comparison approach  Adjustment for differences between comparable sales  -38.5% to 20.7%
(-27.8%)
               
Foreclosed and repossessed assets:              
One- to four-family  $5   Sales comparison approach  Adjustments for differences between comparable sales  0.0% to 0.0%
(0.0%)

  

The following is a disclosure of the fair value of financial instruments, both assets and liabilities, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods.

 

The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments.

 

Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments at December 31, 2018 and June 30, 2018 are as follows:

  

       Fair Value Measurements at 
       December 31, 2018 Using 
(in thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $10,142   $10,142             $10,142 
Time deposits in other financial institutions   4,954    4,903              4,903 
Available-for-sale securities   547        $547         547 
Held-to-maturity securities   857         847         847 
Loans receivable - net   273,111              272,818    272,818 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   712         712         712 
                          
Financial liabilities                         
Deposits  $197,277   $72,941   $124,021         196,962 
Federal Home Loan Bank advances   55,536         55,506         55,506 
Advances by borrowers for taxes and insurance   216         216         216 
Accrued interest payable   24         24         24 

 

           Fair Value Measurements at 
           June 30, 2018 Using 
(in thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $9,943   $9,943           $9,943 
Term deposits in other financial institutions   5,692    5,692              5,692 
Available-for-sale securities   48        $48         48 
Held-to-maturity securities   1,002         998         998 
Loans receivable – net   270,310             $271,295    271,295 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   706         706         706 
                          
Financial liabilities                         
Deposits  $195,056   $75,163   $120,215        $195,378 
Federal Home Loan Bank advances   53,052         53,043         53,043 
Advances by borrowers for taxes and insurance   762         762         762 
Accrued interest payable   22         22         22