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Disclosures About Fair Value of Assets and Liabilities
 3 Months Ended
Sep. 30, 2019
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 three 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)		 
                 
September 30, 2019                
U.S. Treasury notes  $499   $--   $499   $-- 
Agency bonds   505    --    505    -- 
Agency mortgage-backed: residential   42    --    42    -- 
   $1,046   $--   $1,046   $-- 
                     
June 30, 2019                    
U.S. Treasury notes  $497   $--   $497   $-- 
Agency bonds   505    --    505    -- 
Agency mortgage-backed: residential   43    --    43    -- 
   $1,045   $--   $1,045   $-- 

  

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)		 
                 
September 30, 2019                
Loans                
One- to four-family  $9   $--   $--   $9 
                     
June 30, 2019                    
Loans                    
One- to four-family  $593   $--   $--   $593 
                     
Other real estate owned, net                    
One- to four-family  $117   $--   $--   $117 

 

There was one impaired loan, which was measured using the fair value of the collateral for collateral-dependent loans, at September 30, 2019, and seven impaired loans at June 30, 2019. There was a charge off of $8,000 made for the three-month period ended September 30, 2019 and a $10,000 charge off for the three-month period ended September 30, 2018.

 

There was no other real estate owned written down during the three months ended September 30, 2019. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $117,000 at June 30, 2019. Other real estate owned was written down $18,000 during the three months ended September 30, 2018.

  

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 September 30, 2019 and June 30, 2019:

 

             Range
   Fair Value   Valuation  Unobservable  (Weighted
September 30, 2019  (in thousands)   Technique(s)  Input(s)  Average)
Loans:             
One- to four-family  $9   Sales comparison approach  Adjustments for differences between comparable sales  -82.2% to 151.3%
(20.5%)

  

             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2019  (in thousands)   Technique(s)  Input(s)  Average)
Loans:             
One- to four-family  $593   Sales comparison approach  Adjustment for differences between comparable sales  25.3% to -50.6%
(-0.6%)
               
Foreclosed and repossessed assets:              
One- to four-family  $117   Sales comparison approach  Adjustments for differences between comparable sales  8.6% to 31.0%
(29.0%)

  

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 September 30, 2019 and June 30, 2019 are as follows:

  

       Fair Value Measurements at 
       September 30, 2019 Using 
(in thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial assets                         
Cash and cash equivalents  $12,155   $12,155             $12,155 
Time deposits in other financial institutions   3,465    3,475              3,475 
Available-for-sale securities   1,046        $1,046         1,046 
Held-to-maturity securities   680         686         686 
Loans receivable - net   279,633              283,880    283,880 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   743         743         743 
                          
Financial liabilities                         
Deposits  $196,079   $68,437   $127,649         196,086 
Federal Home Loan Bank advances   64,373         64,505         64,505 
Advances by borrowers for taxes and insurance   1,050         1,050         1,050 
Accrued interest payable   29         29         29 

  

       Fair Value Measurements at 
       June 30, 2019 Using 
(in thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $9,861   $9,861             $9,861 
Term deposits in other financial institutions   6,962    6,963              6,963 
Available-for-sale securities   1,045        $1,045         1,045 
Held-to-maturity securities   775         775         775 
Loans receivable – net   280,969             $285,700    285,700 
Federal Home Loan Bank stock   6,482                   n/a 
Accrued interest receivable   758         758         758 
                          
Financial liabilities                         
Deposits  $195,836   $69,944   $123,920        $193,864 
Federal Home Loan Bank advances   66,703         66,719         66,719 
Advances by borrowers for taxes and insurance   763         763         763 
Accrued interest payable   28         28         28