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Disclosures About Fair Value of Assets and Liabilities
 9 Months Ended
Mar. 31, 2020
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)		 
                 
March 31, 2020                
Agency bonds  $506   $          –   $506   $           – 
Agency mortgage-backed: residential   39    –    39    – 
   $545   $–   $545   $– 
                     
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)		 
                 
March 31, 2020                
Other real estate owned, net                
One- to four-family  $577            –          –   $577 
                     
June 30, 2019                    
Loans                    
One- to four-family  $593   $–   $–   $593 
                     
Other real estate owned, net                    
One- to four-family  $117   $–   $–   $117 

 

There were no impaired loans, which was measured using the fair value of the collateral for collateral-dependent loans, at March 31, 2020, and seven impaired loans at June 30, 2019. Amounts charged off were $9,000 for the nine-month period ended March 31, 2020 and $23,000 off for the nine-month period ended March 31, 2019.

 

Other real estate owned was written down $36,000 and $12,000 during the nine- and three-months ended March 31, 2020. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $577,000 and $117,000 at March 31, 2020 and June 30, 2019, respectively. Other real estate owned was written down $54,000 and $0 during the nine- and three-month periods ended March 31, 2019, 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 March 31, 2020 and June 30, 2019:

 

                  Range
    Fair Value     Valuation   Unobservable   (Weighted
March 31, 2020   (in thousands)     Technique(s)   Input(s)   Average)
                   
Foreclosed and repossessed assets:                    
One- to four-family   $         577     Sales comparison approach   Adjustments for differences between comparable sales   -2.7% to 41.2%
(17.9%)

  

                  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%
(-5.2%)
                     
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 March 31, 2020 and June 30, 2019 are as follows:

  

          Fair Value Measurements at  
    Carrying     March 31, 2020 Using  
(in thousands)   Value     Level 1     Level 2     Level 3     Total  
Financial assets                              
Cash and cash equivalents   $ 17,025     $ 17,025                     $ 17,025  
Time deposits in other financial institutions     2,723       2,742                       2,742  
Available-for-sale securities     545             $ 545               545  
Held-to-maturity securities     625               641               641  
Loans held for sale     560                     $ 585       585  
Loans receivable - net     278,639                       292,765       292,765  
Federal Home Loan Bank stock     6,498                               n/a  
Accrued interest receivable     712               712               712  
                                         
Financial liabilities                                        
Deposits   $ 208,555     $ 71,275     $ 137,757               209,032  
Federal Home Loan Bank advances     55,042               55,681               55,681  
Advances by borrowers for taxes and insurance     517               517               517  
Accrued interest payable     33               33               33  

 

       Fair Value Measurements at 
   Carrying   June 30, 2019 Using 
(in thousands)  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