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Disclosures About Fair Value of Assets and Liabilities
 3 Months Ended
Sep. 30, 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)		 
                 
September 30, 2020                
Agency mortgage-backed: residential  $36   $       –   $36   $       – 

 

June 30, 2020

                    
Agency bonds  $503   $–   $503   $– 
Agency mortgage-backed: residential   38    –    38    – 
   $541   $–   $541   $– 

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)		 
                 
June 30, 2020                    
Other real estate owned, net                    
One- to four-family  $465   $–   $–   $465 

There were no impaired loans, which were measured using the fair value of the collateral for collateral-dependent loans, at September 30, 2020, or at June 30, 2020. There was a charge off of $8,000 for the three-month period ended September 30, 2019.


There was no other real estate owned written down during the three-months ended September 30, 2020 or 2019. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $577,000 at September 30, 2020.


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, 2020 and June 30, 2020:


             Range
   Fair Value   Valuation  Unobservable  (Weighted
June 30, 2020  (in thousands)   Technique(s)  Input(s)  Average)
Foreclosed and repossessed assets:             
One- to four-family  $465   Sales comparison approach  Adjustments  for
differences between
comparable sales		  -2.7% to 41.2%
(20.4%)

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, 2020 and June 30, 2020 are as follows:


          Fair Value Measurements at  
    Carrying     September 30, 2020 Using  
(in thousands)   Value     Level 1     Level 2     Level 3     Total  
Financial assets                              
Cash and cash equivalents   $ 17,116     $ 17,116                     $ 17,116  
Time deposits in other financial institutions     1,241       1,254                       1,254  
Available-for-sale securities     36             $ 36               36  
Held-to-maturity securities     564               582               582  
Loans held for sale     1,035                     $ 1,064       1,064  
Loans receivable - net     290,509                       300,232       300,232  
Federal Home Loan Bank stock     6,498                               n/a  
Accrued interest receivable     700               700               700  
                                         
Financial liabilities                                        
Deposits   $ 215,102     $ 84,030     $ 131,898               215,928  
Federal Home Loan Bank advances     58,392               59,140               59,140  
Advances by borrowers for taxes and insurance     1,084               1,084               1,084  
Accrued interest payable     24               24               24  

       Fair Value Measurements at 
   Carrying   June 30, 2020 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $13,702   $13,702             $13,702 
Term deposits in other financial institutions   2,229    2,252              2,252 
Available-for-sale securities   541        $541         541 
Held-to-maturity securities   598         611         611 
Loans held for sale   667         685         685 
Loans receivable – net   285,887             $295,431    295,431 
Federal Home Loan Bank stock   6,498                   n/a 
Accrued interest receivable   830         830         830 
                          
Financial liabilities                         
Deposits  $212,273   $78,118   $135,000        $213,118 
Federal Home Loan Bank advances   54,715         55,416         55,416 
Advances by borrowers for taxes and insurance   800         800         800 
Accrued interest payable   27         27         27