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Disclosures About Fair Value of Assets and Liabilities
 3 Months Ended
Sep. 30, 2021
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.

 

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, 2021                
Agency mortgage-backed: residential  $             31   $
               –
   $            31   $
               –
 
                     
June 30, 2021                    
Agency mortgage-backed: residential  $33   $
–
   $33   $
–
 

 

Impaired Loans

 

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheet as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

 

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.

 

There were no impaired loans, which were measured on a nonrecurring basis during the period using the fair value of the collateral for collateral-dependent loans, at September 30, 2021, or at June 30, 2021.

 

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.

 

There was no other real estate owned (“OREO”) written down during the three-months ended September 30, 2021 or 2020. There was no OREO measured on a nonrecurring basis during the period at fair value less costs to sell at September 30, 2021 or June 30, 2021.

 

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, 2021 and June 30, 2021 are as follows:

 

       Fair Value Measurements at 
   Carrying   September 30, 2021 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $25,932   $25,932    
 
    
 
   $25,932 
Available-for-sale securities   31    
 
   $31    
 
    31 
Held-to-maturity securities   436    
 
    452    
 
    452 
Loans held for sale   90    
 
    
 
   $92    92 
Loans receivable - net   293,990    
 
    
 
    302,332    302,332 
Federal Home Loan Bank stock   6,498    
 
    
 
    
 
    
n/a
 
Accrued interest receivable   613    
 
    613    
 
    613 
                          
Financial liabilities                         
Deposits  $231,489   $104,608   $127,226         231,834 
Federal Home Loan Bank advances   50,355    
 
    50,745    
 
    50,745 
Advances by borrowers for taxes and insurance   962    
 
    962    
 
    962 
Accrued interest payable   21    
 
    21    
 
    21 

 

       Fair Value Measurements at 
   Carrying   June 30, 2021 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $21,648   $21,648    
 
    
 
   $21,648 
Term deposits in other financial institutions   247    248    
 
    
 
    248 
Available-for-sale securities   33    
 
   $33    
 
    33 
Held-to-maturity securities   462    
 
    476    
 
    476 
Loans held for sale   1,307    
 
    1,336    
 
    1,336 
Loans receivable – net   297,902    
 
    
 
   $306,346    306,346 
Federal Home Loan Bank stock   6,498    
 
    
 
    
 
    
n/a
 
Accrued interest receivable   694    
 
    694    
 
    694 
                          
Financial liabilities                         
Deposits  $226,843   $101,951   $125,232        $227,183 
Federal Home Loan Bank advances   56,873    
 
    57,314    
 
    57,314 
Advances by borrowers for taxes and insurance   838    
 
    838    
 
    838 
Accrued interest payable   20    
 
    20    
 
    20