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Disclosures About Fair Value of Assets and Liabilities
 9 Months Ended
Mar. 31, 2023
Disclosures About Fair Value of Assets and Liabilities [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)		 
March 31, 2023                
Agency mortgage-backed: residential  $12,863   $
         –
   $12,863   $
           –
 
                     
June 30, 2022                    
Agency mortgage-backed: residential  $10,477   $
–
   $10,477   $
–
 

 

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 loans measured on a nonrecurring basis using the fair value of the collateral for collateral-dependent loans, at March 31, 2023 or at June 30, 2022.

 

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 nine- or three-month periods ended March 31, 2023 or 2022. There was no OREO measured on a nonrecurring basis during the period at fair value less costs to sell at March 31, 2023 or June 30, 2022.

 

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, 2023 and June 30, 2022 are as follows:

 

       Fair Value Measurements at 
   Carrying   March 31, 2023 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $8,085   $8,085    
 
    
 
   $8,085 
Available-for-sale securities   12,863    
 
   $12,863    
 
    12,863 
Held-to-maturity securities   289    
 
    273    
 
    273 
Loans receivable, net   306,960    
 
    
 
    290,695    290,695 
Federal Home Loan Bank stock   4,688    
 
    
 
    
 
    n/a 
Accrued interest receivable   887    
 
    887    
 
    887 
                          
Financial liabilities                         
Deposits  $209,391   $94,807   $114,326    
 
    209,133 
Federal Home Loan Bank advances   80,899    
 
    80,562    
 
    80,562 
Advances by borrowers for taxes and insurance   503    
 
    503    
 
    503 
Accrued interest payable   48    
 
    48    
 
    48 

 

       Fair Value Measurements at 
   Carrying   June 30, 2022 Using 
(in thousands)  Value   Level 1   Level 2   Level 3   Total 
Financial assets                    
Cash and cash equivalents  $25,823   $25,823    
 
    
 
   $25,823 
                          
Available-for-sale securities   10,477    
 
   $10,477    
 
    10,477 
Held-to-maturity securities   339    
 
    323    
 
    323 
Loans held for sale   152    
 
    153    
 
    153 
Loans receivable - net   274,583    
 
    
 
   $271,994    271,994 
Federal Home Loan Bank stock   6,498    
 
    
 
    
 
    n/a 
Accrued interest receivable   649    
 
    649    
 
    649 
                          
Financial liabilities                         
Deposits  $239,857   $115,152   $124,682        $239,834 
Federal Home Loan Bank advances   34,066    
 
    33,688    
 
    33,688 
Advances by borrowers for taxes and insurance   766    
 
    766    
 
    766 
Accrued interest payable   12    
 
    12    
 
    12