Note 15 - Fair Value

12 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 15—FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities available-for-sale and equity securities: When available, the fair values of available-for-sale and equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted market prices are not available, fair values are calculated based on market prices of similar securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other unobservable inputs (Level 3 inputs).

Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: 

	Fair Value Measurements at June 30, 2023 Using
	Balance at June 30, 2023		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. treasury	$	8,408			$	8,408
Obligations of U.S. government-sponsored entities and agencies		25,692		—		25,692		—
Obligations of states and political subdivisions		83,972		—		83,972		—
U.S. government-sponsored mortgage-backed securities - residential		89,635		—		89,635		—
U.S. government-sponsored mortgage-backed securities - commercial		6,795		—		6,795		—
U.S. government-sponsored collateralized mortgage obligations		50,070		—		50,070		—
Other debt securities		15,033		—		15,033		—
Equity securities		386		—		386		—

	Balance at June 30, 2022		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. treasury	$	8,447		—	$	8,447		—
Obligations of U.S. government-sponsored entities and agencies		26,265				26,265
Obligations of states and political subdivisions		97,357		—		97,357		—
U.S. government-sponsored mortgage-backed securities - residential		102,183		—		102,183		—
U.S. government-sponsored mortgage-backed securities – commercial		7,301		—		7,301		—
U.S. government-sponsored collateralized mortgage obligations		38,179		—		38,179		—
Other debt securities		16,615		—		16,615		—
Equity securities		400		—		400		—

There were no transfers between Level 1 and Level 2 during the 2023 or the 2022 fiscal year.

Certain assets and liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Assets and liabilities measured at fair value on a non-recurring basis include the following:

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. 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 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.

Other Real Estate and Repossessed Assets Owned: 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. Real estate owned properties and other repossessed assets, which are primarily vehicles, are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There was no other real estate owned or other repossessed assets being carried at fair value as of June 30, 2023 or June 30, 2022. As of June 30, 2023, the balance of other real estate owned was $124.

There were no assets measured at fair value on a non-recurring basis at June 30, 2023 or 2022 and there was no impact to the provision for loan losses for the twelve months ended June 30, 2023 or 2022.

The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	2023				2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	11,755	$	11,755	$	20,952	$	20,952
Level 2 inputs:
Certificates of deposit in other financial institutions		2,501		2,450		3,781		3,847
Loans held for sale		764		774		1,165		1,188
Accrued interest receivable		3,024		3,024		2,703		2,703
Level 3 inputs:
Securities held-to-maturity		6,970		6,294		7,874		7,831
Loans, net		702,638		656,737		604,683		577,708
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		738,190		738,190		784,181		784,181
Time deposits		214,343		211,856		102,381		102,622
Short-term borrowings		26,367		26,367		21,295		21,295
Federal Home Loan Bank advances		8,776		7,678		8,256		7,215
Accrued interest payable		344		344		49		49

The assumptions used to estimate fair value are described as follows:

Cash and cash equivalents: The carrying value of cash and deposits in other financial institutions were considered to approximate fair value resulting in a Level 1 classification.

Certificates of deposits in other financial institutions: Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level 2 classification.

Accrued interest receivable and payable, demand and savings deposits and short-term borrowings: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level 2 classification.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Loans: Fair value for loans was estimated for portfolios of loans with similar financial characteristics. The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality resulting in a Level 3 classification. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Securities held-to-maturity: The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated using a spread to the applicable municipal fair market curve resulting in a Level 3 classification.

Time deposits: Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at June 30, 2023 and 2022 for deposits of similar remaining maturities, resulting in Level 2 classification. Estimated fair value does not include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Federal Home Loan Bank advances: Fair value of Federal Home Loan Bank advances was estimated using current rates at June 30, 2023 and 2022 for similar financing resulting in a Level 2 classification.

Federal bank and other restricted stocks, at cost: Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability, and, therefore, are not subject to the fair value disclosure requirements.

Off-balance sheet commitments: The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the above table.