Note 4 - Fair Value

6 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 4 - 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: When available, the fair values of available-for-sale 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:

	Balance at December 31,		Fair Value Measurements at December 31, 2023
	2023		Level 1		Level 2		Level 3
Assets:
Obligations of U.S. Treasury	$	8,636	$	—	$	8,636	$	—
Obligations of U.S. government-sponsored entities and agencies		25,458		—		25,458		—
Obligations of state and political subdivisions		80,465		—		80,465		—
U.S. Government-sponsored mortgage-backed securities – residential		86,913		—		86,913		—
U.S. Government-sponsored mortgage-backed securities – commercial		6,916		—		6,916		—
U.S. Government-sponsored collateralized mortgage obligations - residential		52,230		—		52,230		—
Other debt securities		15,515		—		15,515		—
Equity securities		386		—		386		—

	Balance at June 30,		Fair Value Measurements at June 30, 2023
	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 state 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 - residential		50,070		—		50,070		—
Other debt securities		15,033		—		15,033		—
Equity securities		386		—		386		—

There were no transfers between Level 1 and Level 2 during the three-month and six month periods ended December 31, 2023.

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 that may be recorded at fair value on a nonrecurring basis include individually evaluated collateral dependent loans (or impaired loans prior to the adoption of ASC 326), other real estate owned, and other repossessed assets.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. 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. As of December 31, 2023, there was a total of $199 of collateral dependent loans that were remeasured and reported at fair value through a specific allocation of the allowance for credit losses on loans of $12.There were no impaired loans measured at fair value on a non-recurring basis at June 30, 2023.

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. Subsequent to their initial recognition, these assets are remeasured at fair value, which is the lower of cost or fair value less estimated costs to sell, through a write-down included in other non-interest expense. 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 were no such fair value measurement adjustments recorded during December 31, 2023 or June 30, 2023. As of December 31, 2023 and June 30, 2023 the balance of other real estate owned was $124.

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

	December 31, 2023				June 30, 2023
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	12,785	$	12,785	$	11,755	$	11,755
Level 2 inputs:
Certificates of deposit in other financial institutions		2,237		2,225		2,501		2,450
Loans held for sale		997		1,017		764		774
Accrued interest receivable		3,301		3,301		3,024		3,024
Level 3 inputs:
Securities held-to-maturity		6,428		5,900		6,970		6,294
Loans, net		727,240		686,282		702,638		656,737
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		694,176		694,116		738,190		738,190
Time deposits		254,372		253,604		214,343		211,856
Short-term borrowings		25,390		25,390		26,367		26,367
Federal Home Loan Bank advances		26,434		25,391		8,776		7,678
Accrued interest payable		740		740		344		344

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 December 31, 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 December 31, 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 Company’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.