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Fair Value Measurements and Fair Value of Financial Instruments
6 Months Ended
Dec. 31, 2016
Fair Value Measurements and Fair Value of Financial Instruments [Abstract]  
Fair Value Measurements and Fair Value of Financial Instruments
(6)
Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated.  The estimated fair value amounts have been measured as of December 31, 2016 and June 30, 2016 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
 
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
 
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
 
     
Fair Value Measurements Using
 
(In thousands)
 
December 31, 2016
  
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable Inputs
(Level 3)
 
Assets:
            
U.S. Government sponsored enterprises
 
$
4,746
  
$
-
  
$
4,746
  
$
-
 
State and political subdivisions
  
54,297
   
-
   
54,297
   
-
 
Mortgage-backed securities-residential
  
5,662
   
-
   
5,662
   
-
 
Mortgage-backed securities-multi-family
  
18,009
   
-
   
18,009
   
-
 
Asset-backed securities
  
4
   
4
   
-
   
-
 
Corporate debt securities
  
2,834
   
2,834
   
-
   
-
 
Equity securities
  
158
   
158
   
-
   
-
 
Securities available-for-sale
 
$
85,710
  
$
2,996
  
$
82,714
  
$
-
 
 
     
Fair Value Measurements Using
 
(In thousands)
 
June 30, 2016
  
Quoted Prices
In Active Markets For
Identical Assets
(Level 1)
  
Significant
Other Observable
Inputs
(Level 2)
  
Significant
Unobservable Inputs
(Level 3)
 
Assets:
            
U.S. Government sponsored enterprises
 
$
4,891
  
$
-
  
$
4,891
  
$
-
 
State and political subdivisions
  
60,499
   
-
   
60,499
   
-
 
Mortgage-backed securities-residential
  
6,540
   
-
   
6,540
   
-
 
Mortgage-backed securities-multi-family
  
23,879
   
-
   
23,879
   
-
 
Asset-backed securities
  
5
   
5
   
-
   
-
 
Corporate debt securities
  
4,157
   
4,157
   
-
   
-
 
Equity securities
  
152
   
152
   
-
   
-
 
Securities available-for-sale
 
$
100,123
  
$
4,314
  
$
95,809
  
$
-
 

Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations.  Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount may not necessarily represent the actual fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

           
Fair Value Measurements Using
 
(In thousands)
 
Recorded
Investment
  
Related
 Allowance
  
Fair Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
December 31, 2016
                  
Impaired loans
 
$
1,422
  
$
298
  
$
1,124
  
$
-
  
$
-
  
$
1,124
 
Foreclosed real estate
  
338
   
-
   
338
   
-
   
-
   
338
 
                         
June 30, 2016
                        
Impaired loans
 
$
655
  
$
164
  
$
491
  
$
-
  
$
-
  
$
491
 
Foreclosed real estate
  
370
   
-
   
370
   
-
   
-
   
370
 
 
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value:
 
(Dollars in thousands)
 
Fair Value
 
Valuation Technique
Unobservable Input
 
Range
  
Weighted
Average
 
December 31, 2016
           
Impaired Loans
 
$
1,124
 
Appraisal of collateral(1)
Appraisal adjustments(2)
  
16.50%-42.52
%
  
26.73
%
        
Liquidation expenses(3)
  
3.45%-8.35
%
  
6.25
%
Foreclosed real estate
  
338
 
Appraisal of collateral(1)
Appraisal adjustments(2)
  
0.00%-54.17
%
  
3.50
%
        
Liquidation expenses(3)
  
0.42%-11.79
%
  
7.18
%
June 30, 2016
              
Impaired loans
 
$
491
 
Appraisal of collateral(1)
Appraisal adjustments(2)
  
0.00%-38.85
%
  
21.01
%
        
Liquidation expenses(3)
  
0.00%-8.35
%
  
4.92
%
Foreclosed real estate
  
370
 
Appraisal of collateral(1)
Appraisal adjustments(2)
  
0.00%-54.17
%
  
8.83
%
        
Liquidation expenses(3)
  
0.42%-12.67
%
  
7.81
%
 
(1)
Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.
(2)
Appraisals may be adjusted downwards by management for qualitative factors such as economic conditions.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received or age of the appraisal.
(3)
Appraisals are adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.

The carrying amounts reported in the statements of financial condition for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate their fair values.  Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature.  Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value.  Fair value for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date.  The carrying amounts for variable rate money market deposits approximate fair values at the reporting date.  Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates.  Fair value for Federal Home Loan Bank long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings.  The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value.

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers.  At December 31, 2016 and June 30, 2016, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

The carrying amounts and estimated fair value of financial instruments are as follows:

(In thousands)
 
December 31, 2016
  
Fair Value Measurements Using
 
  
Carrying
Amount
  
Fair Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
Cash and cash equivalents
 
$
15,575
  
$
15,575
  
$
15,575
  
$
-
  
$
-
 
Long term certificate of deposit
  
2,145
   
2,145
   
2,145
   
-
   
-
 
Securities available-for-sale
  
85,710
   
85,710
   
2,996
   
82,714
   
-
 
Securities held-to-maturity
  
210,983
   
212,534
   
-
   
212,534
   
-
 
Federal Home Loan Bank stock
  
3,730
   
3,730
   
-
   
3,730
   
-
 
Net loans
  
591,327
   
599,016
   
-
   
-
   
599,016
 
Accrued interest receivable
  
3,790
   
3,790
   
-
   
3,790
   
-
 
Deposits
  
775,065
   
775,252
   
-
   
775,252
   
-
 
Borrowings
  
68,250
   
68,075
   
-
   
68,075
   
-
 
Accrued interest payable
  
83
   
83
   
-
   
83
   
-
 
 
(In thousands)
 
June 30, 2016
  
Fair Value Measurements Using
 
  
Carrying
Amount
  
Fair Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
Cash and cash equivalents
 
$
15,895
  
$
15,895
  
$
15,895
  
$
-
  
$
-
 
Long term certificate of deposit
  
2,210
   
2,210
   
2,210
   
-
   
-
 
Securities available-for-sale
  
100,123
   
100,123
   
4,314
   
95,809
   
-
 
Securities held-to-maturity
  
204,935
   
214,058
   
-
   
214,058
   
-
 
Federal Home Loan Bank stock
  
2,752
   
2,752
   
-
   
2,752
   
-
 
Net loans
  
522,764
   
533,721
   
-
   
-
   
533,721
 
Accrued interest receivable
  
3,610
   
3,610
   
-
   
3,610
   
-
 
Deposits
  
738,887
   
739,087
   
-
   
739,087
   
-
 
Borrowings
  
46,400
   
46,562
   
-
   
46,562
   
-
 
Accrued interest payable
  
74
   
74
   
-
   
74
   
-