FAIR VALUE MEASUREMENTS

9 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 10 – FAIR VALUE MEASUREMENTS

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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, is set forth below.  These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value for March 31, 2012.

The Company’s investment and mortgage-backed securities and other debt securities available-for-sale are generally classified within Level 2 of the fair value hierarchy.  For these securities, we obtain fair value measurements from independent pricing services.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence.  In the absence of such evidence, management’s best estimate is used.  Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based upon appraisals of similar properties obtained from a third party.

The Company did not have any significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the nine months ended March 31, 2012.

The following summarizes assets measured at fair value on a recurring basis at March 31, 2012 and June 30, 2011:

			Quoted Prices in			Significant		Significant
			Active Markets for			Other Observable		Unobservable
At March 31, 2012	Total Fair		Identical Assets			Inputs		Inputs
(in thousands)	Value		Level 1			Level 2		Level 3
Securities available for sale:
U.S. government and government-sponsored securities	$	4,011	$	-		$	4,011	$	-
Corporate bonds and other securities		4,386		-			4,386		-
U.S. Government agency sponsored/guaranteed mortgage-backed securities		25,602		-			25,602		-
Non-agency mortgage-backed securities		9,168		-			9,168		-
Equity securities		10,131		-			-		10,131
Total	$	53,298	$	-		$	43,167	$	10,131
			Quoted Prices in			Significant		Significant
			Active Markets for			Other Observable		Unobservable
At June 30, 2011	Total Fair		Identical Assets			Inputs		Inputs
(in thousands)	Value		Level 1			Level 2		Level 3
Securities available-for-sale:
U.S. government and agency securities	$	666	$	-		$	666	$	-
Corporate securities		4,905		-			4,905		-
Mortgage-backed securities insured or guaranteed by U. S. Government enterprises		30,316		-			30,316		-
Non-agency mortgage-backed securities		11,722		-			11,722		-
Equity securities		10,400		-			-		10,400
Total	$	58,009	$	-		$	47,609	$	10,400
The table below represents the changes in level 3 assets measured at fair value for the mine months ended March 31, 2012.
(in thousands)
Beginning balance, July 1, 2011			$	10,400
Total change in unrealized gains included in other comprehensive loss				(269	)
Ending balance, March 31, 2012			$	10,131

The following summarizes assets measured at fair value on a non-recurring basis and the adjustments to the carrying value at and for the nine months ended March 31, 2012 and 2011.

			Quoted Prices in		Significant Other		Significant		Total Gains (Losses)			Total Gains (Losses)
			Active Markets for		Observable Inputs		Unobservable Inputs		for the three			for the nine
At March 31, 2012	Total Fair		Identical Assets						months ended			months ended
(in thousands)	Value		Level 1		Level 2		Level 3		March 31, 2012			March 31, 2012
Other real estate owned		363	$	-	$	-		363		(44	)		(98	)
Totals	$	363	$	-	$	-	$	363	$	(44	)	$	(98	)
			Quoted Prices in		Significant Other		Significant		Total Losses			Total Gains (Losses)
			Active Markets for		Observable Inputs		Unobservable Inputs		for the three			for the nine
At March 31, 2011	Total Fair		Identical Assets						months ended			months ended
(in thousands)	Value		Level 1		Level 2		Level 3		March 31, 2011			March 31, 2011
Impaired loans	$	1,313	$	-	$	-	$	1,313	$	(114	)	$	27
Other real estate owned		289		-		-		289		-			(95	)
Totals	$	1,602	$	-	$	-	$	1,602	$	(114	)	$	(68	)

The amount of loans represents the carrying value of impaired loans net of related write-downs and valuation allowances for which adjustments are based on the estimated fair value of the underlying collateral. The other real estate owned amount represents the carrying value for which adjustments are also based on the estimated fair value of the property.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because a market may not readily exist for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

There were no liabilities measured at fair value on a recurring or non-recurring basis at March 31, 2012 and 2011 or June 30, 2011.

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

Cash and Cash Equivalents.  The carrying amounts of cash and cash equivalents approximate fair values based on the short-term nature of the assets.

Investment Securities and FHLBB Stock.  The fair value of securities to be held-to-maturity and available-for-sale is estimated based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  Ownership of Federal Home Loan Bank of Boston (“FHLBB”) stock is restricted to member banks; therefore, the stock is not traded.  The estimated fair value of FHLBB stock is equal to its carrying value, which represents the price at which the FHLBB is obligated to redeem its stock.

Loans.  For valuation purposes, the loan portfolio was segregated into its significant categories, which are residential, commercial real estate, residential construction, commercial and consumer and other loans. These categories were further segregated, where appropriate, into components based on significant financial characteristics such as type of interest rate (fixed or adjustable). Fair values were estimated for each component using assumptions developed by management and a valuation model provided by a third party specialist.

The fair values of residential, commercial real estate, residential construction, commercial and consumer and other loans were estimated by discounting the anticipated cash flows from the respective portfolios. Estimates of the timing and amount of these cash flows considered factors such as future loan prepayments. The discount rates reflected current market rates for loans with similar terms to borrowers of similar credit quality. The fair value of home equity lines of credit was based on the outstanding loan balances.  Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

            Loans held for sale: Loans held for sale are accounted for at the lower of cost or market and the fair value of loans held for sale based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted as required for changes in loan characteristics.

Deposits and Mortgagors’ Escrow.  The fair value of deposits with no stated maturity and mortgagors’  escrow account, such as demand deposits, NOW, regular savings, and money market deposit accounts, is equal to the amount payable on demand.  The fair value estimates do not include the benefit that results from the generally lower cost of funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.  The fair value estimate of time deposits is based on the discounted value of contractual cash flows.  The discount rate is estimated using the rates currently offered for deposits having similar remaining maturities.

Federal Home Loan Bank Advances.  The fair values of the Company’s Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Securities Sold Under Agreements to Repurchase.  The Company enters into overnight repurchase agreements with its customers. Since these agreements are short-term instruments, the fair value of these agreements approximates their recorded balance. The Company also secures term repurchase agreements through other financial institutions. The fair value of these agreements are determined by discounting the anticipated future cash payments using rates currently available to the Bank for debt with similar terms and remaining maturities.

Off-Balance Sheet Instruments.  The fair value of off-balance-sheet mortgage lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.  In the case of the commitments discussed in Note 13, the fair value equals the carrying amounts which are not significant.

Summary of Fair Values of Financial Instruments.  The estimated fair values, and related carrying  amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Company.

The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, are as of March 31, 2012 and June 30, 2011:

	March 31,
	2012
	Carrying		Fair Value Hierarchy						Fair
	Amount		Level 1		Level 2		Level 3		Value
			(In thousands)
Financial assets:
Cash and cash equivalents	$	11,586	$	11,586	$	-	$	-	$	11,586
Securities available-for-sale		53,298		-		43,167		10,131		53,298
Securities held-to-maturity		98,634		-		101,311		-		101,311
Federal Home Loan Bank stock		7,536		-		-		7,536		7,536
Loans and loans held-for-sale, net		250,320		-		-		256,203		256,203
Accrued interest receivable		1,304		-		-		1,304		1,304
Financial liabilities:
Deposits		339,604		-		-		340,036		340,036
Mortgagors’ escrow accounts		1,108		-		-		1,108		1,108
Securities sold under agreements to repurchase		4,012		-		4,276		-		4,276
Federal Home Loan Bank advances		56,500		-		60,223		-		60,223
Accrued interest payable		181		-		-		181		181

	June 30,
	2011
	Carrying		Fair Value Hierarchy						Fair
	Amount		Level 1		Level 2		Level 3		Value
			(In thousands)
Financial assets:
Cash and cash equivalents	$	8,273	$	8,273	$	-	$	-	$	8,273
Securities available-for-sale		58,009		-		47,609		10,400		58,009
Securities held-to-maturity		114,741		-		115,962		-		115,962
Federal Home Loan Bank stock		8,056		-		-		8,056		8,056
Loans and loans held-for-sale, net		254,792		-		-		255,418		255,418
Accrued interest receivable		1,528		-		-		1,528		1,528
Financial liabilities:
Deposits		333,773		-		-		331,132		331,132
Mortgagors’ escrow accounts		1,766		-		-		1,766		1,766
Securities sold under agreements to repurchase		4,244		-		4,244		-		4,244
Federal Home Loan Bank advances		83,500		-		87,339		-		87,339
Accrued interest payable		278		-		-		278		278