Disclosures About Fair Value of Assets and Liabilities

6 Months Ended

Dec. 31, 2019

Fair Value Disclosures [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.

Impaired Loans

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.

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.

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)
December 31, 2019
Agency bonds	$	503	$	–	$	503	$	–
Agency mortgage-backed: residential		42		–		42		–
	$	545	$	–	$	545	$	–
June 30, 2019
U.S. Treasury notes	$	497	$	–	$	497	$	–
Agency bonds		505		–		505		–
Agency mortgage-backed: residential		43		–		43		–
	$	1,045	$	–	$	1,045	$	–

Assets measured at fair value on a non-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)
December 31, 2019
Loans
One- to four-family	$	9	$	–	$	–	$	9
Other real estate owned, net
One- to four-family	$	577		–		–	$	577
June 30, 2019
Loans
One- to four-family	$	593	$	–	$	–	$	593
Other real estate owned, net
One- to four-family	$	117	$	–	$	–	$	117

There was one impaired loan, which was measured using the fair value of the collateral for collateral-dependent loans, at December 31, 2019, and seven impaired loans at June 30, 2019. Amounts charged off were $8,000 for the six-month period ended December 31, 2019 and $23,000 off for the six-month period ended December 31, 2018.

Other real estate owned was written down $24,000 during the six- and three-months ended December 31, 2019. Other real estate owned measured at fair value less costs to sell, had a carrying amount of $577,000 and $117,000 at December 31, 2019 and June 30, 2019, respectively. Other real estate owned was written down $54,000 and $36,000 during the six- and three-month periods ended December 31, 2018, respectively.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019 and June 30, 2019:

					Range
	Fair Value		Valuation	Unobservable	(Weighted
December 31, 2019	(in thousands)		Technique(s)	Input(s)	Average)
Loans:
One- to four-family	$	9	Sales comparison approach	Adjustments for differences between comparable sales	-82.2% to 151.3% (20.5%)
Foreclosed and repossessed assets:
One- to four-family	$	577	Sales comparison approach	Adjustments for differences between comparable sales	-2.7% to 41.2% (17.9%)

					Range
	Fair Value		Valuation	Unobservable	(Weighted
June 30, 2019	(in thousands)		Technique(s)	Input(s)	Average)
Loans:
One- to four-family	$	593	Sales comparison approach	Adjustment for differences between comparable sales	25.3% to 50.6% (-0.6%)
Foreclosed and repossessed assets:
One- to four-family	$	117	Sales comparison approach	Adjustments for differences between comparable sales	8.6% to 31.0% (29.0%)

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 December 31, 2019 and June 30, 2019 are as follows:

			Fair Value Measurements at
	Carrying		December 31, 2019 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	11,884	$	11,884					$	11,884
Time deposits in other financial institutions		2,970		2,979						2,979
Available-for-sale securities		545			$	545				545
Held-to-maturity securities		652				659				659
Loans held for sale		251					$	251		251
Loans receivable - net		281,568						285,831		285,831
Federal Home Loan Bank stock		6,482								n/a
Accrued interest receivable		690				690				690
Financial liabilities
Deposits	$	199,959	$	68,113	$	131,853				199,996
Federal Home Loan Bank advances		61,615				61,741				61,741
Advances by borrowers for taxes and insurance		231				231				231
Accrued interest payable		30				30				30
			Fair Value Measurements at
	Carrying		June 30, 2019 Using
(in thousands)	Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	9,861	$	9,861					$	9,861
Term deposits in other financial institutions		6,962		6,963						6,963
Available-for-sale securities		1,045			$	1,045				1,045
Held-to-maturity securities		775				775				775
Loans receivable – net		280,969					$	285,700		285,700
Federal Home Loan Bank stock		6,482								n/a
Accrued interest receivable		758				758				758
Financial liabilities
Deposits	$	195,836	$	69,944	$	123,920			$	193,864
Federal Home Loan Bank advances		66,703				66,719				66,719
Advances by borrowers for taxes and insurance		763				763				763
Accrued interest payable		28				28				28