FAIR VALUES OF ASSETS AND LIABILITIES

12 Months Ended

Jun. 30, 2015

NOTE 8 – FAIR VALUES OF ASSETS AND LIABILITIES

The estimated fair values of the Company’s financial instruments are as follows:

	June 30,
	2015				2014
	Carrying		Fair		Carrying		Fair
	Amounts		Value		Amounts		Value

	(In thousands)
Financial assets:
Cash and interest-bearing deposits	$	18,522	$	18,522	$	24,970	$	24,970
Investment securities available for sale		60,873		60,873		39,965		39,965
Investment securities held to maturity		40,653		40,045		337		351
Mortgage-backed securities		109,138		109,138		179,017		179,017
Loans receivable and loans held for sale		253,988		254,944		244,522		245,150
Accrued interest receivable		1,822		1,822		1,634		1,634
Investment in FHLB stock		3,527		3,527		6,588		6,588

Financial liabilities:
Deposits	$	432,537	$	433,479	$	439,636	$	440,849
Accrued interest payable		20		20		25		25
FHLB advances		13,000		13,114		15,000		15,041
Off-balance sheet items		—		—		—		—

As discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Pronouncements, ASC 820-10-50-2 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 three 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 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.

Fair value methods and assumptions are set forth below for each type of financial instrument. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 2 securities include U.S. Government and agency mortgage-backed securities, U.S. Government agency bonds, municipal securities, and other real estate owned. If quoted market prices are not available, the Bank utilizes a third party vendor to calculate the fair value of its available for sale securities. The third party vendor uses quoted prices of securities with similar characteristics when available. If such quotes are not available, the third party vendor uses pricing models or discounted cash flow models with observable inputs to determine the fair value of these securities. For other real estate owned, the Bank utilizes appraisals obtained from independent third parties to determine fair value.

Fair value measurements for certain assets and liabilities recognized in the accompanying statements of financial condition and measured at fair value on a recurring basis:

			Quoted prices		Significant		Significant
			in active		other		other
			markets for		observable		unobservable
			identical assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)

June 30, 2015:
Mortgage-backed securities	$	109,138	$	—	$	109,138	$	—
Municipal bonds		37,619		—		37,619		—
U.S. Government agency bonds		2,015		—		2,015		—
Small Business Admin		8,213		—		8,213		—
Collateralized Mortgage Obligations		12,842		—		12,842		—
Other equity securities		184		184		—		—
Mortgage servicing rights⁽¹⁾		517		—		517		—
June 30, 2014:
Mortgage-backed securities	$	179,017	$	—	$	179,017	$	—
Municipal bonds		37,815		—		37,815		—
U.S. Government agency bonds		1,992		—		1,992		—
Other equity securities		158		158		—		—
Mortgage servicing rights⁽¹⁾		722		—		722		—

⁽¹⁾

During the fiscal year ended June 30, 2014, the Company changed its accounting method for mortgage servicing rights from the amortization method to the fair value measurement method, as permitted in accordance with FASB ASC 860-50, “Servicing Assets and Liabilities”. In accordance with ASC 860-50, the Company recorded an adjustment to retained earnings for the value of such servicing rights.

Fair value measurements for certain assets and liabilities recognized in the accompanying statements of financial condition and measured at fair value on a nonrecurring basis:

			Quoted prices		Significant		Significant
			in active		other		other
			markets for		observable		unobservable
			identical assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
June 30, 2015:
Other real estate owned	$	286	$	—	$	286	$	—
Loans available for sale		160		—		160		—
Impaired loans		10,959		—		10,959		—
June 30, 2014:
Other real estate owned	$	598	$	—	$	598	$	—
Loans available for sale		138		—		138		—
Impaired loans		15,446		—		15,446		—

The adjustments to other real estate owned and impaired loans are based primarily on current appraisals of the real estate cash flow analysis or other observable market prices.

The following table presents fair value measurements for the Company’s financial instruments which are not recognized at fair value in the accompanying statements of financial position on a recurring or nonrecurring basis.

			Quoted prices		Significant		Significant
			in active		other		other
			markets for		observable		unobservable
			identical assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)

June 30, 2015:
Financial assets:
Cash and interest bearing deposits	$	18,522	$	18,522	$	—	$	—
Investment securities held to maturity		40,045		—		40,045		—
Loans receivable and loans held for sale		254,944		—		254,944		—
Accrued interest receivable		1,822		—		1,822		—
Investment in FHLB stock		3,527		—		3,527		—
Financial liabilities:
Deposits		433,479		—		433,479		—
Accrued interest payable		20		—		20		—
FHLB advances		13,114		—		13,114		—

June 30, 2014:
Financial assets:
Cash and interest bearing deposits	$	24,970	$	24,970	$	—	$	—
Investment securities held to maturity		351		—		351		—
Loans receivable and loans held for sale		245,150		—		245,150		—
Accrued interest receivable		1,634		—		1,634		—
Investment in FHLB stock		6,588		—		6,588		—
Financial liabilities:
Deposits		440,849		—		440,849		—
Accrued interest payable		25		—		25		—
FHLB advances		15,041		—		15,041		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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