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Note 11: Fair Value Measurements

3 Months Ended

Sep. 30, 2020

ASC Topic 820, Fair Value Measurements, 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 at the measurement date. 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 three levels of inputs that may be used to measure fair value:

Level 1Quoted prices in active markets for identical assets or liabilities

Level 2Observable 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 3Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities

Recurring Measurements. The following table presents the fair value measurements recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30 and June 30, 2020:

	Fair Value Measurements at September 30, 2020, Using:
		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(dollars in thousands)	Fair Value	(Level 1)	(Level 2)	(Level 3)
State and political subdivisions	$ 44,487	$ -	$ 44,487	$ -
Other securities	9,200	-	9,200	-
Mortgage-backed GSE residential	121,841	-	121,841	-

	Fair Value Measurements at June 30, 2020, Using:
		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
(dollars in thousands)	Fair Value	(Level 1)	(Level 2)	(Level 3)
State and political subdivisions	$ 41,988	$ -	$ 41,988	$ -
Other securities	7,624	-	7,624	-
Mortgage-backed GSE residential	126,912	-	126,912	-

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale Securities. When quoted market prices are available in an active market, securities are classified within Level 1. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Nonrecurring Measurements. The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2020:

	Fair Value Measurements at September 30, 2020, Using:
		Quoted Prices in
		Active Markets for	Significant Other	Significant
		Identical Assets	Observable Inputs	Unobservable Inputs
(dollars in thousands)	Fair Value	(Level 1)	(Level 2)	(Level 3)

Foreclosed and repossessed assets held for sale	$ 166	$ -	$ -	$ 166

	Fair Value Measurements at June 30, 2020, Using:
		Quoted Prices in
		Active Markets for	Significant Other	Significant
		Identical Assets	Observable Inputs	Unobservable Inputs
(dollars in thousands)	Fair Value	(Level 1)	(Level 2)	(Level 3)

Foreclosed and repossessed assets held for sale	$ 2,211	$ -	$ -	$ 2,211

The following table presents losses recognized on assets measured on a non-recurring basis for the three-month periods ended September 30, 2020 and 2019:

	For the three months ended
(dollars in thousands)	September 30, 2020	September 30, 2019
Foreclosed and repossessed assets held for sale	$ (36)	$ (1)
Total losses on assets measured on a non-recurring basis	$ (36)	$ (1)

The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.

Foreclosed and Repossessed Assets Held for Sale. Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified.

Unobservable (Level 3) Inputs. The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

(dollars in thousands)	Fair value at September 30, 2020	Valuation technique	Unobservable inputs	Range of inputs applied	Weighted-average inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$ 166	Third party appraisal	Marketability discount	24.5% - 60.4%	41.3%

(dollars in thousands)	Fair value at June 30, 2020	Valuation technique	Unobservable inputs	Range of inputs applied	Weighted-average inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$ 2,211	Third party appraisal	Marketability discount	8.0% - 56.9%	15.7%

Fair Value of Financial Instruments. The following table presents estimated fair values of the Company’s financial instruments not reported at fair value and the level within the fair value hierarchy in which the fair value measurements fell at September 30 and June 30, 2020.

	September 30, 2020
		Quoted Prices
		in Active		Significant
		Markets for	Significant Other	Unobservable
	Carrying	Identical Assets	Observable Inputs	Inputs
(dollars in thousands)	Amount	(Level 1)	(Level 2)	(Level 3)
Financial assets
Cash and cash equivalents	$ 41,875	$ 41,875	$ -	$ -
Interest-bearing time deposits	975	-	975	-
Stock in FHLB	6,939	-	6,939	-
Stock in Federal Reserve Bank of St. Louis	5,017	-	5,017	-
Loans receivable, net	2,150,463	-	-	2,167,748
Accrued interest receivable	13,766	-	13,766	-
Financial liabilities
Deposits	2,168,074	1,520,675	-	651,528
Advances from FHLB	85,637	-	87,514	-
Accrued interest payable	1,402	-	1,402	-
Subordinated debt	15,168	-	-	13,455
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans	-	-	-	-
Letters of credit	-	-	-	-
Lines of credit	-	-	-	-

	June 30, 2020
		Quoted Prices
		in Active		Significant
		Markets for	Significant Other	Unobservable
	Carrying	Identical Assets	Observable Inputs	Inputs
(dollars in thousands)	Amount	(Level 1)	(Level 2)	(Level 3)
Financial assets
Cash and cash equivalents	$ 54,245	$ 54,245	$ -	$ -
Interest-bearing time deposits	974	-	974	-
Stock in FHLB	6,390	-	6,390	-
Stock in Federal Reserve Bank of St. Louis	4,363	-	4,363	-
Loans receivable, net	2,141,929	-	-	2,143,823
Accrued interest receivable	12,116	-	12,116	-
Financial liabilities
Deposits	2,184,847	1,508,740	-	676,816
Advances from FHLB	70,024	-	72,136	-
Accrued interest payable	1,646	-	1,646	-
Subordinated debt	15,142	-	-	11,511
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans	-	-	-	-
Letters of credit	-	-	-	-
Lines of credit	-	-	-	-