Note 13 - Fair Value

12 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

1

3

—FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are

three

levels of inputs that

may

be used to measure fair values:

Level

1:

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level

2:

Significant other 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.

Level

3:

Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities available-for-sale:

When available, the fair values of available-for-sale securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level

1

inputs). For securities where quoted market prices are

not

available, fair values are calculated based on market prices of similar securities (Level

2

inputs). For securities where quoted prices or market prices of similar securities are

not

available, fair values are calculated using discounted cash flows or other unobservable inputs (Level

3

inputs).

Assets and liabilities measured at fair value on a recurring basis are summarized below, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

			Fair Value Measurements at June 30, 2018 Using
	Balance at June 30, 2018		Level 1		Level 2		Level 3
Assets:
Securities available-for-sale:
Obligations of government-sponsored entities	$	16,122	$	—	$	16,122	$	—
Obligations of states and political subdivisions		56,590		—		56,590		—
Mortgage-backed securities - residential		63,408		—		63,408		—
Mortgage-backed securities - commercial		1,415		—		1,415		—
Collateralized mortgage obligations		5,766		—		5,766		—
Pooled trust preferred security		727		—		727		—

			Fair Value Measurements at June 30, 2017 Using
	Balance at June 30, 2017		Level 1		Level 2		Level 3
Securities available-for-sale:
Obligations of government-sponsored entities	$	12,587	$	—	$	12,587	$	—
Obligations of states and political subdivisions		57,460		—		57,460		—
Mortgage-backed securities - residential		63,838		—		63,838		—
Mortgage-backed securities - commercial		1,458		—		1,458		—
Collateralized mortgage obligations		6,211		—		6,211		—
Pooled trust preferred security		532		—		532		—

There were

no

transfers between Level

1

and Level

2

during the

2017

or the

2018

fiscal year.

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are

not

measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following:

Impaired Loans:

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses or are charged down to their fair value. 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 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.

Other Real Estate Owned:

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. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

There were

no

financial assets measured at fair value on a non-recurring basis at

June 30, 2018.

Financial assets and financial liabilities measured at fair value on a non-recurring basis at

June 30, 2017

are summarized below:

			Fair Value Measurements at June 30, 2017 Using
	Balance at June 30, 2017		Level 1		Level 2		Level 3
Impaired loans:
Commercial Real Estate - Other	$	130	$	—	$	—	$	130
Other Real Estate Owned:
1-4 Family residential real estate	$	71	$	—	$	—	$	71

There were

no

impaired loans measured at fair value on a non-recurring basis at

June 30, 2018

and the resulting impact to the provision for loan losses was a decrease of

$17

being recorded for the

twelve

months ended

June 30, 2018.

Impaired loans, measured for impairment using the fair value of the collateral, had a recorded investment of

$130,

with

no

valuation allowance at

June 30, 2017.

The resulting impact to the provision for loan losses was an increase of

$314

being recorded for the year ended

June 30, 2017.

Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of

$71,

which was made up of the outstanding balance of

$103,

net of a valuation allowance of

$32

at

June 30, 2017,

resulting in a provision for other real estate owned losses of

$32

for the year ended

June 30, 2017.

There was

no

other real estate owned at

June 30, 2018.

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

June 30, 2017:

	Fair Value		Valuation Technique	Unobservable Inputs		Range			Weighted Average
Impaired loans:
Commercial Real Estate – Other	$	130	Bid Indication		N/A		0.0	%		0.0	%
Other Real Estate Owned:
1-4 Family residential real estate	$	71	Bid Indication		N/A		0.0	%		0.0	%

The following table shows the estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	201 8				201 7
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Level 1 inputs:
Cash and cash equivalents	$	7,772	$	7,772	$	9,912	$	9,912
Level 2 inputs:
Certificates of deposits in other financial institutions		2,973		2,976		3,921		3,927
Loans held for sale		1,448		1,474		1,252		1,286
Accrued interest receivable		1,404		1,404		1,212		1,212
Level 3 inputs:
Securities held-to-maturity		4,024		4,048		4,259		4,329
Loans, net		315,087		311,642		269,781		266,041
Financial Liabilities:
Level 2 inputs:
Demand and savings deposits		351,422		351,422		307,960		307,960
Time deposits		78,541		78,332		66,511		66,535
Short-term borrowings		13,367		13,367		23,986		23,986
Federal Home Loan Bank advances		11,756		11,146		12,320		12,054
Accrued interest payable		68		68		40		40

The assumptions used to estimate fair value are described as follows:

Cash and cash equivalents:

The carrying value of cash, deposits in other financial institutions and federal funds sold were considered to approximate fair value resulting in a Level

1

classification.

Certificates of deposits in other financial institutions:

Fair value of certificates of deposits in other financial institutions was estimated using current rates for deposits of similar remaining maturities resulting in a Level

2

classification.

Accrued interest receivable and payable, demand and savings deposits and short-term borrowings

: The carrying value of accrued interest receivable and payable, demand and savings deposits and short-term borrowings were considered to approximate fair value due to their short-term duration resulting in a Level

2

classification.

Loans held for sale:

The fair value of loans held for sale is estimated based upon binding contracts and quotes from

third

party investors resulting in a Level

2

classification.

Loans:

Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans that reprice at least annually and for fixed rate commercial loans with maturities of

six

months or less which possess normal risk characteristics, carrying value was determined to be fair value. Fair value of other types of loans (including adjustable rate loans which reprice less frequently than annually and fixed rate term loans or loans which possess higher risk characteristics) was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar anticipated maturities resulting in a Level

3

classification. The methods utilized to estimate the fair value of loans do

not

necessarily represent an exit price.

Securities held-to-maturity:

The held-to-maturity securities are general obligation and revenue bonds issued by local municipalities. The fair value of these securities are calculated using a spread to the applicable municipal fair market curve resulting in a Level

3

classification.

Time deposits:

Fair value of fixed-maturity certificates of deposit was estimated using the rates offered at

June 30, 2018

and

2017

for deposits of similar remaining maturities, resulting in Level

2

classification. Estimated fair value does

not

include the benefit that results from low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Federal Home Loan Bank advances:

Fair value of Federal Home Loan Bank advances was estimated using current rates at

June 30, 2018

and

2017

for similar financing resulting in a Level

2

classification.

Federal bank and other restricted stocks, at cost:

Federal bank and other restricted stocks include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock that are accounted for at cost due to restrictions placed on their transferability, and, therefore, are

not

subject to the fair value disclosure requirements.

Off-balance sheet commitments:

The Corporation’s lending commitments have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are

not

significant and are

not

included in the above table.