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Note 12: Fair Value Measurements

9 Months Ended

Mar. 31, 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 of assets recognized in the accompanying 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 March 31, 2020 and June 30, 2019:

	Fair Value Measurements at March 31, 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)
U.S. government sponsored enterprises (GSEs)	$	2,303	$	-	$	2,303	$	-
State and political subdivisions		38,583		-		38,583		-
Other securities		4,964		-		4,964		-
Mortgage-backed GSE residential		134,742		-		134,742		-

	Fair Value Measurements at June 30, 2019, 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)
U.S. government sponsored enterprises (GSEs)	$	7,270	$	-	$	7,270	$	-
State and political subdivisions		42,783		-		42,783		-
Other securities		5,053		-		5,053		-
Mortgage-backed GSE residential		110,429		-		110,429		-

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. The Company does not have Level 1 securities. 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. Level 2 securities include U.S. Government-sponsored enterprises, state and political subdivisions, other securities, mortgage-backed GSE residential securities and mortgage-backed other U.S. Government agencies. 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 March 31, 2020 and June 30, 2019:

	Fair Value Measurements at March 31, 2020, Using:
				Quoted Prices		Significant
				in Active		Other		Significant
				Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
(dollars in thousands)		Fair Value		(Level 1)		(Level 2)		(Level 3)
Foreclosed and repossessed assets held for sale	$	1,253	$	-	$	-	$	1,253

	Fair Value Measurements at March 31, 2020, Using:
				Quoted Prices		Significant
				in Active		Other		Significant
				Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
(dollars in thousands)		Fair Value		(Level 1)		(Level 2)		(Level 3)
Foreclosed and repossessed assets held for sale	$	2,430	$	-	$	-	$	2,430

The following table presents gains and (losses) recognized on assets measured on a non-recurring basis for the nine-month periods ended March 31, 2020 and 2019:

	For the nine months ended
(dollars in thousands)		March 31, 2020		March 31, 2019
Foreclosed and repossessed assets held for sale	$	(96)	$	(229)
Total losses on assets measured on a non-recurring basis	$	(96)	$	(229)

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 March 31, 2020	Valuation technique	Unobservable inputs	Range of inputs applied	Weighted- average inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$553	Third party appraisal	Marketability discount	0.0% - 46.1%	20.6%

(dollars in thousands)	Fair value at June 30, 2019	Valuation technique	Unobservable inputs	Range of inputs applied	Weighted average inputs applied
Nonrecurring Measurements
Foreclosed and repossessed assets	$2,430	Third party appraisal	Marketability discount	5.1% - 77.0%	35.2%

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 March 31, 2020 and June 30, 2019.

	March 31, 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	$	56,105	$	56,105	$	-	$	-
Interest-bearing time deposits		973		-		973		-
Stock in FHLB		8,701		-		8,701		-
Stock in Federal Reserve Bank of St. Louis		4,353		-		4,353		-
Loans receivable, net		1,967,820		-		-		1,958,438
Accrued interest receivable		9,754		-		9,754		-
Financial liabilities
Deposits		1,971,647		1,316,854		-		655,493
Securities sold under agreements to repurchase		-		-		-		-
Advances from FHLB		123,361		-		125,330		-
Note payable		3,000		-		-		3,000
Accrued interest payable		1,753		-		1,753		-
Subordinated debt		15,118		-		-		9,855
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		-		-		-		-
Letters of credit		-		-		-		-
Lines of credit		-		-		-		-

	June 30, 2019
				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	$	35,400	$	35,400	$	-	$	-
Interest-bearing time deposits		969		-		969		-
Stock in FHLB		5,233		-		5,233		-
Stock in Federal Reserve Bank of St. Louis		4,350		-		4,350		-
Loans receivable, net		1,846,405		-		-		1,823,040
Accrued interest receivable		10,189		-		10,189		-
Financial liabilities
Deposits		1,893,695		1,214,606		-		678,301
Securities sold under agreements to repurchase		4,376		-		4,376		-
Advances from FHLB		44,908		-		45,547		-
Note payable		3,000		-		-		3,000
Accrued interest payable		2,099		-		2,099		-
Subordinated debt		15,043		-		-		15,267
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		-		-		-		-
Letters of credit		-		-		-		-
Lines of credit		-		-		-		-

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

Cash and cash equivalents, interest-bearing time deposits, accrued interest receivable, and accrued interest payable are valued at their carrying amounts, which approximates book value. Stock in FHLB and the Federal Reserve Bank of St. Louis is valued at cost, which approximates fair value. The fair value of loans is estimated on an exit price basis incorporating contractual cash flow, prepayments discount spreads, credit loss and liquidity premiums. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. Non-maturity deposits and securities sold under agreements are valued at their carrying value, which approximates fair value. Fair value of advances from the FHLB is estimated by discounting maturities using an estimate of the current market for similar instruments. The fair value of subordinated debt and notes payable is estimated using rates currently available to the Company for debt with similar terms and maturities. The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The carrying amount of notes payable approximates fair value. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and committed rates. The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.