Fair Value Measurements

12 Months Ended

Jun. 30, 2020

Fair Value Measurements

Fair Value Measurements

NOTE 18: Fair Value Measurements

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 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 supported by little or no market activity and 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 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 June 30, 2020 and 2019:

	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)
State and political subdivisions	$	41,988	$	—	$	41,988	$	—
Other securities		7,624		—		7,624		—
Mortgage-backed GSE residential		126,912		—		126,912		—

	Fair Value Measurements at June 30, 2019, 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)
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. There have been no significant changes in the valuation techniques during the year ended June 30, 2020.

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, our 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 June 30, 2020 and 2019:

	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

	Fair Value Measurements at June 30, 2019, 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	$	2,430	$	—	$	—	$	2,430

The following table presents losses recognized on assets measured on a non-recurring basis for the years ended June 30, 2020 and 2019:

(dollars in thousands)	2020		2019
Foreclosed and repossessed assets held for sale	$	(1,009)	$	(353)
Total losses on assets measured on a non-recurring basis	$	(1,009)	$	(353)

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 pursuant to the valuation hierarch. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.

Impaired Loans (Collateral Dependent). A collateral dependent loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a collateral dependent loan is considered impaired, the amount of reserve required is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material collateral dependent loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. In addition, management applies selling and other discounts to the underlying collateral value to determine the fair value. If an appraised value is not available, the fair value of the collateral dependent impaired loan is determined by an adjusted appraised value including unobservable cash flows.

On a quarterly basis, loans classified as special mention, substandard, doubtful, or loss are evaluated including the loan officer’s review of the collateral and its current condition, the Company’s knowledge of the current economic environment in the market where the collateral is located, and the Company’s recent experience with real estate in the area. The date of the appraisal is also considered in conjunction with the economic environment and any decline in the real estate market since the appraisal was obtained. For all loan types, updated appraisals are obtained if considered necessary. In instances where the economic environment has worsened and/or the real estate market declined since the last appraisal, a higher distressed sale discount would be applied to the appraised value.

The Company records collateral dependent impaired loans based on nonrecurring Level 3 inputs. If a collateral dependent loan’s fair value, as estimated by the Company, is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a specific reserve as part of the allowance for loan losses.

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.

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

	Fair value at		Valuation	Unobservable	Range of		Weighted-average
(dollars in thousands)	June 30, 2019		technique	inputs	inputs applied		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 and the level within the fair value hierarchy in which the fair value measurements fell at June 30, 2020 and 2019:

	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		—		—		—		—

	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		—		—		—		—