Fair Value

6 Months Ended

Dec. 31, 2011

Fair Value [Abstract]

Fair Value

NOTE 7 — 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 value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the company 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 market prices in markets that are not active, and 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 to price an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value.

Securities and mortgage-backed securities. The fair value of securities available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges, if available (Level 1 inputs). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities. The fair value of mortgage-backed securities is determined through matrix pricing. This is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

Loans held for sale at fair value. The fair value of loans held for sale, which consist of single-family residential loans, is determined using quoted secondary market prices for similar product types (Level 2 inputs).

Mortgage banking pipeline derivatives. The fair value of loan commitments is measured using current market rates for the associated mortgage loans (Level 2 inputs). The fair value of mandatory forward sales contracts is measured using secondary market pricing (Level 2 inputs).

Impaired loans. The fair value of impaired loans with specific allocations of the allowance for loan losses is generally 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 independent appraisers to adjust for differences between the comparable sales and income data available as well as type and status of the property. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Real Estate Owned. Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use 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 independent appraisers to adjust for differences between the comparable sales and income data approach. Such adjustments are usually significant and typically result in a level 3 classification of the inputs for determining fair value.

Loan Servicing Rights. Fair Value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income (Level 3 inputs).

Assets and liabilities measured at fair value on a recurring basis at December 31, and June 30, 2011 are summarized below:

	December 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale:
FHLMC structured note	$	3,005,400		$	—	$	3,005,400		$	—
FNMA structured note		2,011,800			—		2,011,800			—
Loans held-for-sale		8,221,445			—		8,221,445			—
Mortgage-backed securities available for sale:
FHLMC mortgage-backed securities		11,495,473			—		11,495,473			—
FNMA mortgage-backed securities		6,082,398			—		6,082,398			—
Interest rate-lock commitments		907,776			—		907,776			—
Liabilities:
Mandatory forward sales contracts		(87,861	)		—		(87,861	)		—
	June 30, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale:
FHLMC structured note	$	2,994,000		$	—	$	2,994,000		$	—
FNMA structured note		5,952,674			—		5,952,674			—
Loans held-for-sale		9,392,389			—		9,392,389			—
Mortgage-backed securities available for sale:
FHLMC mortgage-backed securities		4,972,121			—		4,972,121			—
Interest rate-lock commitments		231,031			—		231,031			—
Mandatory forward sales contracts		53,908			—		53,908			—

Assets measured at fair value on a nonrecurring basis at December 31, 2011 and June 30, 2011, respectively are summarized below:

		00000000000000		00000000000000		00000000000000		00000000000000
	December 31, 2011		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
1-4 Family	$	9,763,532	$	—	$	—	$	9,763,532
1-4 Family Construction		1,328,596		—		—		1,328,596
Commercial Real Estate		9,677,577		—		—		9,677,577
Commercial Non-Real Estate		2,459,623		—		—		2,459,623
Land		6,657,053		—		—		6,657,053
Real estate owned
1-4 Family		3,411,834		—		—		3,411,834
Commercial Real Estate		943,140		—		—		943,140
Land		2,732,778		—		—		2,732,778
Impaired mortgage servicing rights		5,971,031		—		—		5,971,031

		00000000000000		00000000000000		00000000000000		00000000000000
	June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level  1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
1-4 Family	$	4,968,626	$	—	$	—	$	4,968,626
1-4 Family Construction		2,065,259		—		—		2,065,259
Multi-Family		250,932		—		—		250,932
Commercial Real Estate		9,650,827		—		—		9,650,827
Commercial Non-Real Estate		871,885						871,885
Land		7,757,380		—		—		7,757,380
Real estate owned
1-4 Family		411,518		—		—		411,518
Commercial Real Estate		763,033		—		—		763,033
Land		2,558,795		—		—		2,558,795
Impaired mortgage servicing rights		6,487,574		—		—		6,487,574

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a principal balance of $32.4 million after the application of impaired charge-offs and impaired recasting of $14.4 million, with a specific valuation allowance of $2.5 million at December 31, 2011. At June 30, 2011, impaired loans had a principal balance of $38.6 million, with a specific valuation allowance of $13.0 million. The provision for loan losses related to changes in the fair value of impaired loans was $3.5 million and $7.3 million for the six months ended December 31, 2011 and 2010, respectively.

Tranches of mortgage servicing rights carried at fair value totaled $6.0 million, which is made up of the outstanding balance of $7.0, net of a valuation allowance of $1.0 million at December 31, 2011. During the six-month period ended December 31, 2011, the Bank recognized an impairment charge of $0.7 million. Tranches of mortgage servicing rights carried at fair value totaled $6.5 million, which is made up of the outstanding balance of $6.8, net of a valuation allowance of $0.3 million at June 30, 2011. Mortgage servicing rights are valued by an independent third party that is active in purchasing and selling these instruments. The value reflects the characteristics of the underlying loans discounted at a market multiple.

Real estate owned which is maintained at fair value less costs to sell, had a net carrying amount of $9,994,583 and $7,972,753 at December 31, and June 30, 2011, respectively. The carrying amount of real estate owned is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying amount exceeds the fair value, less estimated selling costs. For the six months ended December 31, 2011, the Bank recognized a net loss of $243,957 on the disposal of other real estate owned and recorded a provision for real estate owned losses of $874,823. These direct write-downs recognized for the period are the result of obtaining updated appraisal valuations and reflect declining property values while holding the asset. The Company values all other real estate owned by obtaining updated appraisal valuations every twelve months. There have been no upward adjustments made in determining fair value. Additionally, the expense of servicing real estate owned for this six-month period totaled $1,397,371.

The Company has elected the fair value option for loans held for sale. These loans are intended for sale and are hedged with derivative instruments, and the Company believes the fair value is the best indicator of the valuation of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company's policy on loans held for investment. None of these loans are 90 days or more past due or on nonaccrual as of December 31, 2011 and 2010.

As of December 31, 2011 and 2010, the aggregate fair value, contractual balance (including accrued interest), and gain or loss was as follows:

	2011		2010
Aggregate fair value	$	8,221,445	$	9,392,389
Contractual balance		8,001,663		9,210,425
Gain (loss)		219,782		81,964

The carrying amount and estimated fair values of financial instruments at December 31, 2011 and June 30, 2011, respectively, were as follows:

	December 31, 2011						June 30, 2011
	Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(In thousands)
Assets:
Cash and amounts due from financial institutions	$	21,695		$	21,695		$	19,138		$	19,138
Interest-bearing deposits		124,155			124,155			130,153			130,153
Federal funds sold		6,000			6,000			—			—
Securities available for sale		5,017			5,017			8,947			8,947
Mortgage-backed securities available for sale		17,578			17,578			4,972			4,972
Loans receivable, net		546,521			561,625			547,282			551,858
Loans receivable held for sale, net		8,221			8,221			9,392			9,392
Federal Home Loan Bank stock		12,811			NA			12,811			NA
Accrued interest receivable		2,054			2,054			2,204			2,204
Commitments to make loans intended to be sold		908			908			231			231
Mandatory forward sales contracts		—			—			54			54
Liabilities:
Demand deposits and passbook savings		(246,585	)		(246,585	)		(232,537	)		(232,537	)
Time deposits		(412,047	)		(417,899	)		(420,035	)		(425,844	)
Notes payable		(1,099	)		(1,099	)		(1,153	)		(1,153	)
Advances from the Federal Home Loan Bank of Cincinnati		(35,000	)		(37,625	)		(35,000	)		(37,189	)
Mandatory forward sale contract		(88	)		(88	)		—			—
Accrued interest payable		(147	)		(147	)		(119	)		(119	)

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is involved in interpreting market data so as to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company used the following methods and assumptions to estimate fair value for items not described above:

Cash and amounts due from financial institutions, interest-bearing deposits, and federal funds sold. The carrying amount is a reasonable estimate of fair value because of the short maturity of these instruments.

Loans receivable. For performing loans receivable, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.

Federal Home Loan Bank stock. It was not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued interest receivable and accrued interest payable. The carrying amount is a reasonable estimate of the fair value.

Demand deposits and time deposits. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities.

Note payable. The carrying amount is a reasonable estimate of the fair value.

Federal Home Loan Bank Advance. The fair value of the Bank's FHLB debt is estimated based on the current rates offered to the Bank for debt of the same remaining maturities.