v2.3.0.9
Fair Value Measurements
9 Months Ended
Dec. 31, 2011
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
3. 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. FASB ASC No. 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 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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheet at December 31, 2011 and March 31, 2011.

 

Available-for-Sale Securities

 

The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. The Company has no 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. Level 2 securities include obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, and mortgage-backed securities. The value of the Company’s Level 2 securities is set forth below. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company has no Level 3 available-for-sale securities.

 

The following table presents the Company’s assets that are measured at fair value on a recurring basis and the level within the hierarchy in which the fair value measurements fall as of December 31, 2011 and March 31, 2011 (in thousands):

 

    Carrying value at December 31, 2011  
Description   Fair Value     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
                         
U.S. government sponsored enterprises (GSE)   $ 12,934     $     $ 12,934     $  
Mortgage-backed, GSE residential   28,217         28,217      
Mortgage-backed, GSE commercial     1,048             1,048        
State and political subdivisions     2,004             2,004        
Total available-for-sale securities   $ 44,203     $     $ 44,203     $  

 

    Carrying value at March 31, 2011  
Description   Fair Value     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
                         
U.S. government sponsored enterprises (GSE)   $ 12,345     $     $ 12,345     $  
Mortgage-backed, GSE residential     33,995             33,995        
Mortgage-backed, GSE commercial     1,455             1,455        
State and political subdivisions     3,882             3,882        
Total available-for-sale securities   $ 51,677     $     $ 51,677     $  

 

The Company may be required, from time to time, to measure certain other financial assets and liabilities on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

 

Impaired Loans (Collateral Dependent)

 

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans.

 

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of the impairment is utilized. This method requires reviewing an independent appraisal of the collateral and applying a discount factor to the value based on management’s estimation process.

 

Impaired loans are classified within Level 3 of the fair value hierarchy, when impairment is determined using the fair value method. Fair value adjustments on impaired loans were $510,000 for the nine months ended December 31, 2011 and $146,000 for the year ended March 31, 2011.

 

Mortgage Servicing Rights

 

The fair value used to determine the valuation allowance is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

 

Foreclosed Assets Held for Sale

 

Fair value of foreclosed assets held for sale is based on market prices determined by appraisals less discounts for costs to sell. Foreclosed assets held for sale are classified within Level 2 of the valuation hierarchy.

 

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and March 31, 2011 (in thousands):

 

          Carrying value at December 31, 2011  
          Quoted Prices in     Significant        
          Active Markets     Other     Significant  
          for Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
Description   Fair Value     (Level 1)     (Level 2)     (Level 3)  
                         
Impaired loans (collateral dependent)   $ 722     $     $     $ 722  

 

          Carrying value at March 31, 2011  
          Quoted Prices in     Significant        
          Active Markets     Other     Significant  
          for Identical     Observable     Unobservable  
          Assets     Inputs     Inputs  
Description   Fair Value     (Level 1)     (Level 2)     (Level 3)  
                         
Impaired loans (collateral dependent)   $ 212     $     $     $ 212  
Mortgage servicing rights     591                   591  
Foreclosed assets held for sale, net     218             218        

 

The following methods were used to estimate fair values of the Company’s financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

 

Carrying amount is the estimated fair value for cash and cash equivalents, interest-bearing deposits, loans held for sale, federal funds sold, Federal Reserve and Federal Home Loan Bank stocks, accrued interest receivable and payable, and advances from borrowers for taxes and insurance. Security fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. On demand deposits, savings accounts, NOW accounts, and certain money market deposits the carrying amount approximates 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. On other borrowings and short-term borrowings, rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. 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. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values 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.

 

    December 31, 2011     March 31, 2011  
    Carrying           Carrying        
    Amount     Fair Value     Amount     Fair Value  
    (In thousands)  
Financial assets                                
Cash and cash equivalents   $ 8,127     $ 8,127     $ 9,546     $ 9,546  
Interest-bearing deposits     30,418       30,418       17,813       17,813  
Held-to-maturity securities     1,225       1,342              
Available-for-sale securities     44,203       44,203       51,677       51,677  
Loans held for sale     508       508       354       354  
Loans, net of allowance for loan losses     127,449       129,048       120,164       121,796  
Federal Reserve and Federal Home Loan Bank stock     1,189       1,189       1,056       1,056  
Interest receivable     886       886       914       914  
                                 
Financial liabilities                                
Deposits     182,768       178,425       176,352       164,566  
Other borrowings     15,821       15,821       15,620       15,623  
Short-term borrowings     2,000       2,000       1,800       1,800  
Advances from borrowers for taxes and insurance     219       219       274       274  
Interest payable     130       130       183       183  
                                 
Unrecognized financial instruments
    (net of contract amount)
                               
Commitments to originate loans                        
Letters of credit                        
Lines of credit