Fair Value Measurements

9 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 5. Fair Value Measurements

Generally accepted accounting principles (GAAP) define fair value, establish a framework for measuring fair value, a three-level valuation hierarchy for disclosure of fair value measurement and enhance disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. GAAP clarifies the definition of 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. An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market for the asset or liability, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement and based on the Company’s own assumptions about market participants’ assumptions.

The following table presents a summary of financial assets and liabilities measured at fair value at June 30, 2012 and September 30, 2011:

	Level 1		Level 2		Level 3		Total		Total Losses
June 30, 2012
Securities available for sale:
Mortgage-backed securities invested in Government Agencies	$	—	$	6,422,700	$	—	$	6,422,700	$	—
Impaired loans		—		—		1,294,316		1,294,316		—
Foreclosed assets						778,000		778,000		(550	)
September 30, 2011
Securities available for sale:
Mortgage-backed securities invested in Government Agencies	$	—	$	6,168,351	$	—	$	6,168,351	$	—
Impaired loans		—		—		717,648		717,648		—
Foreclosed assets		—				884,000		884,000		(114,427	)

In accordance with generally accepted accounting principles concerning accounting for Loan and Lease Losses, losses of $550 and $114,427 for the years ended June 30, 2012 and September 30, 2011, respectively, were recognized as a charge to the Allowance for Loan and Lease Losses at the time the foreclosed real estate was acquired based on an independent appraisal of the property’s fair value.

The methods and assumptions used to estimate the fair values, including items in the above tables, are included in the disclosures that follow.

Cash and Cash Equivalents (Carried at Cost). The carrying amounts of cash and cash equivalents approximate fair value.

Certificates of Deposit (Carried at Cost). The carrying amounts of certificates of deposit approximate fair value.

Securities Available for Sale (Carried at Fair Value). Where quoted prices are available in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 would include highly liquid government bonds, mortgage products and exchange-traded equities. If quoted market prices are not available, securities available for sale are classified within level 2 and fair value values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 would include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Federal Home Loan Bank Stock (Carried at Cost). The carrying amount of Federal Home Loan Bank stock approximates fair value, and considers the limited marketability of such securities.

Loans Receivable (Carried at Cost). The fair values of loans are estimated using discounted cash flow analyses, using market rates at the statement of condition date that reflect the credit and interest rate risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values.

Impaired Loans (Generally Carried at Fair Value). Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are measured at an observable market price (if available), or at fair value of the loan’s collateral (if the loan is collateral dependent). When the loan is dependent on collateral, fair value of collateral is determined by appraisal or independent valuation, which is then adjusted for the related cost to sell. Impaired loans allocated to the Allowance for Loan and Lease Losses are measured at the lower of cost or fair value on a nonrecurring basis.

Foreclosed Assets (Carried at Lower of Cost or Fair Value Less Estimated Selling Costs). Fair values of foreclosed assets are measured at fair value less cost to sell. The valuation of the fair value measurement follows GAAP. Foreclosed assets are measured on a nonrecurring basis.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair value for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities.

Federal Home Loan Bank Advances (Carried at Cost). Fair values of FHLB advances are estimated using discounted cash flows analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Accrued Interest Receivable and Payable (Carried at Cost). The carrying amounts of accrued interest approximate fair value.

Off Balance Sheet Credit-Related Instruments (Disclosures at Cost). Fair values for off balance-sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is not material.

The following table presents quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a non-recurring basis for June 30, 2012 and September 30, 2011:

	Quantitative Information about Level 3 Fair Value Measurements for June 30, 2012 and September 30, 2011
	Valuation Techniques	Unobservable Input	Range
Assets:
Impaired loans	Discounted appraised value	Selling costs	6-12%
Foreclosed assets	Discounted appraised value	Selling costs	6-12%

The following table presents a reconciliation of the beginning and ending balances for Level 3 assets;

	Impaired Loans			Foreclosed Assets
Balance, September 30, 2010	$	734,105		$	35,000
Purchases, settlements and charge-offs		(573,427	)		849,000
Transfers in and/or out of Level 3		556,970			—
Balance, September 30, 2011		717,648			884,000
Purchases, settlements and charge-offs (unaudited)		(170,000	)		(106,000	)
Transfers in and/or out of Level 3 (unaudited)		746,668			—
Balance, June 30, 2012 (unaudited)	$	1,294,316		$	778,000

The estimated fair values of the Company’s financial instruments were as follows:

			Fair Value Measurements at June 30, 2012 Using
	Carrying Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	6,107	$	6,107	$	—	$	—	$	6,107
Certificates of deposit		2,788		2,788		—		—		2,788
Securities available for sale		6,423		—		6,423		—		6,423
Securities held to maturity		4,991		—		5,165		—		5,165
Federal Home Loan Bank stock		518		—		518		—		518
Loans receivable, net		53,729		—		53,376		1,294		54,670
Foreclosed assets		778		—		—		778		778
Accrued interest receivable		259		—		259		—		259
Financial liabilities:
Deposits		58,166		—		58,207		—		58,207
Federal Home Loan Bank advances		8,000		—		8,937		—		8,937
Accrued interest payable		42		—		42		—		42
Off-Balance sheet financial instruments		—		—				—		—

			Fair Value Measurements at September 30, 2011 Using
	Carrying Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	6,189	$	6,189	$	—	$	—	$	6,189
Securities available for sale		6,168		—		6,168		—		6,168
Securities held to maturity		1,637		—		1,753		—		1,753
Federal Home Loan Bank stock		604		—		604		—		604
Loans receivable, net		53,758		—		56,970		717		57,687
Foreclosed assets		884		—		—		884		884
Accrued interest receivable		247		—		247		—		247
Financial liabilities:
Deposits		50,947		—		51,578		—		51,578
Federal Home Loan Bank advances		10,000		—		10,681		—		10,681
Accrued interest payable		42		—		42		—		42
Off-Balance sheet financial instruments		—		—				—		—