Note

12:

Fair Value Measurements

Generally accepted accounting principles define fair value, establish a framework for measuring fair value, and establish a hierarchy for determining fair value measurement.

The hierarchy includes

three

levels and is based upon the valuation techniques used to measure assets and liabilities. The

three

levels are as follows:

Level

: Valuation is based on quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level

: Valuation is determined from 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; and

Level

: Valuation is derived from model-based techniques in which at least

one

significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

The following is a description of the valuation methods used for instruments measured at fair value as well as the general classification of such instruments pursuant to the applicable valuation method.

Fair value measurements on a recurring basis

Securities available for sale – If quoted prices are available in an active market for identical assets, securities are classified within Level

of the hierarchy. If quoted market prices are

not

available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. As of

September 30, 2018,

and

March 31, 2018,

the Bank has categorized its investment securities available for sale as follows:

	Level 1		Level 2		Level 3
September 30, 2018	inputs		inputs		inputs		Total

U.S. government agencies	$	-	$	2,711,667	$	-	$	2,711,667
Municipal bonds		-		11,492,431		-		11,492,431
Corporate bonds				-		1,949,132		1,949,132
Mortgage-backed securities		-		52,709,759		-		52,709,759
Total investment securities available for sale	$	-	$	66,913,857	$	1,949,132	$	68,862,989

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

U.S. government agencies	$	-	$	2,718,649	$	-	$	2,718,649
Municipal bonds		-		11,705,991		-		11,705,991
Corporate bonds				-		1,954,076		1,954,076
Mortgage-backed securities		-		59,025,404		16		59,025,420
Total investment securities available for sale	$	-	$	73,450,044	$	1,954,092	$	75,404,136

Derivative – Interest rate swap agreements – The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level

). The quantitative models that are used utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and

third

-party pricing services. As of

September 30, 2018,

and

March 31, 2018,

the bank has categorized its interest rate swaps and related loan as follows:

	Level 1		Level 2		Level 3
September 30, 2018	inputs		inputs		inputs		Total

Loans - Commercial real estate loan	$	-	$	2,927,163	$	-	$	2,927,163
Derivative - Interest rate swap designated as fair value hedge		-		122,377		-		122,377
Derivatives - Interest rate swaps designated as cash flow hedge		-		412,230		-		412,230

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

Loans - Commercial real estate loan	$	-	$	3,022,744	$	-	$	3,022,744
Derivative - Interest rate swap designated as fair value hedge		-		69,148		-		69,148
Derivatives - Interest rate swaps designated as cash flow hedge		-		217,464		-		217,464

The following table presents the valuation and unobservable inputs for Level

assets measured at fair value on a recurring basis at

September 30, 2018:

Valuation

Unobservable

Range of

Description

Fair Value

Methodology

Inputs

Investment securities

1,949,132

3rd party valuation

Discount to reflect current market conditions

0.00%

10.00%

The following table presents a reconciliation of the investments which are measured at fair value on a recurring basis using significant unobservable inputs (Level

) for the periods presented:

	Six Months			Fiscal Year
	Ended			Ended
	September 30, 2018			March 31, 2018
Balance, beginning of year	$	1,954,092		$	1,930,786

Transfers in:
Corporate bonds		-			1,954,076
Mortgage-backed securities		-			16
Municipal bonds		-			-

Transfers out:
Corporate bonds		-			-
Mortgage-backed securities		16			2,473
Municipal bonds		-			1,928,313

Change in valuation		(4,944	)		-

Balance, end of year	$	1,949,132		$	1,954,092

Fair value measurements on a nonrecurring basis

Impaired Loans - The Bank has measured impairment generally based on the fair value of the loan's collateral. Fair value is generally determined based upon independent appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level

fair values. As of

September 30, 2018,

and

March 31, 2018,

the fair values consist of loan balances of

$8,561,924

and

$8,720,339

that have been written down by

$259,723

and

$266,256,

respectively, as a result of specific loan loss allowances.

Foreclosed real estate – The Bank's foreclosed real estate is measured at the lower of carrying value or fair value less estimated cost to sell. At

September 30, 2018

and

March 31, 2018,

the fair value of foreclosed real estate was estimated to be

$587,978

and

$457,778,

respectively. Fair value was determined based on offers and/or appraisals. Cost to sell the assets was based on standard market factors. The Company has categorized its foreclosed assets as Level

	Level 1		Level 2		Level 3
September 30, 2018	inputs		inputs		inputs		Total

Impaired loans	$	-	$	-	$	8,302,201	$	8,302,201
Foreclosed real estate		-		-		587,978		587,978

	Level 1		Level 2		Level 3
March 31, 2018	inputs		inputs		inputs		Total

Impaired loans	$	-	$	-	$	8,454,083	$	8,454,083
Foreclosed real estate		-		-		457,778		457,778

The following table presents the valuation and unobservable inputs for Level

assets measured at fair value on a nonrecurring basis at

September 30, 2018:

			Valuation	Unobservable	Range of
Description	Fair Value		Methodology	Inputs	Inputs

Impaired loans, net of allowance	$	8,302,201	Appraised value	Discount to reflect current market conditions	0.00%	-	25.00%
			Discounted cash flows	Discount rates	2.63%	-	7.25%

Foreclosed real estate	$	587,978	Appraised value	Discount to reflect current market conditions	0.00%	-	25.00%

The following table summarizes changes in foreclosed real estate for the periods shown, which is measured on a nonrecurring basis using significant unobservable, level

inputs.

	Six Months			Fiscal Year
	Ended			Ended
	September 30, 2018			March 31, 2018
Balance at beginning of period	$	457,778		$	503,094
Transfer to foreclosed real estate		150,052			23,834
Write-down of foreclosed real estate		-			(31,955	)
Proceeds from sale of foreclosed real estate		(19,641	)		(35,896	)
Loss on sale of foreclosed real estate		(211	)		(1,299	)
Balance at end of period	$	587,978		$	457,778

The remaining financial assets and liabilities are

not

reported on the balance sheets at fair value on a recurring basis. The calculation of estimated fair values is based on market conditions at a specific point in time and

may

not

reflect current or future fair values.

	September 30, 2018				March 31, 2018
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial assets
Level 1 inputs
Cash and cash equivalents	$	22,025,835	$	22,025,835	$	23,368,415	$	23,368,415

Level 2 inputs
Federal Home Loan Bank stock		2,782,400		2,782,400		3,122,400		3,122,400
Bank-owned life insurance		17,684,501		17,684,501		17,455,850		17,455,850

Level 3 inputs
Certificates of deposit held as investment		499,144		484,051		499,189		492,751
Loans receivable, net of unearned income		372,890,164		362,598,185		387,328,993		385,818,260

Financial liabilities
Level 2 inputs
Deposits		388,470,615		389,242,489		405,142,975		405,026,957
Advance payments by borrowers for taxes and insurance		1,216,584		1,216,584		1,962,665		1,962,665
Borrowings		53,551,896		52,396,435		60,672,140		60,494,922

The fair values of cash and cash equivalents and advances by borrowers for taxes and insurance are estimated to equal the carrying amount.

The fair values of Federal Home Loan Bank stock and bank-owned life insurance are estimated to equal carrying amounts, which are based on repurchase prices of the FHLB stock and the insurance company.

Beginning in the

first

quarter

2018,

the fair value of loans is determined using an exit price methodology as prescribed by ASU

2016

01,

which became effective for the Company during in the

first

quarter ended

June 30, 2018.

The exit price estimation of fair value is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital (Level

). In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. In comparison, loan fair values as of

March 31, 2018

were estimated based on an entrance price methodology. As a result, the fair value adjustments as of

September 30, 2018

and

March 31, 2018

are

not

comparable.

The fair value of certificates of deposit held as investments is estimated based on interest rates currently offered for certificates of deposit with similar remaining maturities.

The fair value of interest-bearing checking, savings, and money market deposit accounts is equal to the carrying amount due to these products having

stated maturity. The fair value of fixed-maturity time deposits is estimated based on interest rates currently offered for deposits of similar remaining maturities.

The fair value of borrowings is estimated based on interest rates currently offered for borrowings of similar remaining maturities.

The fair value of outstanding loan commitments and unused lines of credit are considered to be the same as the contractual amount and are

not

included in the table above. These commitments generate fees that approximate those currently charged to originate similar commitments.