Fair Value Measurements and Fair Value of Financial Instruments

3 Months Ended

Jun. 30, 2015

Note 8. Fair Value Measurements and Fair Value of Financial Instruments

Fair Value Measurements

Fair value is 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. The fair value hierarchy prioritizes the assumptions that market participants would use in pricing the assets or liabilities (the “inputs”) into three broad levels.

The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs in which little, if any, market activity exists, requiring entities to develop their own assumptions and data.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in market areas that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Valuation Techniques

Available for sale securities are carried at fair value utilizing Level 1 and Level 2 inputs. For debt securities, the Bank obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, live trading levels, trade execution data, cash flows, market consensus prepayment speeds, market spreads, credit information and the U.S. Treasury yield curve. At June 30, 2015 and March 31, 2015, the Company did not have any available for sale securities.

Impaired loans are carried at fair value utilizing Level 3 inputs, consisting of appraisals of underlying collateral (collateral method) adjusted for selling costs (unobservable input) and discounted cash flow analysis. See note 3.

Assets Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis at June 30, 2015 and March 31, 2015 include impaired loans of $1,579,352 and $1,576,992, respectively, utilizing Level 3 inputs. The impaired loans are collateral dependent.

Following is a summary of the activity in the allowance for losses on impaired loans, including troubled debt restructurings:

	Three Months Ended
	June 30,
	2015		2014

Balance, beginning of year	$	53,665	$	65,525
Loan charge-offs		-		-
Loan recoveries		-		-
Provision for (credit to) loan losses		36,455		-
Balance, end of year	$	90,120	$	65,525

Nonfinancial assets measured at fair value on a nonrecurring basis include foreclosed real estate which amounted to $282,258 at June 30, 2015 and $434,367 at March 31, 2015. Foreclosed real estate is initially recorded at fair value utilizing Level 2 units based on observable market data less costs to sell, establishing a new cost basis.

Fair Value of Financial Instruments

The carrying amount, fair value and the financial hierarchy of the Company’s financial instruments are summarized in the following table. Fair values of financial instruments have been estimated by the Company based upon available market information with the assistance of an independent consultant.

	June 30,
	2015
	Carrying		Fair		Fair Value Measurements Using
	Amount		Value		(Level 1)		(Level 2)		(Level 3)

Non-trading instruments and nonderivatives:
Cash and cash equivalents	$	20,101,072	$	20,101,072	$	20,101,072	$	-	$	-
Stock in FHLB of Chicago		1,165,513		1,165,513		-		1,165,513		-
Loans receivable, net		74,894,126		78,056,335		-		76,476,983		1,579,352
Accrued interest receivable on loans		236,935		236,935		-		236,935		-
Deposits		78,901,721		76,141,953		-		76,141,953		-
Accrued interest on deposits		63,111		63,111		-		63,111		-
Advances from FHLB of Chicago	$	5,000,000	$	5,300,718	$	-	$	5,300,718	$	-

	March 31,
	2015
	Carrying		Fair		Fair Value Measurements Using
	Amount		Value		(Level 1)		(Level 2)		(Level 3)

Non-trading instruments and nonderivatives:
Cash and cash equivalents	$	16,720,008	$	16,720,008	$	16,720,008	$	-	$	-
Stock in FHLB of Chicago		1,165,513		1,165,513		-		1,165,513		-
Loans receivable, net		75,463,746		79,924,031		-		78,347,039		1,576,992
Accrued interest receivable on loans		257,576		257,576		-		257,576		-
Deposits		76,290,961		72,906,558		-		72,906,558		-
Accrued interest on deposits		50,070		50,070		-		50,070		-
Advances from FHLB of Chicago	$	5,000,000	$	5,353,750	$	-	$	5,353,750	$	-

The following methods and assumptions were used in estimating the fair values shown above:

Cash and cash equivalents are valued at their carrying amounts due to the relatively short period to maturity of instruments.

Stock in FHLB of Chicago is valued at cost, which represents historical redemption value and approximates fair value.

Fair values for the loan portfolio, certificates of deposit and advances from the FHLBC are computed using an analysis which considers the amount and timing of all future cash flows of the underlying instruments discounted at current market rates.

Fair values of non-maturing deposits, such as checking, NOW, savings and money market deposit accounts are computed using an analysis which uses decay rates to estimate the amount and timing of all future cash flows of the underlying instruments, which are discounted at current market rates.

The carrying amounts of accrued interest receivable and payable approximate fair value.

Off-balance sheet assets include the commitments to extend credit for which fair values were estimated based on interest rates and fees currently charged to enter into similar transactions. As a result of the short-term nature of the outstanding commitments, the fair values of fees on those commitments approximate the amount collected and the Company has not assigned a value to such instruments for purpose of this disclosure.

There were no transfers between Level 1 and Level 2 categorizations and into or out of Level 3 categorization during the periods presented.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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