Fair Value Disclosure Measurements

12 Months Ended

Sep. 30, 2015

Fair Value Disclosure Measurements [Abstract]

13. FAIR VALUE DISCLOSURE MEASUREMENTS

Management uses its best judgment in determining the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The fair value amounts have been measured as of their respective year-ends and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The Company follows a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements). The three levels of the fair value hierarchy are as follows:

Level I:Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level II:Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level III:Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

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.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2015 and 2014, are as follows:


		September 30, 2015

		Level I		Level II		Level III		Total
Description
Mortgage-backed securities available for sale	$	-	$	3,004	$	-	$	3,004
Obligations of states and political subdivisions
available for sale		-		447,528		-		447,528
U.S. government agency securities
available for sale		-		5,413,350		-		5,413,350
Total	$	-	$	5,863,882	$	-	$	5,863,882


		September 30, 2014

		Level I		Level II		Level III		Total
Description
Mortgage-backed securities available for sale	$	-	$	5,585	$	-	$	5,585
Obligations of states and political subdivisions
available for sale		-		587,115		-		587,115
U.S. government agency securities
available for sale		-		7,816,450		-		7,816,450
Total	$	-	$	8,409,150	$	-	$	8,409,150

The following table presents the financial assets measured at fair value on a recurring basis as of September 30, 2015 by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques include inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.


		September 30, 2015

		Level I		Level II		Level III		Total
Description
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	-	$	-	$	379,190	$	379,190
Other real estate owned		-		-		593,612		593,612
	$	-	$	-	$	972,802	$	972,802


		September 30, 2014

		Level I		Level II		Level III		Total
Description
Assets measured at fair value on a nonrecurring basis:
Impaired loans	$	-	$	-	$	811,780	$	811,780

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank uses Level III inputs to determine fair value:


		September 30, 2015
					Range
			Valuation	Unobservable	(Weighted
		Fair Value	Technique	Inputs	Average)
Impaired Loan	$	301,728	Discounted	Probability of	-
			cash flow	default

Impaired Loan		77,462	Fair Value	Appraisal	20	%
			of collateral (1)	adjustments (2)	(20)

Other real estate owned		593,612	Fair Value	Appraisal	20	%
			of collateral (1)	adjustments (2)	(20)
	$	972,802

		September 30, 2014
					Range
			Valuation	Unobservable	(Weighted
		Fair Value	Technique	Inputs	Average)
Impaired Loan	$	387,863	Discounted	Probability of	-
			cash flow	default

Impaired Loan		423,917	Fair Value	Appraisal	20	%
			of collateral (1)	adjustments (2)	(20)
	$	811,780

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level III inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions that are presented below the following table were used to estimate fair values of the Company’s financial instruments at September 30, 2015 and 2014:

The fair value of the Company’s financial instruments are as follows at September 30:


		September 30, 2015
		Carrying								Total
		Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	7,583,346	$	7,583,346	$	-	$	-	$	7,583,346
Investment securities available for sale		5,860,878		-		5,860,878		-		5,860,878
Investment securities held to maturity		2,768,913		-		2,795,317		-		2,795,317
Mortgage-backed securities available for sale		3,004		-		3,004		-		3,004
Federal Home Loan Bank stock		131,900		131,900		-		-		131,900
Cash surrender value of life insurance		291,023		291,023		-		-		291,023
Loans receivable, net		135,063,718		-		-		142,973,718		142,973,718
Accrued interest receivable		559,833		559,833		-		-		559,833

Financial liabilities:
Deposits	$	129,656,448	$	59,974,632	$	-	$	69,910,816	$	129,885,448
Advances from borrowers for taxes and
insurance		717,869		717,869		-		-		717,869
Accrued interest payable		86,359		86,359		-		-		86,359


		September 30, 2014
		Carrying								Total
		Value		Level I		Level II		Level III		Fair Value
Financial assets:
Cash and cash equivalents	$	9,639,943	$	9,639,943	$	-	$	-	$	9,639,943
Investment securities available for sale		8,403,565		-		8,403,565		-		8,403,565
Investment securities held to maturity		2,772,470		-		2,740,940		-		2,740,940
Mortgage-backed securities available for sale		5,585		-		5,585		-		5,585
Federal Home Loan Bank stock		302,500		302,500		-		-		302,500
Cash surrender value of life insurance		286,762		286,762		-		-		286,762
Loans receivable, net		128,030,483		-		-		134,453,483		134,453,483
Accrued interest receivable		583,389		583,389		-		-		583,389

Financial liabilities:
Deposits	$	127,860,561	$	57,486,788	$	-	$	70,261,774	$	127,748,562
Advances from borrowers for taxes and
insurance		633,159		633,159		-		-		633,159
Accrued interest payable		71,341		71,341		-		-		71,341

Cash and Cash Equivalents

The carrying amount is a reasonable estimate of fair value.

Investment Securities and Mortgage-Backed Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) is determined by obtaining matrix pricing (Level II), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

FHLB Stock

The carrying value of the FHLB stock is a reasonable estimate of fair value due to restrictions on the securities.

Cash Surrender Value of Life Insurance

The fair value is equal to the cash surrender value of the life insurance.

Loans Receivable

The fair values for one-to four-family residential loans are estimated using discounted cash flow analysis using fields from similar products in the secondary markets. The carrying amount of construction loans approximated its fair value given their short-term nature. The fair values of consumer and commercial loans are estimated using discounted cash flow analysis, using interest rates reported in various government releases and the Company’s own product pricing schedule for loans with terms similar to the Company’s. The fair values of multi-family and nonresidential mortgages are estimated using discounted cash flow analysis, using interest rates based on a national survey of similar loans.

Accrued Interest Receivable

The carrying amount is a reasonable estimate of fair value.

Deposits

The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the repricing date (i.e., their carrying amounts). Fair values of certificates of deposits are estimated using a discounted cash flow calculation that applies a comparable FHLB advance rate to the aggregated weighted-average maturity on time deposits.

Advances from Borrowers for Taxes and Insurance

The fair value of advances from borrowers for taxes and insurance is the amount payable on demand at the reporting date.

Accrued Interest Payable

The carrying amount is a reasonable estimate of fair value.

- 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.

+ References + Details

Eureka Financial Corp. 10-K