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18. Fair Value of Financial Instruments

12 Months Ended

Mar. 31, 2013

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is made in accordance with applicable accounting standards. The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair value amounts. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in the future. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The estimated fair value of financial instruments is as follows (in thousands):

			Quoted prices in active markets for identical assets		Other observable inputs		Significant unobservable inputs
March 31, 2013	Carry Value		(Level 1)		(Level 2)		(Level 3)			Fair Value
Assets:
Cash	$	115,415	$	115,415	$	-	$	-	$	115,415
Certificates of deposit held for investment		44,635		-		45,078		-		45,078
Investment securities available for sale		6,216		-		4,978		1,238		6,216
Mortgage-backed securities held to maturity		125		-		129		-		129
Mortgage-backed securities available for sale		431		-		431		-		431
Loans receivable, net		520,369		-		-		495,312		495,312
Loans held for sale		831		-		831		-		831
Federal Home Loan Bank stock		7,154		-		7,154		-		7,154

Liabilities:
Demand – savings deposits		475,688		-		475,688		-		475,688
Time deposits		188,118		-		189,289		-		189,289
Junior subordinated debentures		22,681		-		-		9,433		9,433

			Quoted prices in active markets for identical assets		Other observable inputs		Significant unobservable inputs
March 31, 2012	Carry Value		(Level 1)		(Level 2)		(Level 3)			Fair Value

Assets:
Cash	$	46,393	$	46,393	$	-	$	-	$	46,393
Certificates of deposit held for investment		41,473		-		41,767		-		41,767
Investment securities held to maturity		493		-		542		-		542
Investment securities available for sale		6,314		-		5,148		1,166		6,314
Mortgage-backed securities held to maturity		171		-		177		-		177
Mortgage-backed securities available for sale		974		-		974		-		974
Loans receivable, net		664,888		-		-		596,552		596,552
Loans held for sale		480		-		480		-		480
Federal Home Loan Bank stock		7,350		-		7,350		-		7,350

Liabilities:
Demand – savings deposits		514,446		-		514,446		-		514,446
Time deposits		230,009		-		231,631		-		231,631
Junior subordinated debentures		22,681		-		-		9,831		9,831

Fair value estimates were based on existing financial instruments without attempting to estimate the value of anticipated future business. The fair value was not estimated for assets and liabilities that were not considered financial instruments.

Fair value estimates, methods and assumptions are set forth below.

Cash - Fair value approximates the carrying amount.

Certificates of Deposit held for investment – The fair value of certificates of deposit with stated maturity was based on the discounted value of contractual cash flows. The discount rate was estimated using rates currently available in the local market.

Investments and Mortgage-Backed Securities – Fair values were based on quoted market rates and dealer quotes. The fair value of the trust preferred investment was determined using a discounted cash flow method (see also Note 17 – Fair Value Measurements).

Loans Receivable and Loans Held for Sale – At March 31, 2013, the entire loan portfolio was priced using a discounted cash flow analysis. At March 31, 2012, nonperforming and criticized loans were priced using comparable market statistics. The nonperforming and criticized loan portfolio was segregated into various categories and a weighted average valuation discount that approximated similar loan sales was applied to each of these categories. The remaining loans within the portfolio were priced using a discounted cash flow analysis. The fair value of loans held for sale was based on the loans carrying value as the agreements to sell these loans are short term fixed rate commitments and no material difference between the carrying value is likely.

Federal Home Loan Bank stock – The carrying amount approximates the estimated fair value of this investment.

Deposits - The fair value of deposits with no stated maturity such as non-interest-bearing demand deposits, interest checking, money market and savings accounts was equal to the amount payable on demand. The fair value of time deposits with stated maturity was based on the discounted value of contractual cash flows. The discount rate was estimated using rates currently available in the local market.

Junior Subordinated Debentures - The fair value of the Debentures was based on the discounted cash flow method. Management believes that the discount rate utilized is indicative of those that would be used by market participants for similar types of debentures.

Off-Balance Sheet Financial Instruments - The estimated fair value of loan commitments approximates fees recorded associated with such commitments as of March 31, 2013 and 2012. Since the majority of the Bank’s off-balance-sheet instruments consist of non-fee producing, variable rate commitments, the Bank has determined they do not have a distinguishable fair value.