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FAIR VALUE DISCLOSURES | 9 Months Ended
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Jun. 30, 2015
FAIR VALUE DISCLOSURES [Abstract] |
FAIR VALUE DISCLOSURES | NOTE G – FAIR VALUE DISCLOSURES We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and other real estate owned, or OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. In accordance with ASC 820, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - | Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 - | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 - | Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
We base our fair values on 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. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis. Securities available-for-sale Our available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders' equity. Our securities available-for-sale portfolio consists of U.S government-sponsored mortgage-backed securities and private label mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. Our independent pricing service provides us with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in our portfolio. Various modeling techniques are used to determine pricing for our mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring basis.
|  | Fair Value at June 30, 2015 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government-sponsored enterprises: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities-residential |  | $ | 5,897 |  |  | $ | — |  |  | $ | 5,897 |  |  | $ | — |
Private label mortgage-backed securities-residential |  |  | 207 |  |  |  | — |  |  |  | 207 |  |  |  | — |
Total securities available for sale |  | $ | 6,104 |  |  | $ | — |  |  | $ | 6,104 |  |  | $ | — |
|  | Fair Value at September 30, 2014 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government agencies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities - residential |  | $ | 1,295 |  |  | $ | — |  |  | $ | 1,295 |  |  | $ | — |
Obligations of U.S. government-sponsored enterprises: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities-residential |  |  | 10,369 |  |  |  | — |  |  |  | 10,369 |  |  |  | — |
Private label mortgage-backed securities-residential |  |  | 406 |  |  |  | — |  |  |  | 406 |  |  |  | — |
Total securities available for sale |  | $ | 12,070 |  |  | $ | — |  |  | $ | 12,070 |  |  | $ | — |
The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis. Mortgage Servicing Rights, net Mortgage Servicing Rights (MSRs) are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is determined through a calculation of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market's perception of future interest rate movements and, as such, are classified as Level 3. The Company had MSRs totaling $147,000 and $175,000 at June 30, 2015 and September 30, 2014, respectively. Impaired Loans Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan's effective interest rate (the rate of return implicit in the loan); 2) the asset's observable market price; or 3) the fair value of the collateral, less anticipated selling and disposition costs, if the asset is collateral dependent. The regulatory agencies require the lost method for loans from which repayment is expected to be provided solely by the underlying collateral. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair value is estimated through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and, as such, are generally classified as Level 3. Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Company's credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. However, the Company also obtains updated appraisals on performing construction loans that are approaching their maturity date to determine whether or not the fair value of the collateral securing the loan remains sufficient to cover the loan amount prior to considering an extension. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss. Other Real Estate Owned The fair value of other real estate owned is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and anticipated selling and disposition costs. As such, other real estate owned is generally classified as Level 3. The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at June 30, 2015 and September 30, 2014
|  | Fair Value at June 30, 2015 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Impaired loans |  | $ | 1,453 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,453 |
Other real estate owned |  |  | 15,747 |  |  |  | — |  |  |  | — |  |  |  | 15,747 |
|  | $ | 17,200 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,200 |
|  | Fair Value at September 30, 2014 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Impaired loans |  | $ | 1,801 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,801 |
Other real estate owned |  |  | 17,342 |  |  |  | — |  |  |  | — |  |  |  | 17,342 |
|  | $ | 19,143 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,143 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value:
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
|  | Fair Value |  | Valuation |  |  |  |
June 30, 2015 |  | Estimate |  | Techniques |  | Unobservable Input |  | Range (Weighted Average)
Impaired loans |  | $ | 1,453 |  |  | Appraisal of collateral (1) |  | Appraisal adjustments (2) |  | 0.0% to -18.0% (-6.0%)
Other real estate owned |  | $ | 15,747 |  |  | Appraisal of collateral (1) |  | Liquidation expenses (2) |  | 0.0% to -41.2% (-16.7%)
Quantitative Information about Level 3 Fair Value Measurements (Dollars in thousands)
|  |  | Fair Value |  |  | Valuation |  |  |  |
September 30, 2014 |  |  | Estimate |  |  | Techniques |  | Unobservable Input |  | Range (Weighted Average)
Impaired loans |  | $ | 1,801 |  |  | Appraisal of collateral (1) |  | Appraisal adjustments (2) |  | 0% to -21.0% (-10.7%)
Other real estate owned |  | $ | 17,342 |  |  | Appraisal of collateral (1) |  | Liquidation expenses (2) |  | -3.2% to -39.1% (-15.6%)
| (1) | Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 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 methods and assumptions were used to estimate the fair value of each class of financial instruments not already disclosed above for which it is practicable to estimate fair value: Cash and interest earning deposits with banks: The carrying amounts are a reasonable estimate of fair value. Held to maturity securities: The fair values of our held to maturity securities are obtained from an independent nationally recognized pricing service. Our independent pricing service provides us with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in our portfolio. Loans: Fair value for the loan portfolio, excluding impaired loans with specific loss allowances, is estimated based on discounted cash flow analysis using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. Federal Home Loan Bank of New York (“FHLB”) stock: The carrying amount of FHLB stock approximates fair value and considers the limited marketability of the investment. Bank-owned life insurance: The carrying amounts are based on the cash surrender values of the individual policies, which is a reasonable estimate of fair value. Deposits: The fair value of deposits with no stated maturity, such as money market deposit accounts, interest-bearing checking accounts and savings accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is equivalent to current market rates for deposits of similar size, type and maturity. Accrued interest receivable and payable: For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Federal Home Loan Bank of New York advances and securities sold under reverse repurchase agreements: The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered by the Federal Home Loan Bank of New York for borrowings of similar maturity and terms. The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial. The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company's financial instruments carried at cost or amortized cost as of June 30, 2015 and September 30, 2014. This table excludes financial instruments for which the carrying amount approximates level 1 fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products being payable on demand and having no stated maturity.
|  | Carrying |  |  | Fair |  |  | Fair Value Measurement Placement |
|  | Value |  |  | Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (Dollars in thousands) |
June 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments - assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities held-to-maturity |  | $ | 53,977 |  |  | $ | 53,974 |  |  | $ | — |  |  | $ | 53,974 |  |  | $ | — |
Loans |  |  | 417,413 |  |  |  | 422,797 |  |  |  | — |  |  |  | — |  |  |  | 422,797 |
Financial instruments - liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  |  | 132,586 |  |  |  | 133,883 |  |  |  | — |  |  |  | 133,883 |  |  |  | — |
Borrowings |  |  | 43,113 |  |  |  | 43,650 |  |  |  | — |  |  |  | 43,650 |  |  |  | — |
September 30, 2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments - assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities held to maturity |  | $ | 48,963 |  |  | $ | 48,822 |  |  |  | — |  |  | $ | 48,822 |  |  | $ | — |
Loans |  |  | 404,195 |  |  |  | 407,947 |  |  |  | — |  |  |  | — |  |  |  | 407,947 |
Financial instruments - liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Certificate of deposit |  |  | 149,875 |  |  |  | 151,652 |  |  |  | — |  |  |  | 151,652 |  |  |  | — |
Borrowings |  |  | 30,500 |  |  |  | 31,045 |  |  |  | — |  |  |  | 31,045 |  |  |  | — |
There were no transfers between fair value measurement placements for the three and nine months ended June 30, 2015.

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- 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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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