Annual Report 2009 - Armenian Missionary Association of America

Note 5 – Fair Value Disclosures
Fair Value Measurements
As defined in the “Fair Value Measurements” standard, 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. In determining fair value, the AMAA uses various
methods including market, income and cost approaches. Based on these approaches, the AMAA often utilizes certain assumptions that
market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the
valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The AMAA utilizes
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability
of the inputs used in the valuation techniques, the AMAA is required to provide the following information according to the fair value
hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and
liabilities carried at fair value will be classified and disclosed in one of the following three categories:
• Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the
asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 — Valuations based on inputs other that level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets
and liabilities in markets that are not active. If assets or liabilities have a specified contractual term, the inputs must be observable
for substantially the full term of the asset or liability.
• Level 3 — Valuations for assets and liabilities derived from unobservable inputs. Unobservable inputs are used to the extent
that observable inputs for level 2 are not available. Unobservable inputs reflect the reporting entities own assumptions about the
assumptions that market participants would use in pricing such assets or liabilities.
For the fiscal year ended July 31, 2010 and 2009, the application of valuation techniques applied to similar assets and liabilities has been
consistent. The following is a description of the valuation methodologies used for instruments measured at fair value:
Corporate Stocks
The fair value of corporate stocks is the market value based on quoted market prices, when available, or market prices provided by
recognized broker dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use
unobservable inputs due to the limited market activity of the instrument.
Bonds, Notes, and Structured Settlements
Bonds and notes consist of corporate and government bonds where fair value is the market value based on quoted market prices, when
available, or market prices provided by recognized broker dealers. If listed prices or quotes are not available, fair value is based upon
externally developed models that use unobservable inputs due to the limited market activity of the instrument.
Structured Settlement Contracts do not trade in an active, open market with readily observable prices. While sales of structured settlements
do occur, the precise terms and conditions typically are not readily available. Accordingly, the AMAA estimates the fair value of
these contracts using discounted cash flow (“DCF”) models incorporating numerous assumptions from the perspective of market participant
including servicing income, servicing costs, market discount rates, prepayment speeds, and default rates. Due to the nature of the
valuation inputs, these contracts are classified within Level 2 of the valuation hierarchy.
Real Estate
Real estate investments are carried at fair value and are generally classified within Level 2 of the valuation hierarchy. Values are based on
certified appraisal reports and available comparable sales market data. However, certain real estate holdings, including various holdings
in Lebanon, are classified within Level 3 because valuation is not practical due to geographic volatility. These investments are carried at
acquisition value since this approximates fair value, based on recent sales.
Loans Receivable
Loans receivable are not traded in an active, open market and are instead measured at fair value on a nonrecurring basis; that is, the
loans receivable are not measured at fair value on an ongoing basis but are tested for impairment annually. Loan performance and credit
risk are considered when evaluating loans for improvement.
Fair Value on a Recurring Basis
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at July 31, 2010:
Total Level 1 Level 2 Level 3
Corporate Stocks $ 59,194,023 $ 59,194,023 $ - - $ - -
Bonds and Notes 4,331,501 4,331,501 - - - -
Mutual Funds 6,173,921 - - 6,173,921 - -
Structured Settlements 1,205,360 - - 1,205,360 - -
Real Estate Investments 23,232,757 - - 19,256,777 3,975,980
Total Investment Assets $ 94,137,562 $ 63,525,524 $ 26,636,058 $ 3,975,980
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