FAIR VALUE MEASUREMENTS

Per GAAP, fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


•	Level 1— Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2— Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3— Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of September 30, 2019 and March 31, 2019, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:



	Fair Value Measurements at September 30, 2019, Using
$ in thousands	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Mortgage servicing rights	$	—	$	—	$	174	$	174
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association	—		3,913		—		3,913
Federal Home Loan Mortgage Corporation	—		10,366		—		10,366
Federal National Mortgage Association	—		25,642		—		25,642
U.S. Government Agency Securities	—		30,118		—		30,118
Corporate bonds	—		5,070		—		5,070
Total available-for-sale securities	—		75,109		—		75,109
Other investments	—		—		492		492
Total	$	—	$	75,109	$	666	$	75,775



	Fair Value Measurements at March 31, 2019, Using
$ in thousands	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Mortgage servicing rights	$	—	$	—	$	180	$	180
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association	—		4,382		—		4,382
Federal Home Loan Mortgage Corporation	—		11,025		—		11,025
Federal National Mortgage Association	—		26,608		—		26,608
U.S. Government Agency securities	—		32,853		—		32,853
Corporate bonds	—		4,977		—		4,977
Total available-for-sale securities	—		79,845		—		79,845
Other investments	—		—		454		454
Total	$	—	$	79,845	$	634	$	80,479

Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”) and other investments. Level 3 assets accounted for 0.11% of the Company’s total assets measured at fair value at September 30, 2019 and March 31, 2019.

The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.

Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.

In the six month period ended September 30, 2019, there were no transfers of investments into or out of each level of the fair value hierarchy.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and discount and prepayment rates.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the six months ended September 30, 2019 and 2018:



$ in thousands	Beginning balance, April 1, 2019		Total Realized/Unrealized Gains/(Losses) Recorded in Income ⁽¹⁾			Issuances / (Settlements)		Transfers to/(from) Level 3		Ending balance, September 30, 2019		Change in Unrealized Gains/(Losses) Related to Instruments Held at September 30, 2019
Other investments	$	454	$	38		$	—	$	—	$	492	$	—

Mortgage servicing rights	180		(6		)	—		—		174		(6		)



$ in thousands	Beginning balance, April 1, 2018		Total Realized/Unrealized Gains/(Losses) Recorded in Income ⁽¹⁾			Issuances / (Settlements)		Transfers to/(from) Level 3		Ending balance, September 30, 2018		Change in Unrealized Gains/(Losses) Related to Instruments Held at September 30, 2018
Other investments	$	433	$	2		$	—	$	—	$	435	$	—

Mortgage servicing rights	181		(20		)	—		—		161		(18		)

⁽¹⁾ Includes net servicing cash flows and the passage of time.

For Level 3 assets measured at fair value on a recurring basis as of September 30, 2019 and March 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:



$ in thousands	Fair Value September 30, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Other investments	$	492	Cost	n/a

Mortgage servicing rights	174		Discounted Cash Flow	Weighted Average Constant Prepayment Rate⁽¹⁾	21.63	%
				Option Adjusted Spread ("OAS") applied to Treasury curve	1000 basis points



$ in thousands	Fair Value March 31, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Other investments	$	454	Cost	n/a

Mortgage servicing rights	180		Discounted Cash Flow	Weighted Average Constant Prepayment Rate⁽¹⁾	11.19	%
				Option Adjusted Spread ("OAS" applied to Treasury curve	1000 basis points

⁽¹⁾ Represents annualized loan repayment rate assumptions

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of September 30, 2019 and March 31, 2019, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:



	Fair Value Measurements at September 30, 2019, Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
$ in thousands	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
Impaired loans	$	—	$	—	$	1,522	$	1,522
Other real estate owned	—		—		120		$	120



	Fair Value Measurements at March 31, 2019, Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
$ in thousands	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
Impaired loans	$	—	$	—	$	2,027	$	2,027
Other real estate owned	—		—		404		$	404

For Level 3 assets measured at fair value on a non-recurring basis as of September 30, 2019 and March 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:



$ in thousands	Fair Value September 30, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Impaired loans	$	1,522	Appraisal of collateral	Appraisal adjustments	7.5% cost to sell
Other real estate owned	120		Appraisal of collateral	Appraisal adjustments	7.5% cost to sell



$ in thousands	Fair Value March 31, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Impaired loans	$	2,027	Appraisal of collateral	Appraisal adjustments	7.5% cost to sell
Other real estate owned	404		Appraisal of collateral	Appraisal adjustments	7.5% cost to sell

The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.

Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or market.