FAIR VALUE MEASUREMENTS

12 Months Ended

Mar. 31, 2023

15. FAIR VALUE MEASUREMENTS

Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are:

Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market 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.

Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.

Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

Financial instruments are presented in the tables that follow by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the consolidated financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result of an event or circumstance, were required to be remeasured at fair value after initial recognition in the consolidated financial statements at some time during the reporting period.

The following tables present assets that are measured at estimated fair value on a recurring basis at the dates indicated (in thousands):


	Total Estimated		Estimated Fair Value Measurements Using
March 31, 2023	Fair Value		Level 1		Level 2		Level 3

Investment securities available for sale:
Municipal securities	$	40,261	$	—	$	40,261	$	—
Agency securities		85,907		—		85,907		—
Real estate mortgage investment conduits		28,877		—		28,877		—
Residential mortgage-backed securities		15,471		—		15,471		—
Other mortgage-backed securities		40,983		—		40,983		—
Total assets measured at fair value on a recurring basis	$	211,499	$	—	$	211,499	$	—


	Total Estimated		Estimated Fair Value Measurements Using
March 31, 2022	Fair Value		Level 1		Level 2		Level 3

Investment securities available for sale:
Municipal securities	$	39,604	$	—	$	39,604	$	—
Agency securities		40,705		—		40,705		—
Real estate mortgage investment conduits		32,717		—		32,717		—
Residential mortgage-backed securities		16,945		—		16,945		—
Other mortgage-backed securities		35,811		—		35,811		—
Total assets measured at fair value on a recurring basis	$	165,782	$	—	$	165,782	$	—

There were no transfers of assets into or out of Levels 1, 2 or 3 during the years ended March 31, 2023 and 2022.

The following methods were used to estimate the fair value of investment securities in the above table:

Investment securities are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. Investment securities are included within Level 3 of the hierarchy when there are significant unobservable inputs.

For Level 2 securities, the independent pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data from market research publications.

The Company’s third-party pricing service has established processes for the Company to submit inquiries regarding the estimated fair value. In such cases, the Company’s third-party pricing service will review the inputs to the evaluation in light of any new market data presented by the Company. The Company’s third-party pricing service may then affirm the original estimated fair value or may update the evaluation on a go-forward basis.

Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance analysis of the prices against statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. As necessary, management compares prices received from the pricing service to discounted cash flow models or by performing independent valuations of inputs and assumptions similar to those used by the pricing service in order to help ensure prices represent a reasonable estimate of fair value.

The following tables present assets that are measured at estimated fair value on a nonrecurring basis at the dates indicated (in thousands):


	Total		Estimated Fair Value
	Estimated		Measurements Using
March 31, 2023	Fair Value		Level 1		Level 2		Level 3

Impaired loans	$	89	$	—	$	—	$	89

March 31, 2022

Impaired loans	$	228	$	—	$	—	$	228

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at March 31, 2023 and 2022:

(1)

There were no adjustments to appraised values of impaired loans as of March 31, 2023 and 2022.

For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses.

In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

The following disclosure of the estimated fair value of financial instruments is made in accordance with GAAP. 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 carrying amounts and estimated fair values of financial instruments are as follows at the dates indicated (in thousands):



	Carrying								Estimated
March 31, 2023	Amount		Level 1		Level 2		Level 3		Fair Value

Assets:
Cash and cash equivalents	$	22,044	$	22,044	$	—	$	—	$	22,044
Certificates of deposit held for investment		249		—		248		—		248
Investment securities available for sale		211,499		—		211,499		—		211,499
Investment securities held to maturity		243,843		—		210,214		—		210,214
Loans receivable, net		993,547		—		—		931,784		931,784
FHLB stock		6,867		—		6,867		—		6,867

Liabilities:
Certificates of deposit		128,833		—		126,072		—		126,072
FHLB advances		123,754		—		123,679		—		123,679
Junior subordinated debentures		26,918		—		—		17,698		17,698


	Carrying								Estimated
March 31, 2022	Amount		Level 1		Level 2		Level 3		Fair Value

Assets:
Cash and cash equivalents	$	241,424	$	241,424	$	—	$	—	$	241,424
Certificates of deposit held for investment		249		—		253		—		253
Investment securities available for sale		165,782		—		165,782		—		165,782
Investment securities held to maturity		253,100		—		236,029		—		236,029
Loans receivable, net		975,885		—		—		962,893		962,893
FHLB stock		2,019		—		2,019		—		2,019

Liabilities:
Certificates of deposit		111,372		—		109,860		—		109,860
Junior subordinated debentures		26,833		—		—		16,046		16,046

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.

Valuation

Significant Unobservable

Technique

Inputs

Impaired loans

Appraised value

Adjustment for market conditions

Discounted cash flows

Discount rate

5.375 % - 8.000%