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 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.

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 December 31, 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 December 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	$	—	$	—	$	172	$	172
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association	—		3,719		—		3,719
Federal Home Loan Mortgage Corporation	—		9,926		—		9,926
Federal National Mortgage Association	—		24,317		—		24,317

U.S. Government Agency Securities	—		28,396		—		28,396

Corporate bonds	—		4,085		—		4,085
Total available-for-sale securities	—		70,443		—		70,443

Total	$	—	$	70,443	$	172	$	71,244


	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

Total	$	—	$	79,845	$	180	$	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 0.1% of the Company’s total assets measured at fair value at December 31, 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.

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 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 nine months ended December 31, 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, December 31, 2019	Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2019




Mortgage servicing rights	180	(8)	—	—	172	(7)


$ 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, December 31, 2018	Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2018




Mortgage servicing rights	181	28	—	—	209	26

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

$ in thousands

Fair Value
December 31, 2019

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Mortgage servicing rights

172

Discounted Cash Flow

Weighted Average Constant Prepayment Rate⁽¹⁾

9.41

Option Adjusted Spread ("OAS") applied to Treasury curve

1200 basis points

$ in thousands

Fair Value
March 31, 2019

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

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

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 December 31, 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 December 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)

Impaired loans	$	—	$	—	$	1,314	$	1,314
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)

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 December 31, 2019 and March 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

$ in thousands

Fair Value
December 31, 2019

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Impaired loans

1,314

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.