23. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is 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. There are three levels of inputs that may be used to measure fair values:

Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Significant other observable inputs such as any of the following: (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active, (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates), or (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 Inputs – Significant unobservable inputs for the asset or liability. Significant unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Significant unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Securities

The Company's marketable equity securities and available-for-sale securities are reported at fair value, which were determined utilizing prices obtained from independent parties. The valuations obtained are based upon market data, and often utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (obtained only from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Prioritization of inputs may vary on any given day based on market conditions.

All debt securities available-for-sale are guaranteed either implicitly or explicitly by GSEs as of December 31, 2018 or 2017. Obtaining market values as of December 31, 2018 or 2017 for these securities utilizing significant observable inputs was not difficult due to their considerable demand.

Loans Held for Sale, at Fair Value

The fair value of loans held for sale is determined using quoted prices, adjusted for specific attributes of that loan.

Derivatives

Derivatives represent interest rate swaps and estimated fair values are based on valuation models using observable market data as of the measurement date.

The following tables present financial assets liabilities measured at fair value on a recurring basis as of the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			Fair Value Measurements at December 31, 2018 Using
	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial Assets
Marketable equity securities (Registered Mutual Funds):
Domestic Equity Mutual Funds	$	1,420	$	1,420	$	—	$	—
International Equity Mutual Funds		377		377		—		—
Fixed Income Mutual Funds		3,870		3,870		—		—
Debt securities available-for-sale:
Agency Notes		25,145		—		25,145		—
Corporate Securities		11,135		—		11,135		—
Pass-through MBS issued by GSEs		354,613		—		354,613		—
Agency CMOs		111,992		—		111,992		—
Loans held for sale		1,097		—		1,097		—
Derivative – interest rate product		4,669		—		4,669		—
Financial Liabilities
Derivative – interest rate product		2,097		—		2,097		—

			Fair Value Measurements at December 31, 2017 Using
	Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial Assets
Trading securities (Registered Mutual Funds):
Domestic Equity Mutual Funds	$	460	$	460	$	—	$	—
International Equity Mutual Funds		120		120		—		—
Fixed Income Mutual Funds		2,135		2,135		—		—
Investment securities available-for-sale:
Registered Mutual Funds:
Domestic Equity Mutual Funds		1,512		1,512		—		—
International Equity Mutual Funds		445		445		—		—
Fixed Income Mutual Funds		2,049		2,049		—		—
Pass-through MBS issued by GSEs		72,629		—		72,629		—
Agency CMOs		278,755		—		278,755		—
Derivative – interest rate product		4,041		—		4,041		—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment), and are subject to fair value adjustments. Financial assets measured at fair value on a non-recurring basis include certain impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.

Financial Instruments Not Measured at Fair Value

The following tables present the carrying amounts and estimated fair values of financial instruments other than those measured at fair value on either a recurring or non-recurring is as follows for the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			Fair Value Measurements at December 31, 2018 Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Financial Assets:
Cash and due from banks	$	147,256	$	147,256	$	—	$	—	$	147,256
Loans, net		5,372,036		—		—		5,301,281		5,301,281
Accrued interest receivable		17,875		—		1,296		16,579		17,875
FHLBNY capital stock		57,551		N/A		N/A		N/A		N/A
Financial Liabilities:
Savings, money market and checking accounts		2,946,717		2,946,717		—		—		2,946,717
CDs		1,410,037		—		1,407,747		—		1,407,747
Escrow and other deposits		85,234		85,234		—		—		85,234
FHLBNY Advances		1,125,350		—		1,119,548		—		1,119,548
Subordinated debt, net		113,759		—		110,346		—		110,346
Accrued interest payable		2,710		—		2,710		—		2,710

			Fair Value Measurements at December 31, 2017 Using
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Financial Assets:
Cash and due from banks	$	169,455	$	169,455	$	—	$	—	$	169,455
Loans, net		5,581,084		—		—		5,519,746		5,519,746
Accrued interest receivable		16,543		—		751		15,792		16,543
FHLBNY capital stock		59,696		N/A		N/A		N/A		N/A
Financial Liabilities:
Savings, money market and checking accounts		3,311,560		3,311,560		—		—		3,311,560
CDs		1,091,887		—		1,192,964		—		1,192,964
Escrow and other deposits		82,168		82,168		—		—		82,168
FHLBNY Advances		1,170,000		—		1,164,947		—		1,164,947
Subordinated debt, net		113,612		—		115,337		—		115,337
Accrued interest payable		1,623		—		1,623		—		1,623

The methods and assumptions used to estimate fair values are described as follows:

Cash and Due From Banks

The fair value is assumed to be equal to their carrying value as these amounts are due upon demand (deemed a Level 1 valuation).

Loans, Net

In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.

Accrued Interest Receivable

The estimated fair value of accrued interest receivable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial asset.

FHLBNY Capital Stock

It is not practicable to determine the fair value of FHLBNY capital stock due to restrictions placed on transferability.

Deposits

The fair value of savings, money market, and checking accounts is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount), which has been deemed a Level 1 valuation. The fair value of CDs is based upon the present value of contractual cash flows using current interest rates for instruments of the same remaining maturity (deemed a Level 2 valuation).

Escrow and Other Deposits

The fair value of escrow and other deposits is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount), which has been deemed a Level 1 valuation.

FHLBNY Advances

The fair value of FHLBNY Advances is measured by the discounted anticipated cash flows through contractual maturity or next interest repricing date, or an earlier call date if, as of the valuation date, the borrowing is expected to be called (deemed a Level 2 valuation). The carrying amount of accrued interest payable on FHLBNY Advances is its fair value and is deemed a Level 2 valuation.

Subordinated Debt

The fair value of subordinated debt is estimated using discounted cash flow analyses based on then current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company quarterly independently by a market maker in the underlying security. The fair value is shown net of capitalized issuance costs.

Accrued Interest Payable

The estimated fair value of accrued interest payable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial liability.