FAIR VALUE

Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the FASB ASC Topic 820 "Fair Value Measurements and Disclosures", the 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value is a market-based measurement, not an entity-specific measurement. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1 Input:


1)	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Inputs:


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, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

Level 3 Inputs:


1)	Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.


2)	These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis:

The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods 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 that its valuation methods are appropriate and consistent with 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 measurement date.

Investment Securities and Loan Available for Sale:

Where quoted prices are available in an active market, securities or other assets are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security or available for sale loans, then fair values are provided by independent third-party valuation services. These valuation services estimate fair values using pricing models and other accepted valuation methodologies, such as quotes for similar securities and observable yield curves and spreads. As part of the Company’s overall valuation process, management evaluates these third-party methodologies to ensure that they are representative of exit prices in the Company’s principal markets. For the available for sale (“AFS”) loans, the fair value represents the face value of the guaranteed portion of the SBA loans pending settlement. Securities and loans in Level 2 include mortgage-backed securities, corporate debt obligations, collateralized mortgage-backed securities, and SBA loans available for sale.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis.



Financial Assets	Level 1		Level 2		Level 3		Total
	(amounts in thousands)
Investment securities and loan available for sale
As of September 30, 2018
Corporate debt obligations	$	—	$	1,021	$	—	$	1,021
Residential mortgage-backed securities	—		31,495		—		31,495
Collateralized mortgage-backed securities	—		64		—		64
Loans held for sale	—		2,217		—		2,217
Total	$	—	$	34,797	$	—	$	34,797
As of December 31, 2017
Corporate debt obligations	$	—	$	1,033	$	—	$	1,033
Residential mortgage-backed securities	—		36,863		—		36,863
Collateralized mortgage-backed securities	—		95		—		95
Loans held for sale	—		1,541		—		1,541
Total	$	—	$	39,532	$	—	$	39,532

For the nine months ended September 30, 2018, there were no transfers between the levels within the fair value hierarchy.

There were no level 3 assets or liabilities held during 9 months ended 9/30/2018. The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the three and nine months ended September 30, 2017:



	Investment Securities and Loan Available for Sale
September 30, 2017	Three Months			Nine Months
	(amounts in thousands)
Beginning balance	$	421		$	437
Total net losses included in:
Settlements	(3		)	(19		)
Ending balance	$	418		$	418

Fair Value on a Non-recurring Basis:

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).



Financial Assets	Level 1		Level 2		Level 3		Total
	(amounts in thousands)
As of September 30, 2018
Collateral-dependent impaired loans	$	—	$	—	$	7,325	$	7,325
OREO	—		—		5,014		5,014
As of December 31, 2017
Collateral-dependent impaired loans	$	—	$	—	$	9,093	$	9,093
OREO	—		—		7,248		7,248

Collateral-dependent impaired loans, which are measured in accordance with FASB ASC Topic 310 “Receivables,” for impairment, had a carrying amount of $7.4 million and $9.1 million at September 30, 2018 and December 31, 2017, respectively, with a valuation allowance of $85,000 and $458,000 at September 30, 2018 and December 31, 2017, respectively. The valuation allowance for collateral-dependent impaired loans is included in the allowance for loan losses on the balance sheet. All collateral-dependent impaired loans have an independent third-party full appraisal to determine the NRV based on the fair value of the underlying collateral, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified, or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.

OREO consists of commercial real estate properties that are recorded at fair value based upon current appraised value, or agreements of sale, less estimated disposition costs using level 3 inputs. Properties are reappraised annually.

Fair Value of Financial Instruments

The Company discloses estimated fair values for its significant financial instruments in accordance with FASB ASC Topic 825, “Disclosures about Fair Value of Financial Instruments”. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial assets and liabilities are discussed below.

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, restricted stock, accrued interest receivable, demand and other non-maturity deposits and accrued interest payable.

Investment Securities: Fair value of securities available for sale is described above. Fair value of held to maturity securities is based upon quoted market prices for identical or similar assets.

Loans Held for Sale: Fair value represents the face value of the guaranteed portion of SBA loans pending settlement.

Loan Receivables. For residential mortgages loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the risk adjusting current interest rates at which similar loans would be made to borrowers with similar credit ratings and same remaining maturities, adjusted for the liquidity discount and underwriting uncertainty.

Deposits: The fair value of time deposits is based on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.

Borrowings: The fair values of FHLBNY borrowings, other borrowed funds and subordinated debt are based on the discounted value of estimated cash flows. The discounted rate is estimated using market rates currently offered for debts with similar credit rating, terms and remaining maturities.

For a further discussion of the Company’s valuation methodologies for financial instrument measured at fair value, see the descriptions in the Company's 2017 Annual Report included in its Annual Report on Form 10-K.

The following table summarizes the carrying amounts and fair values for financial instruments at September 30, 2018 and December 31, 2017:



September 30, 2018	Carrying Amount		Fair Value
September 30, 2018	Carrying Amount		Total		Level 1	Level 2		Level 3
	(amounts in thousands)
Financial Assets:
Cash and cash equivalents	$	86,735	$	86,735	86,735	$	—	$	—
Investment securities AFS	$	32,580	32,580		—	32,580		—
Investment securities HTM	$	1,099	1,253		—	1,253		—
Restricted stock	$	5,858	5,858		—	5,858		—
Loans held for sale	$	2,217	2,217		—	2,217		—
Loans, net	$	1,161,931	1,147,491		—	1,124,799		22,692
Accrued interest receivable	$	4,869	4,869		—	4,869		—

Financial Liabilities:
Non-time deposits	$	624,456	624,456		—	624,456		—
Time deposits	$	440,746	443,039		—	443,039		—
Borrowings	$	118,053	115,135		—	115,135		—
Accrued interest payable	$	1,211	1,211		—	1,211		—



December 31, 2017	Carrying Amount		Fair Value
December 31, 2017	Carrying Amount		Total		Level 1		Level 2		Level 3
	(amounts in thousands)
Financial Assets:
Cash and cash equivalents	$	42,113	$	42,113	$	42,113	$	—	$	—
Investment securities AFS	37,991		37,991		—		37,991		—
Investment securities HTM	2,268		2,468		—		2,468		—
Restricted stock	6,172		6,172		—		6,172		—
Loans held for sale	1,541		1,541		—		1,541		—
Loans, net	995,184		1,001,655		—		976,660		24,995
Accrued interest receivable	4,025		4,025		—		4,025		—

Financial Liabilities:
Non-time deposits	$	498,522	$	498,522	$	—	$	498,522	$	—
Time deposits	367,861		368,863		—		368,863		—
Borrowings	128,053		127,552		—		127,552		—
Accrued interest payable	719		719		—		719		—