XML 45 R15.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

3 Months Ended

Mar. 31, 2020

The following tables present the assets reported on the consolidated balance sheets at their estimated fair value as of March 31, 2020, and December 31, 2019, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification (“ASC”). Financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:


•	Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.


•	Level 3 Inputs – Significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 to the Consolidated Financial Statements of the Company’s 2019 Annual Report on Form 10-K.



	Fair Value Measurements at March 31, 2020 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Debt securities available-for-sale:
Mortgage-backed securities:
Pass-through certificates:
GSE	$	310,869	$	—	$	310,869	$	—
REMICs:
GSE	623,580		—		623,580		—
Non-GSE	49		—		49		—
	934,498		—		934,498		—
Other debt securities
Municipal bonds	279		—		279		—
Corporate bonds	126,666		—		126,666		—
	126,945		—		126,945		—
Total debt securities available-for-sale	1,061,443		—		1,061,443		—
Trading securities	8,388		8,388		—		—
Equity securities	374		374		—		—
Total	$	1,070,205	$	8,762	$	1,061,443	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	4,143	$	—	$	—	$	4,143
Multifamily	22		—		—		22
Home equity and lines of credit	29		—		—		29
Total impaired real estate loans	4,194		—		—		4,194
Commercial and industrial loans	14		—		—		14
Total	$	4,208	$	—	$	—	$	4,208



	Fair Value Measurements at December 31, 2019 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Debt securities available-for-sale:
Mortgage-backed securities:
Pass-through certificates:
GSE	$	329,407	$	—	$	329,407	$	—
REMICs:
GSE	643,667		—		643,667		—
Non-GSE	53		—		53		—
	973,127		—		973,127		—
Other debt securities
Municipal bonds	299		—		299		—
Corporate bonds	164,926		—		164,926		—
	165,225		—		165,225		—
Total debt securities available-for-sale	1,138,352		—		1,138,352		—
Trading securities	11,222		11,222		—		—
Equity securities	250		250		—		—
Total	$	1,149,824	$	11,472	$	1,138,352	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	4,871	$	—	$	—	$	4,871
Multifamily	26		—		—		26
Home equity and lines of credit	30		—		—		30
Total impaired real estate loans	4,927		—		—		4,927
Commercial and industrial loans	15		—		—		15
Total	$	4,942	$	—	$	—	$	4,942

The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2020, and December 31, 2019 (dollars in thousands):

Fair Value

Valuation Methodology

Unobservable Inputs

Range of Inputs

March 31, 2020

December 31, 2019

March 31, 2020

December 31, 2019

Impaired loans

4,208

4,942

Appraisals

Discount for costs to sell

7.0%

Discount for quick sale

10.0%

Discounted cash flows

Interest rates

4.13% to 6.25%

The valuation techniques described below were used to measure fair value of financial instruments in the tables below on a recurring basis and a non-recurring basis as of March 31, 2020, and December 31, 2019.

Debt Securities Available for Sale: The estimated fair values for mortgage-backed securities, corporate, and other debt securities are obtained from an independent nationally recognized third-party pricing service. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. Broker/dealer quotes are utilized as well, when such quotes are available and deemed representative of the market. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy. There were no transfers of securities between Level 1 and Level 2 during the three months ended March 31, 2020.

Trading Securities: Fair values are derived from quoted market prices in active markets. The assets consist of publicly traded mutual funds.

Equity Securities: Fair values of equity securities consisting of publicly traded mutual funds are derived from quoted market prices in active markets.

Impaired Loans: At March 31, 2020, and December 31, 2019, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $6.7 million and $7.0 million, respectively, which were recorded at their estimated fair value of $4.2 million and $4.9 million, respectively. The Company recorded a net decrease in the specific reserve for impaired loans of $79,000 for the three months ended March 31, 2020, and a net increase in the specific reserve for impaired loans of $94,000 for the three months ended March 31, 2019. Net charge-offs of $90,000 and $70,000 were recorded for the three months ended March 31, 2020, and March 31, 2019, respectively, utilizing level 3 inputs. For purposes of estimating the fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and troubled debt restructurings.

In addition, the Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. GAAP. The adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets.

Fair Value of Financial Instruments

The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not already discussed above:


(a)	Cash and Cash Equivalents

Cash and cash equivalents are short-term in nature with original maturities of three months or less; the carrying amount approximates fair value. Certificates of deposit having original terms of six-months or less; the carrying value generally approximates fair value. Certificates of deposit with an original maturity of six months or greater; the fair value is derived from discounted cash flows.


(b)	Debt Securities (Held to Maturity)

The estimated fair values for substantially all of our securities are obtained from an independent nationally recognized pricing service. The independent pricing service utilizes market prices of same or similar securities whenever such prices are available. Prices involving distressed sellers are not utilized in determining fair value. Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analysis. The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.


(c)	Investments in Equity Securities at Net Asset Value Per Share

The Company uses net asset value as a practical expedient to record its investment in a private SBA Loan Fund since the shares in the fund are not publicly traded, do not have a readily determinable fair value and the net asset value per share is calculated in a manner consistent with the measurement principles of an investment company.


(d)	Federal Home Loan Bank of New York Stock

The fair value for Federal Home Loan Bank of New York (FHLB) stock is its carrying value, since this is the amount for which it could be redeemed and there is no active market for this stock.


(e)	Loans (Held-for-Investment)

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as originated and purchased, and further segregated by residential mortgage, construction, land, multifamily, commercial and consumer. Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans is estimated using a discounted cash flow analysis. 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.


(f)	Loans (Held-for-Sale)

Held-for-sale loans are carried at the lower of aggregate cost or estimated fair value, less costs to sell, and therefore fair value is equal to carrying value.


(g)	Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.


(h)	Commitments to Extend Credit and Standby Letters of Credit

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of off‑balance sheet commitments is insignificant and therefore not included in the following table.


(i)	Borrowings

The fair value of borrowed funds is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity.


(j)	Advance Payments by Borrowers for Taxes and Insurance

Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount currently payable.

(k) Derivatives

The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.

The estimated fair value of the Company’s financial instruments at March 31, 2020, and December 31, 2019, is presented in the following tables (in thousands):



	March 31, 2020
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	114,699	$	114,699	$	—	$	—	$	114,699
Trading securities	8,388		8,388		—		—		8,388
Debt securities available-for-sale	1,061,443		—		1,061,443		—		1,061,443
Debt securities held-to-maturity	8,706		—		9,002		—		9,002
Equity securities ⁽¹⁾	374		374		—		—		374
Federal Home Loan Bank of New York stock, at cost	29,855		—		29,855		—		29,855
Net loans held-for-investment	3,472,337		—		—		3,479,488		3,479,488
Derivative assets	1,072		—		1,072		—		1,072
Financial liabilities:
Deposits	$	3,485,546	$	—	$	3,495,318	$	—	$	3,495,318
Borrowed funds	716,357		—		733,159		—		733,159
Advance payments by borrowers for taxes and insurance	22,444		—		22,444		—		22,444
Derivative liabilities	1,075		—		1,075		—		1,075



	December 31, 2019
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	147,818	$	147,818	$	—	$	—	$	147,818
Trading securities	11,222		11,222		—		—		11,222
Debt securities available-for-sale	1,138,352		—		1,138,352		—		1,138,352
Debt securities held-to-maturity	8,762		—		8,886		—		8,886
Equity securities ⁽¹⁾	250		250		—				250
Federal Home Loan Bank of New York stock, at cost	39,575		—		39,575		—		39,575
Net loans held-for-investment	3,408,378		—		—		3,482,804		3,482,804
Derivative assets	79		—		79		—		79
Financial liabilities:
Deposits	$	3,408,233	$	—	$	3,412,414	$	—	$	3,412,414
Borrowed funds	857,004		—		862,980		—		862,980
Advance payments by borrowers for taxes and insurance	440,069		—		440,069		—		440,069
Derivative liabilities	79		—		79		—		79

(1) Excludes investments measured at net asset value in the amount of $3.1 million at both March 31, 2020 and December 31, 2019, which have not been classified in the fair value hierarchy.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in

nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details