XML 41 R26.htm IDEA: XBRL DOCUMENT v3.3.1.900
Fair Value Measurements
12 Months Ended
Dec. 31, 2015
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  We group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.  These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.  The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

We base our fair values on the estimated 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, with additional considerations when the volume and level of activity for an asset or liability have significantly decreased and on identifying circumstances that indicate a transaction is not orderly.  We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Recurring Fair Value Measurements

Our securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity.  Additionally, in connection with our mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative financial instruments, the fair values of which are not material to our financial condition or results of operations.

The following tables set forth the carrying values of our assets measured at estimated fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at the dates indicated.
 
Carrying Value at December 31, 2015
(In Thousands)
Total
 
Level 1
 
Level 2
Securities available-for-sale:
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
GSE issuance REMICs and CMOs
$
330,539

 
 
$

 
 
$
330,539

Non-GSE issuance REMICs and CMOs
3,054

 
 

 
 
3,054

GSE pass-through certificates
11,264

 
 

 
 
11,264

Obligations of GSEs
71,939

 
 

 
 
71,939

Fannie Mae stock
2

 
 
2

 
 

Total securities available-for-sale
$
416,798

 
 
$
2

 
 
$
416,796

 
Carrying Value at December 31, 2014
(In Thousands)
Total
 
Level 1
 
Level 2
Securities available-for-sale:
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
GSE issuance REMICs and CMOs
$
268,998

 
 
$

 
 
$
268,998

Non-GSE issuance REMICs and CMOs
5,104

 
 

 
 
5,104

GSE pass-through certificates
13,557

 
 

 
 
13,557

Obligations of GSEs
96,698

 
 

 
 
96,698

Fannie Mae stock
2

 
 
2

 
 

Total securities available-for-sale
$
384,359

 
 
$
2

 
 
$
384,357



The following is a description of valuation methodologies used for assets measured at estimated fair value on a recurring basis.

Residential mortgage-backed securities
Residential mortgage-backed securities comprised 83% of our securities available-for-sale portfolio at December 31, 2015 and 75% at December 31, 2014.  The fair values for these securities are obtained from an independent nationally recognized pricing service.  Our pricing service uses various modeling techniques to determine pricing for our mortgage-backed securities, including options based pricing and discounted cash flow models.  The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, reference data, monthly payment information and collateral performance.  GSE securities, for which an active market exists for similar securities making observable inputs readily available, comprised 99% of our available-for-sale residential mortgage-backed securities portfolio at December 31, 2015 and 98% at December 31, 2014.

We review changes in the pricing service fair values from month to month taking into consideration changes in market conditions including changes in mortgage spreads, changes in treasury yields and changes in pricing on 15 and 30 year pass-through mortgage-backed securities.  Significant month over month price changes are analyzed further using discounted cash flow models and third party quotes.  Based upon our review of the prices provided by our pricing service, the estimated fair values incorporate observable market inputs commonly used by buyers and sellers of these types of securities at the measurement date in orderly transactions between market participants, and, as such, are classified as Level 2.

Obligations of GSEs
Obligations of GSEs comprised 17% of our securities available-for-sale portfolio at December 31, 2015 and 25% at December 31, 2014 and consisted of debt securities issued by GSEs.  The fair values for these securities are obtained from an independent nationally recognized pricing service.  Our pricing service gathers information from market sources and integrates relative credit information, observed market movements and sector news into their pricing applications and models.  Spread scales, representing credit risk, are created and are based on the new issue market, secondary trading and dealer quotes.  Option adjusted spread, or OAS, models are incorporated to adjust spreads of issues that have early redemption features.  Based upon our review of the prices provided by our pricing service, the estimated fair values incorporate observable market inputs commonly used by buyers and sellers of these types of securities at the measurement date in orderly transactions between market participants, and, as such, are classified as Level 2.

Fannie Mae stock
The fair value of the Fannie Mae stock in our available-for-sale securities portfolio is obtained from quoted market prices for identical instruments in active markets and, as such, is classified as Level 1.

Non-Recurring Fair Value Measurements

From time to time, we may be required to record at fair value assets or liabilities on a non-recurring basis, such as MSR, loans receivable, certain loans held-for-sale and REO.  These non-recurring fair value adjustments involve the application of lower of cost or market accounting or impairment write-downs of individual assets.

The following table sets forth the carrying values of those of our assets which were measured at fair value on a non-recurring basis at the dates indicated.  The fair value measurements for all of these assets fall within Level 3 of the fair value hierarchy.
 
Carrying Value at December 31,
(In Thousands)
 
2015
 
 
 
2014
 
Non-performing loans held-for-sale, net
 
$
1,582

 
 
 
$
153

 
Impaired loans
 
134,910

 
 
 
140,663

 
MSR, net
 
11,014

 
 
 
11,401

 
REO, net
 
16,307

 
 
 
19,375

 
Total
 
$
163,813

 
 
 
$
171,592

 


The following table provides information regarding the gains (losses) recognized on our assets measured at fair value on a non-recurring basis for the years indicated.
 
For the Year Ended December 31,
(In Thousands)
2015
 
2014
 
2013
Non-performing loans held-for-sale, net (1)
$
(445
)
 
$

 
$
(520
)
Impaired loans (2)
(4,284
)
 
(6,311
)
 
(21,992
)
MSR, net (3)
568

 
60

 
5,401

REO, net (4)
(824
)
 
(1,654
)
 
(3,788
)
Total
$
(4,985
)
 
$
(7,905
)
 
$
(20,899
)

(1)
Losses are charged against the allowance for loan losses in the case of a write-down upon the transfer of a loan to held-for-sale.  Losses subsequent to the transfer of a loan to held-for-sale are charged to other non-interest income.
(2)
Losses are charged against the allowance for loan losses.
(3)
Gains (losses) are credited/charged to mortgage banking income, net.
(4)
Gains (losses) are credited/charged to the allowance for loan losses upon the transfer of a loan to REO.  Losses subsequent to the transfer of a loan to REO are charged to REO expense which is a component of other non-interest expense.

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Loans-held-for-sale, net (non-performing loans held-for-sale)
Fair values of non-performing loans held-for-sale are estimated through either preliminary bids from potential purchasers of the loans or the estimated fair value of the underlying collateral discounted for factors necessary to solicit acceptable bids, and adjusted as necessary based on management’s experience with sales of similar types of loans and, as such, are classified as Level 3.  At December 31, 2015, non-performing loans held for sale were comprised of 80% multi-family mortgage loans and 20% residential mortgage loans. At December 31, 2014, we held-for-sale one non-performing multi-family mortgage loan.

Loans receivable, net (impaired loans)
Impaired loans were comprised of 81% residential mortgage loans, 17% multi-family and commercial real estate mortgage loans and 2% home equity lines of credit at December 31, 2015 and 73% residential mortgage loans, 25% multi-family and commercial real estate mortgage loans and 2% home equity lines of credit at December 31, 2014.  Impaired loans for which a fair value adjustment was recognized were comprised of 80% residential mortgage loans, 19% multi-family and commercial real estate mortgage loans and 1% home equity lines of credit at December 31, 2015 and 69% residential mortgage loans, 30% multi-family and commercial real estate mortgage loans and 1% home equity lines of credit at December 31, 2014.  Our impaired loans are generally collateral dependent and, as such, are generally carried at the estimated fair value of the underlying collateral less estimated selling costs.

We obtain updated estimates of collateral values on residential mortgage loans at 180 days past due and earlier in certain instances, including for loans to borrowers who have filed for bankruptcy, and, to the extent the loans remain delinquent, annually thereafter.  Updated estimates of collateral value on residential loans are obtained primarily through automated valuation models.  Additionally, our loan servicer performs property inspections to monitor and manage the collateral on our residential loans when they become 45 days past due and monthly thereafter until the foreclosure process is complete.  We obtain updated estimates of collateral value using third party appraisals on non-performing multi-family and commercial real estate mortgage loans when the loans initially become non-performing and annually thereafter and multi-family and commercial real estate loans modified in a TDR at the time of the modification and annually thereafter.  Appraisals on multi-family and commercial real estate loans are reviewed by our internal certified appraisers.  Adjustments to final appraised values obtained from independent third party appraisers and automated valuation models are not made.  The fair values of impaired loans cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

MSR, net
MSR are carried at the lower of cost or estimated fair value.  The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3.  At December 31, 2015, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 9.97%, a weighted average constant prepayment rate on mortgages of 10.47% and a weighted average life of 6.1 years.  At December 31, 2014, our MSR were valued based on expected future cash flows considering a weighted average discount rate of 9.48%, a weighted average constant prepayment rate on mortgages of 12.35% and a weighted average life of 5.7 years.  Management reviews the assumptions used to estimate the fair value of MSR to ensure they reflect current and anticipated market conditions.

The fair value of MSR is highly sensitive to changes in assumptions.  Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR.  Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR.  As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR.  Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.

REO, net
At December 31, 2015, REO totaled $19.8 million, including residential properties with a carrying value of $17.8 million. At December 31, 2014, REO totaled $35.7 million, including residential properties with a carrying value of $33.7 million. REO is initially recorded at estimated fair value less estimated selling costs.  Thereafter, we maintain a valuation allowance representing decreases in the properties' estimated fair value. The fair value of REO is estimated through current appraisals, in conjunction with a drive-by inspection and comparison of the REO property with similar properties in the area by either a licensed appraiser or real estate broker.  As these properties are actively marketed, estimated fair values are periodically adjusted by management to reflect current market conditions and, as such, are classified as Level 3.

Fair Value of Financial Instruments

Quoted market prices available in formal trading marketplaces are typically the best evidence of the fair value of financial instruments.  In many cases, financial instruments we hold are not bought or sold in formal trading marketplaces.  Accordingly, fair values are derived or estimated based on a variety of valuation techniques in the absence of quoted market prices.  Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument.  These estimates do not reflect any possible tax ramifications, estimated transaction costs, or any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument.  Because no market exists for a certain portion of our financial instruments, fair value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics and other such factors.  These estimates are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  For these reasons and others, the estimated fair value disclosures presented herein do not represent our entire underlying value.  As such, readers are cautioned in using this information for purposes of evaluating our financial condition and/or value either alone or in comparison with any other company.

The following tables set forth the carrying values and estimated fair values of our financial instruments which are carried in the consolidated statements of financial condition at either cost or at lower of cost or fair value in accordance with GAAP, and are not measured or recorded at fair value on a recurring basis, and the level within the fair value hierarchy in which the fair value measurements fall at the dates indicated.
 
At December 31, 2015
 
Carrying
Value
 
Estimated Fair Value
(In Thousands)
 
Total
 
Level 2
 
Level 3
Financial Assets:
 
 
 
 
 
 
 
Securities held-to-maturity
$
2,296,799

 
$
2,286,092

 
$
2,286,092

 
$

FHLB-NY stock
131,137

 
131,137

 
131,137

 

Loans held-for-sale, net (1)
8,960

 
9,037

 

 
9,037

Loans receivable, net (1)
11,055,081

 
11,112,709

 

 
11,112,709

MSR, net (1)
11,014

 
11,017

 

 
11,017

Financial Liabilities:
 
 
 
 
 
 
 
Deposits
9,106,027

 
9,123,740

 
9,123,740

 

Borrowings, net
3,964,222

 
4,132,940

 
4,132,940

 

 
At December 31, 2014
 
Carrying
Value
 
Estimated Fair Value
(In Thousands)
 
Total
 
Level 2
 
Level 3
Financial Assets:
 
 
 
 
 
 
 
Securities held-to-maturity
$
2,133,804

 
$
2,131,371

 
$
2,131,371

 
$

FHLB-NY stock
140,754

 
140,754

 
140,754

 

Loans held-for-sale, net (1)
7,640

 
7,955

 

 
7,955

Loans receivable, net (1)
11,845,848

 
11,967,608

 

 
11,967,608

MSR, net (1)
11,401

 
11,406

 

 
11,406

Financial Liabilities:
 
 
 
 
 
 
 
Deposits
9,504,909

 
9,534,918

 
9,534,918

 

Borrowings, net
4,187,691

 
4,395,604

 
4,395,604

 


_______________________________
(1)
Includes assets measured at fair value on a non-recurring basis.

The following is a description of the methods and assumptions used to estimate fair values of our financial instruments which are not measured or recorded at fair value on a recurring or non-recurring basis.

Securities held-to-maturity
The fair values for substantially all of our securities held-to-maturity are obtained from an independent nationally recognized pricing service using similar methods and assumptions as used for our securities available-for-sale which are measured at fair value on a recurring basis.

FHLB-NY stock
The fair value of FHLB-NY stock is based on redemption at par value.

Loans held-for-sale, net
Included in loans held-for-sale, net, are 15 and 30 year fixed rate residential mortgage loans originated for sale that conform to GSE guidelines (conforming loans) for which fair values are estimated using market reference rates and spreads, credit spread adjustments, discounted cash flow analysis, benchmark pricing and option based pricing, as appropriate.

Loans receivable, net
Fair values of loans are estimated using market reference rates and spreads, credit spread adjustments, discounted cash flow analysis, benchmark pricing and option based pricing, as appropriate.

This technique of estimating fair value is extremely sensitive to the assumptions and estimates used.  While we have attempted to use assumptions and estimates which are the most reflective of the loan portfolio and the current market, a greater degree of subjectivity is inherent in determining these fair values than for fair values obtained from formal trading marketplaces.  In addition, our valuation method for loans, which is consistent with accounting guidance, does not fully incorporate an exit price approach to fair value.

Deposits
The fair values of deposits with no stated maturity, such as NOW and demand deposit (checking), money market and savings accounts, are equal to the amount payable on demand.  The fair values of certificates of deposit are based on discounted contractual cash flows using the weighted average remaining life of the portfolio discounted by the corresponding Swap Curve.

Borrowings, net
The fair values of borrowings are based upon an industry standard OAS model. This OAS model is calibrated to available counter party dealers' market quotes, as necessary.

Outstanding commitments
Outstanding commitments include commitments to extend credit and unadvanced lines of credit for which fair values were estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions.  The fair values of these commitments are immaterial to our financial condition.