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Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Measurements

Note 10. Fair Value Measurements

GAAP sets forth a definition of fair value, establishes a consistent framework for measuring fair value, and requires disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. GAAP also clarifies that 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 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• 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.

• Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability.

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 tables present assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, and that were included in the Company’s Consolidated Statements of Condition at those dates:​​​​​​​​​​​​​​

		Fair Value Measurements at March 31, 2020
(in thousands)		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Netting Adjustments				Total Fair Value
Assets:
Mortgage-Related Debt Securities Available for Sale:
GSE certificates		$	—			$	1,493,269			$	—			$	—			$	1,493,269
GSE CMOs			—				1,914,273				—				—				1,914,273
Total mortgage-related debt securities		$	—			$	3,407,542			$	—			$	—			$	3,407,542
Other Debt Securities Available for Sale:
U. S. Treasury obligations		$	61,981			$	—			$	—			$	—			$	61,981
GSE debentures			—				725,232				—				—				725,232
Asset-backed securities			—				355,383				—				—				355,383
Municipal bonds			—				26,746				—				—				26,746
Corporate bonds			—				792,834				—				—				792,834
Capital trust notes			—				85,527				—				—				85,527
Total other debt securities		$	61,981			$	1,985,722			$	—			$	—			$	2,047,703
Total debt securities available for sale		$	61,981			$	5,393,264			$	—			$	—			$	5,455,245
Equity securities:
Preferred stock		$	14,841			$	—			$	—			$	—			$	14,841
Mutual funds and common stock			—				17,775				—				—				17,775
Total equity securities		$	14,841			$	17,775			$	—			$	—			$	32,616
Total securities		$	76,822			$	5,411,039			$	—			$	—			$	5,487,861
		Fair Value Measurements at December 31, 2019
(in thousands)		Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Netting Adjustments				Total Fair Value
Assets:
Mortgage-Related Debt Securities Available for Sale:
GSE certificates		$	—			$	1,552,623			$	—			$	—			$	1,552,623
GSE CMOs			—				1,801,112				—				—				1,801,112
Total mortgage-related debt securities		$	—			$	3,353,735			$	—			$	—			$	3,353,735
Other Debt Securities Available for Sale:
U.S. Treasury obligations		$	41,839			$	—			$	—			$	—			$	41,839
GSE debentures			—				1,094,240				—				—				1,094,240
Asset-backed securities			—				373,254				—				—				373,254
Municipal bonds			—				26,892				—				—				26,892
Corporate bonds			—				867,182				—				—				867,182
Capital trust notes			—				95,915				—				—				95,915
Total other debt securities		$	41,839			$	2,457,483			$	—			$	—			$	2,499,322
Total debt securities available for sale		$	41,839			$	5,811,218			$	—			$	—			$	5,853,057
Equity securities:
Preferred stock		$	15,414			$	—			$	—			$	—			$	15,414
Mutual funds and common stock			—				17,416				—				—				17,416
Total equity securities		$	15,414			$	17,416			$	—			$	—			$	32,830
Total securities		$	57,253			$	5,828,634			$	—			$	—			$	5,885,887

The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may result in a reclassification from one hierarchy level to another.

A description of the methods and significant assumptions utilized in estimating the fair values of securities follows:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and exchange-traded securities.

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models. 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 observable market information, models 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 and corporate debt securities.

Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing service valuations that appear to be unusual or unexpected.

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 values of certain financial instruments could result in different estimates of fair values at a reporting date.

Assets Measured at Fair Value on a Non-Recurring Basis

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 tables present assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2020 and December 31, 2019, and that were included in the Company’s Consolidated Statements of Condition at those dates:

		Fair Value Measurements at March 31, 2020 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
Certain impaired loans(1)		$	0			$	0			$	32,401			$	32,401
Other assets(2)			—				—				2,862				2,862
Total		$	0			$	0			$	35,263			$	35,263

(1) Represents the fair value of impaired loans, based on the value of the collateral.

(2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.

		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
Certain impaired loans(1)		$	—			$	—			$	42,767			$	42,767
Other assets(2)			—				—				1,481				1,481
Total		$	—			$	—			$	44,248			$	44,248

(1) Represents the fair value of impaired loans, based on the value of the collateral.

(2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.

The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate and other market data.

Other Fair Value Disclosures

For the disclosure of fair value information about the Company’s on- and off-balance sheet financial instruments, when available, quoted market prices are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.

Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments.

The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at March 31, 2020 and December 31, 2019:

		March 31, 2020
										Fair Value Measurement Using
(in thousands)		Carrying Value				Estimated Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents		$	1,334,206			$	1,334,206			$	1,334,206			$	—			$	—
FHLB stock(1)			663,870				663,870				—				663,870				—
Loans, net			42,129,515				41,750,688				—				—				41,750,688
Financial Liabilities:
Deposits		$	31,972,766			$	32,073,417			$	17,830,554	(2)		$	14,242,863	(3)		$	—
Borrowed funds			14,932,827				15,605,636				—				15,605,636				—

(1) Carrying value and estimated fair value are at cost.

(2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3) Certificates of deposit.

		December 31, 2019
										Fair Value Measurement Using
(in thousands)		Carrying Value				Estimated Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents		$	741,870			$	741,870			$	741,870			$	—			$	—
FHLB stock(1)			647,562				647,562				—				647,562				—
Loans, net			41,746,517				41,699,929				—				—				41,699,929
Financial Liabilities:
Deposits		$	31,657,132			$	31,713,945			$	17,442,274	(2)		$	14,271,671	(3)		$	—
Borrowed funds			14,557,593				14,882,776				—				14,882,776				—

(1) Carrying value and estimated fair value are at cost.

(2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.

(3) Certificates of deposit.

The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow:

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.

Securities

If quoted market prices are not available for a 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 observable market information, pricing models also incorporate transaction details such as maturities and cash flow assumptions.

Federal Home Loan Bank Stock

Ownership in equity securities of the FHLB-NY is generally restricted and there is no established liquid market for their resale. The carrying amount approximates the fair value.

Loans

The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan basis. The discount rates reflect current market rates for loans with similar terms to borrowers having similar credit quality on an exit price basis. The estimated fair values of non-performing mortgage and other loans are based on recent collateral appraisals. For those loans where a discounted cash flow technique was not considered reliable, the Company used a quoted market price for each individual loan.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of CDs represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a significant portion of the Company’s deposit base.

Borrowed Funds

The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures.

Off-Balance Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at March 31, 2020 and December 31, 2019.

X

- 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

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258

+ Details

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