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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value MeasurementsThe Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, Management utilizes various valuation techniques to estimate fair value. Fair value is an estimate of 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. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: |  | Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: |  | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: |  | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Assets and Liabilities Measured at Fair Value on a Recurring Basis The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of September 30, 2020 and December 31, 2019. Available for Sale Debt Securities, at Fair Value For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As Management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, Management compares the prices received from the pricing service to a secondary pricing source. Additionally, Management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service. Equity Securities, at Fair Value The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs. Derivatives The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings. The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. 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. Assets Measured at Fair Value on a Non-Recurring Basis The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of September 30, 2020 and December 31, 2019. Collateral-Dependent Impaired Loans For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy. Foreclosed Assets Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred. There were no changes to the valuation techniques for fair value measurements as of September 30, 2020 and December 31, 2019. The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2020 and December 31, 2019, by level within the fair value hierarchy (in thousands):
|  | Fair Value Measurements at Reporting Date Using:
|  | September 30, 2020 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Measured on a recurring basis: |  |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |  |
Agency obligations |  | $ | 1,084 |  |  | 1,084 |  |  | — |  |  | — |
Mortgage-backed securities |  | 934,171 |  |  | — |  |  | 934,171 |  |  | — |
Asset-backed securities |  | 53,868 |  |  | — |  |  | 53,868 |  |  | — |
State and municipal obligations |  | 70,518 |  |  | — |  |  | 70,518 |  |  | — |
Corporate obligations |  | 40,750 |  |  | — |  |  | 40,750 |  |  | — |
Total available for sale debt securities |  | 1,100,391 |  |  | 1,084 |  |  | 1,099,307 |  |  | — |
Equity securities |  | 869 |  |  | 869 |  |  | — |  |  | — |
Derivative assets |  | 117,722 |  |  | — |  |  | 117,722 |  |  | — |
|  | $ | 1,218,982 |  |  | 1,953 |  |  | 1,217,029 |  |  | — |
Derivative liabilities |  | $ | 126,577 |  |  | — |  |  | 126,577 |  |  | — |
Measured on a non-recurring basis: |  |  |  |  |  |  |  |
Loans measured for impairment based on the fair value of the underlying collateral |  | $ | 17,998 |  |  | — |  |  | — |  |  | 17,998 |
Foreclosed assets |  | 4,720 |  |  | — |  |  | — |  |  | 4,720 |
|  | $ | 22,718 |  |  | — |  |  | — |  |  | 22,718 |
|  | Fair Value Measurements at Reporting Date Using:
|  | December 31, 2019 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Measured on a recurring basis: |  |  |  |  |  |  |  |
Available for sale debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 947,430 |  |  | — |  |  | 947,430 |  |  | — |
State and municipal obligations |  | 4,079 |  |  | — |  |  | 4,079 |  |  | — |
Corporate obligations |  | 25,410 |  |  | — |  |  | 25,410 |  |  | — |
Total available for sale debt securities |  | 976,919 |  |  | — |  |  | 976,919 |  |  | — |
Equity Securities |  | 825 |  |  | 825 |  |  | — |  |  | — |
Derivative assets |  | 39,305 |  |  | — |  |  | 39,305 |  |  | — |
|  | $ | 1,017,049 |  |  | 825 |  |  | 1,016,224 |  |  | — |
Derivative liabilities |  | $ | 39,356 |  |  | — |  |  | 39,356 |  |  | — |
Measured on a non-recurring basis: |  |  |  |  |  |  |  |
Loans measured for impairment based on the fair value of the underlying collateral |  | $ | 20,403 |  |  | — |  |  | — |  |  | 20,403 |
Foreclosed assets |  | 2,715 |  |  | — |  |  | — |  |  | 2,715 |
|  | $ | 23,118 |  |  | — |  |  | — |  |  | 23,118 |
There were no transfers between Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2020. Other Fair Value Disclosures The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities. Cash and Cash Equivalents For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at September 30, 2020 and December 31, 2019 was $136.7 million and $77.0 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations. Held to Maturity Debt Securities, Net of Allowance for Credit Losses For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy. Federal Home Loan Bank of New York ("FHLBNY") Stock The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3. The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3. Deposits The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2. Borrowed Funds The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy. Commitments to Extend Credit and Letters of Credit The fair value of commitments to extend credit and letters of credit was 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. 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 loss experience, 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. Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. 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. The following tables present the Company’s financial instruments at their carrying and fair values as of September 30, 2020 and December 31, 2019. Fair values are presented by level within the fair value hierarchy.
|  |  |  | Fair Value Measurements at September 30, 2020 Using:
(Dollars in thousands) |  | Carrying value |  | 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 |  | $ | 510,138 |  |  | 510,138 |  |  | 510,138 |  |  | — |  |  | — |
Available for sale debt securities: |  |  |  |  |  |  |  |  |  |
Agency obligations |  | 1,084 |  |  | 1,084 |  |  | 1,084 |  |  | — |  |  | — |
Mortgage-backed securities |  | 934,171 |  |  | 934,171 |  |  | — |  |  | 934,171 |  |  | — |
Asset-backed securities |  | 53,868 |  |  | 53,868 |  |  |  |  | 53,868 |  |  |
State and municipal obligations |  | 70,518 |  |  | 70,518 |  |  | — |  |  | 70,518 |  |  | — |
Corporate obligations |  | 40,750 |  |  | 40,750 |  |  | — |  |  | 40,750 |  |  | — |
Total available for sale debt securities |  | $ | 1,100,391 |  |  | 1,100,391 |  |  | 1,084 |  |  | 1,099,307 |  |  | — |
Held to maturity debt securities, net of allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Agency obligations |  | 9,100 |  |  | 9,088 |  |  | 9,088 |  |  | — |  |  | — |
Mortgage-backed securities |  | 75 |  |  | 77 |  |  | — |  |  | 77 |  |  | — |
State and municipal obligations |  | 428,465 |  |  | 449,448 |  |  | — |  |  | 449,448 |  |  | — |
Corporate obligations |  | 8,951 |  |  | 9,080 |  |  | — |  |  | 9,080 |  |  | — |
Total held to maturity debt securities, net of allowance for credit losses |  | $ | 446,591 |  |  | 467,693 |  |  | 9,088 |  |  | 458,605 |  |  | — |
FHLBNY stock |  | 69,975 |  |  | 69,975 |  |  | 69,975 |  |  | — |  |  | — |
Equity Securities |  | 869 |  |  | 869 |  |  | 869 |  |  | — |  |  | — |
Loans, net of allowance for credit losses |  | 9,650,495 |  |  | 9,917,269 |  |  | — |  |  | — |  |  | 9,917,269 |
Derivative assets |  | 117,722 |  |  | 117,722 |  |  | — |  |  | 117,722 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits other than certificates of deposits |  | $ | 8,414,553 |  |  | 8,414,553 |  |  | 8,414,553 |  |  | — |  |  | — |
Certificates of deposit |  | 1,144,688 |  |  | 1,148,156 |  |  | — |  |  | 1,148,156 |  |  | — |
Total deposits |  | $ | 9,559,241 |  |  | 9,562,709 |  |  | 8,414,553 |  |  | 1,148,156 |  |  | — |
Borrowings |  | 1,413,029 |  |  | 1,424,689 |  |  | — |  |  | 1,424,689 |  |  | — |
Subordinated debentures |  | 25,099 |  |  | 24,050 |  |  | — |  |  | 24,050 |  |  | — |
Derivative liabilities |  | 126,577 |  |  | 126,577 |  |  | — |  |  | 126,577 |  |  | — |
|  |  |  | Fair Value Measurements at December 31, 2019 Using:
(Dollars in thousands) |  | Carrying value |  | 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 |  | $ | 186,748 |  |  | 186,748 |  |  | 186,748 |  |  | — |  |  | — |
Available for sale debt securities: |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | 947,430 |  |  | 947,430 |  |  | — |  |  | 947,430 |  |  | — |
State and municipal obligations |  | 4,079 |  |  | 4,079 |  |  | — |  |  | 4,079 |  |  | — |
Corporate obligations |  | 25,410 |  |  | 25,410 |  |  | — |  |  | 25,410 |  |  | — |
Total available for sale debt securities |  | $ | 976,919 |  |  | 976,919 |  |  | — |  |  | 976,919 |  |  | — |
Held to maturity debt securities: |  |  |  |  |  |  |  |  |  |
Agency obligations |  | $ | 6,599 |  |  | 6,601 |  |  | 6,601 |  |  | — |  |  | — |
Mortgage-backed securities |  | 118 |  |  | 122 |  |  | — |  |  | 122 |  |  | — |
State and municipal obligations |  | 437,074 |  |  | 451,353 |  |  | — |  |  | 451,353 |  |  | — |
Corporate obligations |  | 9,838 |  |  | 9,890 |  |  | — |  |  | 9,890 |  |  | — |
Total held to maturity debt securities |  | $ | 453,629 |  |  | 467,966 |  |  | 6,601 |  |  | 461,365 |  |  | — |
FHLBNY stock |  | 57,298 |  |  | 57,298 |  |  | 57,298 |  |  | — |  |  | — |
Equity Securities |  | 825 |  |  | 825 |  |  | 825 |  |  | — |  |  | — |
Loans, net of allowance for credit losses |  | 7,277,360 |  |  | 7,296,744 |  |  | — |  |  | — |  |  | 7,296,744 |
Derivative assets |  | 39,305 |  |  | 39,305 |  |  | — |  |  | 39,305 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits other than certificates of deposits |  | $ | 6,368,582 |  |  | 6,368,582 |  |  | 6,368,582 |  |  | — |  |  | — |
Certificates of deposit |  | 734,027 |  |  | 734,047 |  |  | — |  |  | 734,047 |  |  | — |
Total deposits |  | $ | 7,102,609 |  |  | 7,102,629 |  |  | 6,368,582 |  |  | 734,047 |  |  | — |
Borrowings |  | 1,125,146 |  |  | 1,127,569 |  |  | — |  |  | 1,127,569 |  |  | — |
Derivative liabilities |  | 39,356 |  |  | 39,356 |  |  | — |  |  | 39,356 |  |  | — |

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- 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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