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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability and developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and developed based on the best information available in the circumstances. In that regard, a fair value hierarchy has been established for valuation inputs that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. 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 an entity’s own assumptions that market participants would use in pricing the assets or liabilities. Assets and Liabilities Measured at Fair Value A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis, that is, the instruments 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). Debt Securities Available-for-Sale Debt securities classified as available-for-sale are reported at fair value. Fair value for these debt securities is determined using inputs other than quoted prices that are based on market observable information (Level 2). Level 2 debt securities are priced through third-party pricing services or security industry sources that actively participate in the buying and selling of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific securities, but comparing the debt securities to benchmark or comparable debt securities. Equity Investments Equity investments are reported at fair value. Fair value for these investments is primarily determined using a quoted price in an active market or exchange (Level 1) or using inputs other than quoted prices that are based on market observable information (Level 2). Fair value for certain securities, including convertible preferred stock, was determined using broker or dealer quotes with limited levels of activity and price transparency (Level 3). Equity securities without readily determinable fair values are carried at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Interest Rate Swaps The Company’s interest rate swaps are reported at fair value utilizing discounted cash flow models provided by an independent, third-party and observable market data (Level 2). When entering into an interest rate swap agreement, the Company is exposed to fair value changes due to interest rate movements, and also the potential nonperformance of our contract counterparty. Other Real Estate Owned and Loans Individually Measured for Impairment Other real estate owned and loans measured for impairment based on the fair value of the underlying collateral are recorded at estimated fair value, less estimated selling costs. Fair value is based on independent appraisals (“Level 3”).. The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
|  |  | Fair Value Measurements at Reporting Date Using:
| Total Fair Value |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs
March 31, 2021 |  |  |  |  |  |  |
Items measured on a recurring basis: |  |  |  |  |  |  |
Debt securities available-for-sale | $ | 268,511 |  |  | $ | — |  |  | $ | 268,511 |  |  | $ | — |
Equity investments | 50,159 |  |  | 13,693 |  |  | 28,528 |  |  | 7,938 |
Interest rate swap asset | 27,084 |  |  | — |  |  | 27,084 |  |  | — |
Interest rate swap liability | (27,160) |  |  | — |  |  | (27,160) |  |  | — |
Items measured on a non-recurring basis: |  |  |  |  |  |  |
Other real estate owned | 106 |  |  | — |  |  | — |  |  | 106 |
Loans measured for impairment based on the fair value of the underlying collateral | 33,747 |  |  | — |  |  | — |  |  | 33,747 |
December 31, 2020 |  |  |  |  |  |  |
Items measured on a recurring basis: |  |  |  |  |  |  |
Debt securities available-for-sale | $ | 183,302 |  |  | $ | — |  |  | $ | 183,302 |  |  | $ | — |
Equity investments | 107,079 |  |  | 104,539 |  |  | — |  |  | 2,540 |
Interest rate swap asset | 45,289 |  |  | — |  |  | 45,289 |  |  | — |
Interest rate swap liability | (45,429) |  |  | — |  |  | (45,429) |  |  | — |
Items measured on a non-recurring basis: |  |  |  |  |  |  |
Other real estate owned | 106 |  |  | — |  |  | — |  |  | 106 |
Loans measured for impairment based on the fair value of the underlying collateral | 35,366 |  |  | — |  |  | — |  |  | 35,366 |
The Company recognizes transfers between levels of the valuation hierarchy at the end of the applicable reporting periods. There were no transfers of assets between Level 1 and Level 2 during the three months ended March 31, 2021 and December 31, 2020. The following table reconciles, for the three months ended March 31, 2021, the beginning and ending balances for equity investments that are recognized at fair value on a recurring basis, in the consolidated statements of financial condition, using significant unobservable inputs (in thousands):
|  | Three Months Ended March 31, 2021 |  |  |  |
Beginning Balance |  | $ | 2,540 |  |  |  |  |
Total gains (losses) included in earnings |  | 398 |  |  |  |  |
Purchases |  | 5,000 |  |  |  |  |
Transfers into Level 3 |  | — |  |  |  |  |
Transfers out of Level 3 |  | — |  |  |  |  |
Ending Balance |  | $ | 7,938 |  |  |  |  |
There were no changes in Level 3 assets or liabilities in the fair value hierarchy for the three months ended March 31, 2020. The Company purchased $5.0 million of a minority, non-controlling equity investment in Auxilior Capital Partners classified as Level 3 at March 31, 2021 as the security was carried at cost with no observable price changes noted since purchased. Assets and Liabilities Disclosed at Fair Value A description of the valuation methodologies used for assets and liabilities disclosed at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy is set forth below. Cash and Due from Banks For cash and due from banks, the carrying amount approximates fair value. Debt Securities Held-to-Maturity Debt securities classified as held-to-maturity are carried at amortized cost, as the Company has the positive intent and ability to hold these debt securities to maturity. The Company determines the fair value of the debt securities utilizing Level 2 and, infrequently, Level 3 inputs. Most of the Company’s investment and mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but are bought and sold in active markets. Prices for these instruments are obtained through third-party pricing vendors or security industry sources that actively participate in the buying and selling of debt securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain debt securities without relying exclusively on quoted prices for the specific debt securities, but comparing the debt securities to benchmark or comparable debt securities. Management’s policy is to obtain and review all available documentation from the third-party pricing service relating to their fair value determinations, including their methodology and summary of inputs. Management reviews this documentation, makes inquiries of the third-party pricing service and decides as to the level of the valuation inputs. Based on the Company’s review of the available documentation from the third-party pricing service, management concluded that Level 2 inputs were utilized for all securities except for certain state and municipal obligations (known as Bond Anticipation Notes (“BANs”)) as well as certain debt securities where management utilized Level 3 inputs, such as broker or dealer quotes with limited levels of activity and price transparency. Restricted Equity Investments The fair value for Federal Home Loan Bank of New York and Federal Reserve Bank stock is its carrying value since this is the amount for which it could be redeemed. There is no active market for this stock and the Company is required to maintain a minimum investment as stipulated by the respective agencies. Loans Receivable and Loans Held-for-Sale Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential real estate, consumer and commercial. Each loan category is further segmented into fixed and adjustable rate interest terms. Fair value of performing and non-performing loans was estimated by discounting the future cash flows, net of estimated prepayments, at a rate for which similar loans would be originated to new borrowers with similar terms. In accordance with the prospective adoption of ASU 2016-01, the fair value of loans was measured using the exit price notion. Deposits Other than Time Deposits The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and interest-bearing checking accounts and money market accounts is, by definition, equal to the amount payable on demand. The related insensitivity of the majority of these deposits to interest rate changes creates a significant inherent value which is not reflected in the fair value reported. Time Deposits The fair value of time deposits 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. Securities Sold Under Agreements to Repurchase with Retail Customers Fair value approximates the carrying amount as these borrowings are payable on demand and the interest rate adjusts monthly. Borrowed Funds Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities. The book value and estimated fair value of the Bank’s significant financial instruments not recorded at fair value as of March 31, 2021 and December 31, 2020 are presented in the following tables (in thousands):
|  |  | Fair Value Measurements at Reporting Date Using:
| Book Value |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs
March 31, 2021 |  |  |  |  |  |  |
Financial Assets: |  |  |  |  |  |  |
Cash and due from banks | $ | 1,173,665 |  |  | $ | 1,173,665 |  |  | $ | — |  |  | $ | — |
Debt securities held-to-maturity | 1,082,326 |  |  | — |  |  | 1,081,590 |  |  | 18,155 |
Restricted equity investments | 52,199 |  |  | — |  |  | — |  |  | 52,199 |
Loans receivable, net and loans held-for-sale | 7,863,765 |  |  | — |  |  | — |  |  | 7,822,353 |
Financial Liabilities: |  |  |  |  |  |  |
Deposits other than time deposits | 8,392,054 |  |  | — |  |  | 8,392,054 |  |  | — |
Time deposits | 1,110,758 |  |  | — |  |  | 1,118,867 |  |  | — |
Other borrowings | 228,176 |  |  | — |  |  | 241,122 |  |  | — |
Securities sold under agreements to repurchase with retail customers | 134,465 |  |  | 134,465 |  |  | — |  |  | — |
December 31, 2020 |  |  |  |  |  |  |
Financial Assets: |  |  |  |  |  |  |
Cash and due from banks | $ | 1,272,134 |  |  | $ | 1,272,134 |  |  | $ | — |  |  | $ | — |
Debt securities held-to-maturity | 937,253 |  |  | — |  |  | 952,365 |  |  | 16,101 |
Restricted equity investments | 51,705 |  |  | — |  |  | — |  |  | 51,705 |
Loans receivable, net and loans held-for-sale | 7,750,381 |  |  | — |  |  | — |  |  | 7,806,743 |
Financial Liabilities: |  |  |  |  |  |  |
Deposits other than time deposits | 8,054,833 |  |  | — |  |  | 8,054,833 |  |  | — |
Time deposits | 1,372,783 |  |  | — |  |  | 1,383,173 |  |  | — |
FHLB advances and other borrowings | 235,471 |  |  | — |  |  | 251,798 |  |  | — |
Securities sold under agreements to repurchase with retail customers | 128,454 |  |  | 128,454 |  |  | — |  |  | — |
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 a limited 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 significant unobservable inputs. 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 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 premises and equipment, bank owned life insurance, deferred tax assets and goodwill. 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.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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