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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2020

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 12 — FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Assets and Liabilities Measured on a Recurring Basis

Assets measured on a recurring basis are limited to the Bank’s AFS portfolio and equity investments. The AFS portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated

other comprehensive income or loss in shareholders’ equity. Equity investments are carried at estimated fair value with changes in fair value reported as unrealized gain/(loss) on the statement of operations. The fair values for substantially all of these securities are obtained monthly from an independent nationally recognized pricing service. On a quarterly basis, the Bank assesses the reasonableness of the fair values obtained by reference to a second independent nationally recognized pricing service. Based on the nature of these securities, the Bank’s independent pricing service provides prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the Bank’s portfolio. Various modeling techniques are used to determine pricing for the Bank’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. On an annual basis, the Bank obtains the models, inputs and assumptions utilized by its pricing service and reviews them for reasonableness.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):


		Fair Value Measurement using:
					Quoted Prices
					in Active			Significant
					Markets			Other			Significant
		Carrying			For Identical			Observable			Unobservable
		Amount			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)
At December 31, 2020
Residential mortgage securities		$	194,688		$	—		$	194,688		$	—
Commercial mortgage securities			33,492			—			33,492			—
U.S. Government agency securities			37,916			—			37,916			—
CRA Mutual Fund			2,313			2,313			—			—
Derivative assets - interest rate cap			770			—			770			—


		Fair Value Measurement using:
					Quoted Prices
					in Active			Significant
					Markets			Other			Significant
		Carrying			For Identical			Observable			Unobservable
		Amount			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)

At December 31, 2019
Residential mortgage securities		$	177,263		$	—		$	177,263		$	—
Commercial mortgage securities			32,472			—			32,472			—
U.S. Government agency securities			25,207			—			25,207			—
CRA Mutual Fund			2,224			2,224			—			—

There were no transfers between Level 1 and Level 2 during 2020 or 2019.

There were no material assets measured at fair value on a non-recurring basis at December 31, 2020 or December 31, 2019.

The Bank has engaged an independent pricing service provider to provide the fair values of its financial assets and liabilities measured at amortized cost. This provider follows FASB’s exit pricing guidelines, as required by

ASU 2016-01, when calculating the fair market value.

Carrying amount and estimated fair values of financial instruments at December 31, 2020 and 2019 were as follows (in thousands):


					Fair Value Measurement Using:
					Quoted Prices
					in Active			Significant
					Markets			Other			Significant
		Carrying			For Identical			Observable			Unobservable			Total Fair
At December 31, 2020		Amount			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)			Value
Assets:
Cash and due from banks		$	8,692		$	8,692		$	—		$	—		$	8,692
Overnight deposits			855,613			855,613			—			—			855,613
Securities available for sale			266,096			—			266,096			—			266,096
Securities held to maturity			2,760			—			2,827			—			2,827
Equity investments			2,313			2,313			—			—			2,313
Loans, net			3,101,646			—			—			3,094,998			3,094,998
Other investments
FRB Stock			7,381			N/A			N/A			N/A			N/A
FHLB Stock			2,718			N/A			N/A			N/A			N/A
SBA Loan Fund			—			N/A			N/A			N/A			N/A
Disability Fund			1,000			—			1,000			—			1,000
CRA - CD			498			498			—			—			498
Derivative assets - interest rate cap			770			—			770			—			770
Accrued interest receivable			13,249			—			414			12,835			13,249

Financial liabilities:
Non-interest-bearing demand deposits		$	1,715,042		$	1,715,042		$	—		$	—		$	1,715,042
Money market and savings deposits			2,011,409			2,011,409			—			—			2,011,409
Time deposits			92,062			—			93,157			—			93,157
Federal Home Loan Bank of New York advances			—			—			—			—			—
Trust preferred securities payable			20,620			—			—			20,001			20,001
Subordinated debt, net of issuance cost			24,657			—			25,375			—			25,375
Accrued interest payable			712			7			591			114			712
Secured borrowings			36,964			—			36,964			—			36,964


					Fair Value Measurement Using:
					Quoted Prices
					in Active			Significant
					Markets			Other			Significant
		Carrying			For Identical			Observable			Unobservable			Total Fair
At December 31, 2019		Amount			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)			Value
Assets:
Cash and due from banks		$	8,116		$	8,116		$	—		$	—		$	8,116
Overnight deposits			381,104			381,104			—			—			381,104
Securities available for sale			234,942			—			234,942			—			234,942
Securities held to maturity			3,722			—			3,712			—			3,712
Equity investments			2,224			2,224			—			—			2,224
Loans, net			2,646,677			—			—			2,609,233			2,609,233
Other investments			—			—			—			—			—
FRB Stock			7,317			N/A			N/A			N/A			N/A
FHLB Stock			8,122			N/A			N/A			N/A			N/A
SBA Loan Fund			5,000			N/A			N/A			N/A			N/A
Disability Fund			500			—			500			—			500
CRA - CD			498			498									498
Accrued interest receivable			8,862			—			544			8,318			8,862

Financial Liabilities:
Non-interest-bearing demand deposits		$	1,090,479		$	1,090,479		$	—		$	—		$	1,090,479
Money market and savings deposits			1,589,920			1,589,920			—			—			1,589,920
Time deposits			110,375			—			110,800			—			110,800
Federal Home Loan Bank of New York advances			144,000			—			144,229			—			144,229
Trust preferred securities payable			20,620			—			—			20,011			20,011
Subordinated debt, net of issuance cost			24,601			—			25,375			—			25,375
Accrued interest payable			1,229			14			1,009			206			1,229
Secured borrowings			42,972			—			42,972			—			42,972

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.

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