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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

The following tables present the assets reported on the consolidated balance sheets at their estimated fair value as of September 30, 2023, and December 31, 2022, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASB ASC. Financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement. 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 the Company’s own assumptions that market participants would use in pricing the assets or liabilities.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 17 to the Consolidated Financial Statements of the Company’s 2022 Annual Report on Form 10-K.


	Fair Value Measurements at September 30, 2023 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Debt securities available-for-sale:
U.S. Government agency	$	72,309	$	—	$	72,309	$	—
Mortgage-backed securities:
Pass-through certificates:
GSE	347,044		—		347,044		—
REMICs:
GSE	221,560		—		221,560		—

	568,604		—		568,604		—
Other debt securities:

Municipal bonds	763		—		763		—
Corporate bonds	102,023		—		102,023		—

	102,786		—		102,786		—
Total debt securities available-for-sale	743,699		—		743,699		—
Trading securities	11,504		11,504		—		—
Equity securities (1)	348		348		—		—
Total	$	755,551	$	11,852	$	743,699	$	—
Measured on a non-recurring basis:
Assets:
Loans individually evaluated for impairment:
Real estate loans:
Commercial real estate	$	2,376	$	—	$	—	$	2,376


Multifamily	1,917		—		—		1,917
Home equity and lines of credit	21		—		—		21
Total individually evaluated real estate loans	4,314		—		—		4,314
Commercial and industrial loans	60		—		—		60

Total	$	4,374	$	—	$	—	$	4,374

(1) Excludes investment measured at net asset value of $10.3 million at September 30, 2023, which has not been classified in the fair value hierarchy.


	Fair Value Measurements at December 31, 2022 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Debt securities available-for-sale:
U.S. Government agency securities	$	72,076	$	—	$	72,076	$	—
Mortgage-backed securities:
Pass-through certificates:
GSE	432,618		—		432,618		—
REMICs:
GSE	264,724		—		264,724		—

	697,342		—		697,342		—
Other debt securities:

Municipal bonds	21		—		21		—
Corporate bonds	182,734		—		182,734		—

	182,755		—		182,755		—
Total debt securities available-for-sale	952,173		—		952,173		—
Trading securities	10,751		10,751		—		—
Equity securities (1)	361		361		—		—
Total	$	963,285	$	11,112	$	952,173	$	—
Measured on a non-recurring basis:
Assets:
Loans individually evaluated for impairment:
Real estate loans:
Commercial real estate	$	2,631	$	—	$	—	$	2,631

Multifamily	1,923		—		—		1,923
Home equity and lines of credit	24		—		—		24
Total impaired real estate loans	4,578		—		—		4,578
Commercial and industrial loans	62		—		—		62

Total	$	4,640	$	—	$	—	$	4,640

(1) Excludes investment measured at net asset value of $10.1 million at December 31, 2022, which has not been classified in the fair value hierarchy.

The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2023 and December 31, 2022 (dollars in thousands):

Fair Value

Valuation Methodology

Unobservable
Inputs

Range of Inputs

September 30, 2023

December 31, 2022

September 30, 2023

December 31, 2022

Individually evaluated loans

4,374

4,640

Appraisals

Discount for costs to sell

7.0%

Discount for quick sale

10.0%

Discounted cash flows

Interest rates

4.88% to 7.50%

The valuation techniques described below were used to measure fair value of financial instruments in the tables below on a recurring basis and a non-recurring basis at September 30, 2023, and December 31, 2022.

Debt Securities Available for Sale: The estimated fair values for mortgage-backed securities, corporate, and other debt securities are obtained from an independent nationally recognized third-party pricing service. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. Broker/dealer quotes are utilized as well, when such quotes are available and deemed representative of the market. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy. There were no transfers of securities between Level 1 and Level 2 during the nine months ended September 30, 2023 or September 30, 2022.

Trading Securities: Fair values are derived from quoted market prices in active markets. The assets consist of publicly traded mutual funds.

Equity Securities: Fair values of equity securities consisting of publicly traded mutual funds are derived from quoted market prices in active markets.

Loans Individually Evaluated for Impairment: At September 30, 2023 and December 31, 2022, the Company had loans individually evaluated for impairment (excluding PCD loans) with outstanding principal balances of $6.1 million and $6.7 million, respectively, which were recorded at their estimated fair value of $4.4 million and $4.6 million, respectively. The Company recorded net increases in the specific reserve for impaired loans of $7,100 and $15,400 for the nine months ended September 30, 2023 and September 30, 2022, respectively. Net charge-offs of $5.2 million and $345,000 were recorded for the nine months ended September 30, 2023 and September 30, 2022, respectively, utilizing Level 3 inputs. For purposes of estimating the fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral-dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and TDRs.

Other Real Estate Owned: At September 30, 2023 and December 31, 2022, the Company had no assets acquired through foreclosure.

In addition, the Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. GAAP. The adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets.

Fair Value of Financial Instruments:

The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not already discussed above:

(a) Cash and Cash Equivalents

Cash and cash equivalents are short-term in nature with original maturities of three months or less; the carrying amount approximates fair value. Certificates of deposit having original terms of six-months or less; the carrying value generally approximates fair value. Certificates of deposit with an original maturity of six months or greater; the fair value is derived from discounted cash flows.

(b) Debt Securities (Held-to-Maturity)

The estimated fair values for substantially all of our securities are obtained from an independent nationally recognized pricing service. The independent pricing service utilizes market prices of same or similar securities whenever such prices are available. Prices involving distressed sellers are not utilized in determining fair value. Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analysis. The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.

The Company uses net asset value as a practical expedient to record its investment in a private SBA Loan Fund since the shares in the fund are not publicly traded, do not have a readily determinable fair value and the net asset value per share is calculated in a manner consistent with the measurement principles of an investment company.

(d) Federal Home Loan Bank of New York Stock

Federal Home Loan Bank of New York (“FHLBNY”) stock is carried at cost, which approximates fair value, since this is the amount for which it could be redeemed and there is no active market for this stock.

(e) Loans (Held-for-Investment)

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as originated and purchased, and further segregated by residential mortgage, construction, land, multifamily, commercial and consumer. Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value of loans is estimated using a discounted cash flow analysis. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and non-performance risk of the loans.

(f) Loans (Held-for-Sale)

Held-for-sale loans are carried at the lower of aggregate cost or estimated fair value, less costs to sell, and therefore fair value is equal to carrying value.

(g) Deposits

The fair value of deposits with no stated maturity, such as interest and non-interest bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit 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.

(h) Commitments to Extend Credit and Standby Letters of Credit

The fair value of commitments to extend credit and standby letters of credit is 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. The fair value of off-balance sheet commitments is insignificant and therefore not included in the following table.

(i) Borrowings

The fair value of borrowed funds is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity.

(j) Advance Payments by Borrowers for Taxes and Insurance

Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount currently payable.

(k) Derivatives

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.

The estimated fair values of the Company’s significant financial instruments at September 30, 2023 and December 31, 2022, are presented in the following tables (in thousands):


	September 30, 2023
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	80,556	$	80,556	$	—	$	—	$	80,556
Trading securities	11,504		11,504		—		—		11,504
Debt securities available-for-sale	743,699		—		743,699		—		743,699
Debt securities held-to-maturity	10,114		—		9,371		—		9,371
Equity securities (1)	348		348		—		—		348
FHLBNY stock, at cost	41,165		—		41,165		—		41,165
Loans held-for-sale	950		—		—		950		950
Net loans held-for-investment	4,191,494		—		—		3,942,539		3,942,539
Derivative assets	6,515		—		6,515		—		6,515
Financial liabilities:
Deposits	$	3,668,513	$	—	$	3,669,988	$	—	$	3,669,988
FHLB advances and other borrowings (including securities sold under agreements to repurchase)	918,973		—		850,551		—		850,551
Subordinated debentures, net of issuance costs	61,163		—		45,196		—		45,196
Advance payments by borrowers for taxes and insurance	25,968		—		25,968		—		25,968
Derivative liabilities	6,516		—		6,516		—		6,516

(1) Excludes investment measured at net asset value of $10.3 million at September 30, 2023, which has not been classified in the fair value hierarchy.


	December 31, 2022
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	45,799	$	45,799	$	—	$	—	$	45,799
Trading securities	10,751		10,751		—		—		10,751
Debt securities available-for-sale	952,173		—		952,173		—		952,173
Debt securities held-to-maturity	10,760		—		10,389		—		10,389
Equity securities (1)	361		361		—		—		361
FHLBNY stock, at cost	30,382		—		30,382		—		30,382

Net loans held-for-investment	4,201,076		—		—		4,016,849		4,016,849
Derivative assets	5,321		—		5,321		—		5,321
Financial liabilities:
Deposits	$	4,150,219	$	—	$	4,148,938	$	—	$	4,148,938
FHLB advances and other borrowings (including securities sold under agreements to repurchase)	583,859		—		564,588		—		564,588
Subordinated debentures, net of issuance costs	60,996				54,393				54,393
Advance payments by borrowers for taxes and insurance	25,995		—		25,995		—		25,995
Derivative liabilities	5,321		—		5,321		—		5,321

(1) Excludes investment measured at net asset value of $10.1 million at December 31, 2022, which has not been classified in the fair value hierarchy.

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 losses, 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. 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.

- 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.

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