11.

Fair Value of Financial Instruments

The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as 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. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At

March 31, 2019,

the Company carried financial assets and financial liabilities under the fair value option with fair values of

$14.0

million and

$42.9

million, respectively. At

December 31, 2018,

the Company carried financial assets and financial liabilities under the fair value option with fair values of

$13.8

million and

$41.8

million, respectively. The Company did

not

elect to carry any additional financial assets or financial liabilities under the fair value option during the

three

ended

March 31, 2019.

The following table presents the financial assets and financial liabilities reported at fair value under the fair value option, and the changes in fair value included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments, at or for the periods ended as indicated:

		Fair Value		Fair Value		Changes in Fair Values For Items Measured at Fair Value
		Measurements		Measurements		Pursuant to Election of the Fair Value Option
		at March 31,		at December 31,		Three Months Ended
(In thousands)		2019		2018		March 31, 2019			March 31, 2018

Mortgage-backed securities	$	934	$	967	$	1		$	(11	)
Other securities		13,091		12,843		179			(138	)
Borrowed funds		42,941		41,849		(1,210	)		(1,681	)
Net loss from fair value adjustments (1)					$	(1,030	)	$	(1,830	)

(

)

The net loss from fair value adjustments presented in the above table does

not

include net (losses) gains of (

$1.1

) million and

$1.7

million for the

three

months ended

March 31, 2019

and

2018,

respectively, from the change in the fair value of interest rate swaps.

Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair value option at their respective contractual rates.

The borrowed funds had a contractual principal amount of

$61.9

million at both

March 31, 2019

and

December 31, 2018.

The fair value of borrowed funds includes accrued interest payable of

$0.3

million and

$0.2

million at

March 31, 2019

and

December 31, 2018,

respectively.

The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market information. 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 instrument. Accordingly, as assumptions change, such as interest rates and prepayments, fair value estimates change and these amounts

may

not

necessarily be realized in an immediate sale.

Disclosure of fair value does

not

require fair value information for items that do

not

meet the definition of a financial instrument or certain other financial instruments specifically excluded from its requirements. These items include core deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.

Further, fair value disclosure does

not

attempt to value future income or business. These items

may

be material and accordingly, the fair value information presented does

not

purport to represent, nor should it be construed to represent, the underlying “market” or franchise value of the Company.

Financial assets and financial liabilities reported at fair value are required to be measured based on either: (

) quoted prices in active markets for identical financial instruments (Level

); (

) significant other observable inputs (Level

); or (

) significant unobservable inputs (Level

A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s assets and liabilities that are carried at fair value on a recurring basis are as follows:

Level

– where quoted market prices are available in an active market. At

March 31, 2019

and

December 31, 2018,

Level

included

one

mutual fund.

Level

– when quoted market prices are

not

available, fair value is estimated using quoted market prices for similar financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair value can also be estimated by using pricing models, or discounted cash flows. 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 also incorporate maturity and cash flow assumptions. At

March 31, 2019

and

December 31, 2018,

Level

included mortgage related securities, corporate debt, municipals and interest rate swaps.

Level

– when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level

March 31, 2019

and

December 31, 2018,

Level

included trust preferred securities owned and junior subordinated debentures issued by the Company.

The methods described above

may

produce fair values that

may

not

be indicative of net realizable value or reflective of future fair values. While the Company believes, its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies, assumptions and models to determine fair value of certain financial instruments could produce different estimates of fair value at the reporting date.

The following table sets forth the assets and liabilities that are carried at fair value on a recurring basis and their respective category in the fair value hierarchy, at

March 31, 2019

and

December 31, 2018:

	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Other Unobservable Inputs (Level 3)				Total carried at fair value on a recurring basis
	2019		2018		2019		2018		2019		2018		2019		2018
	(In thousands)

Assets:
Mortgage-backed
Securities	$	-	$	-	$	579,185	$	557,953	$	-	$	-	$	579,185	$	557,953
Other securities		11,802		11,586		253,748		251,860		1,289		1,256		266,839		264,702
Interest rate swaps		-		-		6,474		15,961		-		-		6,474		15,961

Total assets	$	11,802	$	11,586	$	839,407	$	825,774	$	1,289	$	1,256	$	852,498	$	838,616

Liabilities:
Borrowings	$	-	$	-	$	-	$	-	$	42,941	$	41,849	$	42,941	$	41,849
Interest rate swaps		-		-		4,996		2,239		-		-		4,996		2,239

Total liabilities	$	-	$	-	$	4,996	$	2,239	$	42,941	$	41,849	$	47,937	$	44,088

The following tables sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis, classified within Level

of the valuation hierarchy for the periods indicated:

	For the three months ended
	March 31, 2019					March 31, 2018
	Trust preferred securities		Junior subordinated debentures			Trust preferred securities		Junior subordinated debentures
	(In thousands)

Beginning balance	$	1,256	$	41,849		$	1,110	$	36,986
Net gain from fair value adjustment of financial assets (1)		33		-			51		-
Net loss from fair value adjustment of financial liabilities (1)		-		1,210			-		1,681
Decrease(increase) in accrued interest receivable		-		-			1		-
Increase (decrease) in accrued interest payable		-		9			-		25
Change in unrealized gains (losses) included in other comprehensive income		-		(127	)		-		-
Ending balance	$	1,289	$	42,941		$	1,162	$	38,692

Changes in unrealized gains (losses) held at period end	$	-	$	-		$	-	$	-

(

)

Totals in the table above are presented in the Consolidated Statement of Income under net gains (losses) from fair value adjustments.

During the

three

months ended

March 31, 2019

and

2018,

there were

transfers between Levels

and

The following tables present the quantitative information about recurring Level

fair value of financial instruments and the fair value measurements at the periods indicated:

March 31, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,289

Discounted cash flows

Discount rate

n/a

4.6%

Liabilities:

Junior subordinated debentures

42,941

Discounted cash flows

Discount rate

n/a

4.6%

December 31, 2018

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,256

Discounted cash flows

Discount rate

n/a

4.9%

Liabilities:

Junior subordinated debentures

41,849

Discounted cash flows

Discount rate

n/a

4.9%

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level

March 31, 2019

and

December 31, 2018,

are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and their respective category in the fair value hierarchy at

March 31, 2019

and

December 31, 2018:

	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Other Unobservable Inputs (Level 3)				Total carried at fair value on a non-recurring basis
	2019		2018		2019		2018		2019		2018		2019		2018
	(In thousands)

Assets
Impaired loans	$	-	$	-	$	-	$	-	$	1,928	$	4,111	$	1,928	$	4,111
Other repossesed assets		-		-		-		-		-		35		-		35

Total assets	$	-	$	-	$	-	$	-	$	1,928	$	4,146	$	1,928	$	4,146

The following tables present the qualitative information about non-recurring Level

fair value of financial instruments and the fair value measurements at the periods indicated:

March 31, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Impaired loans

1,656

Sales approach

Reduction for planned expedited disposal

20.0% to 54.5%

39.6%

Impaired loans

272

Blended income and sales approach

Adjustment to sales comparison value to reconcile differences between comparable sales

-10.0% to 15.0%

2.5%

Capitalization rate

9.5%

Reduction for planned expedited disposal

15.0%

	At December 31, 2018
	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average
	(Dollars in thousands)
Assets:

Impaired loans	$	204	Income approach	Capitalization rate		8.5%		8.5%
				Reduction for planned expedited disposal		15.0%		15.0%

Impaired loans	$	2,724	Sales approach	Adjustment to sales comparison value to reconcile differences between comparable sales		0.0%		0.0%
				Reduction for planned expedited disposal		-36.5% to 15.0%		10.4%

Impaired loans	$	1,183	Blended income and sales approach	Adjustment to sales comparison value to reconcile differences between comparable sales		-30.0% to 10.0%		-7.8%
				Capitalization rate		7.4% to 9.8%		8.7%
				Reduction for planned expedited disposal		15.0%		15.0%

Other repossesed assets	$	35	Sales approach	Reduction for planned expediated disposal		0.0%		0.0%

The Company did

not

have any liabilities that were carried at fair value on a non-recurring basis at

March 31, 2019

and

December 31, 2018.

The methods and assumptions used to estimate fair value at

March 31, 2019

and

December 31, 2018

are as follows:

Securities:

The fair values of securities are contained in Note

of Notes to Consolidated Financial Statements. Fair value is based upon quoted market prices, where available. If a quoted market price is

not

available, fair value is estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. When there is limited activity or less transparency around inputs to the valuation, securities are valued using discounted cash flows.

Impaired Loans:

For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets or, for collateral dependent loans,

85%

of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the most recent reported arm’s length transaction. When there is

recent sale activity, the fair value is calculated using capitalization rates. See Note

of Notes to the Consolidated Financial Statements (“loans”).

Junior Subordinated Debentures:

The fair value of the junior subordinated debentures was developed using a credit spread based on the subordinated debt issued by the Company adjusting for differences in the junior subordinated debt’s credit rating, liquidity and time to maturity. The unrealized net gain/loss attributable to changes in our own credit risk was determined by adjusting the fair value as determined in the proceeding sentence by the average rate of default on debt instruments with a similar debt rating as our junior subordinated debentures, with the difference from the original calculation and this calculation resulting in the instrument-specific unrealized gain/loss.

Interest Rate Swaps:

The fair value of interest rate swaps is based upon broker quotes.

The following tables set forth the carrying amounts and estimated fair values of selected financial instruments based on the assumptions described above used by the Company in estimating fair value at the periods indicated:

	March 31, 2019
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Assets:

Cash and due from banks	$	58,677	$	58,677	$	58,677	$	-	$	-
Securities held-to-maturity
Mortgage-backed securities		7,949		7,726		-		7,726		-
Other securities		22,532		22,276		-		-		22,276
Securities available for sale
Mortgage-backed securities		579,185		579,185		-		579,185		-
Other securities		266,839		266,839		11,802		253,748		1,289
Loans		5,588,746		5,547,521		-		-		5,547,521
FHLB-NY stock		51,182		51,182		-		51,182		-
Accrued interest receivable		27,226		27,226		10		3,280		23,936
Interest rate swaps		6,474		6,474		-		6,474		-


Liabilities:
Deposits	$	5,080,209	$	5,079,020	$	3,568,439	$	1,510,581	$	-
Borrowings		1,116,416		1,111,670		-		1,068,729		42,941
Accrued interest payable		7,989		7,989		-		7,989		-
Interest rate swaps		4,996		4,996		-		4,996		-

	December 31, 2018
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Assets:

Cash and due from banks	$	118,561	$	118,561	$	118,561	$	-	$	-
Securities held-to-maturity
Mortgage-backed securities		7,953		7,366		-		7,366		-
Other securities		24,065		22,508		-		-		22,508
Securities available for sale
Mortgage-backed securities		557,953		557,953		-		557,953		-
Other securities		264,702		264,702		11,586		251,860		1,256
Loans		5,551,484		5,496,266		-		-		5,496,266
FHLB-NY stock		57,282		57,282		-		57,282		-
Accrued interest receivable		25,485		25,485		54		2,756		22,675
Interest rate swaps		15,961		15,961		-		15,961		-


Liabilities:
Deposits	$	4,960,784	$	4,955,077	$	3,397,474	$	1,557,603	$	-
Borrowings		1,250,843		1,241,745		-		1,199,896		41,849
Accrued interest payable		5,890		5,890		-		5,890		-
Interest rate swaps		2,239		2,239		-		2,239		-