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FAIR VALUE | 6 Months Ended
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Jun. 30, 2015
FAIR VALUE [Abstract] |
FAIR VALUE | NOTE 5 FAIR VALUE Fair value is the exchange price that would be received for an asset or paid to transfer a liability 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. The Corporation used the following methods and significant assumptions to estimate fair value: Investment Securities: The fair values of securities available for sale are usually determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely used to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). Trading Assets: Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value included in earnings. The fair values of trading assets are determined by quoted market prices (Level 1 inputs). Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. OREO: Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO. On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition. Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
|  |  | Fair Value Measurement at June 30, 2015 Using |
Financial Assets: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Obligations of U.S. Government and U.S. Government sponsored enterprises |  | $ | 131,894 |  |  | $ | 14,578 |  |  | $ | 117,316 |  |  | $ | - |
Mortgage-backed securities, residential |  |  | 115,676 |  |  |  | - |  |  |  | 115,676 |  |  |  | - |
Collateralized mortgage obligations |  |  | 141 |  |  |  | - |  |  |  | 141 |  |  |  | - |
Obligations of states and political subdivisions |  |  | 39,967 |  |  |  | - |  |  |  | 39,967 |  |  |  | - |
Corporate bonds and notes |  |  | 1,260 |  |  |  | - |  |  |  | 1,260 |  |  |  | - |
SBA loan pools |  |  | 1,146 |  |  |  | - |  |  |  | 1,146 |  |  |  | - |
Corporate stocks |  |  | 487 |  |  |  | 60 |  |  |  | 427 |  |  |  | - |
Total available for sale securities |  | $ | 290,571 |  |  | $ | 14,638 |  |  | $ | 275,933 |  |  | $ | - |
Trading assets |  | $ | 635 |  |  | $ | 635 |  |  | $ | - |  |  | $ | - |
|  |  | Fair Value Measurement at December 31, 2014 Using |
Financial Assets: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Obligations of U.S. Government and U.S. Government sponsored enterprises |  | $ | 181,673 |  |  | $ | 31,115 |  |  | $ | 150,558 |  |  | $ | - |
Mortgage-backed securities, residential |  |  | 61,660 |  |  |  | - |  |  |  | 61,660 |  |  |  | - |
Collateralized mortgage obligations |  |  | 338 |  |  |  | - |  |  |  | 338 |  |  |  | - |
Obligations of states and political subdivisions |  |  | 31,451 |  |  |  | - |  |  |  | 31,451 |  |  |  | - |
Corporate bonds and notes |  |  | 1,533 |  |  |  | - |  |  |  | 1,533 |  |  |  | - |
SBA loan pools |  |  | 1,304 |  |  |  | - |  |  |  | 1,304 |  |  |  | - |
Trust Preferred securities |  |  | 2,028 |  |  |  | - |  |  |  | 2,028 |  |  |  | - |
Corporate stocks |  |  | 520 |  |  |  | 104 |  |  |  | 416 |  |  |  | - |
Total available for sale securities |  | $ | 280,507 |  |  | $ | 31,219 |  |  | $ | 249,288 |  |  | $ | - |
Trading assets |  | $ | 549 |  |  | $ | 549 |  |  | $ | - |  |  | $ | - |
There were no transfers between Level 1 and Level 2 during the six month period ended June 30, 2015 or the year ended December 31, 2014. Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
|  |  |  |  | Fair Value Measurement at June 30, 2015 Using |
Financial Assets: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Impaired Loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 3,657 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,657 |
Total impaired loans |  | $ | 3,657 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,657 |
Other real estate owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 2,376 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,376 |
Total other real estate owned, net |  | $ | 2,376 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,376 |
|  |  |  |  | Fair Value Measurement at December 31, 2014 Using |
Financial Assets: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Impaired Loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 3,593 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,593 |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity lines and loans |  |  | 52 |  |  |  | - |  |  |  | - |  |  |  | 52 |
Total impaired loans |  | $ | 3,645 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,645 |
Other real estate owned: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 3,063 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,063 |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity lines and loans |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 2 |
Total other real estate owned, net |  | $ | 3,065 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,065 |
The following tables presents information related to Level 3 non-recurring fair value measurement at June 30, 2015 and December 31, 2014 (in thousands):
Description |  | Fair Value at June 30, 2015 |  | Valuation Technique |  | Unobservable Inputs |  | Unobservable Inputs Value or Range
Impaired loans |  | $ | 3,657 |  | Third party appraisals |  | Appraisal adjustments by management for qualitative factors such as market conditions and collateral characteristics |  | 0% - 100% discount
Other real estate owned |  | $ | 2,376 |  | Third party appraisals |  | Appraisal adjustments by management for qualitative factors such as market conditions and estimated liquidation expenses |  | 31% discount
Description |  | Fair Value at December 31, 2014 |  | Valuation Technique |  | Unobservable Inputs |  | Unobservable Inputs Value or Range
Impaired loans |  | $ | 3,645 |  | Third party appraisals |  | Appraisal adjustments by management for qualitative factors such as market conditions and collateral characteristics |  | 0% - 100% discount
Other real estate owned |  | $ | 3,065 |  | Third party appraisals |  | Appraisal adjustments by management for qualitative factors such as market conditions and estimated liquidation expenses |  | 7% - 27% discount
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $5.2 million with a valuation allowance of $1.5 million as of June 30, 2015, resulting in $53 thousand decrease and $254 thousand increase in the provision for loan losses for the three and six month periods ended June 30, 2015. Impaired loans had a principal balance of $4.9 million, with a valuation allowance of $1.2 million as of December 31, 2014, resulting in an increase of $232 thousand in the provision for loan losses for the year ended December 31, 2014. OREO, which is measured by the lower of cost or fair value less costs to sell had an outstanding balance of $2.5 million, before a valuation allowance of $120 thousand at June 30, 2015. Expense associated with the valuation allowance of properties held as of June 30, 2015 was $120 thousand for the three and six month periods ended June 30, 2015. OREO had an outstanding balance of $3.1 million, before a valuation allowance of $2 thousand at December 31, 2014. For properties held as of December 31, 2014, there was no expense associated with the valuation allowance recognized during the year. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash, Due From and Interest-Bearing Deposits in Other Financial Institutions For those short-term instruments that generally mature in 90 days or less, the carrying value approximates fair value of which non-interest-bearing deposits are classified as Level 1 and interest-bearing deposits with the FHLBNY and FRBNY are classified as Level 1. FHLBNY and FRBNY Stock It is not practicable to determine the fair value of FHLBNY and FRBNY stock due to restrictions placed on its transferability. Loans Receivable For variable-rate loans that reprice frequently, fair values approximate carrying values. The fair values for other loans are estimated through discounted cash flow analysis using interest rates currently being offered for loans with similar terms and credit quality. Loans are classified as Level 3. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. Loans Held for Sale Certain mortgage loans are originated with the intent to sell. Loans held for sale are recorded at the lower of cost or fair value in the aggregate. Loans held for sale are classified as Level 2. Deposits The fair values disclosed for demand deposits, savings accounts and money market accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying values) and classified as Level 1. The fair value of certificates of deposits is estimated using a discounted cash flow approach that applies interest rates currently being offered on certificates to a schedule of the weighted-average expected monthly maturities and classified as Level 2. Securities Sold Under Agreements to Repurchase These instruments bear both variable and fixed rates of interest. Therefore, the carrying value approximates fair value for the variable rate instruments and the fair value of fixed rate instruments is based on discounted cash flows to maturity. These are classified as Level 2. FHLBNY Term Advances These instruments bear a stated rate of interest to maturity and, therefore, the fair value is based on discounted cash flows to maturity and classified as Level 2. Commitments to Extend Credit The fair value of commitments to extend credit is based on fees currently charged to enter into similar agreements, the counter-party's credit standing and discounted cash flow analysis. The fair value of these commitments to extend credit approximates the recorded amounts of the related fees and is not material at June 30, 2015 and December 31, 2014. Accrued Interest Receivable and Payable For these short-term instruments, the carrying value approximates fair value resulting in a classification of Level 1, Level 2 or Level 3 depending upon the classification of the asset/liability they are associated with. The carrying amounts and estimated fair values of other financial instruments, at June 30, 2015 and December 31, 2014, are as follows (in thousands):
|  | Fair Value Measurements at June 30, 2015 Using |
Financial assets: |  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Estimated Fair Value (1) |
Cash and due from financial institutions |  | $ | 28,014 |  |  | $ | 28,014 |  |  | $ | - |  |  | $ | - |  |  | $ | 28,014 |
Interest-bearing deposits in other financial institutions |  |  | 1,650 |  |  |  | 1,650 |  |  |  | - |  |  |  | - |  |  |  | 1,650 |
Trading assets |  |  | 635 |  |  |  | 635 |  |  |  | - |  |  |  | - |  |  |  | 635 |
Securities available for sale |  |  | 290,571 |  |  |  | 14,638 |  |  |  | 275,933 |  |  |  | - |  |  |  | 290,571 |
Securities held to maturity |  |  | 6,045 |  |  |  | - |  |  |  | 6,351 |  |  |  | - |  |  |  | 6,351 |
FHLBNY and FRBNY stock |  |  | 4,873 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | N/A |
Loans, net |  |  | 1,136,378 |  |  |  | - |  |  |  | - |  |  |  | 1,160,285 |  |  |  | 1,160,285 |
Loans held for sale |  |  | 668 |  |  |  | - |  |  |  | 668 |  |  |  | - |  |  |  | 668 |
Accrued interest receivable |  |  | 3,764 |  |  |  | 38 |  |  |  | 1,067 |  |  |  | 2,659 |  |  |  | 3,764 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts |  | $ | 1,151,252 |  |  | $ | 1,151,252 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,151,252 |
Time deposits |  |  | 180,725 |  |  |  | - |  |  |  | 181,167 |  |  |  | - |  |  |  | 181,167 |
Securities sold under agreements to repurchase |  |  | 31,882 |  |  |  | - |  |  |  | 32,814 |  |  |  | - |  |  |  | 32,814 |
FHLBNY overnight advances |  |  | 15,600 |  |  |  | - |  |  |  | 15,601 |  |  |  |  |  |  |  | 15,601 |
FHLBNY term advances |  |  | 19,256 |  |  |  | - |  |  |  | 19,940 |  |  |  | - |  |  |  | 19,940 |
Accrued interest payable |  |  | 218 |  |  |  | 14 |  |  |  | 204 |  |  |  | - |  |  |  | 218 |
(1) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. 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 Measurements at December 31, 2014 Using |
Financial assets: |  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Estimated Fair Value (1) |
Cash and due from financial institutions |  | $ | 28,130 |  |  | $ | 28,130 |  |  | $ | - |  |  | $ | - |  |  | $ | 28,130 |
Interest-bearing deposits in other financial institutions |  |  | 1,033 |  |  |  | 1,033 |  |  |  | - |  |  |  | - |  |  |  | 1,033 |
Trading assets |  |  | 549 |  |  |  | 549 |  |  |  | - |  |  |  | - |  |  |  | 549 |
Securities available for sale |  |  | 280,507 |  |  |  | 31,219 |  |  |  | 249,288 |  |  |  | - |  |  |  | 280,507 |
Securities held to maturity |  |  | 5,831 |  |  |  | - |  |  |  | 6,197 |  |  |  | - |  |  |  | 6,197 |
FHLBNY and FRBNY stock |  |  | 5,535 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | N/A |
Loans, net |  |  | 1,107,888 |  |  |  | - |  |  |  | - |  |  |  | 1,135,590 |  |  |  | 1,135,590 |
Loans held for sale |  |  | 665 |  |  |  | - |  |  |  | 665 |  |  |  | - |  |  |  | 665 |
Accrued interest receivable |  |  | 4,185 |  |  |  | 145 |  |  |  | 1,295 |  |  |  | 2,745 |  |  |  | 4,185 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts |  | $ | 1,068,171 |  |  | $ | 1,068,171 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,068,171 |
Time deposits |  |  | 211,843 |  |  |  | - |  |  |  | 212,397 |  |  |  | - |  |  |  | 212,397 |
Securities sold under agreements to repurchase |  |  | 29,652 |  |  |  | - |  |  |  | 30,853 |  |  |  | - |  |  |  | 30,853 |
FHLBNY overnight advances |  |  | 30,830 |  |  |  | - |  |  |  | 30,832 |  |  |  | - |  |  |  | 30,832 |
FHLBNY term advances |  |  | 19,310 |  |  |  | - |  |  |  | 20,235 |  |  |  | - |  |  |  | 20,235 |
Accrued interest payable |  |  | 237 |  |  |  | 15 |  |  |  | 222 |  |  |  | - |  |  |  | 237 |
(1) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. 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.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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