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FAIR VALUE | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
FAIR VALUE | 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 on a recurring basis: Available for Sale 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). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs). Equity Investments: Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings. The fair values of equity investments 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. Derivatives: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2 inputs). Derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counter-party's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation has considered the impact of any applicable credit enhancements, such as collateral postings. Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize credit default rate assumptions (Level 3 inputs). Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
|  | Fair Value Measurement at September 30, 2020 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)
Mortgage-backed securities, residential | $ | 326,268 |  |  | $ | — |  |  | $ | 326,268 |  |  | $ | — |
Obligations of states and political subdivisions | 43,260 |  |  | — |  |  | 43,260 |  |  | — |
Corporate bonds and notes | 7,064 |  |  | — |  |  | 7,064 |  |  | — |
SBA loan pools | 19,708 |  |  | — |  |  | 19,708 |  |  | — |
Total available for sale securities | $ | 396,300 |  |  | $ | — |  |  | $ | 396,300 |  |  | $ | — |
Equity investments, at fair value | $ | 2,291 |  |  | $ | 1,629 |  |  | $ | — |  |  | $ | 662 |
Derivative assets | 16,886 |  |  | — |  |  | 16,886 |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |
Derivative liabilities | $ | 17,097 |  |  | $ | — |  |  | $ | 16,886 |  |  | $ | 211 |
There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2020.
|  | Fair Value Measurement at December 31, 2019 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)
Mortgage-backed securities, residential | $ | 225,234 |  |  | $ | — |  |  | $ | 225,234 |  |  | $ | — |
Obligations of states and political subdivisions | 42,845 |  |  | — |  |  | 42,845 |  |  | — |
Corporate bonds and notes | 250 |  |  | — |  |  | 250 |  |  | — |
SBA loan pools | 15,761 |  |  | — |  |  | 15,761 |  |  | — |
Total available for sale securities | $ | 284,090 |  |  | $ | — |  |  | $ | 284,090 |  |  | $ | — |
Equity investments, at fair value | $ | 1,442 |  |  | $ | 1,442 |  |  | $ | — |  |  | $ | — |
Derivative assets | 6,466 |  |  | — |  |  | 6,466 |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |
Derivative liabilities | $ | 6,831 |  |  | $ | — |  |  | $ | 6,466 |  |  | $ | 365 |
There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2019. The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month periods ended September 30, 2020 and 2019 (in thousands):
|  |  |  |  |  | Assets (Liabilities)
|  |  |  | Derivative Liabilities
|  |  |  |  |  | September 30, 2020 |  | September 30, 2019
Balance of recurring Level 3 assets at July 1 |  |  |  |  |  | $ | (211) |  |  | $ | (365) |
Derivative instruments entered into |  |  |  |  |  | — |  |  | (7) |
Total gains or losses for the period: |  |  |  |  |  |  |  |
Included in earnings - other non-interest income |  |  |  |  |  | — |  |  | (54) |
Included in other comprehensive income |  |  |  |  |  | — |  |  | — |
Transfers out of Level 3 |  |  |  |  |  | — |  |  | — |
Balance of recurring Level 3 assets at September 30 |  |  |  |  |  | $ | (211) |  |  | $ | (426) |
The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine month periods ended September 30, 2020 and September 30, 2019 (in thousands):
|  |  |  |  |  | Assets (Liabilities)
|  |  |  | Derivative Liabilities
|  |  |  |  |  | September 30, 2020 |  | September 30, 2019
Balance of recurring Level 3 assets at January 1 |  |  |  |  |  | $ | (365) |  |  | $ | (140) |
Derivative instruments entered into |  |  |  |  |  | (15) |  |  | (42) |
Total gains or losses for the period: |  |  |  |  |  |  |  |
Included in earnings - other non-interest income |  |  |  |  |  | 169 |  |  | (244) |
Included in other comprehensive income |  |  |  |  |  | — |  |  | — |
Transfers out of Level 3 |  |  |  |  |  | — |  |  | — |
Balance of recurring Level 3 assets at September 30 |  |  |  |  |  | $ | (211) |  |  | $ | (426) |
The following table presents information related to Level 3 recurring fair value measurements at September 30, 2020 and December 31, 2019 (in thousands):
Description |  | Fair Value at September 30, 2020 |  | Valuation Technique |  | Unobservable Inputs |  | Range [Weighted Average] at September 30, 2020
Derivative liabilities |  | $ | 211 |  |  | Historical trend |  | Credit default rate |  | 0.59% - 6.59% [1.18%]
Description |  | Fair Value at December 31, 2019 |  | Valuation Technique |  | Unobservable Inputs |  | Range [Weighted Average] at December 31, 2019
Derivative liabilities |  | $ | 365 |  |  | Historical trend |  | Credit default rate |  | 7.30% - 7.30% [7.30%]
Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
|  |  | Fair Value Measurement at September 30, 2020 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 | $ | 512 |  |  | $ | — |  |  | $ | — |  |  | $ | 512 |  |  |
Total impaired loans | $ | 512 |  |  | $ | — |  |  | $ | — |  |  | $ | 512 |  |  |
Other real estate owned: |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |
Commercial mortgages | $ | 416 |  |  | $ | — |  |  | $ | — |  |  | $ | 416 |  |  |
Residential mortgages | 126 |  |  | — |  |  | — |  |  | 126 |  |  |
Consumer loans: |  |  |  |  |  |  |  |  |
Home equity lines and loans | 44 |  |  | — |  |  | — |  |  | 44 |  |  |
Total other real estate owned, net | $ | 586 |  |  | $ | — |  |  | $ | — |  |  | $ | 586 |  |  |
|  |  | Fair Value Measurement at December 31, 2019 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 | $ | 1,554 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,554 |  |  |
Total impaired loans | $ | 1,554 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,554 |  |  |
Other real estate owned: |  |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |  |
Commercial mortgages | $ | 111 |  |  | $ | — |  |  | $ | — |  |  | $ | 111 |  |  |
Residential mortgages | 284 |  |  | — |  |  | — |  |  | 284 |  |  |
Consumer loans: |  |  |  |  |  |  |  |  |
Home equity lines and loans | 122 |  |  | — |  |  | — |  |  | 122 |  |  |
Total other real estate owned, net | $ | 517 |  |  | $ | — |  |  | $ | — |  |  | $ | 517 |  |  |
The following tables present information related to Level 3 non-recurring fair value measurement at September 30, 2020 and December 31, 2019 (in thousands):
Description |  | Fair Value at September 30, 2020 |  | Valuation Technique |  | Unobservable Inputs |  | Range [Weighted Average] at September 30, 2020
Impaired loans: |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 512 |  |  | Sales comparison |  | Discount to appraised value |  | 13.30% - 13.30% [13.30%]
|  | $ | 512 |  |  |  |  |  |  |
OREO: |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 416 |  |  | Sales comparison |  | Discount to appraised value |  | 42.28% - 42.28% [42.28%]
Residential mortgages |  | 126 |  |  | Sales comparison |  | Discount to appraised value |  | 20.80% - 20.80% [20.80%]
Consumer loans: |  |  |  |  |  |  |  |
Home equity lines and loans |  | 44 |  |  | Sales comparison |  | Discount to appraised value |  | 20.80% - 20.80% [20.80%]
|  | $ | 586 |  |  |  |  |  |  |
Description |  | Fair Value at December 31, 2019 |  | Valuation Technique |  | Unobservable Inputs |  | Range [Weighted Average] at December 31, 2019
Impaired loans: |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 1,554 |  |  | Sales comparison |  | Discount to appraised value |  | 10.00% - 10.00% [10.00%]
|  | $ | 1,554 |  |  |  |  |  |  |
OREO: |  |  |  |  |  |  |  |
Commercial mortgages: |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 111 |  |  | Sales comparison |  | Discount to appraised value |  | 20.80% - 20.80% [20.80%]
Residential mortgages |  | 284 |  |  | Sales comparison |  | Discount to appraised value |  | 20.80% - 35.29% [24.09%]
Consumer loans: |  |  |  |  |  |  |  |
Home equity lines and loans |  | 122 |  |  | Sales comparison |  | Discount to appraised value |  | 20.80% - 20.80% [20.80%]
|  | $ | 517 |  |  |  |  |  |  |
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of other financial instruments, at September 30, 2020 and December 31, 2019, are as follows (in thousands):
| September 30, 2020
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 | $ | 35,327 |  |  | $ | 35,327 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,327 |
Interest-earning deposits in other financial institutions | 114,575 |  |  | 114,575 |  |  | — |  |  | — |  |  | 114,575 |
Equity investments | 2,291 |  |  | 1,629 |  |  | — |  |  | 662 |  |  | 2,291 |
Securities held to maturity | 3,047 |  |  | — |  |  | 2,684 |  |  | 409 |  |  | 3,093 |
FHLBNY and FRBNY stock | 3,150 |  |  | — |  |  | — |  |  | — |  |  | N/A
Loans, net and loans held for sale | 1,515,962 |  |  | — |  |  | — |  |  | 1,522,274 |  |  | 1,522,274 |
Accrued interest receivable | 6,230 |  |  | 1 |  |  | 1,194 |  |  | 5,035 |  |  | 6,230 |
Derivative Assets | 16,886 |  |  | — |  |  | 16,886 |  |  | — |  |  | 16,886 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts | $ | 1,718,686 |  |  | $ | 1,718,686 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,718,686 |
Time deposits | 205,503 |  |  | — |  |  | 208,491 |  |  | — |  |  | 208,491 |
Accrued interest payable | 260 |  |  | 10 |  |  | 250 |  |  | — |  |  | 260 |
Derivative Liabilities | 17,097 |  |  | — |  |  | 16,886 |  |  | 211 |  |  | 17,097 |
(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.
| December 31, 2019
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 | $ | 25,203 |  |  | $ | 25,203 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,203 |
Interest-earning deposits in other financial institutions | 96,701 |  |  | 96,701 |  |  | — |  |  | — |  |  | 96,701 |
Equity investments | 2,174 |  |  | 2,174 |  |  | — |  |  | — |  |  | 2,174 |
Securities available for sale | 284,090 |  |  | — |  |  | 284,090 |  |  | — |  |  | 284,090 |
Securities held to maturity | 3,115 |  |  | — |  |  | 2,094 |  |  | 1,045 |  |  | 3,139 |
FHLBNY and FRBNY stock | 3,099 |  |  | — |  |  | — |  |  | — |  |  | N/A
Loans, net and loans held for sale | 1,286,926 |  |  | — |  |  | — |  |  | 1,285,215 |  |  | 1,285,215 |
Accrued interest receivable | 4,633 |  |  | 63 |  |  | 885 |  |  | 3,685 |  |  | 4,633 |
Derivative Asset | 6,466 |  |  | — |  |  | 6,466 |  |  | — |  |  | 6,466 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts | $ | 1,410,962 |  |  | $ | 1,410,962 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,410,962 |
Time deposits | 161,176 |  |  | — |  |  | 163,761 |  |  | — |  |  | 163,761 |
Accrued interest payable | 299 |  |  | 27 |  |  | 272 |  |  | — |  |  | 299 |
Derivative Liabilities | 6,831 |  |  | — |  |  | 6,466 |  |  | 365 |  |  | 6,831 |
(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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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