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FAIR VALUE
 9 Months Ended
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 ValueQuoted 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 subdivisions43,260 — 43,260 — 
Corporate bonds and notes7,064 — 7,064 — 
SBA loan pools19,708 — 19,708 — 
Total available for sale securities$396,300 $— $396,300 $— 
Equity investments, at fair value$2,291 $1,629 $— $662 
Derivative assets16,886 — 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 ValueQuoted 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 subdivisions42,845 — 42,845 — 
Corporate bonds and notes250 — 250 — 
SBA loan pools15,761 — 15,761 — 
Total available for sale securities$284,090 $— $284,090 $— 
Equity investments, at fair value$1,442 $1,442 $— $— 
Derivative assets6,466 — 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, 2020September 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, 2020September 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 income169 (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):
DescriptionFair Value at September 30,
2020		Valuation TechniqueUnobservable InputsRange [Weighted Average] at September 30, 2020
Derivative liabilities$211 Historical trendCredit default rate
0.59% - 6.59%
[1.18%]
DescriptionFair Value at December 31,
2019		Valuation TechniqueUnobservable InputsRange [Weighted Average] at December 31, 2019
Derivative liabilities$365 Historical trendCredit 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 ValueQuoted 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 mortgages126 — — 126 
Consumer loans:    
Home equity lines and loans44 — — 44 
Total other real estate owned, net$586 $— $— $586 


 Fair Value Measurement at December 31, 2019 Using
Financial Assets:Fair ValueQuoted 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 mortgages284 — — 284 
Consumer loans:    
Home equity lines and loans122 — — 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):
DescriptionFair Value at September 30, 2020Valuation TechniqueUnobservable InputsRange [Weighted Average] at September 30, 2020
Impaired loans:
Commercial mortgages:
Commercial mortgages$512 Sales comparisonDiscount to appraised value
13.30% - 13.30%
[13.30%]
$512 
OREO:
Commercial mortgages:
Commercial mortgages$416 Sales comparisonDiscount to appraised value
42.28% - 42.28%
[42.28%]
Residential mortgages126 Sales comparisonDiscount to appraised value
20.80% - 20.80%
[20.80%]
Consumer loans:
Home equity lines and loans44 Sales comparisonDiscount to appraised value
20.80% - 20.80%
[20.80%]
$586 
DescriptionFair Value at December 31, 2019Valuation TechniqueUnobservable InputsRange [Weighted Average] at December 31, 2019
Impaired loans:
Commercial mortgages:
  Commercial mortgages$1,554 Sales comparisonDiscount to appraised value
10.00% - 10.00%
[10.00%]
$1,554 
OREO:
Commercial mortgages:
  Commercial mortgages$111 Sales comparisonDiscount to appraised value
20.80% - 20.80%
[20.80%]
Residential mortgages284 Sales comparisonDiscount to appraised value
20.80% - 35.29%
[24.09%]
Consumer loans:
Home equity lines and loans122 Sales comparisonDiscount 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 AmountQuoted 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 institutions114,575 114,575 — — 114,575 
Equity investments2,291 1,629 — 662 2,291 
Securities held to maturity3,047 — 2,684 409 3,093 
FHLBNY and FRBNY stock3,150 — — — N/A
Loans, net and loans held for sale1,515,962 — — 1,522,274 1,522,274 
Accrued interest receivable6,230 1 1,194 5,035 6,230 
Derivative Assets16,886 — 16,886 — 16,886 
Financial liabilities:     
Deposits:     
Demand, savings, and insured money market accounts$1,718,686 $1,718,686 $— $— $1,718,686 
Time deposits205,503 — 208,491 — 208,491 
Accrued interest payable260 10 250 — 260 
Derivative Liabilities17,097 — 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 AmountQuoted 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 institutions96,701 96,701 — — 96,701 
Equity investments2,174 2,174 — — 2,174 
Securities available for sale284,090 — 284,090 — 284,090 
Securities held to maturity3,115 — 2,094 1,045 3,139 
FHLBNY and FRBNY stock3,099 — — — N/A
Loans, net and loans held for sale1,286,926 — — 1,285,215 1,285,215 
Accrued interest receivable4,633 63 885 3,685 4,633 
Derivative Asset6,466 — 6,466 — 6,466 
Financial liabilities:     
Deposits:     
Demand, savings, and insured money market accounts$1,410,962 $1,410,962 $— $— $1,410,962 
Time deposits161,176 — 163,761 — 163,761 
Accrued interest payable299 27 272 — 299 
Derivative Liabilities6,831 — 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.