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FAIR VALUE | 6 Months Ended
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Jun. 30, 2023
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). Individually Analyzed Loans: At the time a loan is considered individually analyzed, it is valued at the lower of cost or fair value. Individually analyzed loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for credit 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 analyzed on a quarterly basis for additional impairment and adjusted accordingly. OREO: Assets acquired through or in lieu 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 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 June 30, 2023 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)
U.S. Treasury notes and bonds | $ | 56,197 |  |  | $ | 56,197 |  |  | $ | — |  |  | $ | — |
Mortgage-backed securities, residential | 417,365 |  |  | — |  |  | 417,365 |  |  | — |
Obligations of states and political subdivisions | 38,584 |  |  | — |  |  | 38,584 |  |  | — |
Corporate bonds and notes | 19,871 |  |  | — |  |  | 11,278 |  |  | 8,593 |
SBA loan pools | 72,296 |  |  | — |  |  | 72,296 |  |  | — |
Total available for sale securities | $ | 604,313 |  |  | $ | 56,197 |  |  | $ | 539,523 |  |  | $ | 8,593 |
Equity investments, at fair value | $ | 2,348 |  |  | $ | 2,348 |  |  | $ | — |  |  | $ | — |
Derivative assets | 26,450 |  |  | — |  |  | 26,450 |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |
Derivative liabilities | $ | 26,450 |  |  | $ | — |  |  | $ | 26,450 |  |  | $ | — |
There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2023.
|  | Fair Value Measurement at December 31, 2022 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)
U.S. Treasury notes and bonds | $ | 55,574 |  |  | $ | 55,574 |  |  | $ | — |  |  | $ | — |
Mortgage-backed securities, residential | 435,131 |  |  | — |  |  | 435,131 |  |  | — |
Obligations of states and political subdivisions | 38,892 |  |  | — |  |  | 38,892 |  |  | — |
Corporate bonds and notes | 21,970 |  |  | — |  |  | 21,970 |  |  | — |
SBA loan pools | 81,022 |  |  | — |  |  | 81,022 |  |  | — |
Total available for sale securities | $ | 632,589 |  |  | $ | 55,574 |  |  | $ | 577,015 |  |  | $ | — |
Equity investments, at fair value | $ | 2,246 |  |  | $ | 2,246 |  |  | $ | — |  |  | $ | — |
Derivative assets | 27,141 |  |  | — |  |  | 27,141 |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |
Derivative liabilities | $ | 27,196 |  |  | $ | — |  |  | $ | 27,196 |  |  | $ | — |
There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2022. The Corporation transfers assets and liabilities between levels within the hierarchy when the methodology to obtain the fair value changes such that there are either more or fewer unobservable inputs as of the end of the reporting period. The Corporation transferred its investment in eight corporate sub-debt issuances from Level 2 to Level 3 in the six month period ended June 30, 2023. Illiquidity in new issuances of comparable bonds and the size of issuances led to pricing difficulties, and the transfer to Level 3 within the period. The Corporation utilizes a "beginning of reporting period" timing assumption when recognizing transfers between hierarchy levels, consistent with ASC 820-10-50-2. The table below presents a reconciliation of all assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three months and six months ended June 30, 2023 and June 30, 2022.
Corporate Bonds: |  | For the Three Months Ended
Level 3 Financial Assets |  | June 30, 2023 |  | June 30, 2022
Balance of recurring Level 3 assets at April 1, 2023 |  | $ | 8,666 |  |  | $ | — |
Total gains and losses for the period: |  | — |  |  | — |
Included in other comprehensive income |  | (73) |  |  | — |
Transfer into Level 3 |  | — |  |  | — |
Balance of recurring Level 3 assets at June 30, 2023 |  | $ | 8,593 |  |  | $ | — |
Corporate Bonds: |  | For the Six Months Ended
Level 3 Financial Assets |  | June 30, 2023 |  | June 30, 2022
Balance of recurring Level 3 assets at January 1, 2023 |  | $ | — |  |  | $ | — |
Total gains and losses for the period: |  | — |  |  | — |
Included in other comprehensive income |  | (1,362) |  |  | — |
Transfer into Level 3 |  | 9,955 |  |  | — |
Balance of recurring Level 3 assets at June 30, 2023 |  | $ | 8,593 |  |  | $ | — |
June 30, 2023 | Fair Value | Valuation Techniques | Unobservable Input | Range (WA)
Corporate bonds and notes | $ | 8,594 |  | Discounted cash flow | Market discount rate | 12.00% -12.00% [12.00%]
There were no financial assets measured on a recurring basis that were considered to be Level 3 fair value by the Corporation at December 31, 2022. Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
|  |  | Fair Value Measurement at June 30, 2023 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) |  | Total Gains (Losses)
Individually Analyzed Loans: |  |  |  |  |  |  |  |  |
Commercial and agricultural: |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 414 |  |  | $ | — |  |  | $ | — |  |  | $ | 414 |  |  | $ | — |
Total individually analyzed loans | $ | 414 |  |  | $ | — |  |  | $ | — |  |  | $ | 414 |  |  | $ | — |
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2022 were considered to be immaterial to the presentation of the consolidated financial statements. The following table presents information related to Level 3 non-recurring fair value measurement at June 30, 2023 (in thousands):
Description |  | Fair Value at June 30, 2023 |  | Valuation Technique |  | Unobservable Inputs |  | Range [Weighted Average] at June 30, 2023
Individually analyzed loans: |  |  |  |  |  |  |  |
Commercial and agricultural: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 414 |  |  | Sales comparison |  | Discount to appraised value |  | 10.00%-50.00% [14.57%]
Total |  | $ | 414 |  |  |  |  |  |  |
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of other financial instruments, at June 30, 2023 and December 31, 2022, are as follows (in thousands):
| June 30, 2023
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 | $ | 25,499 |  |  | $ | 25,499 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,499 |
Interest-earning deposits in other financial institutions | 28,727 |  |  | 28,727 |  |  | — |  |  | — |  |  | 28,727 |
Equity investments | 2,841 |  |  | 2,841 |  |  | — |  |  | — |  |  | 2,841 |
Securities available for sale | 604,313 |  |  | 56,197 |  |  | 539,523 |  |  | 8,593 |  |  | 604,313 |
Securities held to maturity | 1,804 |  |  | — |  |  | 954 |  |  | 824 |  |  | 1,778 |
FHLBNY and FRBNY stock | 6,328 |  |  | — |  |  | — |  |  | — |  |  | N/A
Loans, net and loans held for sale | 1,874,519 |  |  | — |  |  | — |  |  | 1,807,870 |  |  | 1,807,870 |
Accrued interest receivable | 8,691 |  |  | 112 |  |  | 2,014 |  |  | 6,565 |  |  | 8,691 |
Derivative Assets | 26,450 |  |  | — |  |  | 26,450 |  |  | — |  |  | 26,450 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts | $ | 1,844,708 |  |  | $ | 1,844,708 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,844,708 |
Time deposits | 545,486 |  |  | — |  |  | 542,449 |  |  | — |  |  | 542,449 |
FHLBNY overnight advances | 50,760 |  |  | — |  |  | 50,762 |  |  | — |  |  | 50,762 |
Accrued interest payable | 2,828 |  |  | 79 |  |  | 2,749 |  |  | — |  |  | 2,828 |
Derivative Liabilities | 26,450 |  |  | — |  |  | 26,450 |  |  | — |  |  | 26,450 |
(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, 2022
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 | $ | 29,309 |  |  | $ | 29,309 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,309 |
Interest-earning deposits in other financial institutions | 26,560 |  |  | 26,560 |  |  | — |  |  | — |  |  | 26,560 |
Equity investments | 2,830 |  |  | 2,830 |  |  | — |  |  | — |  |  | 2,830 |
Securities available for sale | 632,589 |  |  | 55,574 |  |  | 577,015 |  |  | — |  |  | 632,589 |
Securities held to maturity | 2,424 |  |  | — |  |  | 1,450 |  |  | 952 |  |  | 2,402 |
FHLBNY and FRBNY stock | 8,197 |  |  | — |  |  | — |  |  | — |  |  | N/A
Loans, net and loans held for sale | 1,809,789 |  |  | — |  |  | — |  |  | 1,757,171 |  |  | 1,757,171 |
Accrued interest receivable | 8,682 |  |  | 132 |  |  | 2,002 |  |  | 6,548 |  |  | 8,682 |
Derivative Asset | 27,141 |  |  | — |  |  | 27,141 |  |  | — |  |  | 27,141 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |
Demand, savings, and insured money market accounts | $ | 1,924,843 |  |  | $ | 1,924,843 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,924,843 |
Time deposits | 402,384 |  |  | — |  |  | 403,572 |  |  | — |  |  | 403,572 |
FHLBNY overnight advances | 95,810 |  |  | — |  |  | 95,819 |  |  | — |  |  | 95,819 |
Accrued interest payable | 864 |  |  | 64 |  |  | 800 |  |  | — |  |  | 864 |
Derivative Liabilities | 27,196 |  |  | — |  |  | 27,196 |  |  | — |  |  | 27,196 |
(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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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