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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Note 10: Fair Value Measurements Accounting guidance related to fair value measurements and disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy: 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 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable. An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs, minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value. The Company used the following methods and significant assumptions to estimate fair value: Investment securities: The fair values of available-for-sale and marketable equity securities are obtained from an independent third party and are based on quoted prices on nationally recognized securities exchanges where available (Level 1). If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management made no adjustment to the fair value quotes that were received from the independent third party pricing service. Level 3 securities are assets whose fair value cannot be determined by using observable measures, such as market prices or pricing models. Level 3 assets are typically very illiquid, and fair values can only be calculated using estimates or risk-adjusted value ranges. Management applies known factors, such as currently applicable discount rates, to the valuation of those investments in order to determine fair value at the reporting date. The Company holds two corporate investment securities with an amortized historical cost of $4.1 million and an aggregate fair market value of $4.8 million as of June 30, 2022. These securities have an aggregate valuation that is determined using published net asset values (NAV) derived by an analysis of the securities’ underlying assets. These securities are comprised primarily of broadly-diversified real estate holdings and are traded in secondary markets on an infrequent basis. While these securities are redeemable at least annually through tender offers made by respective issuers, the liquidation value of these securities may be below stated NAVs and also subject to restrictions as to the amount that can be redeemed at any single scheduled redemption. The Company anticipates that these securities will be redeemed by respective issuers on indeterminate future dates as a consequence of the ultimate liquidation strategies employed by the managers of these portfolios. The Company held one private equity security investment, acquired in 2022, with an aggregate value of $677,000 at June 30, 2022, valued utilizing the unit of account (Level 2) which includes; financial metrics for the company, specific operating key performance indicators, and market-related inputs. No income or expense has been recorded related to this investment as the investment is still in early stage funding and, therefore, the investment is carried at historical cost at June 30, 2022. At March 31, 2022 the Company held shares in the common stock of an otherwise unaffiliated financial institution valued at $677,000. This investment was liquidated in the quarter ended June 30, 2022. The Company recognized a loss of $28,000 during the quarter related to changes in the market value of the common stock investment and the fees associated with the liquidation event. Interest rate derivatives: The fair value of the interest rate derivatives, characterized as either fair value or cash flow hedges, are calculated based on a discounted cash flow model. All future floating rate cash flows are projected and both floating rate and fixed rate cash flows are discounted to the valuation date. The benchmark interest rate curve utilized for projecting cash flows and applying appropriate discount rates is built by obtaining publicly available third party market quotes for various swap maturity terms. Impaired loans: Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. The following tables summarize assets measured at fair value on a recurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:
|  | June 30, 2022 |
|  |  |  |  |  |  |  |  |  |  | Total Fair |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Value |
Available-for-Sale Portfolio |  |  |  |  |  |  |  |  |  |  |  |
Debt investment securities: |  |  |  |  |  |  |  |  |  |  |  |
US Treasury, agencies and GSEs |  | $ | - |  |  | $ | 34,249 |  |  | $ | - |  |  | $ | 34,249 |
State and political subdivisions |  |  | - |  |  |  | 44,321 |  |  |  | - |  |  |  | 44,321 |
Corporate |  |  | - |  |  |  | 10,077 |  |  |  | - |  |  |  | 10,077 |
Asset backed securities |  |  | - |  |  |  | 16,527 |  |  |  | - |  |  |  | 16,527 |
Residential mortgage-backed - US agency |  |  | - |  |  |  | 20,408 |  |  |  | - |  |  |  | 20,408 |
Collateralized mortgage obligations - US agency |  |  | - |  |  |  | 9,400 |  |  |  | - |  |  |  | 9,400 |
Collateralized mortgage obligations - Private label |  |  | - |  |  |  | 63,147 |  |  |  | - |  |  |  | 63,147 |
Total |  |  |  |  |  | 198,129 |  |  |  |  |  |  | 198,129 |
Equity investment securities: |  |  |  |  |  |  |  |  |  |  |  |
Common stock - financial services industry |  |  | 206 |  |  |  | - |  |  |  | - |  |  |  | 206 |
Other Securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate measured at NAV |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,832 |
Total available-for-sale securities |  | $ | 206 |  |  | $ | 198,129 |  |  | $ | - |  |  | $ | 203,167 |
Private equity securities |  | $ | - |  |  | $ | 677 |  |  | $ | - |  |  | $ | 677 |
Marketable equity securities measured at NAV |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Interest rate swap derivative fair value hedges |  | $ | - |  |  | $ | (7,063 | ) |  | $ | - |  |  | $ | (7,063 | )
Interest rate swap derivative cash flow hedges |  | $ | - |  |  | $ | 584 |  |  | $ | - |  |  | $ | 584 |
|  | December 31, 2021 |
|  |  |  |  |  |  |  |  |  |  | Total Fair |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Value |
Available-for-Sale Portfolio |  |  |  |  |  |  |  |  |  |  |  |
Debt investment securities: |  |  |  |  |  |  |  |  |  |  |  |
US Treasury, agencies and GSEs |  | $ | - |  |  | $ | 32,273 |  |  | $ | - |  |  | $ | 32,273 |
State and political subdivisions |  |  | - |  |  |  | 39,199 |  |  |  | - |  |  |  | 39,199 |
Corporate |  |  | - |  |  |  | 9,630 |  |  |  | - |  |  |  | 9,630 |
Asset backed securities |  |  | - |  |  |  | 13,613 |  |  |  | - |  |  |  | 13,613 |
Residential mortgage-backed - US agency |  |  | - |  |  |  | 22,164 |  |  |  | - |  |  |  | 22,164 |
Collateralized mortgage obligations - US agency |  |  | - |  |  |  | 12,285 |  |  |  | - |  |  |  | 12,285 |
Collateralized mortgage obligations - Private label |  |  | - |  |  |  | 56,731 |  |  |  | - |  |  |  | 56,731 |
Total |  |  | - |  |  |  | 185,895 |  |  |  | - |  |  |  | 185,895 |
Equity investment securities: |  |  |  |  |  |  |  |  |  |  |  |
Common stock - financial services industry |  |  | 206 |  |  |  | - |  |  |  | - |  |  |  | 206 |
Other Securities: |  |  |  |  |  |  |  |  |  |  |  |
Corporate measured at NAV |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,497 |
Total available-for-sale securities |  | $ | 206 |  |  | $ | 185,895 |  |  | $ | - |  |  | $ | 190,598 |
Private equity securities |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Marketable equity securities measured at NAV |  | $ | 677 |  |  | $ | - |  |  | $ | - |  |  | $ | 677 |
Interest rate swap derivative fair value hedge |  | $ | - |  |  | $ | (1,460 | ) |  | $ | - |  |  | $ | (1,460 | )
Interest rate swap derivative cash flow hedges |  | $ | - |  |  | $ | (387 | ) |  | $ | - |  |  | $ | (387 | )
Pathfinder Bank had the following assets measured at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2021:
|  |  |  |  | June 30, 2022 |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Total Fair |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Value |
Impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 1,056 |  |  | $ | 1,056 |
Foreclosed real estate |  | $ | - |  |  | $ | - |  |  | $ | 221 |  |  | $ | 221 |
|  |  |  |  | December 31, 2021 |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Total Fair |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Value |
Impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 4,182 |  |  | $ | 4,182 |
Foreclosed real estate |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value at the indicated dates.
|  | Quantitative Information about Level 3 Fair Value Measurements |
| Valuation | Unobservable | Range
| Techniques | Input | (Weighted Avg.)
At June 30, 2022 |  |  |
Impaired loans | Appraisal of collateral | Appraisal Adjustments | 5% - 30% (18%)
| (Sales Approach) | Costs to Sell | 8% - 14% (10%)
| Discounted Cash Flow |  |
|  | Quantitative Information about Level 3 Fair Value Measurements |
| Valuation | Unobservable | Range
| Techniques | Input | (Weighted Avg.)
At December 31, 2021 |  |  |
Impaired loans | Appraisal of collateral | Appraisal Adjustments | 5% - 30% (15%)
| (Sales Approach) | Costs to Sell | 7% - 14% (10%)
| Discounted Cash Flow |  |
There have been no transfers of assets into or out of any fair value measurement level during the three or six months ended June 30, 2022. Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The Company has various processes and controls in place to ensure that fair value is reasonably estimated. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the financial assets and liabilities were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions: Cash and cash equivalents – The carrying amounts of these assets approximate their fair value and are classified as Level 1. Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value and are classified as Level 2. Net loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts. The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Loan value estimates include judgments based on expected prepayment rates. The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy. Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value and are classified as Level 1. Deposits – The fair values disclosed for demand deposits (e.g., interest-bearing and noninterest-bearing checking, passbook savings and certain types of money management accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified within Level 1 of the fair value hierarchy. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposits to a schedule of aggregated expected monthly maturities on time deposits. Measurements of the fair value of time deposits are classified within Level 2 of the fair value hierarchy. Borrowings – Fixed/variable term “bullet” structures are valued using a replacement cost of funds approach. These borrowings are discounted to the FHLBNY advance curve. Option structured borrowings’ fair values are determined by the FHLB for borrowings that include a call or conversion option. If market pricing is not available from this source, current market indications from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY advance curve less an appropriate spread to adjust for the option. These measurements are classified as Level 2 within the fair value hierarchy. Subordinated debt – The Company secures quotes from its pricing service based on a discounted cash flow methodology or utilizes observations of recent highly-similar transactions which result in a Level 2 classification. The carrying amounts and fair values of the Company’s financial instruments as of the indicated dates are presented in the following table:
|  |  |  | June 30, 2022 |  |  | December 31, 2021 |
|  | Fair Value |  | Carrying |  |  | Estimated |  |  | Carrying |  |  | Estimated |
(In thousands) |  | Hierarchy |  | Amounts |  |  | Fair Values |  |  | Amounts |  |  | Fair Values |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 1 |  | $ | 38,287 |  |  | $ | 38,287 |  |  | $ | 37,149 |  |  | $ | 37,149 |
Investment securities - available-for-sale |  | 2 |  |  | 198,129 |  |  |  | 198,129 |  |  |  | 185,895 |  |  |  | 185,895 |
Investment securities - available-for-sale |  | NAV |  |  | 4,832 |  |  |  | 4,832 |  |  |  | 4,497 |  |  |  | 4,497 |
Investment securities - marketable equity |  | 1 |  |  | 677 |  |  |  | 677 |  |  |  | 677 |  |  |  | 677 |
Investment securities - held-to-maturity |  | 2 |  |  | 181,532 |  |  |  | 174,558 |  |  |  | 160,923 |  |  |  | 162,805 |
Federal Home Loan Bank stock |  | 2 |  |  | 4,169 |  |  |  | 4,169 |  |  |  | 4,189 |  |  |  | 4,189 |
Net loans |  | 3 |  |  | 853,211 |  |  |  | 836,882 |  |  |  | 819,524 |  |  |  | 819,721 |
Accrued interest receivable |  | 1 |  |  | 4,812 |  |  |  | 4,812 |  |  |  | 4,520 |  |  |  | 4,520 |
Interest rate swap derivative fair value hedges |  | 2 |  |  | 7,063 |  |  |  | 7,063 |  |  |  | 1,460 |  |  |  | 1,460 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand Deposits, Savings, NOW and MMDA |  | 1 |  | $ | 705,198 |  |  | $ | 705,198 |  |  | $ | 694,089 |  |  | $ | 694,089 |
Time Deposits |  | 2 |  |  | 432,646 |  |  |  | 424,105 |  |  |  | 361,257 |  |  |  | 360,680 |
Borrowings |  | 2 |  |  | 75,721 |  |  |  | 72,511 |  |  |  | 77,098 |  |  |  | 76,957 |
Subordinated debt |  | 2 |  |  | 29,646 |  |  |  | 27,608 |  |  |  | 29,563 |  |  |  | 30,627 |
Accrued interest payable |  | 1 |  |  | 186 |  |  |  | 186 |  |  |  | 106 |  |  |  | 106 |
Interest rate swap derivative cash flow hedges |  | 2 |  |  | (584 | ) |  |  | (584 | ) |  |  | 387 |  |  |  | 387 |

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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