Investments

3 Months Ended

Mar. 31, 2021

Note 5 – Investments

The following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2021 and December 31, 2020:



(in thousands)	Amortized ‎Cost		Gross ‎Unrealized ‎Gains		Gross ‎Unrealized ‎Losses		Fair ‎Value		OTTI ‎in AOCL
March 31, 2021
Available for Sale:
U.S. government agencies	$	63,646	$	545	$	3,155	$	61,036	$	—
Residential mortgage-backed agencies		22,606		—		784		21,822		—
Commercial mortgage-backed agencies		33,257		274		774		32,757		—
Collateralized mortgage obligations		66,866		217		2,184		64,899		—
Obligations of states and political subdivisions		9,433		410		—		9,843		—
Collateralized debt obligations		18,556		—		4,907		13,649		(3,526)
Total available for sale	$	214,364	$	1,446	$	11,804	$	204,006	$	(3,526)
Held to Maturity:
Residential mortgage-backed agencies	$	38,470	$	1,057	$	463	$	39,064	$	—
Commercial mortgage-backed agencies		9,795		433		—		10,228		—
Collateralized mortgage obligations		490		8		—		498		—
Obligations of states and political subdivisions		20,602		7,179		—		27,781		—
Total held to maturity	$	69,357	$	8,677	$	463	$	77,571	$	—
December 31, 2020
Available for Sale:
U.S. government agencies	$	75,856	$	899	$	322	$	76,433	$	—
Residential mortgage-backed agencies		22,999		—		100		22,899		—
Commercial mortgage-backed agencies		32,549		529		36		33,042		—
Collateralized mortgage obligations		70,372		266		1		70,637		—
Obligations of states and political subdivisions		10,144		470		—		10,614		—
Collateralized debt obligations		18,544		—		5,284		13,260		(3,839)
Total available for sale	$	230,464	$	2,164	$	5,743	$	226,885	$	(3,839)
Held to Maturity:
Residential mortgage-backed agencies	$	34,597	$	1,173	$	38	$	35,732	$	—
Commercial mortgage-backed agencies		11,716		587		—		12,303		—
Collateralized mortgage obligations		1,348		58		—		1,406		—
Obligations of states and political subdivisions		20,602		7,569		—		28,171		—
Total held to maturity	$	68,263	$	9,387	$	38	$	77,612	$	—

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at March 31, 2021 and December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:


	Less than 12 months					12 months or more
(in thousands)	Fair ‎Value		Unrealized ‎Losses		Number of ‎Investments	Fair ‎Value		Unrealized ‎Losses		Number of ‎Investments
March 31, 2021
Available for Sale:
U.S. government agencies	$	36,765	$	3,155	7	$	—	$	—	—
Residential mortgage-backed agencies		21,822		784	2		—		—	—
Commercial mortgage-backed agencies		25,632		774	3		—		—	—
Collateralized mortgage obligations		55,737		2,184	6		—		—	—
Collateralized debt obligations		—		—	—		13,649		4,907	9
Total available for sale	$	139,956	$	6,897	18	$	13,649	$	4,907	9
Held to Maturity:
Residential mortgage-backed agencies		8,849		463	3		—		—	—
Total held to maturity	$	8,849	$	463	3	$	—	$	—	—
December 31, 2020
Available for Sale:
U.S. government agencies	$	39,611	$	322	7	$	—	$	—	—
Residential mortgage-backed agencies		22,899		100	2		—		—	—
Commercial mortgage-backed agencies		16,034		36	1		—		—	—
Collateralized mortgage obligations		39,628		1	4		—		—	—
Collateralized debt obligations		—		—	—		13,260		5,284	9
Total available for sale	$	118,172	$	459	14	$	13,260	$	5,284	9
Held to Maturity:
Residential mortgage-backed agencies	$	2,973	$	38	1	$	—	$	—	—
Total held to maturity	$	2,973	$	38	1	$	—	$	—	—

Management systematically evaluates securities for impairment on a quarterly basis. Based upon application of accounting guidance for subsequent measurement in ASC Topic 320 (ASC Section 320-10-35), management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to the anticipated recovery of any decline in fair value. If neither applies, then any decline in the fair value below the security’s cost that is considered an other-than-temporary decline is split into two components. The first component is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating other than temporary impairment (“OTTI”) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35).

Management believes that the valuation of certain securities is a critical accounting policy that requires significant estimates in preparation of the Corporation’s consolidated financial statements. Management utilizes an independent third party to prepare both the impairment valuations and fair value determinations for the Corporation’s collateralized debt obligation (“CDO”) portfolio consisting of pooled trust preferred securities. See Note 9 for a discussion of the methodology used by management to determine the fair values of these securities. Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were no securities that had credit-related OTTI charges during the first three months of 2021 or 2020.

The Corporation believes that the investment securities that were in an unrealized loss position at March 31, 2021 do not represent other-than-temporary impairment. The Corporation does not intend to sell, nor is it anticipated that the Corporation will be required to sell, any of its impaired investment securities at a loss.

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been recognized in earnings for the trust preferred securities held in the CDO portfolio during the three month periods ended March 31, 2021 and 2020 that the Corporation does not intend to sell:



	Three Months Ended
	March 31,
(in thousands)	2021		2020
Balance of credit-related OTTI at January 1	$	2,244	$	2,446
Reduction for increases in cash flows expected to be collected		(50)		(50)
Balance of credit-related OTTI at March 31	$	2,194	$	2,396

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2021 are shown in the following table. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.



	March 31, 2021
(in thousands)	Amortized ‎Cost		Fair ‎Value
Contractual Maturity
Available for Sale:
Due after one year through five years	$	4,418	$	4,517
Due after five years through ten years		20,052		20,613
Due after ten years		67,165		59,398
		91,635		84,528
Residential mortgage-backed agencies		22,606		21,822
Commercial mortgage-backed agencies		33,257		32,757
Collateralized mortgage obligations		66,866		64,899
Total available for sale	$	214,364	$	204,006
Held to Maturity:
Due after ten years	$	20,602	$	27,781
Residential mortgage-backed agencies		38,470		39,064
Commercial mortgage-backed agencies		9,795		10,228
Collateralized mortgage obligations		490		498
Total held to maturity	$	69,357	$	77,571