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Investments

6 Months Ended

Jun. 30, 2021

Investments [Abstract]

Investments

Note 4 – Investments

The following table shows a comparison of amortized cost and fair values of investment securities at June 30, 2021 and December 31, 2020:



(in thousands)		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			OTTI in AOCL
June 30, 2021
Available for Sale:
U.S. government agencies		$	59,703		$	367		$	1,949		$	58,121		$	—
Residential mortgage-backed agencies			32,027			—			545			31,482			—
Commercial mortgage-backed agencies			54,361			306			477			54,190			—
Collateralized mortgage obligations			73,559			144			1,547			72,156			—
Obligations of states and political subdivisions			9,417			417			—			9,834			—
Collateralized debt obligations			18,579			—			2,349			16,230			(1,415)
Total available for sale		$	247,646		$	1,234		$	6,867		$	242,013		$	(1,415)
Held to Maturity:
Residential mortgage-backed agencies		$	35,595		$	879		$	327		$	36,147		$	—
Commercial mortgage-backed agencies			9,747			397			—			10,144			—
Collateralized mortgage obligations			118			1			—			119			—
Obligations of states and political subdivisions			20,223			8,941			—			29,164			—
Total held to maturity		$	65,683		$	10,218		$	327		$	75,574		$	—
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 June 30, 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
June 30, 2021
Available for Sale:
U.S. government agencies		$	34,409		$	1,949		6		$	—		$	—		—
Residential mortgage-backed agencies			31,481			545		3			—			—		—
Commercial mortgage-backed agencies			24,748			477		3			—			—		—
Collateralized mortgage obligations			65,230			1,547		7			—			—		—
Collateralized debt obligations			—			—		—			16,230			2,349		9
Total available for sale		$	155,868		$	4,518		19		$	16,230		$	2,349		9
Held to Maturity:
Residential mortgage-backed agencies			8,268			327		3			—			—		—
Total held to maturity		$	8,268		$	327		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 six months of 2021 or 2020.

The Corporation believes that the investment securities that were in an unrealized loss position at June 30, 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 six month and three month periods ended June 30, 2021 and 2020 that the Corporation does not intend to sell:


		Six Months Ended
		June 30,
(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			(101)			(101)
Balance of credit-related OTTI at June 30		$	2,143		$	2,345


		Three Months Ended
		June 30,
(in thousands)		2021			2020
Balance of credit-related OTTI at April 1		$	2,194		$	2,396
Reduction for increases in cash flows expected to be collected			(51)			(51)
Balance of credit-related OTTI at June 30		$	2,143		$	2,345

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 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.



		June 30, 2021
(in thousands)		Amortized Cost			Fair Value
Contractual Maturity
Available for Sale:
Due after one year through five years		$	4,411		$	4,489
Due after five years through ten years			10,063			10,238
Due after ten years			73,225			69,458
			87,699			84,185
Residential mortgage-backed agencies			32,027			31,482
Commercial mortgage-backed agencies			54,361			54,190
Collateralized mortgage obligations			73,559			72,156
Total available for sale		$	247,646		$	242,013
Held to Maturity:
Due after ten years		$	20,223		$	29,164
Residential mortgage-backed agencies			35,595			36,147
Commercial mortgage-backed agencies			9,747			10,144
Collateralized mortgage obligations			118			119
Total held to maturity		$	65,683		$	75,574