Investment Securities

3 Months Ended

Mar. 31, 2020

Investments Debt And Equity Securities [Abstract]

Note 4: Investment Securities

The amortized cost and estimated fair value of investment securities are summarized as follows:

	March 31, 2020
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	19,645	$	25	$	(25	)	$	19,645
State and political subdivisions		7,395		-		(515	)		6,880
Corporate		12,303		244		(337	)		12,210
Asset backed securities		14,227		-		(1,811	)		12,416
Residential mortgage-backed - US agency		20,112		173		(139	)		20,146
Collateralized mortgage obligations - US agency		35,843		62		(805	)		35,100
Collateralized mortgage obligations - Private label		15,680		7		(832	)		14,855
Total		125,205		511		(4,464	)		121,252
Equity investment securities:
Common stock - financial services industry		206		-		-			206
Total		206		-		-			206
Total available-for-sale	$	125,411	$	511	$	(4,464	)	$	121,458

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,999	$	13	$	-		$	2,012
State and political subdivisions		8,484		75		(81	)		8,478
Corporate		24,780		210		(1,012	)		23,978
Asset backed securities		26,016		-		(1,992	)		24,024
Residential mortgage-backed - US agency		13,157		320		(66	)		13,411
Collateralized mortgage obligations - US agency		22,950		378		(177	)		23,151
Collateralized mortgage obligations - Private label		23,163		-		(1,129	)		22,034
Total held-to-maturity	$	120,549	$	996	$	(4,457	)	$	117,088

	December 31, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Available-for-Sale Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	16,850	$	-	$	(30	)	$	16,820
State and political subdivisions		1,735		1		-			1,736
Corporate		12,347		230		(23	)		12,554
Asset backed securities		13,190		61		(19	)		13,232
Residential mortgage-backed - US agency		19,012		56		(88	)		18,980
Collateralized mortgage obligations - US agency		31,320		35		(570	)		30,785
Collateralized mortgage obligations - Private label		16,767		97		(43	)		16,821
Total		111,221		480		(773	)		110,928
Equity investment securities:
Common stock - financial services industry		206		-		-			206
Total		206		-		-			206
Total available-for-sale	$	111,427	$	480	$	(773	)	$	111,134

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	1,998	$	2	$	-		$	2,000
State and political subdivisions		8,534		124		(4	)		8,654
Corporate		25,779		584		(29	)		26,334
Asset backed securities		23,099		101		(115	)		23,085
Residential mortgage-backed - US agency		13,715		247		(3	)		13,959
Collateralized mortgage obligations - US agency		19,607		300		(29	)		19,878
Collateralized mortgage obligations - Private label		30,256		35		(53	)		30,238
Total held-to-maturity	$	122,988	$	1,393	$	(233	)	$	124,148

The amortized cost and estimated fair value of debt investments at March 31, 2020 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
(In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	13,259	$	13,276	$	2,812	$	2,818
Due after one year through five years		12,485		12,359		20,137		19,536
Due after five years through ten years		13,858		13,201		20,762		20,032
Due after ten years		13,968		12,315		17,568		16,106
Sub-total		53,570		51,151		61,279		58,492
Residential mortgage-backed - US agency		20,112		20,146		13,157		13,411
Collateralized mortgage obligations - US agency		35,843		35,100		22,950		23,151
Collateralized mortgage obligations - Private label		15,680		14,855		23,163		22,034
Totals	$	125,205	$	121,252	$	120,549	$	117,088

The Company’s investment securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	March 31, 2020
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		1	$	(25	)	$	4,952		-	$	-		$	-		1	$	(25	)	$	4,952
State and political subdivisions		5		(515	)		5,390		-		-			-		5		(515	)		5,390
Corporate		8		(337	)		5,143		-		-			-		8		(337	)		5,143
Asset backed securities		11		(1,797	)		12,027		1		(14	)		367		12		(1,811	)		12,394
Residential mortgage-backed - US agency		7		(133	)		7,989		1		(6	)		1,483		8		(139	)		9,472
Collateralized mortgage obligations - US agency		11		(212	)		18,524		8		(593	)		7,132		19		(805	)		25,656
Collateralized mortgage obligations - Private label		9		(477	)		9,434		4		(355	)		4,339		13		(832	)		13,773
Totals		52	$	(3,496	)	$	63,459		14	$	(968	)	$	13,321		66	$	(4,464	)	$	76,780
Held-to-Maturity Portfolio
State and political subdivisions		2	$	(81	)	$	3,046		-	$	-		$	-		2	$	(81	)	$	3,046
Corporate		12		(1,012	)		12,236		-		-			-		12		(1,012	)		12,236
Asset backed securities		12		(1,992	)		22,048		-		-			-		12		(1,992	)		22,048
Residential mortgage-backed - US agency		3		(66	)		4,021		-		-			-		3		(66	)		4,021
Collateralized mortgage obligations - US agency		3		(177	)		5,623		-		-			-		3		(177	)		5,623
Collateralized mortgage obligations - Private label		11		(1,089	)		14,214		2		(40	)		811		13		(1,129	)		15,025
Totals		43	$	(4,417	)	$	61,188		2	$	(40	)	$	811		45	$	(4,457	)	$	61,999

	December 31, 2019
	Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
(Dollars in thousands)	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
Available-for-Sale Portfolio
US Treasury, agencies and GSE's		4	$	(30	)	$	16,820		-	$	-		$	-		4	$	(30	)	$	16,820
Corporate		1		(23	)		786		-		-			-		1		(23	)		786
Asset backed securities		3		(7	)		5,211		1		(12	)		594		4		(19	)		5,805
Residential mortgage-backed - US agency		10		(77	)		10,709		4		(11	)		2,543		14		(88	)		13,252
Collateralized mortgage obligations - US agency		10		(67	)		15,791		10		(503	)		10,034		20		(570	)		25,825
Collateralized mortgage obligations - Private label		2		(7	)		3,818		5		(36	)		3,959		7		(43	)		7,777
Totals		30	$	(211	)	$	53,135		20	$	(562	)	$	17,130		50	$	(773	)	$	70,265
Held-to-Maturity Portfolio
State and political subdivisions		1	$	(4	)	$	3,027		-	$	-		$	-		1	$	(4	)	$	3,027
Corporate		2		(29	)		2,974		-		-			-		2		(29	)		2,974
Asset backed securities		6		(115	)		11,091		-		-			-		6		(115	)		11,091
Residential mortgage-backed - US agency		-		-			-		1		(3	)		198		1		(3	)		198
Collateralized mortgage obligations - US agency		2		(29	)		4,907		-		-			-		2		(29	)		4,907
Collateralized mortgage obligations - Private label		6		(49	)		9,396		2		(4	)		1,132		8		(53	)		10,528
Totals		17	$	(226	)	$	31,395		3	$	(7	)	$	1,330		20	$	(233	)	$	32,725

Excluding the effects of changes in the characteristics of individual debt securities that potentially give rise to other-than-temporary impairment (“OTTI”), as described below, the fair market value of a debt security as of a particular measurement date is highly dependent upon prevailing market and economic environmental factors at the measurement date relative to the prevailing market and economic environmental factors present at the time the debt security was acquired. The most significant market and environmental factors include, but are not limited to (1) the general level of interest rates, (2) the relationship between shorter-term interest rates and longer-term interest rates (referred to as the “slope” of the interest rate yield curve), (3) general bond market liquidity, (4) the recent and expected near-term volume of new issuances of similar debt securities, and (5) changes in the market values of individual loan collateral underlying mortgage-backed debt securities. Changes in interest rates affect the fair market values of debt securities by influencing the discount rate applied to the securities’ future expected cash flows. The higher the discount rate, the lower the resultant security price. Conversely, the lower the discount rate, the higher the resultant security price. In addition, the cumulative amount and timing of undiscounted cash flows of debt securities may be also affected by changes in interest rates. For any given level of movement in the general market and economic environmental factors described above, the magnitude of any particular debt security’s price changes will also depend heavily upon security-specific factors such as (1) the duration of the security, (2) imbedded optionality contractually granted to the issuer of the security with respect to principal prepayments, and (3) changes in the level of market premiums demanded by investors for securities with imbedded credit risk (where applicable).

The Company conducts a formal review of investment securities on a quarterly basis for the presence of OTTI. The Company assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date. Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis. The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment. Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI. The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

Management does not believe any individual unrealized loss in the securities portfolio as of March 31, 2020 represented OTTI. At March 31, 2020, the Bank had the following securities, in a loss position for 12 months or more relative to their amortized historical cost, which were deemed to have no credit impairment, thus, the disclosed unrealized losses related directly to changes in interest rates subsequent to the acquisition of the individual securities. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

•

One privately-issued asset-backed security, categorized as available-for-sale, with an amortized historical cost of $381,000 and an aggregate market value of $367,000 (unrealized loss of $14,000 or 3.8%). This security maintains a credit rating established by one or more NRSRO above the minimum level required to be considered as investment grade and therefore, no credit-related OTTI is deemed to be present.

•

Four privately-issued collateralized mortgage obligation securities, categorized as available-for-sale, with an aggregate amortized historical cost of $4.7 million and an aggregate market value of $4.3 million (unrealized aggregate loss of $355,000 or 8.2%). These securities were not rated at the time of their issuances by any NRSRO but each security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

•

Two privately-issued collateralized mortgage obligation securities, categorized as held-to-maturity, with an aggregate amortized historical cost of $851,000 and an aggregate market value of $811,000 (aggregate unrealized loss of $40,000 or 4.9%). These securities were not rated at the time of their issuance by any NRSRO but each security remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

All other securities with market values less than their amortized historical costs are issued by United States agencies or government sponsored enterprises and consist of mortgage-backed securities, collateralized mortgage obligations and direct agency financings. These positions in US government agency and government-sponsored enterprises are deemed to have no credit impairment, thus, the disclosed unrealized losses related directly to changes in interest rates subsequent to the acquisition of the individual securities. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount. The Company had no equity securities that were impaired at March 31, 2020 or December 31, 2019.

The comprehensive loss recorded in the quarter ended March 31, 2020 was primarily the result of the unrealized depreciation in the fair market value of the available-for-sale investment securities portfolio during the three months ended March 31, 2020. This depreciation was primarily due to the effects of the COVID-19 pandemic on global fixed income markets at the end of March 2020, as trading activity in those markets was substantially halted and normal market-based price discovery mechanisms were temporarily, but substantially, incapacitated. As a result, available market price quotations for many of the securities within the Company’s investment securities portfolio were not reflective of the fair values that would be obtainable in normally functioning markets.

Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

	For the three months
	ended March 31,
(In thousands)	2020			2019
Realized gains on investments	$	33		$	222
Realized losses on investments		(7	)		(143	)
	$	26		$	79

As of March 31, 2020 and December 31, 2019, securities with a fair value of $113.5 million and $92.4 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $25.6 million and $21.3 million, respectively, were pledged against certain borrowing arrangements.

Management has reviewed its mortgage-backed securities portfolios and determined that, to the best of its knowledge, little exposure exists to sub-prime or other high-risk residential mortgages. With limited exceptions in the Company’s investment portfolio involving the most senior tranches of securitized bonds, the Company is not in the practice of investing in, or originating, these types of investments or loans.