Investment Securities

6 Months Ended

Jun. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Note 4: Investment Securities

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


	June 30, 2022
			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	$	36,827	$	40	$	(2,618	)	$	34,249
State and political subdivisions		47,559		77		(3,315	)		44,321
Corporate		14,604		752		(447	)		14,909
Asset backed securities		17,172		-		(645	)		16,527
Residential mortgage-backed - US agency		21,667		19		(1,278	)		20,408
Collateralized mortgage obligations - US agency		10,314		-		(914	)		9,400
Collateralized mortgage obligations - Private label		66,219		-		(3,072	)		63,147
Total		214,362		888		(12,289	)		202,961
Equity investment securities:
Common stock - financial services industry		206		-		-			206
Total		206		-		-			206
Total available-for-sale	$	214,568	$	888	$	(12,289	)	$	203,167

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	3,872	$	-	$	(87	)	$	3,785
State and political subdivisions		15,240		1		(1,720	)		13,521
Corporate		48,048		38		(1,159	)		46,927
Asset backed securities		15,257		21		(620	)		14,658
Residential mortgage-backed - US agency		7,764		17		(417	)		7,364
Collateralized mortgage obligations - US agency		15,775		5		(648	)		15,132
Collateralized mortgage obligations - Private label		75,576		7		(2,412	)		73,171
Total held-to-maturity	$	181,532	$	89	$	(7,063	)	$	174,558


	December 31, 2021
			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	$	32,669	$	17	$	(413	)	$	32,273
State and political subdivisions		37,860		1,383		(44	)		39,199
Corporate		13,603		562		(38	)		14,127
Asset backed securities		13,693		9		(89	)		13,613
Residential mortgage-backed - US agency		22,482		148		(466	)		22,164
Collateralized mortgage obligations - US agency		12,658		30		(403	)		12,285
Collateralized mortgage obligations - Private label		56,848		285		(402	)		56,731
Total		189,813		2,434		(1,855	)		190,392
Equity investment securities:
Common stock - financial services industry		206		-		-			206
Total		206		-		-			206
Total available-for-sale	$	190,019	$	2,434	$	(1,855	)	$	190,598

Held-to-Maturity Portfolio
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	-	$	-		$	-
State and political subdivisions		14,790		416		(140	)		15,066
Corporate		46,290		1,252		(102	)		47,440
Asset backed securities		14,636		67		(188	)		14,515
Residential mortgage-backed - US agency		9,740		277		(18	)		9,999
Collateralized mortgage obligations - US agency		11,362		367		(9	)		11,720
Collateralized mortgage obligations - Private label		64,105		222		(262	)		64,065
Total held-to-maturity	$	160,923	$	2,601	$	(719	)	$	162,805

The amortized cost and estimated fair value of debt investments at June 30, 2022 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	$	4,576	$	5,309	$	2,825	$	2,826
Due after one year through five years		9,068		8,811		11,012		10,842
Due after five years through ten years		37,654		34,856		43,401		42,090
Due after ten years		64,864		61,030		25,179		23,133
Sub-total		116,162		110,006		82,417		78,891
Residential mortgage-backed - US agency		21,667		20,408		7,764		7,364
Collateralized mortgage obligations - US agency		10,314		9,400		15,775		15,132
Collateralized mortgage obligations - Private label		66,219		63,147		75,576		73,171
Totals	$	214,362	$	202,961	$	181,532	$	174,558

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:


	June 30, 2022
	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	$	(36	)	$	2,959		3	$	(2,582	)	$	27,626		4	$	(2,618	)	$	30,585
State and political subdivisions		30		(3,126	)		39,848		1		(189	)		2,021		31		(3,315	)		41,869
Corporate		9		(308	)		8,169		1		(139	)		616		10		(447	)		8,785
Asset backed securities		10		(499	)		13,671		1		(146	)		2,857		11		(645	)		16,528
Residential mortgage-backed - US agency		14		(767	)		10,846		2		(511	)		8,363		16		(1,278	)		19,209
Collateralized mortgage obligations - US agency		10		(325	)		5,106		3		(589	)		4,294		13		(914	)		9,400
Collateralized mortgage obligations - Private label		33		(2,895	)		57,719		3		(177	)		3,779		36		(3,072	)		61,498
Totals		107	$	(7,956	)	$	138,318		14	$	(4,333	)	$	49,556		121	$	(12,289	)	$	187,874
Held-to-Maturity Portfolio
US Treasury, agencies and GSE's		2	$	(87	)	$	3,784		-	$	-		$	-		2	$	(87	)	$	3,784
State and political subdivisions		11		(650	)		8,803		3		(1,070	)		4,198		14		(1,720	)		13,001
Corporate		32		(1,133	)		30,843		1		(26	)		724		33		(1,159	)		31,567
Asset backed securities		5		(502	)		7,727		1		(118	)		921		6		(620	)		8,648
Residential mortgage-backed - US agency		9		(417	)		5,658		-		-			-		9		(417	)		5,658
Collateralized mortgage obligations - US agency		9		(632	)		12,794		1		(16	)		963		10		(648	)		13,757
Collateralized mortgage obligations - Private label		30		(2,078	)		46,003		2		(334	)		3,285		32		(2,412	)		49,288
Totals		98	$	(5,499	)	$	115,612		8	$	(1,564	)	$	10,091		106	$	(7,063	)	$	125,703


	December 31, 2021
	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		3	$	(413	)	$	31,195		-	$	-		$	-		3	$	(413	)	$	31,195
State and political subdivisions		3		(44	)		4,847		-		-			-		3		(44	)		4,847
Corporate		2		(5	)		1,162		1		(33	)		722		3		(38	)		1,884
Asset backed securities		5		(89	)		11,206		-		-			-		5		(89	)		11,206
Residential mortgage-backed - US agency		3		(466	)		13,090		-		-			-		3		(466	)		13,090
Collateralized mortgage obligations - US agency		3		(126	)		6,504		2		(277	)		2,204		5		(403	)		8,708
Collateralized mortgage obligations - Private label		18		(388	)		38,816		2		(14	)		1,539		20		(402	)		40,355
Totals		37	$	(1,531	)	$	106,820		5	$	(324	)	$	4,465		42	$	(1,855	)	$	111,285
Held-to-Maturity Portfolio
State and political subdivisions		4	$	(28	)	$	2,013		2	$	(112	)	$	3,988		6	$	(140	)	$	6,001
Corporate		9		(102	)		7,636		-		-			-		9		(102	)		7,636
Asset backed securities		2		(130	)		2,974		2		(58	)		1,610		4		(188	)		4,584
Residential mortgage-backed - US agency		1		(18	)		1,941		-		-			-		1		(18	)		1,941
Collateralized mortgage obligations - US agency		-		-			-		1		(9	)		1,109		1		(9	)		1,109
Collateralized mortgage obligations - Private label		6		(163	)		13,070		3		(99	)		3,820		9		(262	)		16,890
Totals		22	$	(441	)	$	27,634		8	$	(278	)	$	10,527		30	$	(719	)	$	38,161

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 an asset-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 fair value at the measurement date. Conversely, the lower the discount rate, the higher the resultant security fair value at the measurement date. In addition, the cumulative amount and timing of undiscounted cash flows of debt securities may also be 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 available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $189.8 million, had an aggregate fair value that exceeded its aggregate amortized historical cost by $579,000, or 0.31%, at December 31, 2021. The available-for-sale investment securities portfolio, with an aggregate amortized historical cost of $214.4 million, had an aggregate fair value that was less than its aggregate amortized historical cost by $11.4 million, or 5.32%, at June 30, 2022. The resultant $12.0 million total decline in the fair value of the available-for-sale investment portfolio's aggregate fair value relative to its aggregate amortized historical cost, in the six months ended June 30, 2022, was primarily due to the significant increase in general interest rates that occurred in that period and did not represent any other-than-temporary impairment within the portfolio at June 30, 2022.

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 investment securities within the portfolio as of June 30, 2022 represents OTTI. There were a total of 14 securities classified as available-for-sale (aggregate amortized historical cost of $53.9 million, unrealized aggregate loss of $4.3 million, or -8.0%) and eight securities classified as held-to-maturity (aggregate amortized historical cost of $11.7 million, unrealized aggregate loss of $1.6 million, or -13.4%) that were in an unrealized loss position for 12 months or longer at June 30, 2022. In total, therefore, at June 30, 2022 there were 22 securities with an aggregate book value of $65.5 million and an aggregate fair value of $59.6 million, representing a loss of $5.9 million, or -9.0%, that were in an unrealized loss position for 12 months or more on that date.

Each security which has been in an unrealized loss position for 12 months or more has been analyzed and is not considered to be impaired. These securities have unrealized losses primarily due to increases in general interest rates (therefore increasing the discount rate used to determine the security's fair value on the measurement date) or changes in expected prepayments. In all cases, price improvement in future periods will be substantially realized as the issuances approach maturity. Of the total of 22 securities in an unrealized loss position for 12 months or more at June 30, 2022, ten securities, with aggregate amortized cost balances of $47.9 million and representing 73.8% of the aggregate amortized cost of all securities in an unrealized loss position for 12 months or more, are issued by the United States government or GSEs. The ultimate collection of contractual principal and interest is assured for these securities and therefore no existing or potential credit impairment exists.

In addition to these nine securities, the Company held the following 13 non-government-issued/backed securities that were in an unrealized loss position for 12 or more months at June 30, 2022:

•

One municipal bond, categorized as available for sale, with an amortized historical cost of $2.2 million (unrealized loss of $189,000, or -8.57%). 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.

•

One corporate bond, categorized as available for sale, with an amortized historical cost of $754,000 (unrealized loss of $139,000, or -18.44%). 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.

•

One privately-issued asset-backed security, categorized as available-for-sale, and collateralized, to a substantial degree, by government guaranteed student loans, with an aggregate amortized historical cost of $3.0 million (unrealized aggregate loss of $146,000, or -4.88%). 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.

•

Three privately-issued mortgage-backed securities, categorized as available-for-sale, and collateralized by various forms of residential and commercial mortgages, with an aggregate amortized historical cost of $4.0 million (unrealized aggregate loss of $177,000, or -4.50%). These securities were not rated at the time of their issuances by any NRSRO but each remains significantly collateralized through subordination and other credit enhancements. Therefore, no credit-related OTTI is deemed to be present.

•

Three securities, categorized as issued by unrelated state and/or political subdivisions (generally referred to as “municipal’ securities), categorized as held-to-maturity, with an aggregate amortized historical cost of $5.3 million (unrealized loss of $1.1 million, or -20.31%). These securities each maintain 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.

•

One corporate bond, categorized as held-to-maturity, with an amortized historical cost of $750,000 (unrealized loss of $26,000, or -3.47%). This security is issued by a well-capitalized financial institution and was unrated at issuance. Management monitors the financial position of the institution and believes that the ultimate collection of all contractually-due principal and interest is assured. Therefore, no credit-related OTTI is deemed to be present.

•

One privately-issued asset-backed security, categorized as available-for-sale, with an amortized historical cost of $1.0 million (unrealized loss of $118,000, or -11.39%). This security is backed by real estate lease contracts and 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.

•

Two privately-issued mortgage-backed securities, categorized as held-to-maturity, and collateralized by various forms of commercial loans, with an aggregate amortized historical cost of $3.6 million (unrealized aggregate loss of $334,000, or -9.22%). These securities each maintain 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.

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.

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


	For the three months				For the six months
	ended June 30,				ended June 30,
(In thousands)	2022		2021		2022			2021
Realized gains on investments	$	36	$	51	$	36		$	58
Realized losses on investments		-		-		(6	)		(7	)
	$	36	$	51	$	30		$	51

As of June 30, 2022 and December 31, 2021, securities with a fair value of $83.9 million and $103.2 million, respectively, were pledged to collateralize certain municipal deposit relationships. As of the same dates, securities with a fair value of $7.0 million and $9.4 million, respectively, were pledged against certain borrowing arrangements.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, only minimal 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.