Investments

3 Months Ended

Mar. 31, 2023

Investments [Abstract]

Investments

Note 4 – Investments

The following tables show a comparison of amortized cost and fair values of investment securities at March 31, 2023 and December 31, 2022:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
March 31, 2023
Available for Sale:
U.S. government agencies	$	11,036	$	—	$	1,383	$	—	$	9,653
Residential mortgage-backed agencies		44,224		—		6,943		—		37,281
Commercial mortgage-backed agencies		37,151		—		6,657		—		30,494
Collateralized mortgage obligations		25,322		—		4,345		—		20,977
Obligations of states and political subdivisions		10,842		31		244		—		10,629
Corporate bonds		1,000		—		170		—		830
Collateralized debt obligations		18,661		—		4,547		—		14,114
Total available for sale	$	148,236	$	31	$	24,289	$	—	$	123,978
(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		Allowance for Credit Losses
March 31, 2023
Held to Maturity:
U.S. treasuries	$	37,268	$	—	$	1,245	$	36,023	$	—
U.S. government agencies		67,803		—		10,975		56,828		—
Residential mortgage-backed agencies		27,624		1		3,039		24,586		—
Commercial mortgage-backed agencies		21,635		—		4,566		17,069		—
Collateralized mortgage obligations		56,128		—		9,029		47,099		—
Obligations of states and political subdivisions		22,625		845		534		22,936		—
Total held to maturity	$	233,083	$	846	$	29,388	$	204,541	$	—

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
December 31, 2022
Available for Sale:
U.S. government agencies	$	11,044	$	—	$	1,582	$	9,462	$	—
Residential mortgage-backed agencies		45,052		—		7,651		37,401		—
Commercial mortgage-backed agencies		37,393		—		6,661		30,732		—
Collateralized mortgage obligations		25,828		—		4,784		21,044		—
Obligations of states and political subdivisions		10,848		4		360		10,492		—
Corporate Bonds		1,000		—		113		887		—
Collateralized debt obligations		18,664		—		2,793		15,871		(1,695)
Total available for sale	$	149,829	$	4	$	23,944	$	125,889	$	(1,695)
(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		OTTI in AOCL
December 31, 2022
Held to Maturity:
U.S. treasuries	$	37,204	$	—	$	1,593	$	35,611	$	—
U.S. government agencies		67,734		—		13,261		54,473		—
Residential mortgage-backed agencies		28,624		1		3,503		25,122		—
Commercial mortgage-backed agencies		22,389		—		4,568		17,821		—
Collateralized mortgage obligations		57,085		—		10,001		47,084		—
Obligations of states and political subdivisions		22,623		946		600		22,969		—
Total held to maturity	$	235,659	$	947	$	33,526	$	203,080	$	—

The Corporation reassessed the classification of certain investments and, effective February 1, 2022, transferred $139.0 million of callable agencies, obligations of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.  The transfer occurred at fair value.  The related unrealized loss of $8.4 million included in other comprehensive loss remained in other comprehensive loss, to be amortized out of other comprehensive loss with an offsetting entry to interest income as a yield adjustment over the remaining term of the securities.  No gain or loss was recorded at the time of transfer.

The following table shows the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at March 31, 2023 and December 31, 2022, 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, 2023
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	9,653	$	1,383	3
Residential mortgage-backed agencies		—		—	—		37,281		6,943	5
Commercial mortgage-backed agencies		1,796		102	1		28,698		6,555	8
Collateralized mortgage obligations		—		—	—		20,977		4,345	10
Obligations of states and political subdivisions		3,240		158	2		3,882		86	2
Corporate Bonds		—		—	—		830		170	1
Collateralized debt obligations		—		—	—		14,114		4,547	9
Total available for sale	$	5,036	$	260	3	$	115,435	$	24,029	38
	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrecognized Losses		Number of Investments	Fair Value		Unrecognized Losses		Number of Investments
March 31, 2023
Held to Maturity:
U.S. treasuries	$	—		—	—	$	36,023	$	1,245	4
U.S. government agencies		—		—	—		56,828		10,975	9
Residential mortgage-backed agencies		3,122		81	2		21,374		2,958	33
Commercial mortgage-backed agencies		—		—	—		17,069		4,566	2
Collateralized mortgage obligations		2,550		137	1		44,549		8,892	7
Obligations of states and political subdivisions		—		—	—		2,337		534	1
Total held to maturity	$	5,672		218	3	$	178,180	$	29,170	56

	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments	Fair Value		Unrealized Losses		Number of Investments
December 31, 2022
Available for Sale:
U.S. government agencies	$	4,598	$	402	1	$	4,865	$	1,180	2
Residential mortgage-backed agencies		—		—	—		37,401		7,651	5
Commercial mortgage-backed agencies		4,044		455	3		26,688		6,206	6
Collateralized mortgage obligations		1,600		210	5		19,444		4,574	5
Obligations of states and political subdivisions		8,906		360	7		—		—	—
Corporate Bonds		887		113	1		—		—	—
Collateralized debt obligations		—		—	—		15,871		2,793	9
Total available for sale	$	20,035	$	1,540	17	$	104,269	$	22,404	27
	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrecognized Losses		Number of Investments	Fair Value		Unrecognized Losses		Number of Investments
December 31, 2022
Held to Maturity:
U.S. treasuries	$	—	$	—	—	$	35,611	$	1,593	4
U.S. government agencies		38,883		9,617	7		15,591		3,644	2
Residential mortgage-backed agencies		16,893		1,425	29		8,138		2,078	7
Commercial mortgage-backed agencies		17,821		4,568	3		—		—	—
Collateralized mortgage obligations		47,083		10,001	8		—		—	—
Obligations of states and political subdivisions		2,269		600	1		—		—	—
Total held to maturity	$	122,949	$	26,211	48	$	59,340	$	7,315	13

The Company utilizes ASC 326 to evaluate its available-for sale (“AFS”) and held-to-maturity (“HTM”) debt security portfolio for expected credit losses.  For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.  If either criteria is met, the security’s amortized cost basis is written down to fair value through income.  For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.  In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.  If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.  Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a non-credit-related impairment.

The entire amount of an impairment loss is recognized in earnings only when:  1) the Company intends to sell the security; or 2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis; or 3) the Company does not expect to recover the entire amortized cost basis of the security.  In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as comprehensive income, net of deferred taxes.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses.  Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.  Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment.

The Company has made the policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheets.  Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.  Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status.  Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

The Company separately evaluates its HTM investment securities for any credit losses.  The Company pools like securities and calculates expected credit losses through an estimate based on a security’s credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and is included in the balance of investment securities held to maturity on the Consolidated Balance Sheets.  If the Company determines that a security indicates evidence of deteriorated credit quality, the security is individually evaluated and a discounted cash flow analysis is performed and compared to the amortized cost bais.

As of March 31, 2023, the Company recorded no ACL related to its AFS or HTM security portfolio.

The following table presents a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been previously recognized in earnings for the trust preferred securities held in the CDO portfolio during the three month periods ended March 31, 2023 and 2022 that the Corporation does not intend to sell:

	Three Months Ended
	March 31,
(in thousands)	2023		2022
Balance of credit-related OTTI at January 1	$	1,841	$	2,043
Reduction for increases in cash flows expected to be collected		(50)		(50)
Balance of credit-related OTTI at March 31	$	1,791	$	1,993

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2023 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, 2023
(in thousands)	Amortized Cost		Fair Value
Available for Sale:
Due in one year or less	$	340	$	340
Due after one year through five years		11,956		11,151
Due after five years through ten years		1,895		1,729
Due after ten years		27,348		22,006
		41,539		35,226
Residential mortgage-backed agencies		44,224		37,281
Commercial mortgage-backed agencies		37,151		30,494
Collateralized mortgage obligations		25,322		20,977
Total available for sale	$	148,236	$	123,978
Held to Maturity:
Due in one year or less	$	29,813	$	28,847
Due after one year through five years		19,955		18,674
Due after five years through ten years		33,058		28,028
Due after ten years		44,870		40,238
		127,696		115,787
Residential mortgage-backed agencies		27,624		24,586
Commercial mortgage-backed agencies		21,635		17,069
Collateralized mortgage obligations		56,128		47,099
Total held to maturity	$	233,083	$	204,541