Investments

6 Months Ended

Jun. 30, 2023

Investments [Abstract]

Investments

Note 4 – Investments

The following tables show a comparison of amortized cost and fair values of investment securities at June 30, 2023 and December 31, 2022:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
June 30, 2023
Available for Sale:
U.S. government agencies	$	11,028	$	—	$	1,487	$	—	$	9,541
Residential mortgage-backed agencies		43,224		—		7,357		—		35,867
Commercial mortgage-backed agencies		36,897		—		7,763		—		29,134
Collateralized mortgage obligations		24,836		—		4,711		—		20,125
Obligations of states and political subdivisions		10,837		14		285		—		10,566
Corporate bonds		1,000		—		253		—		747
Collateralized debt obligations		18,674		—		4,569		—		14,105
Total available for sale	$	146,496	$	14	$	26,425	$	—	$	120,085

(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		Allowance for Credit Losses
June 30, 2023
Held to Maturity:
U.S. treasuries	$	37,332	$	—	$	1,075	$	36,257	$	—
U.S. government agencies		67,873		—		12,111		55,762		—
Residential mortgage-backed agencies		26,970		—		3,264		23,706		—
Commercial mortgage-backed agencies		21,494		—		5,188		16,306		—
Collateralized mortgage obligations		55,104		—		10,124		44,980		—
Obligations of states and political subdivisions		21,986		688		614		22,060		—
Total held to maturity	$	230,759	$	688	$	32,376	$	199,071	$	—

(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 June 30, 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
June 30, 2023
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	9,541	$	1,487	3
Residential mortgage-backed agencies		—		—	—		35,867		7,357	5
Commercial mortgage-backed agencies		1,715		189	1		27,419		7,574	8
Collateralized mortgage obligations		—		—	—		20,125		4,711	10
Obligations of states and political subdivisions		3,853		196	3		3,878		89	2
Corporate Bonds		—		—	—		747		253	1
Collateralized debt obligations		—		—	—		14,105		4,569	9
Total available for sale	$	5,568	$	385	4	$	111,682	$	26,040	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
June 30, 2023
Held to Maturity:
U.S. treasuries	$	—	$	—	—	$	36,257	$	1,075	4
U.S. government agencies		—		—	—		55,762		12,111	9
Residential mortgage-backed agencies		3,143		134	3		20,563		3,130	33
Commercial mortgage-backed agencies		—		—	—		16,306		5,188	2
Collateralized mortgage obligations		—		—	—		44,980		10,124	8
Obligations of states and political subdivisions		—		—	—		2,258		614	1
Total held to maturity	$	3,143	$	134	3	$	176,126	$	32,242	57

	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 Corporation 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 Corporation 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 Corporation 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.

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 Corporation 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 Corporation separately evaluates its HTM investment securities for any credit losses.  The Corporation 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 Corporation 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 basis.

As of June 30, 2023, the Corporation 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 credit-related impairment charges related to credit losses that have been previously recognized in earnings for the trust preferred securities held in the collateralized debt obligation (“CDO”) portfolio during the six and three month periods ended June 30, 2023 and 2022 that the Corporation does not intend to sell:

	Six Months Ended
	June 30,
(in thousands)	2023		2022
Balance of credit-related impairment at January 1	$	1,841	$	2,043
Reduction for increases in cash flows expected to be collected		(101)		(101)
Balance of credit-related impairment at June 30	$	1,740	$	1,942

	Three Months Ended
	June 30,
(in thousands)	2023		2022
Balance of credit-related impairment at April 1	$	1,791	$	1,993
Reduction for increases in cash flows expected to be collected		(51)		(51)
Balance of credit-related impairment at June 30	$	1,740	$	1,942

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

	June 30, 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		11,948		11,052
Due after five years through ten years		1,895		1,631
Due after ten years		27,356		21,936
		41,539		34,959
Residential mortgage-backed agencies		43,224		35,867
Commercial mortgage-backed agencies		36,897		29,134
Collateralized mortgage obligations		24,836		20,125
Total available for sale	$	146,496	$	120,085
Held to Maturity:
Due in one year or less	$	37,332	$	36,257
Due after one year through five years		12,500		11,338
Due after five years through ten years		33,094		27,382
Due after ten years		44,265		39,102
		127,191		114,079
Residential mortgage-backed agencies		26,970		23,706
Commercial mortgage-backed agencies		21,494		16,306
Collateralized mortgage obligations		55,104		44,980
Total held to maturity	$	230,759	$	199,071