Investments

9 Months Ended

Sep. 30, 2023

Investments [Abstract]

Investments

Note 4 – Investments

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

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
September 30, 2023
Available for Sale:
U.S. government agencies	$	11,020	$	—	$	1,660	$	—	$	9,360
Residential mortgage-backed agencies		42,073		—		8,704		—		33,369
Commercial mortgage-backed agencies		36,722		—		9,667		—		27,055
Collateralized mortgage obligations		24,223		—		5,236		—		18,987
Obligations of states and political subdivisions		10,832		—		766		—		10,066
Corporate bonds		1,000		—		251		—		749
Collateralized debt obligations		18,670		—		3,886		—		14,784
Total available for sale	$	144,540	$	—	$	30,170	$	—	$	114,370

(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		Allowance for Credit Losses
September 30, 2023
Held to Maturity:
U.S. treasuries	$	37,397	$	—	$	670	$	36,727	$	—
U.S. government agencies		67,944		—		14,411		53,533		—
Residential mortgage-backed agencies		30,336		—		4,495		25,841		—
Commercial mortgage-backed agencies		21,454		—		6,494		14,960		—
Collateralized mortgage obligations		53,994		—		12,114		41,880		—
Obligations of states and political subdivisions		4,603		126		844		3,885		45
Total held to maturity	$	215,728	$	126	$	39,028	$	176,826	$	45

(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 September 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
September 30, 2023
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	9,360	$	1,660	3
Residential mortgage-backed agencies		—		—	—		33,369		8,704	5
Commercial mortgage-backed agencies		—		—	—		27,055		9,667	8
Collateralized mortgage obligations		—		—	—		18,987		5,236	10
Obligations of states and political subdivisions		3,357		294	6		6,369		472	3
Corporate Bonds		—		—	—		749		251	1
Collateralized debt obligations		—		—	—		14,784		3,886	9
Total available for sale	$	3,357	$	294	6	$	110,673	$	29,876	39
	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrecognized Losses		Number of Investments	Fair Value		Unrecognized Losses		Number of Investments
September 30, 2023
Held to Maturity:
U.S. treasuries	$	—	$	—	—	$	36,727	$	670	4
U.S. government agencies		—		—	—		53,533		14,411	9
Residential mortgage-backed agencies		3,977		98	3		21,864		4,397	35
Commercial mortgage-backed agencies		—		—	—		14,960		6,494	2
Collateralized mortgage obligations		—		—	—		41,880		12,114	8
Obligations of states and political subdivisions		—		—	—		2,030		844	1
Total held to maturity	$	3,977	$	98	3	$	170,994	$	38,930	59

	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 AFS and 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 September 30, 2023, the Corporation recorded ACL of approximately $45,000 related to one bond in the HTM security portfolio.  There was no ACL related to its AFS or HTM security portfolio at December 31, 2022.

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 nine- and three- month periods ended September 30, 2023 and 2022 that the Corporation does not intend to sell:

	Nine Months Ended
	September 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		(152)		(152)
Balance of credit-related impairment at September 30	$	1,689	$	1,891

	Three Months Ended
	September 30,
(in thousands)	2023		2022
Balance of credit-related impairment at July 1	$	1,740	$	1,942
Reduction for increases in cash flows expected to be collected		(51)		(51)
Balance of credit-related impairment at September 30	$	1,689	$	1,891

The amortized cost and estimated fair value of securities by contractual maturity at September 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.

	September 30, 2023
(in thousands)	Amortized Cost		Fair Value
Available for Sale:
Due in one year or less	$	3,010	$	2,953
Due after one year through five years		9,270		8,391
Due after five years through ten years		1,895		1,560
Due after ten years		27,347		22,055
		41,522		34,959
Residential mortgage-backed agencies		42,073		33,369
Commercial mortgage-backed agencies		36,722		27,055
Collateralized mortgage obligations		24,223		18,987
Total available for sale	$	144,540	$	114,370
Held to Maturity:
Due in one year or less	$	37,397	$	36,727
Due after one year through five years		12,500		11,306
Due after five years through ten years		38,681		30,544
Due after ten years		21,366		15,568
		109,944		94,145
Residential mortgage-backed agencies		30,336		25,841
Commercial mortgage-backed agencies		21,454		14,960
Collateralized mortgage obligations		53,994		41,880
Total held to maturity	$	215,728	$	176,826