Securities

12 Months Ended

Dec. 31, 2020

Debt Securities, Available-for-sale and Held-to-maturity [Abstract]

Securities

DEBT SECURITIES

We classify debt securities as held to maturity, available for sale or trading according to management’s intent.  The appropriate classification is determined at the time of purchase of each security and re-evaluated at each reporting date.

Debt securities held to maturity: Certain debt securities for which we have the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts.

Debt securities available for sale: Debt securities not classified as "held to maturity" or as "trading" are classified as "available for sale."  Securities classified as "available for sale" are those securities that we intend to hold for an indefinite period of time, but not necessarily to maturity.  "Available for sale" securities are reported at estimated fair value net of unrealized gains or losses, which are adjusted for applicable income taxes and reported as a separate component of shareholders' equity.

Debt trading securities: There are no securities classified as "trading" in the accompanying financial statements.

Allowance for Credit Losses – Debt Securities Available for Sale: For debt securities available for sale in an unrealized loss position, we first assess whether (i) we intend to sell or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine 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 any 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 are 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 allowance for credit losses 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 allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. We have elected to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Debt securities available for sale are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Allowance for Credit Losses – Debt Securities Held to Maturity: The allowance for credit losses on debt securities held to maturity is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of debt securities held to maturities to present our best estimate of the net amount expected to be collected. Debt securities held to maturity are charged-off against the allowance when deemed uncollectible. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. We measure expected credit losses on debt securities held to maturity on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. We made the accounting policy election to exclude accrued interest receivable on debt securities held to maturity from the estimate of credit losses.

Prior to the adoption of ASC 326, declines in the fair value of debt securities held to maturity and available for sale below their cost that were deemed to be other than temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to January 1, 2020, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Realized gains and losses on sales of securities are recognized on the specific identification method.  Amortization of premiums and accretion of discounts are computed using the interest method.

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at December 31, 2020 and 2019, are summarized as follows:

	December 31, 2020
	Amortized		Unrealized
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	35,190	$	361	$	394	$	35,157
Residential mortgage-backed securities:
Government-sponsored agencies	57,399		1,996		349		59,046
Nongovernment-sponsored entities	16,799		132		244		16,687
State and political subdivisions
General obligations	15,065		804		4		15,865
Water and sewer revenues	10,176		620		—		10,796
Lease revenues	4,825		341		—		5,166
College and university revenues	3,022		315		—		3,337
Income tax revenues	5,052		376		—		5,428
Other revenues	9,406		907		—		10,313
Corporate debt securities	26,483		56		112		26,427
Asset-backed securities	46,579		172		625		46,126
Total taxable debt securities	229,996		6,080		1,728		234,348
Tax-exempt debt securities
State and political subdivisions
General obligations	22,213		2,416		9		24,620
Water and sewer revenues	8,266		709		—		8,975
Lease revenues	7,195		799		—		7,994
Other revenues	9,487		711		8		10,190
Total tax-exempt debt securities	47,161		4,635		17		51,779
Total debt securities available for sale	$	277,157	$	10,715	$	1,745	$	286,127

	December 31, 2019
	Amortized		Unrealized
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	21,036	$	212	$	384	$	20,864
Residential mortgage-backed securities:
Government-sponsored agencies	70,379		1,031		435		70,975
Nongovernment-sponsored entities	10,253		17		41		10,229
State and political subdivisions
General obligations	12,603		25		171		12,457
Water and sewer revenues	7,170		71		114		7,127
Lease revenues	5,310		25		77		5,258
College and university revenues	5,917		164		16		6,065
Other revenues	18,831		344		109		19,066
Corporate debt securities	18,268		81		149		18,200
Asset-backed securities	33,826		—		812		33,014
Total taxable debt securities	203,593		1,970		2,308		203,255
Tax-exempt debt securities
State and political subdivisions
General obligations	36,673		2,526		—		39,199
Water and sewer revenues	9,565		633		—		10,198
Lease revenues	8,455		598		—		9,053
Other revenues	13,929		728		7		14,650
Total tax-exempt debt securities	68,622		4,485		7		73,100
Total debt securities available for sale	$	272,215	$	6,455	$	2,315	$	276,355

Accrued interest receivable on debt securities available for sale totaled $1.7 million and $1.9 million at December 31, 2020 and 2019, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.

	December 31, 2020
	Amortized		Unrealized
Dollars in thousands	Cost		Gains		Losses		Fair Value
California	$	14,569	$	1,386	$	—	$	15,955
Texas	11,978		896		—		12,874
New York	10,441		947		—		11,388
Virginia	8,151		566		—		8,717
Florida	7,728		589		4		8,313

Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.  We principally use credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”) to support analyses of our portfolio of securities issued by state and political subdivisions, as we generally do not purchase securities that are rated below the six highest NRSRO rating categories.  In addition to considering a security’s NRSRO rating, we also assess or confirm through an internal review of an issuer’s financial information and other applicable information that:  1) the issuer’s risk of default is low; 2) the characteristics of the issuer’s demographics and economic environment are satisfactory; and 3) the issuer’s budgetary position and stability of tax or other revenue sources are sound.

The proceeds from sales, calls and maturities of available for sale securities, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized are as follows:

Dollars in thousands	Proceeds from						Gross realized
			Calls and		Principal
Years ended December 31,	Sales		Maturities		Payments		Gains		Losses
2020	$	124,809	$	3,525	$	24,654	$	3,489	$	17
2019	142,423		1,871		22,870		2,270		332
2018	107,559		1,145		24,814		1,785		1,163

Residential mortgage-backed obligations having contractual maturities ranging from 4 to 48 years are included in the following maturity distribution schedules based on their anticipated average life to maturity, which ranges from 1 month to 17 years.  Accordingly, discounts are accreted and premiums are amortized over the anticipated average life to maturity of the specific obligation.

The maturities, amortized cost and estimated fair values of securities available for sale at December 31, 2020, are summarized as follows:

Dollars in thousands	Amortized Cost		Fair Value
Due in one year or less	$	34,731	$	35,192
Due from one to five years	82,553		84,313
Due from five to ten years	59,749		60,645
Due after ten years	100,124		105,977
Total	$	277,157	$	286,127

At December 31, 2020 and 2019, securities with estimated fair values of $162.8 million and $86.1 million respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Provided below is a summary of debt securities available for sale which were in an unrealized loss position and for which an allowance for credit losses has not been recorded at December 31, 2020 and 2019.

	2020
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	36	$	12,611	$	54	$	14,384	$	340	$	26,995	$	394
Residential mortgage-backed securities:
Government-sponsored agencies	10	3,127		34		8,593		315		11,720		349
Nongovernment-sponsored entities	6	6,770		35		2,751		209		9,521		244
State and political subdivisions:
General obligations	1	362		4		—		—		362		4
Corporate debt securities	6	3,952		16		1,904		96		5,856		112
Asset-backed securities	16	2,010		2		31,862		623		33,872		625
Tax-exempt debt securities
State and political subdivisions:
General obligations	1	924		9		—		—		924		9
Other revenues	2	415		1		151		7		566		8
Total	78	$	30,171	$	155	$	59,645	$	1,590	$	89,816	$	1,745

	2019
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	15	$	—	$	—	$	14,903	$	384	$	14,903	$	384
Residential mortgage-backed securities:
Government-sponsored agencies	21	12,298		96		15,174		339		27,472		435
Nongovernment-sponsored entities	4	8,323		41		—		—		8,323		41
State and political subdivisions:
General obligations	10	10,581		171		—		—		10,581		171
Water and sewer revenues	4	4,421		114		—		—		4,421		114
Lease revenues	4	4,235		77		—		—		4,235		77
College and university revenues	1	1,307		16		—		—		1,307		16
Other revenues	6	6,517		109		—		—		6,517		109
Corporate debt securities	6	1,686		3		3,739		146		5,425		149
Asset-backed securities	15	3,441		34		29,573		778		33,014		812
Tax-exempt debt securities
State and political subdivisions:
Other revenues	2	1,183		7		—		—		1,183		7
Total	88	$	53,992	$	668	$	63,389	$	1,647	$	117,381	$	2,315

We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases.  We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.

Debt Securities Held to Maturity

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at December 31, 2020 are summarized as follows:

	December 31, 2020
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
Tax-exempt debt securities
State and political subdivisions
General obligations	$	73,179	$	2,524	$	—	$	75,703
Water and sewer revenues	8,375		256		—		8,631
Lease revenues	4,395		88		—		4,483
Sales tax revenues	4,649		94		3		4,740
Other revenues	9,316		309		25		9,600
Total Debt Securities Held to Maturity	$	99,914	$	3,271	$	28	$	103,157

Accrued interest receivable on debt securities held to maturity totaled $1.2 million at December 31, 2020 and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.

	December 31, 2020
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Texas	$	15,695	$	600	$	—	$	16,295
California	10,081		377		—		10,458
Pennsylvania	8,786		186		—		8,972
Florida	7,724		299		—		8,023
Michigan	7,160		144		3		7,301

The following table displays the amortized cost of held to maturity securities by credit rating at December 31, 2020.

Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	15,735	$	76,585	$	7,594	$	—	$	—

We owned no past due or nonaccrual held to maturity debt securities at December 31, 2020.

The maturities, amortized cost and estimated fair values of debt securities held to maturity at December 31, 2020, are summarized as follows:

Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due from one to five years	—		—
Due from five to ten years	2,038		2,105
Due after ten years	97,876		101,052
Total	$	99,914	$	103,157

The proceeds from calls and maturities of debt securities held to maturity totaled $1.0 million for the year ended December 31, 2020.