Note 5 - Investment Securities

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 5: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at September 30, 2020 and December 31, 2019 is as follows:

	At September 30, 2020
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government agencies	$	33,848	$	-	$	(476	)	$	33,372
Collateralized mortgage obligations		200,590		3,275		(63	)		203,802
Agency mortgage-backed securities		130,372		837		(6	)		131,203
Municipal securities		2,635		27		-			2,662
Corporate bonds		73,011		99		(3,494	)		69,616
Total securities available for sale	$	440,456	$	4,238	$	(4,039	)	$	440,655
U.S. Government agencies	$	84,689	$	4,486	$	-		$	89,175
Collateralized mortgage obligations		320,408		14,300		(54	)		334,654
Agency mortgage-backed securities		283,842		4,725		(27	)		288,540
Total securities held to maturity	$	688,939	$	23,511	$	(81	)	$	712,369

	At December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government agencies	$	38,743	$	1	$	(439	)	$	38,305
Collateralized mortgage obligations		329,492		2,368		(422	)		331,438
Agency mortgage-backed securities		98,953		82		(98	)		98,937
Municipal securities		4,064		18		-			4,082
Corporate bonds		69,499		79		(3,298	)		66,280
Total securities available for sale	$	540,751	$	2,548	$	(4,257	)	$	539,042
U.S. Government agencies	$	94,913	$	482	$	(294	)	$	95,101
Collateralized mortgage obligations		416,177		7,603		(793	)		422,987
Agency mortgage-backed securities		133,752		1,782		(513	)		135,021
Total securities held to maturity	$	644,842	$	9,867	$	(1,600	)	$	653,109

The following table presents investment securities by stated maturity at September 30, 2020. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	440	$	441	$	757	$	766
After 1 year to 5 years		50,361		49,908		61,794		64,794
After 5 years to 10 years		55,693		52,670		22,138		23,615
After 10 years		3,000		2,631		-		-
Collateralized mortgage obligations		200,590		203,802		320,408		334,654
Agency mortgage-backed securities		130,372		131,203		283,842		288,540
Total	$	440,456	$	440,655	$	688,939	$	712,369

The Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. There were no private label mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) held in the investment securities portfolio as of September 30, 2020 and December 31, 2019. There were also no MBS or CMO securities that were rated “Alt-A” or “sub-prime” as of those dates.

       The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An OTTI loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale. There were no impairment charges (credit losses) recorded at September 30, 2020 and December 31, 2019.

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position in the available for sale and held to maturity section:

	At September 30, 2020
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	8,254	$	89	$	25,118	$	387	$	33,372	$	476
Collateralized mortgage obligations		44,918		60		15,929		3		60,847		63
Agency mortgage-backed securities		1,787		6		-		-		1,787		6
Municipal securities		-		-		-		-		-		-
Corporate bonds		-		-		54,506		3,494		54,506		3,494
Total Available for Sale	$	54,959	$	155	$	95,553	$	3,884	$	150,512	$	4,039

	At September 30, 2020
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Collateralized mortgage obligations		13,625		51		494		3		14,119		54
Agency mortgage-backed securities		4,942		27		-		-		4,942		27
Total Held to Maturity	$	18,567	$	78	$	494	$	3	$	19,061	$	81

	At December 31, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	28,136	$	439	$	-	$	-	$	28,136	$	439
Collateralized mortgage obligations		63,384		328		6,164		94		69,548		422
Agency mortgage-backed securities		2,924		13		6,411		85		9,335		98
Municipal securities		-		-		-		-		-		-
Corporate bonds		2,820		180		51,882		3,118		54,702		3,298
Total Available for Sale	$	97,264	$	960	$	64,457	$	3,297	$	161,721	$	4,257

	At December 31, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	33,092	$	220	$	3,703	$	74	$	36,795	$	294
Collateralized mortgage obligations		24,211		18		64,324		775		88,535		793
Agency mortgage-backed securities		14,044		33		52,132		480		66,176		513
Total Held to Maturity	$	71,347	$	271	$	120,159	$	1,329	$	191,506	$	1,600

Unrealized losses on securities in the investment portfolio amounted to $4.1 million with a total fair value of $169.6 million as of September 30, 2020 compared to unrealized losses of $5.9 million with a total fair value of $353.2 million as of December 31, 2019. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

The Company held four U.S. Government agency securities, fourteen collateralized mortgage obligations and two agency mortgage-backed securities that were in an unrealized loss position at September 30, 2020. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of September 30, 2020.

All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody’s or Standard & Poor’s. In addition, the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At September 30, 2020, the investment portfolio included no municipal securities that were in an unrealized loss position.

At September 30, 2020, the investment portfolio included seven corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration. The seven corporate bonds are with five of the largest U.S. financial institutions. Each financial institution is well capitalized.

Proceeds associated with the sale of securities available for sale during the three months ended September 30, 2020 were $32.4 million. The tax provision applicable to the net gains of $279,000 for the three months ended September 30, 2020 amounted to $71,000. Proceeds associated with the sale of securities available for sale during the nine months ended September 30, 2020 were $125.2 million. The tax provision applicable to the net gains of $2.8 million for the nine months ended September 30, 2020 amounted to $700,000.

Proceeds associated with the sale of securities during the three months ended September 30, 2019 were $11.5 million. The tax provision applicable to the net gains of $520,000 for the three months ended September 30, 2019 amounted to $132,000. Proceeds associated with the sale of securities during the nine months ended September 30, 2019 were $54.7 million. Gross gains of $1.2 million and gross losses of $67,000 were realized on these sales. The tax provision applicable to the net gains of $1.1 million for the nine months ended September 30, 2019 amounted to $280,000.