Securities

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity or trading are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income (loss). Equity securities with readily determinable fair values are recorded at fair value with changes in fair value recognized in net income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) if management does not expect to recover the entire amortized cost basis. In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Amortized cost and fair value of securities at June 30, 2020, and December 31, 2019, were as follows:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
JUNE 30, 2020
U.S. Government and agencies	$	127,170	$	2,694	$	—	$	129,864
Mortgage-backed securities, residential	96,394		3,813		40		100,167
State and municipal	25,573		296		45		25,824
Corporate bonds	1,739		10		1		1,748
	$	250,876	$	6,813	$	86	$	257,603
DECEMBER 31, 2019
U.S. Government and agencies	$	113,569	$	849	$	169	$	114,249
Mortgage-backed securities, residential	64,699		980		87		65,592
State and municipal	10,940		70		14		10,996
	$	189,208	$	1,899	$	270	$	190,837
SECURITIES HELD TO MATURITY
JUNE 30, 2020
U.S. Government and agencies	$	2,000	$	14	$	—	$	2,014
Mortgage-backed securities, residential	12,929		520		—		13,449
	$	14,929	$	534	$	—	$	15,463
DECEMBER 31, 2019
U.S. Government and agencies	$	4,000	$	8	$	—	$	4,008
Mortgage-backed securities, residential	15,234		76		37		15,273
	$	19,234	$	84	$	37	$	19,281

The Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities effective January 1, 2018. The required fair value disclosures are as follows:

In thousands	Fair Value at January 1, 2020		Unrealized Gains		Unrealized Losses		Fair Value at June 30, 2020
JUNE 30, 2020
CRA Mutual Fund	$	1,045	$	25	$	—	$	1,070
Stock in other banks	1,318		—		426		892
	$	2,363	$	25	$	426	$	1,962

In thousands	Fair Value at January 1, 2019		Unrealized Gains		Unrealized Losses		Fair Value at June 30, 2019
JUNE 30, 2019
CRA Mutual Fund	$	1,012	$	30	$	—	$	1,042
Stock in other banks	827		132		—		959
	$	1,839	$	162	$	—	$	2,001

In thousands	Fair Value at January 1, 2019		Unrealized Gains		Unrealized Losses		Fair Value at December 31, 2019
DECEMBER 31, 2019
CRA Mutual Fund	$	1,012	$	33	$	—	$	1,045
Stock in other banks	827		234		—		1,061
	$	1,839	$	267	$	—	$	2,106

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020, and December 31, 2019:

	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
SECURITIES AVAILABLE FOR SALE
JUNE 30, 2020
Mortgage-backed securities, residential	$	7,968	$	40	$	—	$	—	$	7,968	$	40
State and municipal	4,397		45		—		—		4,397		45
Corporate bond	1,020		1		—		—		1,020		1
	$	13,385	$	86	$	—	$	—	$	13,385	$	86
DECEMBER 31, 2019
U.S. Government and agencies	$	—	$	—	$	47,425	$	169	$	47,425	$	169
Mortgage-backed securities, residential	16,208		82		1,424		5		17,632		87
State and municipal	3,233		13		502		1		3,735		14
	$	19,441	$	95	$	49,351	$	175	$	68,792	$	270
SECURITIES HELD TO MATURITY
JUNE 30, 2020
U.S. Government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—
DECEMBER 31, 2019
Mortgage-backed securities, residential	$	6,587	$	24	$	3,161	$	13	$	9,748	$	37
	$	6,587	$	24	$	3,161	$	13	$	9,748	$	37

All mortgage-backed security investments are government sponsored enterprise (GSE) pass-through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments.

At June 30, 2020, seven available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 15% of amortized cost. None of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At June 30, 2020, eight available for sale state and municipal securities had unrealized losses that individually did not exceed 4% of amortized cost. None of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

At June 30, 2020, one corporate bond had an unrealized loss that did not exceed 1% of amortized cost. This security has not been in a continuous loss position for 12 months or more. This unrealized loss relates principally to changes in interest rates subsequent to the acquisition of the specific security.

In analyzing the issuer’s financial condition, management considers industry analysts’ reports, financial performance, and projected target prices of investment analysts within a one-year time frame. Based on the above information, management has determined that none of these investments are other-than-temporarily impaired.

The fair values of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2) which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing.

Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio. At June 30, 2020, management had not identified any securities with an unrealized loss that it intends to sell or will be required to sell. In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) if management does not expect to recover the entire amortized cost basis. In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses.

Amortized cost and fair value at June 30, 2020, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	42,196	$	42,604	$	2,000	$	2,014
Over 1 year through 5 years	73,473		75,580		—		—
Over 5 years through 10 years	17,695		17,929		—		—
Over 10 years	21,118		21,323		—		—
Mortgage-backed securities, residential	96,394		100,167		12,929		13,449
	$	250,876	$	257,603	$	14,929	$	15,463

The Corporation did not sell any securities available for sale during the first six months of 2020 or 2019.

At June 30, 2020, and December 31, 2019, securities with a carrying value of $195,872,000 and $162,946,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.