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Securities
9 Months Ended
Sep. 30, 2019
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). As of January 1, 2018, equity securities with readily determinable fair values are recorded at fair value with changes in fair value recognized in net income. Prior to 2018, fair value changes were reported, net of tax, in other comprehensive income (loss).
 
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 September 30, 2019, and December 31, 2018, were as follows:
 
In thousands
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
 
 
 
 
SECURITIES AVAILABLE FOR SALE
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
SEPTEMBER 30, 2019
 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$
115,656

 
$
874

 
$
261

 
$
116,269

Mortgage-backed securities, residential
 
59,770

 
1,016

 
67

 
60,719

State and municipal
 
7,620

 
72

 
2

 
7,690

 
 
$
183,046

 
$
1,962

 
$
330

 
$
184,678

 
 
 
 
 
 
 
 
 
DECEMBER 31, 2018
 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$
120,420

 
$
142

 
$
2,149

 
$
118,413

Mortgage-backed securities, residential
 
33,960

 
194

 
343

 
33,811

State and municipal
 
9,482

 
60

 
36

 
9,506

 
 
$
163,862

 
$
396

 
$
2,528

 
$
161,730

 
 
 
 
 
 
 
 
 
SECURITIES HELD TO MATURITY
 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
SEPTEMBER 30, 2019
 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$
6,000

 
$
7

 
$
4

 
$
6,003

Mortgage-backed securities, residential
 
16,443

 
80

 
8

 
16,515

 
 
$
22,443

 
$
87

 
$
12

 
$
22,518

DECEMBER 31, 2018
 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$
7,000

 
$

 
$
69

 
$
6,931

Mortgage-backed securities, residential
 
20,266

 
4

 
290

 
19,980

 
 
$
27,266

 
$
4

 
$
359

 
$
26,911


 
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, 2019
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value at September 30, 2019
SEPTEMBER 30, 2019
 
 
 
 
 
 
 
 
CRA Mutual Fund
 
$
1,012

 
$
38

 
$

 
$
1,050

Stock in other banks
 
827

 
155

 

 
982

 
 
$
1,839

 
$
193

 
$

 
$
2,032


In thousands
 
Fair Value at January 1, 2018
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value at September 30, 2018
SEPTEMBER 30, 2018
 
 
 
 
 
 
 
 
CRA Mutual Fund
 
$
1,044

 
$

 
$
31

 
$
1,013

Stock in other banks
 
749

 
31

 
50

 
730

 
 
$
1,793

 
$
31

 
$
81

 
$
1,743


In thousands
 
Fair Value at January 1, 2018
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value at December 31, 2018
DECEMBER 31, 2018
 
 
 
 
 
 
 
 
CRA Mutual Fund
 
$
1,044

 
$

 
$
32

 
$
1,012

Stock in other banks
 
749

 
247

 
169

 
827

 
 
$
1,793

 
$
247

 
$
201

 
$
1,839



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 September 30, 2019, and December 31, 2018:
 
 
 
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
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
SEPTEMBER 30, 2019
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$

 
$

 
$
58,405

 
$
261

 
$
58,405

 
$
261

Mortgage-backed securities, residential
 
7,567

 
66

 
667

 
1

 
8,234

 
67

State and municipal
 

 

 
866

 
2

 
866

 
2

 
 
$
7,567

 
$
66

 
$
59,938

 
$
264

 
$
67,505

 
$
330

 
 
 
 
 
 
 
 
 
 
 
 
 
DECEMBER 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Government and agencies
 
$
1,997

 
$
5

 
$
87,216

 
$
2,144

 
$
89,213

 
$
2,149

Mortgage-backed securities, residential
 
9,410

 
134

 
8,586

 
209

 
17,996

 
343

State and municipal
 

 

 
2,696

 
36

 
2,696

 
36

 
 
$
11,407

 
$
139

 
$
98,498

 
$
2,389

 
$
109,905

 
$
2,528

 
 
 
 
 
 
 
 
 
 
 
 
 
SECURITIES HELD TO MATURITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEPTEMBER 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and agencies
 
$

 
$

 
$
2,996

 
$
4

 
$
2,996

 
$
4

Mortgage-backed securities, residential
 
1,177

 
2

 
3,425

 
6

 
4,602

 
8

 
 
$
1,177

 
$
2

 
$
6,421

 
$
10

 
$
7,598

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
 
DECEMBER 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government and agencies
 
$
2,975

 
$
25

 
$
3,956

 
$
44

 
$
6,931

 
$
69

Mortgage-backed securities, residential
 
5,408

 
59

 
12,636

 
231

 
18,044

 
290

 
 
$
8,383

 
$
84

 
$
16,592

 
$
275

 
$
24,975

 
$
359



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 September 30, 2019, thirty-one available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 1% of amortized cost. All 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 September 30, 2019, six available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 2% of amortized cost. Two 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 September 30, 2019, three available for sale state and municipal securities had unrealized losses that individually did not exceed 1% of amortized cost. All 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 September 30, 2019, two held to maturity U.S. Government and agency securities had unrealized losses that individually did not exceed 1% of amortized cost. All 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 September 30, 2019, eleven held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 1% of amortized cost. Eight 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.

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 September 30, 2019, 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 September 30, 2019, 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
 
$
18,183

 
$
18,187

 
$
4,000

 
$
3,997

Over 1 year through 5 years
 
104,894

 
105,569

 
2,000

 
2,006

Over 5 years through 10 years
 
199

 
203

 

 

Over 10 years
 

 

 

 

Mortgage-backed securities, residential
 
59,770

 
60,719

 
16,443

 
16,515

 
 
$
183,046

 
$
184,678

 
$
22,443

 
$
22,518



The Corporation did not sell any securities available for sale during the first nine months of 2019. The Corporation realized $31,000 and $44,000 gross gains on sales of securities available for sale during the three and nine month periods ended September 30, 2018.

At September 30, 2019, and December 31, 2018, securities with a carrying value of $174,308,000 and $165,792,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.