The Company classifies its securities as either “Held-to-Maturity” or “Available-for-Sale” at the time of purchase. Securities are accounted for on a trade date basis. Debt securities are classified as Held-to-Maturity when the Company has the ability and positive intent to hold the securities to maturity. Securities classified as Held-to-Maturity are carried at cost adjusted for amortization of premium and accretion of discount to maturity.

Debt securities not classified as Held-to-Maturity are included in the Available-for-Sale category and are carried at fair value. The amount of any unrealized gain or loss, net of the effect of deferred income taxes, is reported as accumulated other comprehensive (loss) income (AOCI) in the consolidated balance sheets and consolidated statements of changes in stockholders’ equity. Management’s decision to sell Available-for-Sale securities is based on changes in economic conditions, controlling the sources and applications of funds, terms, availability of and yield of alternative investments, interest rate risk and the need for liquidity.

The cost of debt securities classified as Held-to-Maturity or Available-for-Sale is adjusted for amortization of premiums to the earliest call date and accretion of discounts to expected maturity. Such amortization and accretion, as well as interest and dividends, are included in interest and dividend income from securities. Realized gains and losses are included in net securities gains and losses. The cost of securities sold, redeemed or matured is based on the specific identification method.

The Corporation invests in various forms of agency debt including residential and commercial mortgage-backed
securities and callable debt. The mortgage-backed agency securities are issued by Federal Home Loan Mortgage
Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Government National Mortgage
Association (“GNMA”) or Small Business Administration (“SBA”). The other mortgage-backed securities consist of private (non-agency) residential and commercial mortgage-backed securities. The municipal securities consist of general obligations and revenue bonds. Asset-backed securities consist of private (non-agency) student loan pools backed by the Federal Family Education LoanProgram (“FFELP”) which carry a 97% federal government guarantee. Corporate debt securities consist of senior debt and subordinated debt holdings.

There was no allowance for credit losses for Available-For-Sale debt securities as of March 31, 2023; therefore, it is not present in the table below. The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale were as follows at March 31, 2023 and December 31, 2022:

Securities Available-for-Sale with an aggregate fair value of $254,601,000 at March 31, 2023 and $315,836,000 at December 31, 2022, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $202,659,000 at March 31, 2023 and $241,385,000 at December 31, 2022.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at March 31, 2023. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

¹	Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

At March 31, 2023, the Corporation had holdings of securities from one issuer in excess of ten percent of consolidated stockholders’ equity, other than the U.S. Government and U.S. Government Agencies and Corporations. Holdings in Sallie Mae Bank securities had a fair value of $16,601,000 as of March 31, 2023. There were no aggregate holdings of securities with a single issuer (excluding the U.S. Government and U.S. Government Agencies and Corporations) which exceeded ten percent of consolidated stockholders’ equity at March 31, 2022. The quality rating of the obligations of state and political subdivisions are generally investment grade, as rated by Moody’s, Standard and Poor’s or Fitch. The typical exceptions are local issues which are not rated, but are secured by the full faith and credit obligations of the communities that issued these securities.

Proceeds from sales of Debt Securities Available-For-Sale for the three months ended March 31, 2023 and 2022 were $23,230,000 and $0, respectively. Gross gains realized on these sales were $447,000 and $0, respectively. Gross losses on these sales were $348,000 and $0 respectively.

The summary below shows the gross unrealized losses and fair value of the Company’s debt securities. Totals are aggregated by investment category where individual securities have been in a continuous loss position for less than 12 months or 12 months or more as of March 31, 2023 and December 31, 2022:

March 31, 2023

(Dollars in thousands)

Less Than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Available-for-Sale:

Value

Loss

Value

Loss

Value

Loss

U.S. Treasury securities

—

6,966

(894)

6,966

(894)

Obligations of U.S. Government Agencies and Sponsored Agencies:

Mortgage-backed

44,669

(485)

86,447

(12,640)

131,116

(13,125)

Other

1,484

(4)

2,860

(42)

4,344

(46)

Other mortgage-backed debt securities

2,004

(78)

30,013

(3,168)

32,017

(3,246)

Obligations of state and political subdivisions

3,423

(13)

80,843

(11,581)

84,266

(11,594)

Asset-backed securities

3,450

(32)

19,263

(768)

22,713

(800)

Corporate debt securities

7,841

(604)

29,006

(2,839)

36,847

(3,443)

Total

62,871

(1,216)

255,398

(31,932)

318,269

(33,148)

December 31, 2022


(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	—	$	—	$	6,801	$	(1,052)	$	6,801	$	(1,052)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		61,067		(2,184)		65,174		(12,848)		126,241		(15,032)
Other		1,589		(2)		3,168		(43)		4,757		(45)
Other mortgage-backed debt securities		16,167		(962)		17,521		(2,117)		33,688		(3,079)
Obligations of state and political subdivisions		56,565		(5,881)		35,704		(8,872)		92,269		(14,753)
Asset-backed securities		24,136		(405)		12,282		(703)		36,418		(1,108)
Corporate debt securities		15,827		(1,073)		18,345		(1,955)		34,172		(3,028)
Total	$	175,351	$	(10,507)	$	158,995	$	(27,590)	$	334,346	$	(38,097)

There were 173 individual debt securities in an unrealized loss position as of March 31, 2023, with a combined depreciation in value representing 8.61% of the debt securities portfolio. There were 183 individual debt securities in an unrealized loss position as of December 31, 2022, with their combined depreciation in value representing 9.11% of the debt securities portfolio.

Available-for-sale debt securities are required to be individually evaluated for impairment in accordance with ASC 326, Financial Instruments – Credit Losses. Management evaluates debt securities for impairment where there has been a decline in fair value below the amortized cost basis of a debt security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the debt security. The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an

issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the debt securities. All issues of U.S. Treasury and Agency-Backed debt securities have the full faith and credit backing of the United States Government or one of its agencies. All other debt securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value.

The Company made a policy election to exclude accrued interest receivable from the amortized cost basis of debt securities available for sale. Accrued interest receivable on debt securities available for sale is reported as a component of accrued interest receivable on the Company’s consolidated balance sheet and totaled $2,122,000 as of March 31, 2023. Accrued interest receivable on debt securities available for sale is excluded from the estimate of credit losses.

All debt securities available for sale in an unrealized loss position as of March 31, 2023, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of our intent and ability to hold debt securities for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategies, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the debt securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities.

Management continues to monitor all of our debt securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its debt securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

Equity Securities

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income. Equity securities without readily determinable fair values are recorded at cost less impairment, if any.

At March 31, 2023 and December 31, 2022, the Company had $1,544,000 and $1,699,000, respectively, in equity securities recorded at fair value. The following is a summary of realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2023 and 2022:


(Dollars in thousands)	Three months ended		Three months ended
	March 31, 2023		March 31, 2022
Net losses from market value fluctuations recognized during the period on equity securities	$	(155)	$	(63)
Less: Net gains recognized during the period on equity securities sold during the period		—		—
Net losses recognized during the reporting period on equity securities still held at the reporting date	$	(155)	$	(63)

Management evaluates equity securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Equity securities are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. In determining OTTI under the FASB ASC 320 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the equity security or more likely than not will be required to sell the equity security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. If an impairment loss on an equity security is considered to be other-than-temporary, a loss in the amount of the difference between the cost and fair value of the

security is recognized. Once the impairment is recorded, this becomes the new cost basis of the equity security and cannot be adjusted upward if there is a subsequent recovery in the fair value of the security.

The Company monitors the equity securities portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months. Based on the factors described above, management did not consider any equity securities to be other-than-temporarily impaired at March 31, 2023 or December 31, 2022.