SECURITIES

9 Months Ended

Sep. 30, 2024

SECURITIES

SECURITIES

NOTE 3 — SECURITIES

Debt Securities

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. At September 30, 2024 and December 31, 2023, all debt securities held were classified as available-for-sale.

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 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 September 30, 2024; 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 September 30, 2024 and December 31, 2023:

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2024:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	7,904	$	—	$	(633)	$	7,271
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		154,553		147		(11,354)		143,346
Other		5,521		91		(36)		5,576
Other mortgage backed securities		48,949		294		(1,875)		47,368
Obligations of state and political subdivisions		95,018		29		(8,301)		86,746
Asset-backed securities		77,368		284		(474)		77,178
Corporate debt securities		41,074		121		(3,599)		37,596
Total	$	430,387	$	966	$	(26,272)	$	405,081

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2023:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	7,881	$	—	$	(840)	$	7,041
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		152,510		—		(14,518)		137,992
Other		7,560		126		(54)		7,632
Other mortgage backed securities		36,623		168		(2,741)		34,050
Obligations of state and political subdivisions		97,899		18		(10,214)		87,703
Asset-backed securities		82,852		150		(840)		82,162
Corporate debt securities		40,647		74		(4,333)		36,388
Total	$	425,972	$	536	$	(33,540)	$	392,968

Debt securities Available-for-Sale with an aggregate fair value of $272,130,000 at September 30, 2024 and $249,114,000 at December 31, 2023, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $217,142,000 at September 30, 2024 and $182,050,000 at December 31, 2023.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at September 30, 2024. 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.

			September 30, 2024
			Debt Securities Available-For-Sale
(Dollars in thousands)				U.S. Government		Other		Obligations
				Agency &		Mortgage		of State		Asset		Corporate
	U.S. Treasury			Sponsored Agency		Backed Debt		& Political		Backed		Debt
	Securities			Obligations1		Securities1		Subdivisions		Securities		Securities
Within 1 Year:
Amortized cost	$	—		$	—	$	2,920	$	9,478	$	—	$	—
Fair value		—			—		2,900		9,415		—		—
1 - 5 Years:
Amortized cost		7,904			6,752		1,201		9,948		—		1,244
Fair value		7,271			6,716		1,187		9,726		—		1,215
5 - 10 Years:
Amortized cost		—			4,347		1,246		28,166		3,658		34,673
Fair value		—			4,416		1,245		25,458		3,682		31,941
After 10 Years:
Amortized cost		—			148,975		43,582		47,426		73,710		5,157
Fair value		—			137,790		42,036		42,147		73,496		4,440
Total:
Amortized cost	$	7,904		$	160,074	$	48,949	$	95,018	$	77,368	$	41,074
Fair value		7,271			148,922		47,368		86,746		77,178		37,596

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

At September 30, 2024 and December 31, 2023, the Corporation had holdings of securities from the following issuers in excess of ten percent of consolidated stockholders’ equity (excluding holdings of the U.S. Government and U.S. Government Agencies and Corporations).

(Dollars in thousands)
	Fair
September 30, 2024:	Value
Issuer
Sallie Mae Bank	$	27,246
Velocity Commercial Capital		25,109
Nelnet Student Loan Trust		15,525
Navient Student Loan Trust		10,931

(Dollars in thousands)
	Fair
December 31, 2023:	Value
Issuer
Sallie Mae Bank	$	25,737
Nelnet Student Loan Trust		15,486
Navient Student Loan Trust		13,179

There were no proceeds from sales of Debt Securities Available-For-Sale for the three months ended September 30, 2024 and 2023. Therefore, there were no gains or losses realized during these periods.

Proceeds from sales of Debt Securities Available-For-Sale for the nine months ended September 30, 2024 and 2023 were $0 and $23,230,000, respectively. Gross gains realized on these sales were $0 and $447,000, respectively. Gross losses on these sales were $0 and $348,000 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 September 30, 2024 and December 31, 2023:

September 30, 2024

(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	$	—	$	—	$	7,271	$	(633)	$	7,271	$	(633)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		10,598		(18)		86,186		(11,336)		96,784		(11,354)
Other		—		—		2,163		(36)		2,163		(36)
Other mortgage-backed debt securities		12,556		(163)		22,271		(1,712)		34,827		(1,875)
Obligations of state and political subdivisions		1,252		(1)		82,922		(8,300)		84,174		(8,301)
Asset-backed securities		28,398		(142)		12,983		(332)		41,381		(474)
Corporate debt securities		10,357		(960)		25,453		(2,639)		35,810		(3,599)
Total	$	63,161	$	(1,284)	$	239,249	$	(24,988)	$	302,410	$	(26,272)

December 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	$	—	$	—	$	7,041	$	(840)	$	7,041	$	(840)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		23,103		(242)		102,608		(14,276)		125,711		(14,518)
Other		—		—		3,029		(54)		3,029		(54)
Other mortgage-backed debt securities		1,568		(1)		25,042		(2,740)		26,610		(2,741)
Obligations of state and political subdivisions		—		—		82,113		(10,214)		82,113		(10,214)
Asset-backed securities		52,862		(342)		12,726		(498)		65,588		(840)
Corporate debt securities		2,813		(270)		30,501		(4,063)		33,314		(4,333)
Total	$	80,346	$	(855)	$	263,060	$	(32,685)	$	343,406	$	(33,540)

There were 169 individual debt securities in an unrealized loss position as of September 30, 2024, with a combined decline in value representing 5.88% of the debt securities portfolio. There were 177 individual debt securities in an unrealized loss position as of December 31, 2023, with their combined decline in value representing 7.75% 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 $2,226,000 as of September 30, 2024. 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 September 30, 2024, 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

In accordance with ASC 825-10, 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 September 30, 2024 and December 31, 2023, the Company had $1,434,000 and $1,482,000, 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 nine months ended September 30, 2024 and 2023:

(Dollars in thousands)	Nine months ended		Nine months ended
	September 30, 2024		September 30, 2023
Net losses from market value fluctuations recognized during the period on equity securities	$	(48)	$	(311)
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	$	(48)	$	(311)

Management evaluates equity securities for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Equity securities without readily determinable fair values are generally evaluated for impairment under FASB ASC 321, Equity Securities. In determining impairment under the FASB ASC 321 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 impairment 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 exist, 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 impaired at September 30, 2024 or December 31, 2023.