INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2023

5. INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at December 31, 2023 and 2022 were as follows (in thousands):

December 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance For Credit Losses		Fair Value
Available-for-sale securities:
U.S. Agency securities	$	66,569	$	1	$	(5,799	)	$	-	$	60,771
U.S. Treasuries		152,485		-		(9,197	)		-		143,288
Obligations of state and political subdivisions		107,945		32		(6,190	)		-		101,787
Corporate obligations		13,394		245		(1,236	)		-		12,403
Mortgage-backed securities in government sponsored entities		112,950		7		(13,605	)		-		99,352
Total available-for-sale securities	$	453,343	$	285	$	(36,027	)	$	-	$	417,601

December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. Agency securities	$	78,556	$	-	$	(7,879	)	$	70,677
U.S. Treasuries		162,236		-		(13,666	)		148,570
Obligations of state and political subdivisions		120,562		35		(10,297	)		110,300
Corporate obligations		10,335		-		(952	)		9,383
Mortgage-backed securities in government sponsored entities		115,304		15		(14,743	)		100,576
Total available-for-sale securities	$	486,993	$	50	$	(47,537	)	$	439,506

The following table shows the Company’s gross unrealized losses and fair value for available for sale securities, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022 (in thousands). As of December 31, 2023, the Company owned 323 securities each of whose fair value was less than its cost basis for a period twelve months or greater and five securities each of whose fair value was less than its cost basis for a period less than twelve months.

	Less than Twelve Months					Twelve Months or Greater					Total
2023	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. agency securities	$	-	$	-		$	58,753	$	(5,799	)	$	58,753	$	(5,799	)
U.S. Treasuries		-		-			143,288		(9,197	)		143,288		(9,197	)
Obligations of states and political subdivisions		-		-			93,535		(6,190	)		93,535		(6,190	)
Corporate obligations		1,487		(265	)		8,320		(971	)		9,807		(1,236	)
Mortgage-backed securities in government sponsored entities		9,203		(31	)		88,553		(13,574	)		97,756		(13,605	)
Total securities	$	10,690	$	(296	)	$	392,449	$	(35,731	)	$	403,139	$	(36,027	)


2022
U.S. agency securities	$	39,729	$	(1,892	)	$	30,948	$	(5,987	)	$	70,677	$	(7,879	)
U.S. Treasuries		32,673		(1,337	)		115,897		(12,329	)		148,570		(13,666	)
Obligations of states and political subdivisions		66,725		(4,887	)		35,782		(5,410	)		102,507		(10,297	)
Corporate obligations		2,165		(165	)		6,218		(787	)		8,383		(952	)
Mortgage-backed securities in government sponsored entities		40,270		(3,367	)		57,319		(11,376	)		97,589		(14,743	)
Total securities	$	181,562	$	(11,648	)	$	246,164	$	(35,889	)	$	427,726	$	(47,537	)

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available-for-sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. The Company obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario, and utilizes a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within Investment securities available-for-sale on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

As of December 31, 2023, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Accrued interest receivable on available-for-sale debt securities totaled $2,202,000 at December 31, 2023 and is included within accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Proceeds from sales of securities available-for-sale during 2023, 2022 and 2021 were $86,504,000, $7,480,000 and $29,198,000, respectively. Sales for 2023 were primarily the result of selling investments obtained as part of the HVBC acquisition for no gain or loss on the day of acquisition. The gross losses realized during 2023 consisted of $89,000 from the sales of seven municipal securities. The gross gains realized during 2023 consisted of $38,000 from the sales of two municipal securities. The gross losses realized during 2022 consisted of $14,000 from the sales of three agency securities. The gross gains realized during 2021 consisted of $177,000 and $125,000 from the sales of six treasury securities and three agency securities, respectively. The gross losses realized during 2021 consisted of $90,000 from the sale of one agency security. Gross gains and gross losses were realized as follows on available for sale securities (in thousands):

	2023			2022			2021
Gross gains	$	38		$	-		$	302
Gross losses		(89	)		(14	)		(90	)
Net (losses) gains	$	(51	)	$	(14	)	$	212

The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during 2023, 2022 and 2021 and the portion of unrealized gains for the period that relates to equity investments held at December 31, 2023, 2022 and 2021 (in thousands):

Equity Securities	2023			2022			2021
Net gains (losses) recognized in equity securities during the period	$	(158	)	$	(251	)	$	339
Less: Net gains realized on the sale of equity securities during the period		14			4			-
Net unrealized gains (losses)	$	(144	)	$	(247	)	$	339

Investment securities with an approximate carrying value of $353,344,000 and $311,766,000 at December 31, 2023 and 2022, respectively, were pledged to secure public funds and certain other deposits as provided by law and certain borrowing arrangements of the Company.

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. The amortized cost and fair value of debt securities at December 31, 2023, by contractual maturity are shown below (in thousands). Municipal securities that have been refunded and will therefore pay-off on the call date are reflected in the table below utilizing the call date as the date of repayment as payment is guaranteed on that date:

Available-for-sale securities:	Amortized Cost		Fair Value
Due in one year or less	$	46,581	$	45,685
Due after one year through five years		158,502		147,810
Due after five years through ten years		95,534		86,919
Due after ten years		152,726		137,187
Total	$	453,343	$	417,601

Credit Losses on Investment Securities – Prior to adopting ASU 2016-13

The Company adopted ASU No. 2016-13 effective January 1, 2023. Financial statement amounts related to Investment Securities recorded as of December 31, 2022 and for the periods ended December 31, 2022 are presented in accordance with the accounting policies described in the following sections. The following sections were carried forward from the Annual Report on Form 10-K for the year ended December 31, 2022.

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other than temporary. To determine whether a loss is other than temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, and whether or not management intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery of the fair value. The term “other than temporary” is not intended to indicate that the decline is permanent but indicates that the prospects for a near-term recovery of value are not necessarily favorable or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

Declines in the fair value of securities below their cost that are deemed to be other than temporary are separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss), and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive (loss) income.