Investments

9 Months Ended

Sep. 30, 2024

Investments

Investments

Note 4 – Investments

The following tables show a comparison of amortized cost and fair values of investment securities at September 30, 2024 and December 31, 2023:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
September 30, 2024
Available for Sale:
U.S. government agencies	$	7,000	$	—	$	761	$	—	$	6,239
Residential mortgage-backed agencies		23,202		—		3,559		—		19,643
Commercial mortgage-backed agencies		35,721		—		7,368		—		28,353
Collateralized mortgage obligations		18,533		—		2,853		—		15,680
Obligations of states and political subdivisions		7,803		14		91		—		7,726
Corporate bonds		1,000		—		260		—		740
Collateralized debt obligations		18,658		—		3,879		—		14,779
Total available for sale	$	111,917	$	14	$	18,771	$	—	$	93,160

(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		Allowance for Credit Losses
September 30, 2024
Held to Maturity:
U.S. government agencies	$	68,229	$	—	$	8,662	$	59,567	$	—
Residential mortgage-backed agencies		29,866		79		2,455		27,490		—
Commercial mortgage-backed agencies		21,177		—		5,008		16,169		—
Collateralized mortgage obligations		50,332		—		8,334		41,998		—
Obligations of states and political subdivisions		4,509		218		603		4,124		59
Total held to maturity	$	174,113	$	297	$	25,062	$	149,348	$	59

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
December 31, 2023
Available for Sale:
U.S. government agencies	$	7,000	$	—	$	966	$	—	$	6,034
Residential mortgage-backed agencies		24,781		—		4,218		—		20,563
Commercial mortgage-backed agencies		36,258		—		7,841		—		28,417
Collateralized mortgage obligations		19,725		—		3,369		—		16,356
Obligations of states and political subdivisions		10,486		15		189		—		10,312
Corporate bonds		1,000		—		222		—		778
Collateralized debt obligations		18,671		—		3,962		—		14,709
Total available for sale	$	117,921	$	15	$	20,767	$	—	$	97,169
(in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		Allowance for Credit Losses
December 31, 2023
Held to Maturity:
U.S. treasuries	$	37,462	$	—	$	243	$	37,219	$	—
U.S. government agencies		68,014		—		10,985		57,029		—
Residential mortgage-backed agencies		29,588		42		2,913		26,717		—
Commercial mortgage-backed agencies		21,413		—		5,361		16,052		—
Collateralized mortgage obligations		53,261		—		9,973		43,288		—
Obligations of states and political subdivisions		4,604		177		671		4,110		45
Total held to maturity	$	214,342	$	219	$	30,146	$	184,415	$	45

The Corporation utilizes FASB Accounting Standards Codification (“ASC”) Topic 326 to evaluate its available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt security portfolio for expected credit losses.  For AFS debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.  If either criteria is met, then the security’s amortized cost basis is written down to fair value through income.  For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether any decline in fair value has resulted from credit losses or other factors.  In making this assessment, management 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 assessment indicates that a credit loss exists, then the present value of cash flows expected to be collected from the security is 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, then a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.  Any impairment that has not been recorded through an ACL is recognized in other comprehensive income as a non-credit-related impairment.

Changes in the ACL are recorded as a provision for (or reversal of) credit losses.  Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.  Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment.

The Corporation has made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheets.  AFS debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.  Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.  Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

The Corporation separately evaluates its HTM investment securities for any credit losses.  The Corporation pools similar securities and calculates expected credit losses through an estimate based on a security’s credit rating, which is recognized as part of the ACL for HTM securities and is included in the balance of HTM securities held to maturity on the Consolidated Balance Sheets.  If the Corporation determines that a security indicates evidence of deteriorated credit quality, then the security is individually evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis.

The Corporation recorded ACL of approximately $59,000 as of September 30, 2024 and $45,000 as of  December 31, 2023, both related to one non-rated municipal bond in its HTM security portfolio.

The following tables show the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at September 30, 2024 and December 31, 2023, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments	Fair Value		Unrealized Losses		Number of Investments
September 30, 2024
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	6,239	$	761	2
Residential mortgage-backed agencies		—		—	—		19,643		3,559	3
Commercial mortgage-backed agencies		—		—	—		28,353		7,368	8
Collateralized mortgage obligations		—		—	—		15,680		2,853	9
Obligations of states and political subdivisions		243		2	1		3,959		89	3
Corporate bonds		—		—	—		740		260	1
Collateralized debt obligations		—		—	—		14,779		3,879	9
Total available for sale	$	243	$	2	1	$	89,393	$	18,769	35
	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrecognized Losses		Number of Investments	Fair Value		Unrecognized Losses		Number of Investments
September 30, 2024
Held to Maturity:
U.S. government agencies	$	—	$	—	—	$	59,567	$	8,662	9
Residential mortgage-backed agencies		—		—	—		21,549		2,455	35
Commercial mortgage-backed agencies		—		—	—		16,169		5,008	2
Collateralized mortgage obligations		—		—	—		41,998		8,334	8
Obligations of states and political subdivisions		—		—	—		2,277		603	1
Total held to maturity	$	—	$	—	—	$	141,560	$	25,062	55

	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments	Fair Value		Unrealized Losses		Number of Investments
December 31, 2023
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	6,034	$	966	2
Residential mortgage-backed agencies		—		—	—		20,563		4,218	3
Commercial mortgage-backed agencies		—		—	—		28,417		7,841	8
Collateralized mortgage obligations		—		—	—		16,356		3,369	9
Obligations of states and political subdivisions		1,445		20	2		6,668		169	3
Corporate Bonds		—		—	—		778		222	1
Collateralized debt obligations		—		—	—		14,709		3,962	9
Total available for sale	$	1,445	$	20	2	$	93,525	$	20,747	35
	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrecognized Losses		Number of Investments	Fair Value		Unrecognized Losses		Number of Investments
December 31, 2023
Held to Maturity:
U.S. treasuries	$	—	$	—	—	$	37,219	$	243	4
U.S. government agencies		—		—	—		57,029		10,985	9
Residential mortgage-backed agencies		—		—	—		22,613		2,913	35
Commercial mortgage-backed agencies		—		—	—		16,052		5,361	2
Collateralized mortgage obligations		—		—	—		43,288		9,973	8
Obligations of states and political subdivisions		—		—	—		2,205		671	1
Total held to maturity	$	—	$	—	—	$	178,406	$	30,146	59

The amortized cost and estimated fair value of securities by contractual maturity at September 30, 2024 are shown in the following table. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2024
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	1,270	$	1,270
Due after one year through five years		5,250		5,077
Due after five years through ten years		3,396		3,117
Due after ten years		24,545		20,020
		34,461		29,484
Residential mortgage-backed agencies		23,202		19,643
Commercial mortgage-backed agencies		35,721		28,353
Collateralized mortgage obligations		18,533		15,680
Total available for sale	$	111,917	$	93,160
Held to Maturity:
Due after one year through five years	$	12,500	$	12,115
Due after five years through ten years		40,498		35,862
Due after ten years		19,740		15,714
		72,738		63,691
Residential mortgage-backed agencies		29,866		27,490
Commercial mortgage-backed agencies		21,177		16,169
Collateralized mortgage obligations		50,332		41,998
Total held to maturity	$	174,113	$	149,348

At September 30, 2024 and December 31, 2023, AFS investment securities with a fair value of $76.5 and $50.5 million, respectively, and HTM investment securities with a book value of $162.8 and $141.8 million, respectively, were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity.