SECURITIES

9 Months Ended

Sep. 30, 2022

SECURITIES

SECURITIES

5. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at September 30, 2022 and December 31, 2021 are summarized as follows:

(In Thousands)	September 30, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	35,155	$	0	$	(3,556)	$	31,599
Obligations of U.S. Government agencies		23,939		0		(2,550)		21,389
Bank holding company debt securities		28,944		0		(3,512)		25,432
Obligations of states and political subdivisions:
Tax-exempt		146,847		153		(20,290)		126,710
Taxable		69,902		0		(11,585)		58,317
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		116,833		0		(14,094)		102,739
Residential collateralized mortgage obligations		44,075		0		(4,443)		39,632
Commercial mortgage-backed securities		89,349		0		(11,966)		77,383
Private label commercial mortgage-backed securities		4,793		0		(14)		4,779
Total available-for-sale debt securities	$	559,837	$	153	$	(72,010)	$	487,980

(In Thousands)	December 31, 2021
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	25,058	$	52	$	(198)	$	24,912
Obligations of U.S. Government agencies		23,936		563		(408)		24,091
Bank holding company debt securities		18,000		18		(31)		17,987
Obligations of states and political subdivisions:
Tax-exempt		143,427		4,749		(148)		148,028
Taxable		72,182		1,232		(649)		72,765
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		98,048		705		(572)		98,181
Residential collateralized mortgage obligations		44,015		437		(205)		44,247
Commercial mortgage-backed securities		86,926		1,548		(1,006)		87,468
Total available-for-sale debt securities	$	511,592	$	9,304	$	(3,217)	$	517,679

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021:

September 30, 2022	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	20,913	$	(2,195)	$	10,686	$	(1,361)	$	31,599	$	(3,556)
Obligations of U.S. Government agencies		8,486		(454)		12,903		(2,096)		21,389		(2,550)
Bank holding company debt securities		25,432		(3,512)		0		0		25,432		(3,512)
Obligations of states and political subdivisions:
Tax-exempt		107,565		(16,818)		13,122		(3,472)		120,687		(20,290)
Taxable		37,480		(6,189)		20,837		(5,396)		58,317		(11,585)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		66,747		(7,746)		35,992		(6,348)		102,739		(14,094)
Residential collateralized mortgage obligations		31,957		(2,763)		7,675		(1,680)		39,632		(4,443)
Commercial mortgage-backed securities		47,633		(4,214)		29,750		(7,752)		77,383		(11,966)
Private label commercial mortgage-backed securities		4,779		(14)		0		0		4,779		(14)
Total temporarily impaired available-for-sale debt securities	$	350,992	$	(43,905)	$	130,965	$	(28,105)	$	481,957	$	(72,010)

December 31, 2021	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	18,886	$	(198)	$	0	$	0	$	18,886	$	(198)
Obligations of U.S. Government agencies		9,735		(264)		4,856		(144)		14,591		(408)
Bank holding company debt securities		12,969		(31)		0		0		12,969		(31)
Obligations of states and political subdivisions:
Tax-exempt		17,852		(141)		549		(7)		18,401		(148)
Taxable		31,261		(517)		3,277		(132)		34,538		(649)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		71,451		(572)		0		0		71,451		(572)
Residential collateralized mortgage obligations		15,117		(205)		0		0		15,117		(205)
Commercial mortgage-backed securities		52,867		(1,006)		0		0		52,867		(1,006)
Total temporarily impaired available-for-sale debt securities	$	230,138	$	(2,934)	$	8,682	$	(283)	$	238,820	$	(3,217)

Gross realized gains and losses from available-for-sale debt securities were as follows:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
Gross realized gains from sales	$	44	$	23	$	48	$	27
Gross realized losses from sales		(24)		0		(27)		(2)
Net realized gains	$	20	$	23	$	21	$	25

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of September 30, 2022. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	September 30, 2022
	Amortized		Fair
	Cost		Value
Due in one year or less	$	12,648	$	12,490
Due from one year through five years		71,702		66,612
Due from five years through ten years		92,119		81,106
Due after ten years		128,318		103,239
Sub-total		304,787		263,447
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		116,833		102,739
Residential collateralized mortgage obligations		44,075		39,632
Commercial mortgage-backed securities		89,349		77,383
Private label commercial mortgage-backed securities		4,793		4,779
Total	$	559,837	$	487,980

The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.

Investment securities carried at $281,096,000 at September 30, 2022 and $241,428,000 at December 31, 2021 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 8 for information concerning securities pledged to secure borrowing arrangements and Note 11 for information related to securities pledged against interest rate swap obligations.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (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, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

A summary of information management considered in evaluating debt and equity securities for OTTI at September 30, 2022 is provided below.

Debt Securities

At September 30, 2022 and December 31, 2021, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. As reflected in the table above, the fair value of available-for-sale debt securities as of September 30, 2022 was lower than the amortized cost basis by $71,857,000, or 12.8%. In comparison, the aggregate unrealized gain position was $6,087,000 (1.2%) at December 31, 2021. The unrealized decrease in fair value of the portfolio in the first nine months of 2022 was consistent with the significant increase in market interest rates that occurred during the period. Based on the results of the assessment, management believes there were no credit-related declines in fair value and that impairment of debt securities at September 30, 2022 and December 31, 2021 is temporary.

Equity Securities

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $10,557,000 at September 30, 2022 and $9,313,000 at December 31, 2021. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at September 30, 2022 and December 31, 2021. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $857,000 at September 30, 2022 and $971,000 at December 31, 2021, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $143,000 at September 30, 2022 and $29,000 at December 31, 2021. Changes in the unrealized gains or losses on this security are included in other noninterest income in the consolidated statements of income.