SECURITIES

3 Months Ended

Mar. 31, 2023

SECURITIES

SECURITIES

5. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at March 31, 2023 and December 31, 2022 are summarized as follows:

(In Thousands)	March 31, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	33,924	$	0	$	(2,761)	$	31,163
Obligations of U.S. Government agencies		25,479		0		(2,131)		23,348
Bank holding company debt securities		28,947		0		(4,224)		24,723
Obligations of states and political subdivisions:
Tax-exempt		128,285		330		(10,803)		117,812
Taxable		67,076		0		(9,504)		57,572
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,028		0		(11,221)		97,807
Residential collateralized mortgage obligations		42,296		0		(4,179)		38,117
Commercial mortgage-backed securities		84,449		10		(10,264)		74,195
Private label commercial mortgage-backed securities		8,105		10		(38)		8,077
Total available-for-sale debt securities	$	527,589	$	350	$	(55,125)	$	472,814

(In Thousands)	December 31, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	35,166	$	0	$	(3,330)	$	31,836
Obligations of U.S. Government agencies		25,938		0		(2,508)		23,430
Bank holding company debt securities		28,945		0		(3,559)		25,386
Obligations of states and political subdivisions:
Tax-exempt		146,149		319		(13,845)		132,623
Taxable		68,488		0		(11,676)		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		112,782		0		(12,841)		99,941
Residential collateralized mortgage obligations		44,868		0		(4,572)		40,296
Commercial mortgage-backed securities		91,388		0		(11,702)		79,686
Private label commercial mortgage-backed securities		8,070		2		(49)		8,023
Total available-for-sale debt securities	$	561,794	$	321	$	(64,082)	$	498,033

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:

March 31, 2023	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	$	0	$	0	$	31,163	$	(2,761)	$	31,163	$	(2,761)
Obligations of U.S. Government agencies		8,867		(361)		14,481		(1,770)		23,348		(2,131)
Bank holding company debt securities		5,894		(1,106)		18,829		(3,118)		24,723		(4,224)
Obligations of states and political subdivisions:
Tax-exempt		12,891		(177)		97,284		(10,626)		110,175		(10,803)
Taxable		10,170		(380)		46,902		(9,124)		57,072		(9,504)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		15,066		(419)		82,741		(10,802)		97,807		(11,221)
Residential collateralized mortgage obligations		7,821		(257)		30,296		(3,922)		38,117		(4,179)
Commercial mortgage-backed securities		14,886		(702)		56,963		(9,562)		71,849		(10,264)
Private label commercial mortgage-backed securities		4,790		(38)		0		0		4,790		(38)
Total temporarily impaired available-for-sale debt securities	$	80,385	$	(3,440)	$	378,659	$	(51,685)	$	459,044	$	(55,125)

December 31, 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	$	20,192	$	(1,939)	$	11,644	$	(1,391)	$	31,836	$	(3,330)
Obligations of U.S. Government agencies		8,509		(430)		12,921		(2,078)		21,430		(2,508)
Bank holding company debt securities		14,248		(1,697)		11,138		(1,862)		25,386		(3,559)
Obligations of states and political subdivisions:
Tax-exempt		106,204		(11,023)		15,153		(2,822)		121,357		(13,845)
Taxable		28,901		(4,739)		27,761		(6,937)		56,662		(11,676)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		45,410		(4,226)		54,531		(8,615)		99,941		(12,841)
Residential collateralized mortgage obligations		28,670		(2,042)		11,626		(2,530)		40,296		(4,572)
Commercial mortgage-backed securities		40,408		(2,585)		39,278		(9,117)		79,686		(11,702)
Private label commercial mortgage-backed securities		4,762		(49)		0		0		4,762		(49)
Total temporarily impaired available-for-sale debt securities	$	297,304	$	(28,730)	$	184,052	$	(35,352)	$	481,356	$	(64,082)

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

(In Thousands)	Three Months Ended
	March 31,		March 31,
	2023		2022
Gross realized gains from sales	$	80	$	2
Gross realized losses from sales		(73)		0
Net realized gains	$	7	$	2

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2023. 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)	March 31, 2023
	Amortized		Fair
	Cost		Value
Due in one year or less	$	11,807	$	11,688
Due from one year through five years		69,781		65,627
Due from five years through ten years		80,332		71,674
Due after ten years		121,791		105,629
Sub-total		283,711		254,618
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,028		97,807
Residential collateralized mortgage obligations		42,296		38,117
Commercial mortgage-backed securities		84,449		74,195
Private label commercial mortgage-backed securities		8,105		8,077
Total	$	527,589	$	472,814

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 $245,374,000 at March 31, 2023 and $277,302,000 at December 31, 2022 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.

A summary of information management considered in evaluating debt and equity securities for credit losses at March 31, 2023 and December 31, 2022 is provided below.

Debt Securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $55,125,000 at March 31, 2023 and $64,082,000 at December 31, 2022. At March 31, 2023, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis. The unrealized holding losses were consistent with significant increases in market interest rates that occurred in 2022.

At March 31, 2023 and December 31, 2022, management performed an assessment for possible credit losses 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. At March 31, 2023 and December 31, 2022, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2023 and December 31, 2022.

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 $15,996,000 at March 31, 2023 and $14,168,000 at December 31, 2022. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2023 and December 31, 2022. 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 $873,000 at March 31, 2023 and $859,000 at December 31, 2022, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $127,000 at March 31, 2023 and $141,000 at December 31, 2022. Changes in the unrealized gains or losses on this security are included in other noninterest income in the consolidated statements of income.