SECURITIES

3 Months Ended

Mar. 31, 2024

SECURITIES

SECURITIES

5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. The Company had $1.1 million in equity securities recorded at fair value as of March 31, 2024 and December 31, 2023. The Company recorded net losses of $13,000 and $22,000 during the three months ended March 31, 2024 and 2023, respectively, due to changes in the fair value of the Company’s portfolio of equity securities during the applicable periods.

Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities that are not classified as held to maturity or trading are classified as

available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

The Company’s debt securities portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 17% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 75%), corporate debt securities (approximately 6%) and municipal bonds (approximately 2%) as of March 31, 2024. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

At each of March 31, 2024 and December 31, 2023, excluding securities of the U.S. Government and its agencies, the Company had holdings of securities from two issuers in excess of 10% of stockholders’ equity; holdings in Federal Farm Credit Bank and Pennsylvania Housing Finance securities had fair values of $11.3 million and $4.8 million, respectively, as of March 31, 2024, and $11.3 million and $4.9 million, respectively, as of December 31, 2023.

The amortized cost and fair value of debt securities as of March 31, 2024 and December 31, 2023, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid, with or without prepayment penalties. Securities not due at a single maturity date are shown separately.

(Dollars in thousands)	March 31, 2024
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	15,500	$	14,127	$	—	$	(1,373)
		15,500		14,127		—		(1,373)
Obligations of state and political subdivisions
Within one year		500		500		—		—
After one year but within five years		2,518		2,358		—		(160)
After five years but within ten years		4,355		3,604		—		(751)
		7,373		6,462		—		(911)
Corporate debt securities
After one year but within five years		4,592		4,069		—		(523)
After five years but within ten years		13,000		10,347		—		(2,653)
		17,592		14,416		—		(3,176)
Mortgage-backed securities		34,178		31,634		—		(2,544)
Total	$	74,643	$	66,639	$	—	$	(8,004)

(Dollars in thousands)	March 31, 2024
					Gross		Gross
	Amortized		Fair		Unrecognized		Unrecognized
Debt Securities Held to Maturity	Cost		Value		Gains		Losses
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	21,128	$	20,967	$	—	$	(161)
After five years but within ten years		8,627		8,514		—		(113)
		29,755		29,481		—		(274)
Mortgage-backed securities		168,925		163,701		385		(5,609)
Total	$	198,680	$	193,182	$	385	$	(5,883)

(Dollars in thousands)	December 31, 2023
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	15,500	$	14,173	$	—	$	(1,327)
		15,500		14,173		—		(1,327)
Obligations of state and political subdivisions
Within one year		500		496		—		(4)
After one year but within five years		2,514		2,387		—		(127)
After five years but within ten years		4,355		3,625		—		(730)
		7,369		6,508		—		(861)
Corporate debt securities
After one year but within five years		4,608		4,048		—		(560)
After five years but within ten years		13,000		9,780		—		(3,220)
		17,608		13,828		—		(3,780)
Mortgage-backed securities		35,257		33,055		—		(2,202)
Total	$	75,734	$	67,564	$	—	$	(8,170)

(Dollars in thousands)	December 31, 2023
					Gross		Gross
	Amortized		Fair		Unrecognized		Unrecognized
Debt Securities Held to Maturity	Cost		Value		Gains		Losses
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	15,886	$	15,984	$	104	$	(6)
After five years but within ten years		13,634		13,702		85		(17)
		29,520		29,686		189		(23)
Mortgage-backed securities		171,124		168,461		1,917		(4,580)
Total	$	200,644	$	198,147	$	2,106	$	(4,603)

Certain obligations of the U.S. Government and state and political subdivisions, as well as mortgage-backed securities are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $177.9 million and $192.1 million on March 31, 2024 and December 31, 2023, respectively.

In addition to cash received from the scheduled maturities of investment securities, some securities available for sale are sold or called at current market values during normal operations. There were no sales of securities during the three month periods ended March 31, 2024 or March 31, 2023.

The following tables summarize debt securities with unrealized and unrecognized losses at March 31, 2024 and December 31, 2023, aggregated by category and length of time in a continuous unrealized loss position.

	Unrealized Losses at March 31, 2024
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Securities available for sale
Obligations of U.S. Government sponsored enterprises	—	$	—	$	—	3	$	14,127	$	(1,373)	3	$	14,127	$	(1,373)
Obligations of state and political subdivisions	—		—		—	7		5,962		(911)	7		5,962		(911)
Corporate debt securities	—		—		—	9		14,416		(3,176)	9		14,416		(3,176)
Mortgage-backed securities	—		—		—	33		31,634		(2,544)	33		31,634		(2,544)
Total temporarily impaired securities available for sale	—	$	—	$	—	52	$	66,139	$	(8,004)	52	$	66,139	$	(8,004)

	Unrealized Losses at December 31, 2023
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Securities available for sale
Obligations of U.S. Government sponsored enterprises	—	$	—	$	—	3	$	14,173	$	(1,327)	3	$	14,173	$	(1,327)
Obligations of state and political subdivisions	1		1,456		(11)	7		5,052		(850)	8		6,508		(861)
Corporate debt securities	—		—		—	9		13,828		(3,780)	9		13,828		(3,780)
Mortgage-backed securities	—		—		—	34		33,055		(2,202)	34		33,055		(2,202)
Total temporarily impaired securities available for sale	1	$	1,456	$	(11)	53	$	66,108	$	(8,159)	54	$	67,564	$	(8,170)
Securities held to maturity
Obligations of U.S. Government sponsored enterprises	2	$	8,258	$	(23)	—	$	—	$	—	2	$	8,258	$	(23)
Mortgage-backed securities	6		17,894		(480)	16		50,843		(4,100)	22		68,737		(4,580)
Total temporarily impaired securities held to maturity	8	$	26,152	$	(503)	16	$	50,843	$	(4,100)	24	$	76,995	$	(4,603)
Total	9	$	27,608	$	(514)	69	$	116,951	$	(12,259)	78	$	144,559	$	(12,773)

At March 31, 2024, three obligations of U.S. Government sponsored enterprises, seven obligations of state and political subdivisions, nine corporate debt securities, and thirty-three mortgage-backed securities available for sale had unrealized losses, all of which have been in a continuous loss position for twelve months or more. The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (“GSE”) pass-through instruments issued by the Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

ASC 326 made targeted changes to the accounting for credit losses on securities available for sale. The concept of other-than-temporarily impaired securities was replaced with the allowance for credit losses. Unlike held to maturity debt securities, available for sale securities are evaluated on an individual level and pooling of securities is not allowed.

For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is 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 debt securities available for sale that do not meet the criteria, the Company evaluates whether the 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, 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 the 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, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of March 31, 2024, management determined that an immaterial credit loss existed because the decline in fair value of the available for sale debt securities was mostly attributable to changes in  interest rates and other market conditions, rather than erosion of issuer credit quality and, as a result, timely payment of contractual cash flows, including principal and interest, has continued and is not considered at risk.

Credit Quality Indicators

All the Company’s held to maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities are either explicitly or implicitly guaranteed by the U.S. government, except for the Federal Farm Credit Bank securities, but all are highly rated by major rating agencies and have a long history of no credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2024.

The Company monitors the credit quality of held to maturity debt securities using credit ratings. The credit ratings are sourced from nationally recognized rating agencies. All held to maturity debt securities were current in their payment of principal and interest as of March 31, 2024.

The following table summarizes the amortized cost of held to maturity debt securities aggregated by credit quality indicator based on the latest information available as of March 31, 2024.

(Dollars in thousands)
March 31, 2024	AAA		Total
Securities held to maturity
Obligations of U.S. Government sponsored enterprises	$	29,755	$	29,755
Mortgage-backed securities		168,925		168,925
	$	198,680	$	198,680