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Investment securities

9 Months Ended

Sep. 30, 2024

Investment securities

Investment securities

5. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at September 30, 2024 and December 31, 2023 are summarized as follows:


		September 30, 2024
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
(Dollars in thousands)		Cost			Gains			Losses			Value
Available for sale:
U.S. Treasury securities		$	189,190		$			$	8,375		$	180,815
U.S. government-sponsored enterprises
State and municipals:
Taxable			85,468			109			8,186			77,391
Tax-exempt			76,570			67			8,467			68,170
Residential mortgage-backed securities:
U.S. government agencies			1,451			30						1,481
U.S. government-sponsored enterprises			144,244			1,362			15,536			130,070
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises			4,608						60			4,548
Private collateralized mortgage obligations			42,624			635			12			43,247
Asset backed securities			24,115			44			314			23,845
Corporate debt securities			32,307			622			717			32,212
Negotiable certificates of deposit			693			14						707
Total available for sale		$	601,270		$	2,883		$	41,667		$	562,486
Held to maturity:
Tax-exempt state and municipals		$	11,175		$			$	835		$	10,340
Residential mortgage-backed securities:
U.S. government agencies			14,151						2,298			11,853
U.S. government-sponsored enterprises			54,535						7,694			46,841
Total held to maturity		$	79,861		$			$	10,827		$	69,034


		December 31, 2023
					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
(Dollars in thousands)		Cost			Gains			Losses			Value
Available for sale:
U.S. Treasury securities		$	197,920		$			$	13,863		$	184,057
U.S. government-sponsored enterprises			2,539						387			2,152
State and municipals:
Taxable			67,831						10,731			57,100
Tax-exempt			75,742						8,618			67,124
Residential mortgage-backed securities:
U.S. government agencies			758						34			724
U.S. government-sponsored enterprises			89,935						17,264			72,671
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises			11,729						360			11,369
Corporate debt securities			4,000						270			3,730
Total available for sale		$	450,454		$			$	51,527		$	398,927
Held to maturity:
Tax-exempt state and municipals		$	11,201		$	1		$	660		$	10,542
Residential mortgage-backed securities:
U.S. government agencies			15,400						2,653			12,747
U.S. government-sponsored enterprises			58,250						9,841			48,409
Total held to maturity		$	84,851		$	1		$	13,154		$	71,698

The Company did not sell any investments from its legacy securities portfolio during the three and nine months ended September 30, 2024. Immediately after the consummation of the FNCB merger, the Company sold a significant portion of the available for sale investments acquired from FNCB and used the proceeds of $241.3 million to repay short-term borrowings and build on-balance sheet liquidity; there were no gains or losses realized on the sale. During the nine-month period ended September 30, 2023, investment securities, including U.S. Treasury bonds and mortgage-backed securities, with a par value of $65.6 million were sold at a net gain of $81 thousand. The proceeds were used to pay-down higher cost short-term borrowings.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available for sale at September 30, 2024, is summarized as follows:


		Amortized			Fair
(Dollars in thousands)		Cost			Value
Within one year		$	74,667		$	73,596
After one but within five years			163,400			154,865
After five but within ten years			77,493			71,741
After ten years			68,668			59,093
			384,228			359,295
Mortgage-backed and other amortizing securities			217,042			203,191
Total		$	601,270		$	562,486

The maturity distribution of the amortized cost and fair value, of debt securities classified as held to maturity at September 30, 2024, is summarized as follows:


		Amortized			Fair
(Dollars in thousands)		Cost			Value
After one but within five years		$	1,191		$	1,096
After five but within ten years			9,984			9,244
			11,175			10,340
Mortgage-backed securities			68,686			58,694
Total		$	79,861		$	69,034

Securities with a carrying value of $368.6 million and $322.4 million at September 30, 2024 and December 31, 2023, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law and pledged to the Discount Window at the Federal Reserve

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At September 30, 2024, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. government agencies and sponsored enterprises, which exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:


		September 30, 2024
		Less than Twelve Months								Twelve Months or Longer								Total
		Total # in a loss					Unrealized			Total # in a loss					Unrealized			Total # in a loss					Unrealized
(Dollars in thousands)		Position			Fair Value		Losses			Position			Fair Value		Losses			Position			Fair Value		Losses
Securities Available for Sale
U.S. Treasury securities										41		$	180,815		$	8,375		41		$	180,815		$	8,375
State and municipals:
Taxable										64			58,033			8,186		64			58,033			8,186
Tax-exempt		1			680					91			64,293			8,467		92			64,973			8,467
Residential mortgage-backed securities:
U.S. government agencies										1			6			0		1			6			0
U.S. government-sponsored enterprises		1			3,601			41		31			73,997			15,495		32			77,598			15,536
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises										2			4,548			60		2			4,548			60
Private collateralized mortgage obligations		9			7,699			12										9			7,699			12
Asset-backed securities		3			2,818			11		1			2,024			303		4			4,842			314
Corporate debt securities		6			6,034			315		6			3,599			402		12			9,633			717
Total		20		$	20,832		$	379		237		$	387,315		$	41,288		257		$	408,147		$	41,667

Securities Held to Maturity
U.S. government-sponsored enterprises
Tax-exempt		4		$	1,182		$	7		12		$	7,453		$	828		16		$	8,635		$	835
Residential mortgage-backed securities:
U.S. government agencies										4			11,853			2,298		4			11,853			2,298
U.S. government-sponsored enterprises										8			46,841			7,694		8			46,841			7,694
Total		4		$	1,182		$	7		24		$	66,147		$	10,820		28		$	67,329		$	10,827


		December 31, 2023
		Less than Twelve Months								Twelve Months or Longer								Total
		Total # in a loss						Unrealized		Total # in a loss						Unrealized		Total # in a loss						Unrealized
(Dollars in thousands)		Position			Fair Value			Losses		Position			Fair Value			Losses		Position			Fair Value			Losses
Securities Available for Sale
U.S. Treasury securities										43		$	184,057		$	13,863		43		$	184,057		$	13,863
U.S. government-sponsored enterprises										2			2,152			387		2			2,152			387
State and municipals:
Taxable		1		$	995		$	6		65			56,105			10,725		66			57,100			10,731
Tax-exempt		2			575			5		93			66,393			8,613		95			66,968			8,618
Residential mortgage-backed securities:
U.S. government agencies										3			724			34		3			724			34
U.S. government-sponsored enterprises										32			72,671			17,264		32			72,671			17,264
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises										4			11,369			360		4			11,369			360
Corporate debt securities										6			3,730			270		6			3,730			270
Total		3		$	1,570		$	11		248		$	397,201		$	51,516		251		$	398,771		$	51,527

(Dollars in thousands)
Securities Held to Maturity
State and municipals:
Tax-exempt		2		$	1,438		$	36		10		$	6,209		$	624		12		$	7,647		$	660
Residential mortgage-backed securities:										0			0			0		0			0			0
U.S. government agencies										4			12,747			2,653		4			12,747			2,653
U.S. government-sponsored enterprises										8			48,409			9,841		8			48,409			9,841
Total		2		$	1,438		$	36		22		$	67,365		$	13,118		24		$	68,803		$	13,154

Management considered whether a credit loss existed related to the investments in an unrealized loss position by determining (i) whether the decline in fair value is attributable to adverse conditions specifically related to the financial condition of the security issuer or specific conditions in an industry or geographic area; (ii) whether the credit rating of the issuer of the security has been downgraded; (iii) whether dividend or interest payments have been reduced or have not been made and (iv) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security. If the decline is judged to be due to factors related to credit, the credit loss should be recorded as an allowance for credit losses (“ACL”) with an offsetting entry to net income. The portion of the loss related to non-credit factors are recorded in OCI.

Based on management’s assessment of the factors identified above, it is determined the fair value of all the identified investments being less than the amortized costs is primarily caused by the rapid increase in market rates and not credit quality. All interest payments have been received as scheduled, substantially all debt securities are rated above investment grade and no material downgrades announced. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider the unrealized loss to be credit related, thus no allowance for credit loss expense was recorded at September 30, 2024 or December 31, 2023.

Equity Securities

Included in equity securities with readily determinable fair values at September 30, 2024 were investments in the common or preferred stock of publicly traded bank holding companies and an investment in a mutual fund comprised of 1-4 family residential mortgage-backed securities collateralized by properties within the Company’s market area. Equity securities with readily determinable fair values are reported at fair value with net unrealized gains and losses recognized in the consolidated statements of income (loss) and comprehensive income (loss).

The following table presents unrealized and realized gains and losses recognized in net income on equity securities for the three and nine months ended September 30, 2024 and 2023:


			For the three months ended						For the nine months ended
(Dollars in thousands)			September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Net gains (losses) recognized on equity securities		$	175					$	155		$	(17)
Less: net gains realized on equity securities sold			54						54
Unrealized gains (losses) on equity securities		$	121					$	101		$	(17)

Equity Securities without Readily Determinable Fair Values

At September 30, 2024 and December 31, 2023, equity securities without readily determinable fair values consisted primarily of Federal Home Loan Bank (“FHLB”) of Pittsburgh stock totaling $7.7 million and $5.2 million, respectively. At September 30, 2024, equity securities without readily determinable fair values also included a $500 thousand investment in a fixed-rate, non-cumulative perpetual preferred stock of a privately-held bank holding company acquired through the merger with FNCB. The preferred stock, which is not traded on any established market, pays quarterly dividends at an annual rate of 8.25%. Equity securities without readily determinable fair values are evaluated for impairment whenever events or circumstances suggest that their carrying value may not be recoverable are included in other assets in the Consolidated Balance Sheets.