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Note 2 - Investment Securities
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Investment Holdings [Text Block]
NOTE
2
– INVESTMENT SECURITIES
 
The amortized cost and fair value of
investment securities as of
September 30, 2017
and
December 31, 2016
are summarized as follows:
 
 
           
Gross
    
Gross
          
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
   
Cost
    
Gains
    
(Losses)
    
Value
  
September 30, 2017:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Securities HTM:
                                
Municipal securities
   $
322,931,227
     $
2,084,997
     $
(2,629,646
 )   $
322,386,578
  
Other securities
    
1,050,000
      
-
      
-
      
1,050,000
  
    $
323,981,227
     $
2,084,997
     $
(2,629,646
 )   $
323,436,578
  
                                 
Securities AFS:
                                
U.S. govt. sponsored agency securities
   $
39,340,306
     $
129,768
     $
(129,906
 )   $
39,340,168
  
Residential mortgage-backed and related securities
    
160,329,128
      
266,806
      
(1,627,425
 )    
158,968,509
  
Municipal securities
    
56,621,412
      
435,356
      
(293,708
 )    
56,763,060
  
Other securities
    
4,077,128
      
826,135
      
(20,578
 )    
4,882,685
  
    $
260,367,974
     $
1,658,065
     $
(2,071,617
 )   $
259,954,422
  
                                 
December 31, 2016:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Securities HTM:
                                
Municipal securities
   $
321,859,056
     $
2,200,577
     $
(4,694,734
 )   $
319,364,899
  
Other securities
    
1,050,000
      
-
      
-
      
1,050,000
  
    $
322,909,056
     $
2,200,577
     $
(4,694,734
 )   $
320,414,899
  
                                 
Securities AFS:
                                
U.S. govt. sponsored agency securities
   $
46,281,306
     $
132,886
     $
(330,585
 )   $
46,083,607
  
Residential mortgage-backed and related securities
    
150,465,222
      
174,993
      
(2,938,088
 )    
147,702,127
  
Municipal securities
    
52,816,541
      
425,801
      
(637,916
 )    
52,604,426
  
Other securities
    
4,046,332
      
703,978
      
(27,331
 )    
4,722,979
  
    $
253,609,401
     $
1,437,658
     $
(3,933,920
 )   $
251,113,139
  
 
The Company
’s HTM municipal securities consist largely of private issues of municipal debt. The large majority of the municipalities are located within the Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.
 
The Company
’s residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities. The Company has
not
invested in private mortgage-backed securities or pooled trust preferred securities.
 
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unre
alized loss position as of
September 30, 2017
and
December 31, 2016,
are summarized as follows:
 
 
   
Less than 12 Months
    
12 Months or More
    
Total
  
           
Gross
            
Gross
            
Gross
  
   
Fair
    
Unrealized
    
Fair
    
Unrealized
    
Fair
    
Unrealized
  
   
Value
    
Losses
    
Value
    
Losses
    
Value
    
Losses
  
September 30, 2017:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Securities HTM:
                                                
Municipal securities
   $
17,779,999
     $
(254,147
 )   $
68,663,362
     $
(2,375,499
 )   $
86,443,361
     $
(2,629,646
 )
                                                 
Securities AFS:
                                                
U.S. govt. sponsored agency securities
   $
23,607,646
     $
(129,906
 )   $
-
     $
-
     $
23,607,646
     $
(129,906
 )
Residential mortgage-backed and related securities
    
111,996,030
      
(1,255,971
 )    
12,648,688
      
(371,454
 )    
124,644,718
      
(1,627,425
 )
Municipal securities
    
18,776,501
      
(169,253
 )    
12,872,616
      
(124,455
 )    
31,649,117
      
(293,708
 )
Other securities
    
928,772
      
(20,578
 )    
-
      
-
      
928,772
      
(20,578
 )
    $
155,308,949
     $
(1,575,708
 )   $
25,521,304
     $
(495,909
 )   $
180,830,253
     $
(2,071,617
 )
                                                 
December 31, 2016:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Securities HTM:
                                                
Municipal securities
   $
122,271,533
     $
(4,076,647
 )   $
13,010,803
     $
(618,087
 )   $
135,282,336
     $
(4,694,734
 )
                                                 
Securities AFS:
                                                
U.S. govt. sponsored agency securities
   $
21,788,139
     $
(257,640
 )   $
5,499,012
     $
(72,945
 )   $
27,287,151
     $
(330,585
 )
Residential mortgage-backed and related securities
    
121,506,582
      
(2,641,664
 )    
7,437,615
      
(296,424
 )    
128,944,197
      
(2,938,088
 )
Municipal securities
    
34,152,822
      
(618,462
 )    
338,099
      
(19,454
 )    
34,490,921
      
(637,916
 )
Other securities
    
3,177,414
      
(27,331
 )    
-
      
-
      
3,177,414
      
(27,331
 )
    $
180,624,957
     $
(3,545,097
 )   $
13,274,726
     $
(388,823
 )   $
193,899,683
     $
(3,933,920
 )
 
 
At
September 30, 2017,
the investment portfolio included
567
securities. Of this number,
203
securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately
0.8%
of the total amortized cost of the portfolio. Of these
203
securities,
80
securities had an unrealized loss for
twelve
months or more. All of the debt securities in unrealized loss positions are considered acceptable credit risks. Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary. In addition, the Company lacks the intent to sell these securities and it is
not
more-likely-than-
not
that the Company will be required to sell these debt securities before their anticipated recovery. At
September 30, 2017
and
December 31, 2016,
equity securities represented less than
1%
of the total portfolio.
 
The Company did
not
recognize
OTTI on any debt or equity securities for the
three
or
nine
months ended
September 30, 2017
and
2016.
   
 
All sales of securities for the
three
and
nine
months ended
September 30, 2017
and
2016
were from securities identified as AFS. Information on proceeds received, as well as pre-tax gross gains and losses from sales on those securities are as follows:
 
   
Three Months Ended
    
Nine Months Ended
  
   
September 30, 2017
    
September 30, 2016
    
September 30, 2017
    
September 30, 2016
  
                                 
Proceeds from sales of securities*
   $
8,415,795
     $
58,775,764
     $
21,969,870
     $
119,850,909
  
Pre-tax gross gains from sales of securities
    
6,312
      
4,281,828
      
65,880
      
4,815,373
  
Pre-tax gross losses from sales of securities
    
(69,900
 )    
(30,055
 )    
(91,004
 )    
(187,090
 )
 
  *
Proceeds from sales of securities for the
nine
months ended
September 30, 2016
includes
$32.1
million receivable from the broker for the sale of securities
 
The amortized cost and fai
r value of securities as of
September 30, 2017
by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities
may
differ from contractual maturities because the residential mortgages underlying the residential mortgage-backed and related securities
may
be prepaid without any penalties. Therefore, these securities are
not
included in the maturity categories in the following table. “Other securities” AFS are excluded from the maturity categories as there is
no
fixed maturity date for those securities.
 
 
   
Amortized Cost
    
Fair Value
  
Securities HTM:
                
Due in one year or less
   $
2,940,492
     $
2,940,378
  
Due after one year through five years
    
18,268,264
      
18,374,059
  
Due after five years
    
302,772,471
      
302,122,141
  
    $
323,981,227
     $
323,436,578
  
                 
Securities AFS:
                
Due in one year or less
   $
3,135,008
     $
3,143,223
  
Due after one year through five years
    
26,545,903
      
26,712,930
  
Due after five years
    
66,280,807
      
66,247,075
  
     
95,961,718
      
96,103,228
  
Residential mortgage-backed and related securities
    
160,329,128
      
158,968,509
  
Other securities
    
4,077,128
      
4,882,685
  
    $
260,367,974
     $
259,954,422
  
 
Portions
of the U.S. government sponsored agency securities and municipal securities contain call options, at the discretion of the issuer, to terminate the security at par and at predetermined dates prior to the stated maturity. These callable securities are summarized as follows:
 
   
Amortized Cost
    
Fair Value
  
Securities HTM:
                
Municipal securities
   $
170,900,193
     $
171,633,005
  
                 
Securities AFS:
                
U.S. govt. sponsored agency securities
    
5,048,652
      
5,033,292
  
Municipal securities
    
45,727,004
      
45,640,630
  
    $
50,775,656
     $
50,673,922
  
 
As of
September 30, 2017,
the Company’s municipal securities portfolios were comprised of general obligation bonds issued by
119
issuers with fair values totaling
$100.4
million and revenue bonds issued by
132
issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling
$278.7
million. The Company held investments in general obligation bonds in
21
states, including
six
states in which the aggregate fair value exceeded
$5.0
million. The Company held investments in revenue bonds in
14
states, including
six
states in which the aggregate fair value exceeded
$5.0
million.
 
As of
December 31,
201
6,
the Company’s municipal securities portfolios were comprised of general obligation bonds issued by
116
issuers with fair values totaling
$116.5
million and revenue bonds issued by
120
issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling
$255.5
million. The Company held investments in general obligation bonds in
21
states, including
five
states in which the aggregate fair value exceeded
$5.0
million. The Company held investments in revenue bonds in
12
states, including
six
states in which the aggregate fair value exceeded
$5.0
million.
 
The amortized cost and fair values of the Company
’s portfolio of general obligation bonds are summarized in the following tables by the issuer’s state:
 
September 30, 2017:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
U.S. State:
  
Number of
Issuers
   
Amortized Cost
   
Fair Value
   
Average
Exposure Per
Issuer

(Fair Value)
 
                                 
North Dakota
    
7
     $
21,625,068
     $
21,593,895
     $
3,084,842
  
Illinois
    
21
      
18,319,644
      
18,501,854
      
881,041
  
Iowa
    
21
      
17,990,978
      
17,993,895
      
856,852
  
Missouri
    
16
      
8,956,396
      
8,983,511
      
561,469
  
Ohio
    
9
      
8,289,069
      
8,180,432
      
908,937
  
Texas
    
10
      
6,609,101
      
6,543,660
      
654,366
  
Other
    
35
      
18,520,725
      
18,626,763
      
532,193
  
Total general obligation bonds
    
119
     $
100,310,981
     $
100,424,010
     $
843,899
  
 
 
December 31, 2016:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
U.S. State:
  
Number of
Issuers
   
Amortized Cost
   
Fair Value
   
Average
Exposure
Per Issuer
(Fair Value)
 
                                 
Iowa
    
27
     $
32,258,612
     $
32,231,936
     $
1,193,775
  
Illinois
    
19
      
29,214,559
      
29,308,438
      
1,542,549
  
North Dakota
    
7
      
22,169,050
      
21,499,075
      
3,071,296
  
Missouri
    
14
      
8,291,192
      
8,323,245
      
594,518
  
Ohio
    
8
      
6,790,398
      
6,651,897
      
831,487
  
Other
    
41
      
18,481,496
      
18,458,044
      
450,196
  
Total general obligation bonds
    
116
     $
117,205,307
     $
116,472,635
     $
1,004,074
  
 
The amortized cost and fair values of the Company
’s portfolio of revenue bonds are summarized in the following tables by the issuer’s state:
 
September 30, 2017:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
U.S. State:
  
Number of
Issuers
   
Amortized Cost
   
Fair Value
   
Average
Exposure
Per Issuer
(Fair Value)
 
                                 
Missouri
    
55
     $
107,274,712
     $
107,108,520
     $
1,947,428
  
Iowa
    
28
      
62,468,124
      
62,615,875
      
2,236,281
  
Indiana
    
23
      
50,080,705
      
49,560,095
      
2,154,787
  
Ohio
    
5
      
19,674,376
      
19,523,478
      
3,904,696
  
Kansas
    
6
      
12,877,308
      
12,879,871
      
2,146,645
  
North Dakota
    
5
      
11,496,420
      
11,471,544
      
2,294,309
  
Other
    
10
      
15,370,013
      
15,566,245
      
1,556,625
  
Total revenue bonds
    
132
     $
279,241,658
     $
278,725,628
     $
2,111,558
  
 
 
December 31, 2016:
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
U.S. State:
  
Number of
Issuers
   
Amortized Cost
   
Fair Value
   
Average
Exposure
Per Issuer
(Fair Value)
 
                                 
Missouri
    
47
     $
90,784,441
     $
89,664,013
     $
1,907,745
  
Iowa
    
31
      
70,788,393
      
71,142,393
      
2,294,916
  
Indiana
    
22
      
47,994,737
      
47,582,138
      
2,162,824
  
Kansas
    
6
      
13,476,366
      
13,427,491
      
2,237,915
  
North Dakota
    
4
      
8,089,067
      
7,796,381
      
1,949,095
  
Ohio
    
3
      
13,650,000
      
13,405,222
      
4,468,407
  
Other
    
7
      
12,687,286
      
12,479,052
      
1,782,722
  
Total revenue bonds
    
120
     $
257,470,290
     $
255,496,690
     $
2,129,139
  
 
Both general obligation and revenue bonds are diversified across many issuers. As of
September 30, 2017
and
December 31, 2016,
the Company did
not
hold general obligation or revenue bonds of any single issuer, the aggregate book or market value of which exceeded
5%
of the Company’s stockholders’ equity. Of the general obligation and revenue bonds in the Company’s portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to loan underwriting standards and have an average loan risk rating of
2,
indicating very high quality. Additionally, many of these bonds are funding essential municipal services such as water, sewer, education, and medical facilities.
 
The Company
’s municipal securities are owned by each of the
four
charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. Each charter is monitored individually, and as of
September 30, 2017,
all were well within policy limitations approved by the board of directors. Policy limits are calculated as a percentage of each charter’s total risk-based capital.
 
As of
September 30, 2017,
the Company’s standard monitoring of its municipal securities portfolio had
not
uncovered any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.