Note 3 - Investment Securities

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Investment Securities

Note 3. Investment Securities

The amortized cost and fair value of investment securities as of December 31, 2020 and 2019 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		(Losses)		Value
	(dollars in thousands)
December 31, 2020:
Securities HTM:
Municipal securities	$	475,115	$	45,360	$	(248)	$	520,227
Other securities		1,050		—		—		1,050
	$	476,165	$	45,360	$	(248)	$	521,277
Securities AFS:
U.S. govt. sponsored agency securities	$	14,936	$	447	$	(47)	$	15,336
Residential mortgage-backed and related securities		127,670		5,510		(338)		132,842
Municipal securities		147,241		5,215		(48)		152,408
Asset-backed securities		39,663		1,111		(91)		40,683
Other securities		20,550		147		—		20,697
	$	350,060	$	12,430	$	(524)	$	361,966

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		(Losses)		Value
	(dollars in thousands)
December 31, 2019:
Securities HTM:
Municipal securities	$	399,596	$	26,042	$	(143)	$	425,495
Other securities		1,050		—		—		1,050
	$	400,646	$	26,042	$	(143)	$	426,545
Securities AFS:
U.S. govt. sponsored agency securities	$	19,872	$	283	$	(77)	$	20,078
Residential mortgage-backed and related securities		118,724		2,045		(182)		120,587
Municipal securities		46,659		1,602		(4)		48,257
Asset-backed securities		16,958		—		(71)		16,887
Other securities		4,749		138		(1)		4,886
	$	206,962	$	4,068	$	(335)	$	210,695

The Company’s HTM municipal securities consist largely of private issues of municipal debt. The municipalities are located primarily 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 commercial mortgage-backed securities or pooled trust preferred securities.

Note 3. Investment Securities (continued)

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2020 and 2019, 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
	(dollars in thousands)
December 31, 2020:
Securities HTM:
Municipal securities	$	8,407	$	(248)	$	—	$	—	$	8,407	$	(248)
Securities AFS:
U.S. govt. sponsored agency securities	$	3,199	$	(47)	$	—	$	—	$	3,199	$	(47)
Residential mortgage-backed and related securities		37,549		(338)		—		—		37,549		(338)
Municipal securities		10,110		(48)		—		—		10,110		(48)
Asset-backed securities		6,884		(52)		9,945		(39)		16,829		(91)
	$	57,742	$	(485)	$	9,945	$	(39)	$	67,687	$	(524)

	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(dollars in thousands)
December 31, 2019:
Securities HTM:
Municipal securities	$	509	$	(1)	$	10,047	$	(142)	$	10,556	$	(143)
Securities AFS:
U.S. govt. sponsored agency securities	$	1,431	$	(21)	$	2,117	$	(56)	$	3,548	$	(77)
Residential mortgage-backed and related securities		2,263		(17)		17,862		(165)		20,125		(182)
Municipal securities		—		—		724		(4)		724		(4)
Asset-backed securities		16,886		(71)		—		—		16,886		(71)
Other securities		249		(1)		—		—		249		(1)
	$	20,829	$	(110)	$	20,703	$	(225)	$	41,532	$	(335)

At December 31, 2020, the investment portfolio included 668 securities. Of this number, 41 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 0.1% of the total aggregate amortized cost. Of these 41 securities, five securities had an unrealized loss for 12 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. The Company did not recognize OTTI on any investment securities for the years ended December 31, 2020, 2019 or 2018.

Note 3. Investment Securities (continued)

All sales of securities for the years ended December 31, 2020, 2019 and 2018, respectively, were from securities identified as AFS. Information on proceeds received, as well as the gains and losses from the sale of those securities are as follows:

	2020		2019		2018
	(dollars in thousands)
Proceeds from sales of securities	$	38,562	$	30,055	$	1,938
Gross gains from sales of securities		2,553		176		—
Gross losses from sales of securities		(69)		(206)		—

The amortized cost and fair value of securities as of December 31, 2020, by contractual maturity are shown below. Expected maturities of mortgage-backed and related securities and asset-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.

	Amortized Cost		Fair Value
	(dollars in thousands)
Securities HTM:
Due in one year or less	$	3,417	$	3,443
Due after one year through five years		34,396		35,103
Due after five years		438,352		482,731
	$	476,165	$	521,277
Securities AFS:
Due in one year or less	$	2,369	$	2,373
Due after one year through five years		13,970		14,328
Due after five years		166,388		171,740
		182,727		188,441
Residential mortgage-backed and related securities		127,670		132,842
Asset-backed securities		39,663		40,683
	$	350,060	$	361,966

Portions of the U.S. government sponsored agencies and municipal securities contain call options, at the discretion of the issuer, to terminate the security at predetermined dates prior to the stated maturity, summarized as follows:

	Amortized Cost		Fair Value
	(dollars in thousands)
Securities HTM:
Municipal securities	$	227,773	$	236,134
Securities AFS:
Municipal securities		138,688		143,536
Other securities		6,500		6,647
	$	145,188	$	150,183

Note 3. Investment Securities (continued)

As of December 31, 2020 and 2019, investment securities with a carrying value of $212.8 million and $113.4 million, respectively, were pledged on public deposits, FHLB advances, customer repurchase agreements, derivative liabilities, Goldman Sachs cash management program and for other purposes as required or permitted by law.

As of December 31, 2020, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 117 issuers with fair values totaling $116.7 million and revenue bonds issued by 191 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $555.9 million. The Company held investments in general obligation bonds in 21 states, including eight states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 26 states, including 12 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2019, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 93 issuers with fair values totaling $77.2 million and revenue bonds issued by 154 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $396.6 million. The Company held investments in general obligation bonds in 22 states, including six states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 17 states, including seven states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2020 and 2019, the Company held revenue bonds of two issuers and one single issuer, respectively, located in Ohio, the aggregate book or market value of which exceeded 5% of the Company’s stockholders’ equity.  The issuers’ financial condition is strong and the source of repayment is diversified.  The Company monitors the investment and concentration closely. 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 risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services (water, sewer, education, 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 December 31, 2020, all were within policy limitations approved by the board of directors. Policy limits are calculated as a percentage of total risk-based capital.

As of December 31, 2020, the Company’s standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credits 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.