Note 2 - INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Investment Securities

NOTE 2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of March 31, 2022 and December 31, 2021 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost*		Gains		(Losses)		Value
	(dollars in thousands)
March 31, 2022:
Securities HTM:
Municipal securities	$	475,773	$	10,649	$	(3,095)	$	483,327
Other securities		1,050		—		—		1,050
	$	476,823	$	10,649	$	(3,095)	$	484,377
Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	22,655	$	37	$	(1,312)	$	21,380
Residential mortgage-backed and related securities		88,935		207		(2,762)		86,380
Municipal securities		209,052		701		(18,280)		191,473
Asset-backed securities		22,859		449		(76)		23,232
Other securities		24,519		142		(440)		24,221
	$	368,020	$	1,536	$	(22,870)	$	346,686

*     HTM securities shown on the balance sheet of $476.6 million represents amortized cost of $476.8 million, net of allowance for credit losses of $198 thousand as of March 31, 2022.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost*		Gains		(Losses)		Value
	(dollars in thousands)
December 31, 2021:
Securities HTM:
Municipal securities	$	471,533	$	49,715	$	—	$	521,248
Other securities		1,050		—		(1)		1,049
	$	472,583	$	49,715	$	(1)	$	522,297
Securities AFS:
U.S. govt. sponsored agency securities	$	23,370	$	254	$	(296)	$	23,328
Residential mortgage-backed and related securities		92,431		2,672		(780)		94,323
Municipal securities		163,253		5,228		(215)		168,266
Asset-backed securities		26,372		752		—		27,124
Other securities		24,568		251		(30)		24,789
	$	329,994	$	9,157	$	(1,321)	$	337,830

*     HTM securities shown on the balance sheet of $472.4 million represents amortized cost of $472.6 million, net of allowance for credit losses of $198 thousand as of December 31, 2021.

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 unrealized loss position as of March 31, 2022 and December 31, 2021, 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)
March 31, 2022:
Securities HTM:
Municipal securities	$	87,662	$	(3,095)	$	—	$	—	$	87,662	$	(3,095)
Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	13,725	$	(850)	$	2,675	$	(462)	$	16,400	$	(1,312)
Residential mortgage-backed and related securities		40,124		(869)		18,455		(1,893)		58,579		(2,762)
Municipal securities		139,706		(17,719)		4,914		(561)		144,620		(18,280)
Asset-backed securities		10,853		(76)		—		—		10,853		(76)
Other securities		13,267		(440)		—		—		13,267		(440)
	$	217,675	$	(19,954)	$	26,044	$	(2,916)	$	243,719	$	(22,870)

	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, 2021:
Securities HTM:
Other securities	$	1,049	$	(1)	$	—	$	—	$	1,049	$	(1)
Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	9,802	$	(156)	$	3,035	$	(140)	$	12,837	$	(296)
Residential mortgage-backed and related securities		5,363		(67)		19,406		(713)		24,769		(780)
Municipal securities		13,287		(211)		1,001		(4)		14,288		(215)
Other securities		4,528		(30)		—		—		4,528		(30)
	$	32,980	$	(464)	$	23,442	$	(857)	$	56,422	$	(1,321)

At March 31, 2022, the investment portfolio included 649 securities. Of this number, 286 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 3.07% of the total amortized cost of the portfolio. Of these 286 securities, there were 19 securities that had an unrealized loss for twelve months or more.

The following table presents the activity in the allowance for credit losses for held to maturity securities by major security type for the three months ended March 31, 2022 and 2021.

	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	Municipal		Other				Municipal		Other
	securities		securities		Total		securities		securities		Total
Allowance for credit losses:
Beginning balance	$	198	$	—	$	198	$	—	$	—	$	—
Impact of adopting ASU 2016-13		—		—		—		182		1		183
Provision for credit loss expense		—		—		—		(9)		—		(9)
Balance, ending	$	198	$	—	$	198	$	173	$	1	$	174

There were no proceeds or gains/losses from the sales of securities in the first quarter of 2022.  There were $19.5 million in proceeds during the first quarter of 2021 with no gains/losses from those sales.

The amortized cost and fair value of securities as of March 31, 2022 by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities and asset-backed securities may differ from contractual maturities because the residential mortgages underlying the securities may be prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following table.

	Amortized Cost		Fair Value
	(dollars in thousands)
Securities HTM:
Due in one year or less	$	3,666	$	3,672
Due after one year through five years		20,506		20,571
Due after five years		452,651		460,134
	$	476,823	$	484,377
Securities AFS:
Due in one year or less	$	5,259	$	5,282
Due after one year through five years		5,809		5,878
Due after five years		245,158		225,914
		256,226		237,074
Residential mortgage-backed and related securities		88,935		86,380
Asset-backed securities		22,859		23,232
	$	368,020	$	346,686

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

	Amortized Cost		Fair Value
	(dollars in thousands)
Securities HTM:
Municipal securities	$	281,122	$	281,819
Securities AFS:
Municipal securities		204,976		187,341
Other securities		24,519		24,220
	$	229,495	$	211,561

As of March 31, 2022, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 113 issuers with fair values totaling $112.5 million and revenue bonds issued by 174 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $562.3 million. The Company also held investments in general obligation bonds in 22 states, including seven states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 28 states, including 14 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2021, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 113 issuers with fair values totaling $114.5 million and revenue bonds issued by 165 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $575.0 million. The Company also held investments in general obligation bonds in 20 states, including seven states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 28 states, including 13 states in which the aggregate fair value exceeded $5.0 million.

Both general obligation and revenue bonds are diversified across many issuers. As of March 31, 2022 and as of December 31, 2021, the Company held revenue bonds of two issuers, located in Ohio, of which the aggregate book or market value exceeded 5% of the Company’s stockholders’ equity. The issuer’s financial condition is strong and the source of repayment is diversified. The Company monitors the investments 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 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 the four charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. The investments of each charter are monitored individually, and as of March 31, 2022, all were 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 March 31, 2022, 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.