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Note 2 - INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2023

NOTE 2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of September 30, 2023 and December 31, 2022 are summarized as follows:


			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
	Cost		(Losses)		Gains		(Losses)		Value

	(dollars in thousands)
September 30, 2023:
Securities HTM:
Municipal securities	$	614,245	$	(180)	$	2,448	$	(92,718)	$	523,795
Other securities		1,050		—		—		(26)		1,024
	$	615,295	$	(180)	$	2,448	$	(92,744)	$	524,819

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	19,130	$	—	$	13	$	(3,141)	$	16,002
Residential mortgage-backed and related securities		66,433		—		—		(8,487)		57,946
Municipal securities		207,318		—		—		(57,546)		149,772
Asset-backed securities		16,226		—		144		(44)		16,326
Other securities		46,531		(989)		2		(4,311)		41,233
	$	355,638	$	(989)	$	159	$	(73,529)	$	281,279


			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized		Fair
	Cost		(Losses)		Gains		(Losses)		Value

	(dollars in thousands)
December 31, 2022:
Securities HTM:
Municipal securities	$	586,272	$	(180)	$	5,292	$	(56,798)	$	534,586
Other securities		1,050		—		—		—		1,050
	$	587,322	$	(180)	$	5,292	$	(56,798)	$	535,636

Securities AFS:
U.S. govt. sponsored agency securities	$	19,745	$	—	$	19	$	(2,783)	$	16,981
Residential mortgage-backed and related securities		73,438		—		—		(7,223)		66,215
Municipal securities		239,812		—		66		(46,700)		193,178
Asset-backed securities		18,885		—		48		(205)		18,728
Other securities		48,631		—		27		(2,800)		45,858
	$	400,511	$	—	$	160	$	(59,711)	$	340,960

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 September 30, 2023 and December 31, 2022, are summarized in the tables below. Securities available-for-sale, for which an allowance for credit losses has been provided, are not included in these disclosures.


	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)
September 30, 2023:
Securities HTM:
Municipal securities	$	235,313	$	(20,751)	$	237,690	$	(71,967)	$	473,003	$	(92,718)
Other securities		523		(26)		—		—		523		(26)
	$	235,836	$	(20,777)	$	237,690	$	(71,967)	$	473,526	$	(92,744)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	1,649	$	(1)	$	13,377	$	(3,140)	$	15,026	$	(3,141)
Residential mortgage-backed and related securities		77		(1)		57,869		(8,486)		57,946		(8,487)
Municipal securities		1,067		(38)		148,159		(57,508)		149,226		(57,546)
Asset-backed securities		—		—		10,521		(44)		10,521		(44)
Other securities		3,823		(427)		34,190		(3,884)		38,013		(4,311)
	$	6,616	$	(467)	$	264,116	$	(73,062)	$	270,732	$	(73,529)


	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, 2022:
Securities HTM:
Municipal securities	$	347,651	$	(56,798)	$	—	$	—	$	347,651	$	(56,798)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	5,138	$	(326)	$	10,591	$	(2,457)	$	15,729	$	(2,783)
Residential mortgage-backed and related securities		48,469		(3,327)		17,690		(3,896)		66,159		(7,223)
Municipal securities		178,172		(42,661)		9,809		(4,039)		187,981		(46,700)
Asset-backed securities		13,684		(205)		—		—		13,684		(205)
Other securities		35,206		(2,404)		4,122		(396)		39,328		(2,800)
	$	280,669	$	(48,923)	$	42,212	$	(10,788)	$	322,881	$	(59,711)

At September 30, 2023, the investment portfolio included 644 securities. Of this number, 621 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 17.1% of the total amortized cost of the portfolio. Of these 621 securities, there were 480 securities that had an unrealized loss for twelve months or more due to the current rate environment.

For the quarter ended March 31, 2023, the Company’s impairment evaluation determined that one publicly traded debt security experienced a decline in fair value due to credit quality, rather than market factors. As a result, the Company recognized a credit loss expense of $989 thousand in the first quarter and established an ACL on the related AFS security. For the quarters ended June 30, 2023 and September 30, 2023, there has been no change to the ACL on the related AFS security.

The following table presents the activity in the allowance for credit losses for held to maturity and available for sale securities by major security type for the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended						Nine Months Ended
	September 30, 2023				September 30, 2022		September 30, 2023				September 30, 2022
	Securities HTM		Securities AFS		Securities HTM		Securities HTM			Securities AFS	Securities HTM
	Municipal		Corporate		Municipal		Municipal			Corporate	Municipal
	securities		securities		securities		securities			securities	securities

	(dollars in thousands)
Allowance for credit losses:
Beginning balance	$	180	$	989	$	198	$	180	$	—	$	198
Provision for credit loss expense		—		—		—		—		989		—
Balance, ending	$	180	$	989	$	198	$	180	$	989	$	198

There were no sales of securities for the three months ended September 30, 2023 and 2022. All sales of securities for the nine months ended September 30, 2023 and 2022 were securities identified as AFS.


	Nine Months Ended
	September 30, 2023		September 30, 2022

Proceeds from sales of securities	$	30,568	$	111,375
Gross gains from sales of securities		56		—
Gross losses from sales of securities		(507)		—

The amortized cost and fair value of securities as of September 30, 2023 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	$	1,907	$	1,882
Due after one year through five years		27,159		27,700
Due after five years		586,229		495,237
	$	615,295	$	524,819
Securities AFS:
Due in one year or less	$	3,160	$	3,146
Due after one year through five years		14,338		12,239
Due after five years		255,481		191,622
		272,979		207,007
Residential mortgage-backed and related securities		66,433		57,946
Asset-backed securities		16,226		16,326
	$	355,638	$	281,279

Portions of the U.S. government sponsored agency securities and municipal securities as of September 30, 2023, 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	$	230,493	$	194,222

Securities AFS:
Municipal securities		205,747		148,235
Other securities		45,577		40,277
	$	251,324	$	188,512

As of September 30, 2023, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 81 issuers with fair values totaling $80.4 million and revenue bonds, issued by 166 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $593.2 million. The Company also held investments in general obligation bonds in 18 states, including seven states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 30 states, including 14 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2022, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 118 issuers with fair values totaling $110.6 million and revenue bonds, issued by 181 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $617.2 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 29 states, including 12 states in which the aggregate fair value exceeded $5.0 million.

Both general obligation and revenue bonds are diversified across many issuers. As of September 30, 2023 and as of December 31, 2022, the Company held revenue bonds of two issuers, both located in Ohio, of which the aggregate book or market value exceeded 5% of the Company’s stockholders’ equity. The issuers’ financial conditions are strong and the sources of repayment are 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 the Company’s 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 September 30, 2023, all were within policy limitations approved by the Company’s board of directors. Policy limits are calculated as a percentage of each charter's total risk-based capital.

As of September 30, 2023, 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.