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Note 2 - Investment Securities | 6 Months Ended
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Jun. 30, 2018
Notes to Financial Statements |
INVESTMENT SECURITIES | NOTE 2 – INVESTMENT SECURITIES The amortized cost and fair value of investment securities as of June 30, 2018 and December 31, 2017 are summarized as follows:
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
|  | Cost |  | Gains |  | (Losses) |  | Value
June 30, 2018: |  |  |  |  |  |  |  |  |  |  |  |
Securities HTM: |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 399,002,344 |  | $ | 4,916,288 |  | $ | (7,700,914) |  | $ | 396,217,718
Other securities |  |  | 1,050,000 |  |  | — |  |  | (15,350) |  |  | 1,034,650
|  | $ | 400,052,344 |  | $ | 4,916,288 |  | $ | (7,716,264) |  | $ | 397,252,368
Securities AFS: |  |  |  |  |  |  |  |  |  |  |  |
U.S. govt. sponsored agency securities |  | $ | 36,767,888 |  | $ | 7,872 |  | $ | (1,109,224) |  | $ | 35,666,536
Residential mortgage-backed and related securities |  |  | 164,791,715 |  |  | 49,915 |  |  | (6,307,182) |  |  | 158,534,448
Municipal securities |  |  | 60,160,248 |  |  | 221,112 |  |  | (874,093) |  |  | 59,507,267
Other securities |  |  | 4,254,509 |  |  | — |  |  | (18,089) |  |  | 4,236,420
|  | $ | 265,974,360 |  | $ | 278,899 |  | $ | (8,308,588) |  | $ | 257,944,671
|  |  |  |  | Gross |  | Gross |  |  |
|  | Amortized |  | Unrealized |  | Unrealized |  | Fair
|  | Cost |  | Gains |  | (Losses) |  | Value
December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |
Securities HTM: |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 378,424,205 |  | $ | 2,763,718 |  | $ | (2,488,119) |  | $ | 378,699,804
Other securities |  |  | 1,050,000 |  |  | — |  |  | — |  |  | 1,050,000
|  | $ | 379,474,205 |  | $ | 2,763,718 |  | $ | (2,488,119) |  | $ | 379,749,804
Securities AFS: |  |  |  |  |  |  |  |  |  |  |  |
U.S. govt. sponsored agency securities |  | $ | 38,409,157 |  | $ | 37,344 |  | $ | (349,967) |  | $ | 38,096,534
Residential mortgage-backed and related securities |  |  | 165,459,470 |  |  | 155,363 |  |  | (2,313,529) |  |  | 163,301,304
Municipal securities |  |  | 66,176,364 |  |  | 660,232 |  |  | (211,100) |  |  | 66,625,496
Other securities |  |  | 4,014,004 |  |  | 896,384 |  |  | (25,815) |  |  | 4,884,573
|  | $ | 274,058,995 |  | $ | 1,749,323 |  | $ | (2,900,411) |  | $ | 272,907,907
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 June 30, 2018 and December 31, 2017, 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
June 30, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities HTM: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 140,257,617 |  | $ | (3,873,043) |  | $ | 61,121,755 |  | $ | (3,827,871) |  | $ | 201,379,372 |  | $ | (7,700,914)
Other securities |  |  | 1,034,649 |  |  | (15,350) |  |  | — |  |  | — |  |  | 1,034,649 |  |  | (15,350)
|  | $ | 141,292,266 |  | $ | (3,888,393) |  | $ | 61,121,755 |  | $ | (3,827,871) |  | $ | 202,414,021 |  | $ | (7,716,264)
Securities AFS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. govt. sponsored agency securities |  | $ | 31,724,483 |  | $ | (928,027) |  | $ | 3,532,286 |  | $ | (181,197) |  | $ | 35,256,769 |  | $ | (1,109,224)
Residential mortgage-backed and related securities |  |  | 93,074,220 |  |  | (3,402,034) |  |  | 59,724,819 |  |  | (2,905,148) |  |  | 152,799,039 |  |  | (6,307,182)
Municipal securities |  |  | 36,033,296 |  |  | (648,203) |  |  | 7,706,943 |  |  | (225,890) |  |  | 43,740,239 |  |  | (874,093)
Other securities |  |  | 4,236,420 |  |  | (18,089) |  |  | — |  |  | — |  |  | 4,236,420 |  |  | (18,089)
|  | $ | 165,068,419 |  | $ | (4,996,353) |  | $ | 70,964,048 |  | $ | (3,312,235) |  | $ | 236,032,467 |  | $ | (8,308,588)
|  | Less than 12 Months |  | 12 Months or More |  | Total
|  |  |  | Gross |  |  |  | Gross |  |  |  | Gross
|  | Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
|  | Value |  | Losses |  | Value |  | Losses |  | Value |  | Losses
December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities HTM: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 23,750,826 |  | $ | (354,460) |  | $ | 72,611,780 |  | $ | (2,133,659) |  | $ | 96,362,606 |  | $ | (2,488,119)
Securities AFS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. govt. sponsored agency securities |  | $ | 28,576,258 |  | $ | (200,022) |  | $ | 3,640,477 |  | $ | (149,945) |  | $ | 32,216,735 |  | $ | (349,967)
Residential mortgage-backed and related securities |  |  | 88,927,779 |  |  | (871,855) |  |  | 57,931,731 |  |  | (1,441,674) |  |  | 146,859,510 |  |  | (2,313,529)
Municipal securities |  |  | 10,229,337 |  |  | (41,151) |  |  | 9,997,433 |  |  | (169,949) |  |  | 20,226,770 |  |  | (211,100)
Other securities |  |  | 923,535 |  |  | (25,815) |  |  | — |  |  | — |  |  | 923,535 |  |  | (25,815)
|  | $ | 128,656,909 |  | $ | (1,138,843) |  | $ | 71,569,641 |  | $ | (1,761,568) |  | $ | 200,226,550 |  | $ | (2,900,411)
At June 30, 2018, the investment portfolio included 602 securities. Of this number, 303 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 2.4% of the total amortized cost of the portfolio. Of these 303 securities, 42 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. The Company did not recognize OTTI on any investment securities for the three or six months ended June 30, 2018 and 2017. There were no sales of securities for the three and six months ended June 30, 2018. All sales of securities for the three and six months ended June 30, 2017 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 and Six Months Ended |  |  |  |
| June 30, 2017 |  |  |  |
Proceeds from sales of securities | $ | 13,554,075 |  |  |  |
Gross gains from sales of securities |  | 59,568 |  |  |  |
Gross losses from sales of securities |  | (21,104) |  |  |  |
The amortized cost and fair value of securities as of June 30, 2018 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.
|  | Amortized Cost |  | Fair Value
Securities HTM: |  |  |  |  |  |
Due in one year or less |  | $ | 1,732,495 |  | $ | 1,737,807
Due after one year through five years |  |  | 25,021,326 |  |  | 25,051,928
Due after five years |  |  | 373,298,523 |  |  | 370,462,633
|  | $ | 400,052,344 |  | $ | 397,252,368
Securities AFS: |  |  |  |  |  |
Due in one year or less |  | $ | 2,882,932 |  | $ | 2,891,934
Due after one year through five years |  |  | 25,265,433 |  |  | 24,969,540
Due after five years |  |  | 73,034,280 |  |  | 71,548,749
|  |  | 101,182,645 |  |  | 99,410,223
Residential mortgage-backed and related securities |  |  | 164,791,715 |  |  | 158,534,448
|  | $ | 265,974,360 |  | $ | 257,944,671
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 folows:
|  | Amortized Cost |  | Fair Value
Securities HTM: |  |  |  |  |  |
Municipal securities |  | $ | 232,556,893 |  | $ | 230,900,385
Securities AFS: |  |  |  |  |  |
U.S. govt. sponsored agency securities |  |  | 4,998,914 |  |  | 4,873,050
Municipal securities |  |  | 52,730,591 |  |  | 51,992,220
|  | $ | 57,729,505 |  | $ | 56,865,270
As of June 30, 2018, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 122 issuers with fair values totaling $94.8 million and revenue bonds issued by 150 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $360.9 million. The Company held investments in general obligation bonds in 26 states, including six states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 16 states, including seven states in which the aggregate fair value exceeded $5.0 million. As of December 31, 2017, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 131 issuers with fair values totaling $108.0 million and revenue bonds issued by 145 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $337.3 million. The Company held investments in general obligation bonds in 26 states, including six states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 16 states, including seven states in which the aggregate fair value exceeded $5.0 million. Both general obligation and revenue bonds are diversified across many issuers. As of June 30, 2018 and December 31, 2017, 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 June 30, 2018, 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 June 30, 2018, 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.

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