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Note 2 - INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2024

NOTE 2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of June 30, 2024 and December 31, 2023 are summarized as follows:


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

	(dollars in thousands)
June 30, 2024:
Securities HTM:
Municipal securities	$	719,778	$	(202)	$	24,827	$	(48,989)	$	695,414
Other securities		1,050		(1)		—		(16)		1,033
	$	720,828	$	(203)	$	24,827	$	(49,005)	$	696,447

Securities AFS:
U.S. govt. sponsored agency securities	$	22,717	$	—	$	11	$	(2,627)	$	20,101
Residential mortgage-backed and related securities		60,950		—		1		(6,243)		54,708
Municipal securities		205,340		—		—		(40,072)		165,268
Asset-backed securities		12,516		—		205		—		12,721
Other securities		40,715		—		12		(3,313)		37,414
	$	342,238	$	—	$	229	$	(52,255)	$	290,212


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

	(dollars in thousands)
December 31, 2023:
Securities HTM:
Municipal securities	$	682,657	$	(202)	$	33,385	$	(36,639)	$	679,201
Other securities		1,050		(1)		44		(15)		1,078
	$	683,707	$	(203)	$	33,429	$	(36,654)	$	680,279

Securities AFS:
U.S. govt. sponsored agency securities	$	17,399	$	—	$	12	$	(2,438)	$	14,973
Residential mortgage-backed and related securities		65,168		—		—		(5,972)		59,196
Municipal securities		206,566		—		11		(35,590)		170,987
Asset-backed securities		15,261		—		167		(5)		15,423
Other securities		44,239		(989)		—		(4,174)		39,076
	$	348,633	$	(989)	$	190	$	(48,179)	$	299,655

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, 2024 and December 31, 2023, are summarized in the tables below. Securities AFS, for which an allowance for credit losses has been provided, are not included in these disclosures as there are no unrealized losses remaining after consideration of the ACL.


	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)
June 30, 2024:
Securities HTM:
Municipal securities	$	101,617	$	(3,262)	$	267,081	$	(45,727)	$	368,698	$	(48,989)
Other securities		500		(1)		534		(15)		1,034		(16)
	$	102,117	$	(3,263)	$	267,615	$	(45,742)	$	369,732	$	(49,005)

Securities AFS:
U.S. govt. sponsored agency securities	$	5,760	$	(4)	$	13,507	$	(2,623)	$	19,267	$	(2,627)
Residential mortgage-backed and related securities		74		(1)		54,502		(6,242)		54,576		(6,243)
Municipal securities		809		(1)		164,459		(40,071)		165,268		(40,072)
Asset-backed securities		—		—		—		—		—		—
Other securities		2,674		(327)		33,770		(2,986)		36,444		(3,313)
	$	9,317	$	(333)	$	266,238	$	(51,922)	$	275,555	$	(52,255)


	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, 2023:
Securities HTM:
Municipal securities	$	1,320	$	(11)	$	289,891	$	(36,628)	$	291,211	$	(36,639)
Other securities		535		(15)		—		—		535		(15)
	$	1,855	$	(26)	$	289,891	$	(36,628)	$	291,746	$	(36,654)

Securities AFS:
U.S. govt. sponsored agency securities	$	—	$	—	$	14,018	$	(2,438)	$	14,018	$	(2,438)
Residential mortgage-backed and related securities		—		—		59,118		(5,972)		59,118		(5,972)
Municipal securities		283		(2)		169,876		(35,588)		170,159		(35,590)
Asset-backed securities		—		—		3,804		(5)		3,804		(5)
Other securities		3,805		(393)		35,271		(3,781)		39,076		(4,174)
	$	4,088	$	(395)	$	282,087	$	(47,784)	$	286,175	$	(48,179)

At June 30, 2024, the investment portfolio included 647 securities. Of this number, 553 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 9.5% of the total amortized cost of the portfolio. Of these 553 securities, there were 464 securities that had an unrealized loss for twelve months or more due to the current rate environment.

For the six months ended June 30, 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 six months ended June 30, 2024, the remaining ACL on the related AFS security was removed as the security had been sold.

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 six months ended June 30, 2024 and 2023:


	Three Months Ended												Six Months Ended
	June 30, 2024								June 30, 2023				June 30, 2024								June 30, 2023
	Securities HTM						Securities AFS		Securities HTM		Securities AFS		Securities HTM							Securities AFS	Securities HTM		Securities AFS
	Municipal		Other				Corporate		Municipal		Corporate		Municipal		Other					Corporate	Municipal		Other
	securities		securities		Total		securities		securities		securities		securities		Securities		Total			securities	securities		securities

	(dollars in thousands)
Allowance for credit losses:
Beginning balance	$	202	$	1	$	203	$	—	$	180	$	989	$	202	$	1	$	203	$	989	$	180	$	—
Reduction due to sales		—		—		—		—		—		—		—		—		—		(544)		—		—
Provision for credit loss expense		—		—		—		—		—		—		—		—		—		(445)		—		989
Balance, ending	$	202	$	1	$	203	$	—	$	180	$	989	$	202	$	1	$	203	$	—	$	180	$	989

Trading securities had a fair value of $22.4 million as of June 30, 2024 and December 31, 2023, respectively and consist of retained beneficial interests acquired in conjunction with Freddie Mac securitizations completed by the Company in 2023. The change in fair value on trading securities for the three months ended June 30, 2024 was a net gain of $234 thousand. The change in market value on trading securities for the six months ended June 30, 2024 was a net gain of $253 thousand. See also Note 4 to the Consolidated Financial Statements for details of these securitizations.

There were no transfers of securities between classifications for the three and six months ended June 30, 2024 or 2023.

All sales of securities for the three and six months ended June 30, 2024 and 2023 were securities identified as AFS.


	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023

Proceeds from sales of securities	$	—	$	1,940	$	445	$	30,568
Gross gains from sales of securities		—		12		—		56
Gross losses from sales of securities		—		—		—		(507)

The amortized cost and fair value of securities as of June 30, 2024 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	$	1,912	$	1,893
Due after one year through five years		21,605		22,436
Due after five years		697,311		672,118
	$	720,828	$	696,447
Securities AFS:
Due in one year or less	$	6,298	$	6,293
Due after one year through five years		19,044		17,849
Due after five years		243,430		198,641
		268,772		222,783
Residential mortgage-backed and related securities		60,950		54,708
Asset-backed securities		12,516		12,721
	$	342,238	$	290,212

Portions of the U.S. government sponsored agency securities and municipal securities as of June 30, 2024, 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	$	249,059	$	246,233

Securities AFS:
Municipal securities		204,660		164,606
Other securities		39,757		36,444
	$	244,417	$	201,050

As of June 30, 2024, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 79 issuers with fair values totaling $94.2 million and revenue bonds, issued by 163 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $766.5 million. The Company also held investments in general obligation bonds in 18 states, including eight states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 31 states, including 14 states in which the aggregate fair value exceeded $5.0 million.

As of December 31, 2023, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 82 issuers with fair values totaling $99.4 million and revenue bonds, issued by 169 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $750.8 million. The Company also held investments in general obligation bonds in 18 states, including eight states in which the aggregate fair value exceeded $5.0 million, and in revenue bonds in 31 states, including 15 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, 2024 and as of December 31, 2023, 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 Superior 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 June 30, 2024, 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 June 30, 2024, 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.