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Note 2 - Investment Securities

12 Months Ended

Dec. 31, 2024

Note 2. Investment Securities

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


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

	(dollars in thousands)
December 31, 2024:
Securities HTM:
Municipal securities	$	806,992	$	(254)	$	23,292	$	(63,164)	$	766,866
Corporate securities		28,018		(8)		4,665		—		32,675
Other securities		1,050		(1)		—		(7)		1,042
	$	836,060	$	(263)	$	27,957	$	(63,171)	$	800,583

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	23,113	$	—	$	7	$	(2,529)	$	20,591
Residential mortgage-backed and related securities		55,641		—		3		(5,602)		50,042
Municipal securities		204,664		—		—		(40,089)		164,575
Asset-backed securities		9,053		—		171		—		9,224
Corporate securities		38,866		—		4		(2,193)		36,677
	$	331,337	$	—	$	185	$	(50,413)	$	281,109

* HTM securities shown on the balance sheet of $835.8 million represent amortized cost of $836.1 million, net of allowance for credit losses of $263 thousand as of December 31, 2024.


			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
Corporate securities		44,239		(989)		—		(4,174)		39,076
	$	348,633	$	(989)	$	190	$	(48,179)	$	299,655

* HTM securities shown on the balance sheet of $683.5 million represent amortized cost of $683.7 million, net of allowance for credit losses of $203 thousand as of December 31, 2023.

The Company’s HTM municipal securities consist largely of private issues of municipal debt. The municipalities are located primarily within the Greater Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.

Note 2. Investment Securities (continued)

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.

Gross unrealized losses and fair value, aggregated by HTM and AFS investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2024 and 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)
December 31, 2024:
Securities HTM:
Municipal securities	$	162,914	$	(14,382)	$	253,818	$	(48,782)	$	416,732	$	(63,164)
Other securities		500		—		543		(7)		1,043		(7)
	$	163,414	$	(14,382)	$	254,361	$	(48,789)	$	417,775	$	(63,171)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	6,522	$	(2)	$	13,369	$	(2,527)	$	19,891	$	(2,529)
Residential mortgage-backed and related securities		1,337		(24)		48,520		(5,578)		49,857		(5,602)
Municipal securities		798		(6)		163,777		(40,083)		164,575		(40,089)
Corporate securities		—		—		35,712		(2,193)		35,712		(2,193)
	$	8,657	$	(32)	$	261,378	$	(50,381)	$	270,035	$	(50,413)


	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)
Corporate securities		3,805		(393)		35,271		(3,781)		39,076		(4,174)
	$	4,088	$	(395)	$	282,087	$	(47,784)	$	286,175	$	(48,179)

At December 31, 2024, the investment portfolio included 671 securities. Of this number, 548 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 9.73% of the total aggregate amortized cost. Of these 548 securities, 447 securities had an unrealized loss for 12 months or more. Management has concluded unrealized losses are temporary due to changing interest rates.

In the first quarter of 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 and established an ACL on the related AFS security. In 2024, the remaining ACL on this AFS security was removed, as the security had been sold.

Note 2. Investment Securities (continued)

The following table presents the activity in the allowance for credit losses for HTM and AFS securities by major security type for the years ended December 31, 2024 and 2023.



	Year Ended December 31, 2024										Year Ended December 31, 2023
	Securities HTM								Securities AFS		Securities HTM						Securities AFS
	Municipal		Corporate		Other				Corporate		Municipal		Other				Corporate
	securities		securities		securities		Total		securities		securities		securities			Total	securities

	(dollars in thousands)
Allowance for credit losses:
Beginning balance	$	202	$	—	$	1	$	203	$	989	$	180	$	—	$	180	$	—
Reduction due to sales		—		—		—		—		(544)		—		—		—		—
Provision for credit losses		52		8		—		60		(445)		22		1		23		989
Balance, ending	$	254	$	8	$	1	$	263	$	—	$	202	$	1	$	203	$	989

Trading securities had a fair value of $83.5 million and $22.4 million as of December 31, 2024 and 2023, respectively and consist of retained beneficial interests acquired in conjunction with Freddie Mac securitizations completed by the Company in 2024 and 2023. The change in fair value on trading securities for the year ended December 31, 2024 was a net gain of $1.6 million. There was no change in fair value on trading securities for the year ended December 31, 2023. See also Note 4 to the Consolidated Financial Statements for the details of these securitizations.

There were no transfers of securities between classifications during the years ended December 31, 2024, 2023 or 2022.

All sales of securities for the years ended December 31, 2024, 2023 and 2022, 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:


	2024		2023		2022

	(dollars in thousands)


Proceeds from sales of securities	$	445	$	30,568	$	111,375
Gross gains from sales of securities		—		56		—
Gross losses from sales of securities		—		(507)		—

Subsequent to the closing of the GFED acquisition in 2022, the Company sold $111.4 million of the acquired securities portfolio to improve the efficiency of the combined balance sheets. These were the only securities sales for the year ended December 31, 2022.

Note 2. Investment Securities (continued)

The amortized cost and fair value of HTM and AFS securities as of December 31, 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 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 table.


	Amortized Cost		Fair Value

	(dollars in thousands)
Securities HTM:
Due in one year or less	$	1,662	$	1,658
Due after one year through five years		35,992		36,621
Due after five years		798,406		762,304
	$	836,060	$	800,583
Securities AFS:
Due in one year or less	$	6,804	$	6,802
Due after one year through five years		19,170		18,253
Due after five years		240,669		196,788
		266,643		221,843
Residential mortgage-backed and related securities		55,641		50,042
Asset-backed securities		9,053		9,224
	$	331,337	$	281,109

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 as of December 31, 2024:


	Amortized Cost		Fair Value

	(dollars in thousands)
Securities HTM:
Municipal securities		285,136		276,359
Corporate securities		28,018		32,675
	$	313,154	$	309,034

Securities AFS:
Municipal securities		204,238		164,163
Corporate securities		37,904		35,712
	$	242,142	$	199,875

As of December 31, 2024 and 2023, HTM and AFS investment securities with a carrying value of $188.2 million and $117.8 million, respectively, were pledged on public deposits, derivative liabilities, short-term borrowings in connection with the Federal Reserve’s Bank Term Funding program and in connection with a Goldman Sachs cash management program. Additionally, trading securities with a carrying value of $74.0 million and $16.2 million as of December 31, 2024 and 2023, respectively, were pledged to provide first loss support to Freddie Mac in conjunction with loan securitizations.

As of December 31, 2024, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 79 issuers with fair values totaling $103.5 million and revenue bonds issued by 165 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $828.0 million. The Company held investments in general obligation bonds in 18 states, including nine states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 31 states, including 13 states in which the aggregate fair value of such bonds exceeded $5.0 million.

Note 2. Investment Securities (continued)

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 held investments in general obligation bonds in 18 states, including eight states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 31 states, including 15 states in which the aggregate fair value of such bonds exceeded $5.0 million.

Both general obligation and revenue bonds are diversified across many issuers. As of December 31, 2024, the Company held revenue bonds of three issuers, two located in Ohio and one located in Wisconsin, the aggregate book or market value of which exceeded 5% of the Company’s stockholders’ equity. As of December 31, 2023, the Company held revenue bonds of two issuers, both 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, 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. The investments of each charter are monitored individually, and as of December 31, 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 December 31, 2024, 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.