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Note 2 - INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2025

NOTE 2– INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of September 30, 2025 and December 31, 2024 are summarized as follows:


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

	(dollars in thousands)
September 30, 2025:
Securities HTM:
Municipal securities	$	924,179	$	(254)	$	17,002	$	(119,656)	$	821,271
Corporate securities		29,149		(8)		3,583		—		32,724
Other securities		1,050		(1)		—		—		1,049
	$	954,378	$	(263)	$	20,585	$	(119,656)	$	855,044

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	16,076	$	—	$	2	$	(1,870)	$	14,208
Residential mortgage-backed and related securities		60,800		—		245		(3,937)		57,108
Municipal securities		203,826		—		31		(42,367)		161,490
Asset-backed securities		4,822		—		96		—		4,918
Corporate securities		34,688		—		109		(1,172)		33,625
	$	320,212	$	—	$	483	$	(49,346)	$	271,349


			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

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, 2025, and December 31, 2024, 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)
September 30, 2025:
Securities HTM:
Municipal securities	$	176,393	$	(59,388)	$	291,912	$	(60,268)	$	468,305	$	(119,656)

Securities AFS:
U.S. treasuries and govt. sponsored agency securities	$	—	$	—	$	13,607	$	(1,870)	$	13,607	$	(1,870)
Residential mortgage-backed and related securities		4,560		(51)		33,832		(3,886)		38,392		(3,937)
Municipal securities		1,421		(19)		157,552		(42,348)		158,973		(42,367)
Corporate securities		480		(1)		24,679		(1,171)		25,159		(1,172)
	$	6,461	$	(71)	$	229,670	$	(49,275)	$	236,131	$	(49,346)


	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. 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)

As of September 30, 2025, the investment portfolio included 680 securities. Of this number, 518 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 13.3% of the total amortized cost of the portfolio. Of these 518 securities, there were 451 securities that were in an unrealized loss position for twelve months or more. Management has concluded unrealized losses as of September 30, 2025 were temporary due to the changing interest rate environment.

During 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 of 2023 and established an ACL on the related AFS security. In 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 nine months ended September 30, 2025 and 2024:


	Three Months Ended
	September 30, 2025										September 30, 2024
	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	$	254	$	8	$	1	$	263	$	—	$	202	$	1	$	203	$	—
Provision		—		—		—		—		—		—		—		—		—
Balance, ending	$	254	$	8	$	1	$	263	$	—	$	202	$	1	$	203	$	—




	Nine Months Ended
	September 30, 2025										September 30, 2024
	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	$	254		8	$	1	$	263	$	—	$	202	$	1	$	203	$	989
Reduction due to sales		—		—		—		—		—		—		—		—		(544)
Provision for credit loss expense		—		—		—		—		—		—		—		—		(445)
Balance, ending	$	254		8	$	1	$	263	$	—	$	202	$	1	$	203	$	—

Trading securities had a fair value of $83.2 million as of September 30, 2025 and $83.5 million as of December 31, 2024 and consist of retained beneficial interests acquired in conjunction with Freddie Mac securitizations completed by the Company in 2023 and 2024. The change in fair value on trading securities for the nine months ended September 30, 2025 was a net gain of $530 thousand. The change in market value on trading securities for the nine months ended September 30, 2024 was a net gain of $53 thousand. See also Note 4 to the Consolidated Financial Statements for details of these securitizations.

There were no transfers of securities between classifications during both the nine months ended September 30, 2025 and 2024.

There were no sales of securities during both the three and nine months ended September 30, 2025. There were no sales of securities during the three months ended September 30, 2024. There was one security sold during the nine months ended September 30, 2024 which was identified as AFS. Information on proceeds received, as well as the gains and losses from the sale of securities, are as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024

		(dollars in thousands)

Proceeds from sales of securities	$	—	$	—	$	—	$	445
Gross gains from sales of securities		—		—		—		—
Gross losses from sales of securities		—		—		—		—

The amortized cost and fair value of securities as of September 30, 2025 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	$	484	$	483
Due after one year through five years		27,449		25,855
Due after five years		926,445		828,706
	$	954,378	$	855,044
Securities AFS:
Due in one year or less	$	380	$	378
Due after one year through five years		19,710		19,153
Due after five years		234,500		189,792
		254,590		209,323
Residential mortgage-backed and related securities		60,800		57,108
Asset-backed securities		4,822		4,918
	$	320,212	$	271,349

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 September 30, 2025:


	Amortized Cost		Fair Value

	(dollars in thousands)
Securities HTM:
Municipal securities	$	250,094	$	32,724
Corporate securities		29,149		244,198
	$	279,243	$	276,922

Securities AFS:
Municipal securities	$	203,682	$	161,355
Corporate securities		33,721		32,648
	$	237,403	$	194,003

As of September 30, 2025, the Company's municipal securities portfolios were comprised of general obligation bonds issued by 80 issuers with fair values totaling $106.0 million and revenue bonds, issued by 162 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $875.6 million. The Company also held investments in general obligation bonds in 18 states, including 9 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, 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, and in revenue bonds in 31 states, including 13 states in which the aggregate fair value exceeded $5.0 million.

The Company monitors the investments and concentration closely. Both general obligation and revenue bonds are diversified across many issuers. As of September 30, 2025 and December 31, 2024, the Company did not hold general obligation bonds of any single issuer, that in aggregate exceed 10% 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 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, 2025, 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, 2025, 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.

The following table summarizes the fair value of investment securities pledged and held under derivatives, public deposits, short-term borrowings and other borrowings as of September 30, 2025 and December 31, 2024:



	September 30, 2025		December 31, 2024

	(dollars in thousands)
Derivatives:
U.S. govt. sponsored agency securities	$	11,188	$	6,222
Residential mortgage-backed and related securities		24,078		18,132
Municipal securities		143,057		151,107
		178,323		175,461
Public deposits:
U.S. govt. sponsored agency securities		1,331		1,481
Residential mortgage-backed and related securities		2,151		2,022
		3,482		3,503
Short-term borrowings:
U.S. govt. sponsored agency securities		—		693
Residential mortgage-backed and related securities		—		8,564
		—		9,257
Other borrowings:
Municipal securities*		183,360		—
		183,360		—
Total investments pledged:
U.S. govt. sponsored agency securities		12,519		8,396
Residential mortgage-backed and related securities		26,229		28,718
Municipal securities		326,417		151,107
	$	365,165	$	188,221

* Municipal securities with an amortized cost of $200.3 million were pledged on secured borrowings as of September 30, 2025.