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Securities

9 Months Ended

Sep. 30, 2024

Note 2 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital.

Federal Home Loan Bank of Chicago (“FHLBC”) and Federal Reserve Bank of Chicago (“FRBC”) stock are considered nonmarketable equity investments. FHLBC stock was recorded at $15.3 million at September 30, 2024, and $18.5 million at December 31, 2023. FRBC stock was recorded at $14.9 million at September 30, 2024, and December 31, 2023.

The following tables summarize the amortized cost and fair value of the securities portfolio at September 30, 2024, and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses:


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
September 30, 2024		Cost¹			Gains			Losses			Value
Securities available-for-sale
U.S. Treasury		$	193,825		$	1,559		$	(1,196)		$	194,188
U.S. government agencies			39,401			-			(1,425)			37,976
U.S. government agencies mortgage-backed			105,262			-			(8,849)			96,413
States and political subdivisions			231,506			1,237			(7,948)			224,795
Collateralized mortgage obligations			422,234			1,027			(38,990)			384,271
Asset-backed securities			65,716			142			(1,911)			63,947
Collateralized loan obligations			189,143			181			(60)			189,264
Total securities available-for-sale		$	1,247,087		$	4,146		$	(60,379)		$	1,190,854


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
December 31, 2023		Cost¹			Gains			Losses			Value
Securities available-for-sale
U.S. Treasury		$	174,602		$	-		$	(5,028)		$	169,574
U.S. government agencies			60,011			-			(3,052)			56,959
U.S. government agencies mortgage-backed			118,492			-			(12,122)			106,370
States and political subdivisions			236,072			1,325			(10,332)			227,065
Collateralized mortgage obligations			442,987			421			(50,864)			392,544
Asset-backed securities			71,616			42			(3,222)			68,436
Collateralized loan obligations			173,201			30			(1,350)			171,881
Total securities available-for-sale		$	1,276,981		$	1,818		$	(85,970)		$	1,192,829

¹ Excludes accrued interest receivable of $7.3 million and $6.6 million at September 30, 2024 and December 31, 2023, respectively, that is recorded in other assets on the consolidated balance sheets.

The fair value, amortized cost and weighted average yield of debt securities at September 30, 2024, by contractual maturity, are listed in the table below. Securities not due at a single maturity date are shown separately.


					Weighted
		Amortized			Average			Fair
Securities available-for-sale		Cost			Yield			Value
Due in one year or less		$	122,883		1.69	%		$	121,809
Due after one year through five years			127,710		3.70				127,947
Due after five years through ten years			90,188		2.89				86,075
Due after ten years			123,951		3.11				121,128
			464,732		2.85				456,959
Mortgage-backed and collateralized mortgage obligations			527,496		2.53				480,684
Asset-backed securities			65,716		3.89				63,947
Collateralized loan obligations			189,143		6.29				189,264
Total securities available-for-sale		$	1,247,087		3.29	%		$	1,190,854

At September 30, 2024, the Company had no securities issued from any one originator, other than the U.S. Government and its agencies, which individually amounted to over 10% of the Company’s stockholders’ equity.

Securities with unrealized losses with no corresponding allowance for credit losses at September 30, 2024, and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):


		Less than 12 months								12 months or more
September 30, 2024		in an unrealized loss position								in an unrealized loss position								Total
		Number of		Unrealized			Fair			Number of		Unrealized			Fair			Number of		Unrealized			Fair
Securities available-for-sale		Securities		Losses			Value			Securities		Losses			Value			Securities		Losses			Value
U.S. Treasuries		-		$	-		$	-		2		$	1,196		$	98,672		2		$	1,196		$	98,672
U.S. government agencies		-			-			-		8			1,425			37,976		8			1,425			37,976
U.S. government agencies mortgage-backed		-			-			-		128			8,849			96,413		128			8,849			96,413
States and political subdivisions		2			20			12,697		30			7,928			113,587		32			7,948			126,284
Collateralized mortgage obligations		2			19			1,506		141			38,971			346,056		143			38,990			347,562
Asset-backed securities		-			-			-		13			1,911			51,435		13			1,911			51,435
Collateralized loan obligations		7			56			62,219		2			4			12,848		9			60			75,067
Total securities available-for-sale		11		$	95		$	76,422		324		$	60,284		$	756,987		335		$	60,379		$	833,409


		Less than 12 months								12 months or more
December 31, 2023		in an unrealized loss position								in an unrealized loss position								Total
		Number of		Unrealized				Fair		Number of		Unrealized				Fair		Number of		Unrealized				Fair
Securities available-for-sale		Securities		Losses				Value		Securities		Losses				Value		Securities		Losses				Value
U.S. Treasuries		-		$	-		$	-		4		$	5,028		$	169,574		4		$	5,028		$	169,574
U.S. government agencies		-			-			-		9			3,052			56,959		9			3,052			56,959
U.S. government agencies mortgage-backed		-			-			-		128			12,122			106,370		128			12,122			106,370
States and political subdivisions		12			137			27,974		25			10,195			106,138		37			10,332			134,112
Collateralized mortgage obligations		2			8			734		143			50,856			376,236		145			50,864			376,970
Asset-backed securities		-			-			-		19			3,222			63,941		19			3,222			63,941
Collateralized loan obligations		-			-			-		25			1,350			150,902		25			1,350			150,902
Total securities available-for-sale		14		$	145		$	28,708		353		$	85,825		$	1,030,120		367		$	85,970		$	1,058,828

Each quarter, we perform an analysis to determine if any of the unrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments. Our assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value. We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies. The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years. No credit losses were determined to be present as of September 30, 2024, as there was no credit quality deterioration noted. Therefore, no provision for credit losses on securities was recognized for the third quarter of 2024.

The following table presents net realized gains (losses) on securities available-for-sale for three and six months ended:


			Three Months Ended						Nine Months Ended
			September 30,						September 30,
Securities available-for-sale		2024			2023			2024			2023
Proceeds from sales of securities		$	-		$	65,572		$	5,331		$	205,738
Gross realized gains on securities		$	-		$	-		$	1		$	-
Gross realized losses on securities			(1)			(924)			(1)			(4,146)
Net realized (losses) gains		$	(1)		$	(924)		$	-		$	(4,146)
Income tax benefit on net realized losses		$	-		$	260		$	-		$	1,165
Effective tax rate applied			0.0	%		28.1	%		N/M			28.1	%

N/M – Not meaningful.

As of September 30, 2024, securities valued at $755.2 million were pledged for borrowings and for other purposes, a decrease from $810.2 million of securities pledged at year-end 2023.