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Securities

6 Months Ended

Jun. 30, 2025

Note 3 – 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 $4.2 million as of June 30, 2025, and $4.5 million as of December 31, 2024. FRBC stock was recorded at $14.9 million at June 30, 2025, and December 31, 2024. Our FHLBC stock is necessary to maintain access to FHLBC advances.

The following tables summarize the amortized cost and fair value of the securities portfolio at June 30, 2025, and December 31, 2024, and the corresponding amounts of gross unrealized gains and losses:


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
June 30, 2025		Cost¹			Gains			Losses			Value
Securities available-for-sale
U.S. Treasury		$	188,959		$	1,487		$	-		$	190,446
U.S. government agencies			38,876			-			(735)			38,141
U.S. government agencies mortgage-backed			104,995			-			(8,912)			96,083
States and political subdivisions			219,682			169			(11,037)			208,814
Collateralized mortgage obligations			429,423			1,134			(35,543)			395,014
Asset-backed securities			49,384			287			(1,552)			48,119
Collateralized loan obligations			201,051			224			(204)			201,071
Total securities available-for-sale		$	1,232,370		$	3,301		$	(57,983)		$	1,177,688


					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
December 31, 2024		Cost¹			Gains			Losses			Value
Securities available-for-sale
U.S. Treasury		$	193,902		$	700		$	(459)		$	194,143
U.S. government agencies			39,202			-			(1,388)			37,814
U.S. government agencies mortgage-backed			112,241			-			(11,964)			100,277
States and political subdivisions			226,969			264			(11,777)			215,456
Collateralized mortgage obligations			411,170			647			(43,201)			368,616
Asset-backed securities			64,215			69			(1,981)			62,303
Collateralized loan obligations			182,629			472			(9)			183,092
Total securities available-for-sale		$	1,230,328		$	2,152		$	(70,779)		$	1,161,701

¹ Excludes accrued interest receivable of $7.3 million at June 30, 2025, and $7.1 million at December 31, 2024, that is recorded in other assets on the Consolidated Balance Sheets.

The fair value, amortized cost and weighted average yield of debt securities at June 30, 2025, 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		$	61,029		4.76	%		$	61,257
Due after one year through five years			188,914		3.68				189,400
Due after five years through ten years			98,700		2.87				93,777
Due after ten years			98,874		3.18				92,967
			447,517		3.54				437,401
Mortgage-backed and collateralized mortgage obligations			534,418		2.84				491,097
Asset-backed securities			49,384		4.06				48,119
Collateralized loan obligations			201,051		5.72				201,071
Total securities available-for-sale		$	1,232,370		3.61	%		$	1,177,688

At June 30, 2025, 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 June 30, 2025, and December 31, 2024, 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
June 30, 2025		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		-		$	-		$	-		-		$	-		$	-		-		$	-		$	-
U.S. government agencies		-			-			-		8			735			38,141		8			735			38,141
U.S. government agencies mortgage-backed		1			138			10,537		128			8,774			85,546		129			8,912			96,083
States and political subdivisions		29			948			81,110		26			10,089			105,993		55			11,037			187,103
Collateralized mortgage obligations		2			17			1,260		135			35,526			310,256		137			35,543			311,516
Asset-backed securities		5			154			15,257		7			1,398			21,183		12			1,552			36,440
Collateralized loan obligations		9			204			56,304		-			-			-		9			204			56,304
Total securities available-for-sale		46		$	1,461		$	164,468		304		$	56,522		$	561,119		350		$	57,983		$	725,587


		Less than 12 months								12 months or more
December 31, 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		4		$	72		$	49,788		1		$	387		$	49,547		5		$	459		$	99,335
U.S. government agencies		-			-			-		8			1,388			37,814		8			1,388			37,814
U.S. government agencies mortgage-backed		1			447			10,296		128			11,517			89,981		129			11,964			100,277
States and political subdivisions		31			455			85,457		27			11,322			111,308		58			11,777			196,765
Collateralized mortgage obligations		3			24			5,107		139			43,177			328,708		142			43,201			333,815
Asset-backed securities		2			4			1,068		13			1,977			50,198		15			1,981			51,266
Collateralized loan obligations		4			8			31,440		1			1			227		5			9			31,667
Total securities available-for-sale		45		$	1,010		$	183,156		317		$	69,769		$	667,783		362		$	70,779		$	850,939

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 June 30, 2025, as there was no credit quality deterioration noted. Therefore, no provision for credit losses on securities was recognized during 2025.

The following table presents net realized gains on securities available-for-sale for three months ended:


			Three Months Ended						Six Months Ended
			June 30,						June 30,
Securities available-for-sale		2025			2024			2025			2024
Proceeds from sales of securities		$	-		$	-		$	-		$	5,331
Gross realized gains on securities			-			-			-			1
Net realized gains		$	-		$	-		$	-		$	1
Income tax benefit on net realized losses		$	-		$	-		$	-		$	-
Effective tax rate applied			N/M			N/M			N/M			N/M

N/M – Not meaningful.

As of June 30, 2025, securities valued at $657.8 million were pledged for borrowings and for other purposes, a decrease from $717.5 million of securities pledged at year-end 2024.