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SECURITIES

9 Months Ended

Sep. 30, 2021

SECURITIES

SECURITIES

NOTE 3 – SECURITIES

The carrying balances of the securities were as follows:


		September 30,			December 31,
		2021			2020

		(dollars in thousands)
Debt securities available-for-sale		$	896,218		$	922,869
Debt securities held-to-maturity			318,730			68,395
Equity securities with readily determinable fair value			3,366			3,292
Equity securities with no readily determinable fair value			1,867			1,552
Total securities		$	1,220,181		$	996,108

There were no sales of securities during the three and nine months ended September 30, 2021 and 2020. Gains (losses) on securities were as follows during the three and nine months ended September 30:


		Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020

		(dollars in thousands)
Net realized gains (losses) on sales		$	—		$	—		$	—		$	—
Net unrealized gains (losses) on equity securities:
Readily determinable fair value			28			(2)			74			3
No readily determinable fair value			—			—			—			—
Gains (losses) on securities		$	28		$	(2)		$	74		$	3

On June 30, 2021 and March 31, 2021, the Company transferred certain debt securities from the available-for-sale category to the held-to-maturity category in order to better reflect the revised intentions of the Company due to possible market value volatility, resulting from a potential rise in interest rates. The following is a summary of the amortized cost and fair value of securities transferred to the held-to-maturity category:


		June 30, 2021						March 31, 2021
		Amortized						Amortized
		Cost			Fair Value			Cost			Fair Value

		(dollars in thousands)
U.S. government agency		$	—		$	—		$	7,593		$	7,323
Mortgage-backed:
Agency residential			—			—			8,776			8,536
Agency commercial			99,271			99,275			118,792			113,861
Total		$	99,271		$	99,275		$	135,161		$	129,720

The debt securities were transferred between categories at fair value, with the transfer date fair value becoming the new amortized cost for each security transferred. The unrealized gain (loss), net of tax, at the date of transfer remains a component of accumulated other comprehensive income, but will be amortized over the remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other comprehensive income will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity debt security.

Debt Securities

The amortized cost and fair values of debt securities, with gross unrealized gains and losses, are as follows:


September 30, 2021		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	59,943		$	374		$	(22)		$	60,295
U.S. government agency			130,146			1,842			(2,295)			129,693
Municipal			295,251			6,232			(2,736)			298,747
Mortgage-backed:
Agency residential			172,372			3,111			(371)			175,112
Agency commercial			164,999			2,002			(1,100)			165,901
Corporate			64,851			1,899			(280)			66,470
Total available-for-sale			887,562			15,460			(6,804)			896,218
Held-to-maturity:
U.S. government agency			12,341			124			(12)			12,453
Municipal			18,667			998			—			19,665
Mortgage-backed:
Agency residential			22,065			354			(1)			22,418
Agency commercial			265,657			2,679			(1,716)			266,620
Total held-to-maturity			318,730			4,155			(1,729)			321,156
Total debt securities		$	1,206,292		$	19,615		$	(8,533)		$	1,217,374


December 31, 2020		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. government agency		$	118,282		$	3,720		$	(9)		$	121,993
Municipal			265,309			9,232			(280)			274,261
Mortgage-backed:
Agency residential			198,543			4,871			(162)			203,252
Agency commercial			246,649			4,651			(534)			250,766
Corporate			70,917			1,786			(106)			72,597
Total available-for-sale			899,700			24,260			(1,091)			922,869
Held-to-maturity:
Municipal			22,484			1,390			—			23,874
Mortgage-backed:
Agency residential			13,031			452			—			13,483
Agency commercial			32,880			2,222			(18)			35,084
Total held-to-maturity			68,395			4,064			(18)			72,441
Total debt securities		$	968,095		$	28,324		$	(1,109)		$	995,310

As of September 30, 2021 and December 31, 2020, the Bank had debt securities with a carrying value of $357,608,000 and $308,064,000, respectively, which were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

The Company has no direct exposure to the State of Illinois, but approximately 48% of the obligations of local municipalities portfolio consists of debt securities issued by municipalities located in Illinois as of September 30, 2021. Approximately 95% of such debt securities were general obligation issues as of September 30, 2021.

The amortized cost and fair value of debt securities by contractual maturity, as of September 30, 2021, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Available-for-Sale						Held-to-Maturity
		Amortized Cost			Fair Value			Amortized Cost			Fair Value

		(dollars in thousands)
Due in 1 year or less		$	37,707		$	38,206		$	3,055		$	3,072
Due after 1 year through 5 years			74,925			77,508			17,110			17,797
Due after 5 years through 10 years			309,565			311,729			10,452			10,844
Due after 10 years			127,994			127,762			391			405

Mortgage-backed:
Agency residential			172,372			175,112			22,065			22,418
Agency commercial			164,999			165,901			265,657			266,620
Total		$	887,562		$	896,218		$	318,730		$	321,156

The following tables present gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of September 30, 2021 and December 31, 2020:


		Investments in a Continuous Unrealized Loss Position
		Less than 12 Months						12 Months or More						Total
September 30, 2021		Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	(22)		$	9,926		$	—		$	—		$	(22)		$	9,926
U.S. government agency			(2,295)			70,210			—			—			(2,295)			70,210
Municipal			(2,066)			112,240			(670)			12,406			(2,736)			124,646
Mortgage-backed:
Agency residential			(323)			47,264			(48)			4,649			(371)			51,913
Agency commercial			(983)			89,468			(117)			6,888			(1,100)			96,356
Corporate			—			—			(280)			4,679			(280)			4,679
Total available-for-sale			(5,689)			329,108			(1,115)			28,622			(6,804)			357,730
Held-to-maturity:
U.S. government agency			(12)			4,988			—			—			(12)			4,988
Mortgage-backed:
Agency residential			(1)			1,570			—			—			(1)			1,570
Agency commercial			(1,596)			127,713			(120)			2,793			(1,716)			130,506
Total held-to-maturity			(1,609)			134,271			(120)			2,793			(1,729)			137,064
Total debt securities		$	(7,298)		$	463,379		$	(1,235)		$	31,415		$	(8,533)		$	494,794


		Investments in a Continuous Unrealized Loss Position
		Less than 12 Months						12 Months or More						Total
December 31, 2020		Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. government agency		$	(9)		$	5,919		$	—		$	—		$	(9)		$	5,919
Municipal			(280)			19,652			—			—			(280)			19,652
Mortgage-backed:
Agency residential			(142)			20,387			(20)			4,490			(162)			24,877
Agency commercial			(524)			57,126			(10)			3,449			(534)			60,575
Corporate			(106)			4,849			—			—			(106)			4,849
Total available-for-sale			(1,061)			107,933			(30)			7,939			(1,091)			115,872
Held-to-maturity:
Mortgage-backed:
Agency commercial			(18)			2,983			—			—			(18)			2,983
Total held-to-maturity			(18)			2,983			—			—			(18)			2,983
Total debt securities		$	(1,079)		$	110,916		$	(30)		$	7,939		$	(1,109)		$	118,855

As of September 30, 2021, there were 32 debt securities in an unrealized loss position for a period of twelve months or more, and 189 debt securities in an unrealized loss position for a period of less than twelve months. These unrealized losses are primarily a result of fluctuations in market interest rates. In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management believes that all declines in value of these debt securities are deemed to be temporary.

Equity Securities

Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in gains (losses) on securities on the consolidated statements of income.

The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer.

The initial cost and carrying values of equity securities, with cumulative net unrealized gains and losses are as follows:


		Readily			No Readily
		Determinable			Determinable
September 30, 2021		Fair Value			Fair Value

		(dollars in thousands)
Initial cost		$	3,098		$	2,032
Cumulative net unrealized gains (losses)			268			(165)
Carrying value		$	3,366		$	1,867


		Readily			No Readily
		Determinable			Determinable
December 31, 2020		Fair Value			Fair Value

		(dollars in thousands)
Initial cost		$	3,098		$	1,717
Cumulative net unrealized gains (losses)			194			(165)
Carrying value		$	3,292		$	1,552

As of September 30, 2021 and December 31, 2020, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect downward adjustments based on observable price changes of an identical investment. There have been no impairments or upward adjustments based on observable price changes to equity securities with no readily determinable fair value.