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SECURITIES

9 Months Ended

Sep. 30, 2022

SECURITIES

SECURITIES

NOTE 3 – SECURITIES

Debt Securities

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


September 30, 2022		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	169,895		$	—		$	(16,323)		$	153,572
U.S. government agency			61,428			1			(4,406)			57,023
Municipal			279,711			4			(37,804)			241,911
Mortgage-backed:
Agency residential			223,738			20			(18,851)			204,907
Agency commercial			154,677			1			(17,302)			137,376
Corporate			62,695			16			(3,760)			58,951
Total available-for-sale			952,144			42			(98,446)			853,740
Held-to-maturity:
U.S. government agency			88,418			—			(10,342)			78,076
Municipal			42,844			50			(1,357)			41,537
Mortgage-backed:
Agency residential			105,330			—			(6,491)			98,839
Agency commercial			310,102			—			(46,862)			263,240
Total held-to-maturity			546,694			50			(65,052)			481,692
Total debt securities		$	1,498,838		$	92		$	(163,498)		$	1,335,432


December 31, 2021		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	109,002		$	328		$	(354)		$	108,976
U.S. government agency			129,269			1,303			(2,467)			128,105
Municipal			293,837			6,144			(2,904)			297,077
Mortgage-backed:
Agency residential			178,236			2,149			(919)			179,466
Agency commercial			164,875			1,234			(2,048)			164,061
Corporate			63,141			1,638			(296)			64,483
Total available-for-sale			938,360			12,796			(8,988)			942,168
Held-to-maturity:
U.S. government agency			12,349			42			(51)			12,340
Municipal			15,666			809			—			16,475
Mortgage-backed:
Agency residential			20,555			196			(102)			20,649
Agency commercial			287,615			1,749			(2,801)			286,563
Total held-to-maturity			336,185			2,796			(2,954)			336,027
Total debt securities		$	1,274,545		$	15,592		$	(11,942)		$	1,278,195

On March 31, 2022, 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:


		March 31, 2022						June 30, 2021						March 31, 2021
		Amortized						Amortized						Amortized
		Cost			Fair Value			Cost			Fair Value			Cost			Fair Value

		(dollars in thousands)
U.S. government agency		$	78,841		$	71,048		$	—		$	—		$	7,593		$	7,323
Mortgage-backed:
Agency residential			8,175			7,651			—			—			8,776			8,536
Agency commercial			27,834			25,432			99,271			99,275			118,792			113,861
Total		$	114,850		$	104,131		$	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.

As of September 30, 2022 and December 31, 2021, the Bank had debt securities with a carrying value of $413.4 million and $353.3 million, 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 49% of the municipal portfolio consists of debt securities issued by municipalities located in Illinois as of September 30, 2022. Approximately 81% of such debt securities were general obligation issues as of September 30, 2022.

The amortized cost and fair value of debt securities by contractual maturity, as of September 30, 2022, 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		$	12,575		$	12,506		$	2,492		$	2,494
Due after 1 year through 5 years			235,438			220,181			25,934			24,801
Due after 5 years through 10 years			250,903			216,108			79,440			71,686
Due after 10 years			74,813			62,662			23,396			20,632

Mortgage-backed:
Agency residential			223,738			204,907			105,330			98,839
Agency commercial			154,677			137,376			310,102			263,240
Total		$	952,144		$	853,740		$	546,694		$	481,692

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, 2022 and December 31, 2021:


		Investments in a Continuous Unrealized Loss Position
		Less than 12 Months						12 Months or More						Total
September 30, 2022		Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	(15,245)		$	144,691		$	(1,078)		$	8,881		$	(16,323)		$	153,572
U.S. government agency			(3,831)			51,799			(575)			3,394			(4,406)			55,193
Municipal			(16,557)			157,183			(21,247)			82,613			(37,804)			239,796
Mortgage-backed:
Agency residential			(15,072)			176,467			(3,779)			24,808			(18,851)			201,275
Agency commercial			(9,292)			89,378			(8,010)			45,474			(17,302)			134,852
Corporate			(2,527)			53,213			(1,233)			3,730			(3,760)			56,943
Total available-for-sale			(62,524)			672,731			(35,922)			168,900			(98,446)			841,631
Held-to-maturity:
U.S. government agency			(2,316)			20,176			(8,026)			57,900			(10,342)			78,076
Municipal			(1,357)			35,066			—			—			(1,357)			35,066
Mortgage-backed:
Agency residential			(6,320)			97,876			(171)			963			(6,491)			98,839
Agency commercial			(24,304)			150,113			(22,558)			113,127			(46,862)			263,240
Total held-to-maturity			(34,297)			303,231			(30,755)			171,990			(65,052)			475,221
Total debt securities		$	(96,821)		$	975,962		$	(66,677)		$	340,890		$	(163,498)		$	1,316,852


		Investments in a Continuous Unrealized Loss Position
		Less than 12 Months						12 Months or More						Total
December 31, 2021		Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value

Available-for-sale:		(dollars in thousands)
U.S. Treasury		$	(354)		$	68,410		$	—		$	—		$	(354)		$	68,410
U.S. government agency			(2,183)			80,219			(284)			5,578			(2,467)			85,797
Municipal			(2,018)			89,424			(886)			17,327			(2,904)			106,751
Mortgage-backed:
Agency residential			(851)			91,703			(68)			4,305			(919)			96,008
Agency commercial			(1,921)			113,111			(127)			6,443			(2,048)			119,554
Corporate			(7)			2,737			(289)			4,671			(296)			7,408
Total available-for-sale			(7,334)			445,604			(1,654)			38,324			(8,988)			483,928
Held-to-maturity:
U.S. government agency			(51)			4,949			—			—			(51)			4,949
Mortgage-backed:
Agency residential			(102)			14,932			—			—			(102)			14,932
Agency commercial			(2,673)			174,428			(128)			2,776			(2,801)			177,204
Total held-to-maturity			(2,826)			194,309			(128)			2,776			(2,954)			197,085
Total debt securities		$	(10,160)		$	639,913		$	(1,782)		$	41,100		$	(11,942)		$	681,013

As of September 30, 2022, there were 183 debt securities in an unrealized loss position for a period of twelve months or more, and 641 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.

There were no sales of debt securities during the three and nine months ended September 30, 2022 and 2021.

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, 2022		Fair Value			Fair Value

		(dollars in thousands)
Initial cost		$	3,142		$	2,142
Cumulative net unrealized losses			(146)			(165)
Carrying value		$	2,996		$	1,977


		Readily			No Readily
		Determinable			Determinable
December 31, 2021		Fair Value			Fair Value

		(dollars in thousands)
Initial cost		$	3,142		$	2,092
Cumulative net unrealized gains (losses)			301			(165)
Carrying value		$	3,443		$	1,927

As of September 30, 2022 and December 31, 2021, 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.

There were no sales of equity securities during the three and nine months ended September 30, 2022 and 2021. Unrealized gains (losses) on equity securities were as follows during the three and nine months ended September 30, 2022:


		Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021

		(dollars in thousands)
Readily determinable fair value		$	(107)		$	28		$	(447)		$	74
No readily determinable fair value			—			—			—			—
Unrealized gains (losses) on equity securities		$	(107)		$	28		$	(447)		$	74