SECURITIES

12 Months Ended

Dec. 31, 2021

SECURITIES

SECURITIES

NOTE 4 – SECURITIES

The carrying balances of the securities were as follows:

	December 31,		December 31,
	2021		2020
	(dollars in thousands)
Debt securities available-for-sale	$	942,168	$	922,869
Debt securities held-to-maturity		336,185		68,395
Equity securities with readily determinable fair value		3,443		3,292
Equity securities with no readily determinable fair value		1,927		1,552
Total securities	$	1,283,723	$	996,108

There were no sales of securities during the years ended December 31, 2021, 2020, and 2019. Gains (losses) on securities were as follows during the years ended December 31:

	Year Ended December 31,
	2021		2020		2019
	(dollars in thousands)
Net realized gains (losses) on sales	$	—		—	$	—
Net unrealized gains (losses) on equity securities:
Readily determinable fair value		107		33		160
No readily determinable fair value		—		—		(165)
Gains (losses) on securities	$	107		33	$	(5)

The $165,000 unrealized loss on equity securities with no readily determinable fair value during the year ended December 31, 2019 reflects a downward adjustment based on observable price changes of an identical investment.

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 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:

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

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 December 31, 2021 and 2020, the Company had securities with a carrying value of $353,338,000 and $308,064,000, respectively, which were pledged to secure public and trust 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 46% of the obligations of local municipalities portfolio consists of securities issued by municipalities located in Illinois as of December 31, 2021. Approximately 95% of such securities were general obligation issues as of December 31, 2021.

The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 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	$	33,315	$	33,640	$	2,394	$	2,410
Due after 1 year through 5 years		110,975		113,251		15,887		16,417
Due after 5 years through 10 years		332,565		332,954		9,343		9,587
Due after 10 years		118,394		118,796		391		401
Mortgage-backed:
Agency residential		178,236		179,466		20,555		20,649
Agency commercial		164,875		164,061		287,615		286,563
Total	$	938,360	$	942,168	$	336,185	$	336,027

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

	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

	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 December 31, 2021, there were 37 securities in an unrealized loss position for a period of twelve months or more, and 235 securities in an unrealized loss position for a period of less than twelve months. These unrealized losses are primarily a result of fluctuations in interest rates in the bond market. In analyzing an issuer’s financial condition, management considers whether the 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 securities are deemed to be temporary.

Equity Securities

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
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

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