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