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What changed in AMES NATIONAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AMES NATIONAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+271 added−264 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-10)

Top changes in AMES NATIONAL CORP's 2023 10-K

271 paragraphs added · 264 removed · 216 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

63 edited+2 added−5 removed130 unchanged
Biggest changeName Age Position with the Company or Bank and Principal Occupation and Employment During the Past Five Years Scott T. Bauer 60 President and Director of First National. Stephen C. McGill 68 President and Director of State Bank. John P. Nelson 56 Chief Executive Officer, President and Director of the Company.
Biggest changeThomas was appointed as president of United Bank on July 1, 2020. Michael A. Wilson was appointed as Chief Lending Officer on November 9, 2023. Name Age Position with the Company or Bank and Principal Occupation and Employment During the Past Five Years Scott T. Bauer 61 President and Director of First National. Dan E.
The types of loans the Banks offer include: ● commercial real estate loans, including owner occupied properties ● multi-family real estate loans ● operating and working capital loans ● loans to finance equipment and other capital purchases ● business lines of credit ● term loans ● construction loans ● financing guaranteed under Small Business Administration programs ● letters of credit Agricultural Loans.
The types of commercial loans the Banks offer include: ● commercial real estate loans, including owner occupied properties ● multi-family real estate loans ● operating and working capital loans ● loans to finance equipment and other capital purchases ● business lines of credit ● term loans ● construction loans ● financing guaranteed under Small Business Administration programs ● letters of credit Agricultural Loans.
The Company has established credit guidelines for the Banks’ lending portfolios which include guidelines relating to the more commonly requested loan types, as follows: Commercial Real Estate Loans - Commercial real estate loans, including agricultural real estate loans, are normally based on loan to appraisal value ratios that do not exceed 80% and secured by a first priority lien position.
The Company has established credit guidelines for the Banks’ lending portfolios which include guidelines relating to the more commonly requested loan types, as follows: Commercial Real Estate Loans - Commercial real estate loans, including agricultural real estate loans, are normally based on loan to appraisal value ratios that do not exceed 80% and are secured by a first priority lien position.
The Company CEO is excluded from the Director Stock Incentive Plan. Certain transactions in Company stock are prohibited, including short-selling and hedging. A significant portion of compensation of the executive officers is dependent on Company’s operating results. Executive officer performance is evaluated annually. The Company provides a limited amount of perquisites to its executive officers.
The Company CEO is excluded from the Director Stock Incentive Plan. Certain transactions in Company stock are prohibited, including short-selling and hedging. A significant portion of compensation of the executive officers is dependent on the Company’s operating results. Executive officer performance is evaluated annually. The Company provides a limited amount of perquisites to its executive officers.
The Banks diversify the types of loans offered and are subject to regular credit examinations, annual internal audits and annual review of large loans, as well as quarterly reviews of loans experiencing deterioration in credit quality. The Company attempts to identify potential problem loans early, charge off loans promptly and maintain an adequate allowance for loan losses.
The Banks diversify the types of loans offered and are subject to regular credit examinations, annual internal audits and annual review of large loans, as well as quarterly reviews of loans experiencing deterioration in credit quality. The Company attempts to identify potential problem loans early, charge off loans promptly and maintain an adequate allowance for credit losses.
Loan services include primarily commercial and consumer types of credit including operating lines, equipment loans and real estate loans. Iowa State Bank is headquartered in Union County in Creston, Iowa with a population of 7,600. Iowa State Bank has one additional office in Creston and an additional office located in Taylor County in Lenox, Iowa with a population of 1,500.
Loan services include primarily commercial and consumer types of credit including operating lines, equipment loans and real estate loans. Iowa State Bank is headquartered in Union County in Creston, Iowa with a population of 7,500. Iowa State Bank has one additional office in Creston and an additional office located in Taylor County in Lenox, Iowa with a population of 1,500.
The information found on the Company’s website is not part of this or any other report the Company files with the SEC. 14 Table of Contents Information about our Executive Officers The following table sets forth summary information about the executive officers of the Company and certain executive officers of the Banks.
The information found on the Company’s website is not part of this or any other report the Company files with the SEC. 14 Information about our Executive Officers The following table sets forth summary information about the executive officers of the Company and certain executive officers of the Banks.
FDICIA also contains provisions which are intended to change independent auditing requirements, restrict the activities of state-chartered insured banks, amend various consumer banking laws, limit the ability of "undercapitalized banks" to borrow from the Federal Reserve's discount window, require regulators to perform periodic on-site bank examinations and set standards for real estate lending. 11 Table of Contents Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( “ the Dodd-Frank Act ” ) .
FDICIA also contains provisions which are intended to change independent auditing requirements, restrict the activities of state-chartered insured banks, amend various consumer banking laws, limit the ability of "undercapitalized banks" to borrow from the Federal Reserve's discount window, require regulators to perform periodic on-site bank examinations and set standards for real estate lending. 11 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( “ the Dodd-Frank Act ” ) .
As of December 31, 2022, the Banks exceeded all of their regulatory capital requirements and were designated as “well capitalized” under federal guidelines. See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Prompt Corrective Action.
As of December 31, 2023, the Banks exceeded all of their regulatory capital requirements and were designated as “well capitalized” under federal guidelines. See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Prompt Corrective Action.
Government and agency securities to 600% for certain equity exposures, and resulting in high-risk weights for a variety of asset classes. 12 Table of Contents Should the Company or Banks not meet the requirements of the Basel III Capital Rules, the Company and Banks would be subject to adverse regulatory action by their regulators, which action could result in material adverse consequences for the Company, Banks, and Company shareholders.
Government and agency securities to 600% for certain equity exposures, and resulting in high-risk weights for a variety of asset classes. 12 Should the Company or Banks not meet the requirements of the Basel III Capital Rules, the Company and Banks would be subject to adverse regulatory action by their regulators, which action could result in material adverse consequences for the Company, Banks, and Company shareholders.
The Company provides various services to the Banks which include, but are not limited to, management assistance, internal auditing services, human resources services and administration, compliance management, marketing assistance and coordination, loan review, support with respect to computer systems and related procedures, financial reporting, property appraisals, training and the coordination of management activities. Banking Subsidiaries First National Bank, Ames, Iowa.
The Company provides various services to the Banks which include, but are not limited to, management assistance, internal auditing services, human resources services and administration, compliance management, marketing assistance and coordination, support with respect to computer systems and related procedures, financial reporting, property appraisals, training and the coordination of management activities. Banking Subsidiaries First National Bank, Ames, Iowa.
Property insurance is required on all loans to protect the Banks’ collateral position. 7 Table of Contents Home Equity Term Loans – These loans are normally for the purpose of home improvement or other consumer purposes and are secured by a junior mortgage on residential real estate. Loan-to-value ratios normally do not exceed 90% of market value.
Property insurance is required on all loans to protect the Banks’ collateral position. 7 Home Equity Term Loans – These loans are normally for the purpose of home improvement or other consumer purposes and are secured by a junior mortgage on residential real estate. Loan-to-value ratios normally do not exceed 90% of market value.
Such plans must require that any company that controls the undercapitalized institution must provide certain guarantees that the institution will comply with the plan until it is adequately capitalized. As of December 31, 2022, each of the Banks was categorized as “well capitalized” under regulatory prompt corrective action provisions. Restrictions on Dividends.
Such plans must require that any company that controls the undercapitalized institution must provide certain guarantees that the institution will comply with the plan until it is adequately capitalized. As of December 31, 2023, each of the Banks was categorized as “well capitalized” under regulatory prompt corrective action provisions. Restrictions on Dividends.
As the Company prepares for the workforce of the future, we are mindful of the importance of diversity and inclusion as a core component of these efforts. 8 Table of Contents Social/Sustainability The Company encourages our employees to be engaged in our communities. This engagement consists of sponsorship of local activities and donations to charitable organizations in our communities.
As the Company prepares for the workforce of the future, we are mindful of the importance of diversity and inclusion as a core component of these efforts. 8 Social/Sustainability The Company encourages our employees to be engaged in our communities. This engagement consists of sponsorship of local activities and donations to charitable organizations in our communities.
All directors serving on Board committees are independent under NASDAQ governance standards. The Company has established an age limitation policy for directors. Three of the twelve directors are female. All directors own Company stock and in their capacities as directors of the Banks participated in the Director Stock Incentive Plan adopted by each of the Banks.
All directors serving on Board committees are independent under NASDAQ governance standards. The Company has established an age limitation policy for directors. Three of the eleven directors are female. All directors own Company stock and in their capacities as directors of the Banks participated in the Director Stock Incentive Plan adopted by each of the Banks.
These loans are secured by a junior mortgage on the residential real estate and normally do not exceed a loan-to-market value ratio of 90% with the interest adjusted quarterly. Residential first mortgage loans, home equity term loans and home equity lines of credit represent approximately 23% of the loan portfolio.
These loans are secured by a junior mortgage on the residential real estate and normally do not exceed a loan-to-market value ratio of 90% with the interest adjusted quarterly. Residential first mortgage loans, home equity term loans and home equity lines of credit represent approximately 22% of the loan portfolio.
There are no employment contracts between the Company and any of its employees as of December 31, 2022. As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain talent.
There are no employment contracts between the Company and any of its employees as of December 31, 2023. As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain talent.
A bank holding company's failure to meet its obligation or to serve as a source of strength to its subsidiary banks, will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice, or a violation of the Federal Reserve's regulations, or both. 10 Table of Contents Federal Reserve Approval.
A bank holding company's failure to meet its obligation or to serve as a source of strength to its subsidiary banks, will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice, or a violation of the Federal Reserve's regulations, or both. 10 Federal Reserve Approval.
United Bank is located in Marshalltown, Iowa with a population of 27,600. The major employers are Iowa Veterans Home, Marshalltown School District, JBS Swift & Co., Emerson Process Management/Fisher Division, Lennox Industries and UnityPoint Health. Marshalltown is the county seat of Marshall County.
United Bank is located in Marshalltown, Iowa with a population of 27,500. The major employers are Iowa Veterans Home, Marshalltown School District, JBS Swift & Co., Emerson Process Management/Fisher Division, Lennox Industries and UnityPoint Health. Marshalltown is the county seat of Marshall County.
All locations are in agricultural areas and the Bank has a strong presence in this type of lending. 9 Table of Contents Competition The geographic market area served by the Banks is highly competitive with respect to both loans and deposits.
All locations are in agricultural areas and the Bank has a strong presence in this type of lending. 9 Competition The geographic market area served by the Banks is highly competitive with respect to both loans and deposits.
The Banks’ lending activities consist primarily of short-term and medium-term commercial and agricultural real estate loans, residential real estate loans, agricultural and business operating loans and lines of credit, equipment loans, vehicle loans, personal loans and lines of credit, home improvement loans and origination of mortgage loans for sale into the secondary market.
The Banks’ lending activities consist primarily of short-term and medium-term commercial, multi-family and agricultural real estate loans, residential real estate loans, agricultural and business operating loans and lines of credit, equipment loans, vehicle loans, personal loans and lines of credit, home improvement loans and origination of mortgage loans for sale into the secondary market.
Major risk factors for commercial real estate loans, as well as the other loan types described below, include a geographic concentration in our primary market areas in Iowa; the dependence of the local economy upon several large governmental entities, including Iowa State University and the Iowa Department of Transportation; and the health of Iowa’s agricultural sector that is heavily dependent on commodity prices, weather conditions, government programs and trade policies.
Major risk factors for commercial real estate loans, as well as the other loan types described below, include a geographic concentration in Iowa; the dependence of the local economy upon several large governmental entities, including Iowa State University and the Iowa Department of Transportation; and the health of Iowa’s agricultural sector that is heavily dependent on commodity prices, weather conditions, government programs and trade policies.
Under the Basel III Capital Rules, for most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for loan and lease losses, in each case, subject to the Basel III Capital Rules’ specific requirements.
Under the Basel III Capital Rules, for most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for credit losses, in each case, subject to the Basel III Capital Rules’ specific requirements.
The Banks compete for loans primarily by offering competitive interest rates, experienced local lending personnel and quality products and services. As of December 31, 2022, there were 48 FDIC insured institutions having approximately 127 locations within Boone, Clarke, Hancock, Marshall, Polk, Story, Taylor and Union County, Iowa where the Banks' offices are located.
The Banks compete for loans primarily by offering competitive interest rates, experienced local lending personnel and quality products and services. As of December 31, 2023, there were 48 FDIC insured institutions having approximately 126 locations within Boone, Clarke, Hancock, Marshall, Polk, Story, Taylor and Union County, Iowa where the Banks' offices are located.
No material portion of the Banks' deposits has been obtained from a single person or from a few persons. Therefore, the Company does not believe that the loss of the deposits of any person or of a few persons would have an adverse effect on the Banks' operations or erode their deposit base.
No material portion of the Banks' deposits has been obtained from a single person or from a few persons. Therefore, the Company believes that the loss of the deposits of any person or of a few persons would not have an adverse effect on the Banks' operations or erode their deposit base.
It offers a broad range of deposit and loan products, as well as wealth management services to customers located in the Marshalltown and surrounding Marshall County area. It conducts business from its main office and a full-service office, both located in Marshalltown. As of December 31, 2022, United Bank had capital of $8.8 million and 18 full-time equivalent employees.
It offers a broad range of deposit and loan products, as well as wealth management services to customers located in the Marshalltown and surrounding Marshall County area. It conducts business from its main office and a full-service office, both located in Marshalltown. As of December 31, 2023, United Bank had capital of $9.9 million and 18 full-time equivalent employees.
Boone is the county seat of Boone County. The major employers are Fareway Stores, Inc., Iowa National Guard, Union Pacific Railroad, Boone County Hospital and CDS Global. Boone Bank provides lending services to the agriculture, commercial and real estate markets. State Bank is located in Nevada, Iowa with a population of 7,000. Nevada is the county seat of Story County.
Boone is the county seat of Boone County. The major employers are Fareway Stores, Inc., Iowa National Guard, Union Pacific Railroad, Boone County Hospital and CDS Global. Boone Bank provides lending services to the agriculture, commercial and real estate markets. State Bank is located in Nevada, Iowa with a population of 6,900. Nevada is the county seat of Story County.
Approximately 23% of the loan portfolio consists of loans made for 1-4 family residential purposes. 6 Table of Contents Consumer Loans. Consumer loans are typically available to finance consumer purchases, such as automobiles, household furnishings and boats. These loans are made on both a secured and an unsecured basis.
Approximately 22% of the loan portfolio consists of loans made for 1-4 family residential purposes. 6 Consumer Loans. Consumer loans are typically available to finance consumer purchases, such as automobiles, household furnishings and boats. These loans are made on both a secured and an unsecured basis. Approximately 1% of the loan portfolio consists of loans made for consumer purposes.
A number of our employees serve in leadership positions for nonprofit or community service organizations. Corporate Governance The Board of Directors has separated the CEO and Board Chair positions, with the Board Chair being a director who is independent under the NASDAQ governance standards. Ten of the twelve board members are independent directors.
A number of our employees serve in leadership positions for nonprofit or community service organizations. Corporate Governance The Board of Directors has separated the CEO and Board Chair positions, with the Board Chair being a director who is independent under the NASDAQ governance standards. Nine of the eleven board members are independent directors.
The major employers in Clarke County are Hormel Foods, Miller Products Co., SIMCO Drilling Equipment, Inc., Clarke County Hospital, Lakeside Casino, Paul Mueller Company and Boyt Harness Company. Loan services include primarily commercial and consumer types of credit including operating lines, equipment loans and real estate loans. Boone Bank is located in Boone, Iowa with a population of 12,500.
The major employers in Clarke County are Hormel Foods, Miller Products Co., SIMCO Drilling Equipment, Inc., Clarke County Hospital, and Lakeside Casino. Loan services primarily include commercial and consumer types of credit, including operating lines, equipment loans and real estate loans. Boone Bank is located in Boone, Iowa with a population of 12,500.
The major employers are Bunn-O-Matic Corporation, Wellman Dynamics Corporation, Southwestern Community College, Greater Regional Medical Center and Michael Foods, Inc. Creston is the county seat of Union County.
The major employers are Bunn-O-Matic Corporation, Wellman Dynamics Corporation, Greater Regional Health, Southwestern Community College, and Michael Foods, Inc. Creston is the county seat of Union County.
Each of the Banks is in compliance with capital level requirements as of December 31, 2022. Basel III Capital Requirements.
Each of the Banks is in compliance with capital level requirements as of December 31, 2023. Basel III Capital Requirements.
First National, Boone Bank, State Bank, United Bank and Iowa State Bank offer wealth management services typically found in a commercial bank with trust powers, including the administration of estates, conservatorships, personal and corporate trusts and agency accounts. Assets under management amount to $379.5 million and $401.8 million as of December 31, 2022 and 2021, respectively.
First National, Boone Bank, State Bank, United Bank and Iowa State Bank offer wealth management services typically found in a commercial bank with trust powers, including the administration of estates, conservatorships, personal and corporate trusts and agency accounts. Assets under management amount to $416.0 million and $379.5 million as of December 31, 2023 and 2022, respectively.
First National is headquartered in Ames, Iowa with a population of 65,500. The major employers are Iowa State University, Ames Laboratory, Iowa Department of Transportation, Mary Greeley Medical Center, Ames Community Schools, City of Ames, Danfoss and McFarland Clinic. First National maintains three offices in the Des Moines metro area with a population of approximately 709,000.
First National is headquartered in Ames, Iowa with a population of 66,300. The major employers are Iowa State University, Ames Laboratory, Iowa Department of Transportation, Mary Greeley Medical Center, Ames Community Schools, City of Ames, Danfoss and McFarland Clinic. First National maintains three offices in the Des Moines metro area with a population of approximately 740,000.
In 2014, First National completed the purchase of a bank with offices in West Des Moines, Iowa. In 2018, First National completed the purchase of a bank with offices located in Osceola, Iowa (the “Clarke County Acquisition”).
In 2014, First National completed the purchase of a bank with offices in West Des Moines, Iowa. In 2018, First National completed the purchase of a bank with offices located in Osceola, Iowa.
First National had net income for the years ended December 31, 2022 and 2021 of approximately $10.4 million and $13.1 million, respectively. Total assets as of December 31, 2022 and 2021 were approximately $1.12 billion and $1.11 billion, respectively. State Bank & Trust Co., Nevada, Iowa. State Bank is an Iowa, state-chartered, FDIC insured commercial bank.
First National had net income for the years ended December 31, 2023 and 2022 of approximately $5.5 million and $10.4 million, respectively. Total assets as of December 31, 2023 and 2022 were approximately $1.14 billion and $1.12 billion, respectively. State Bank & Trust Co., Nevada, Iowa. State Bank is an Iowa, state-chartered, FDIC insured commercial bank.
Total assets as of December 31, 2022 and 2021 were approximately $303.0 million and $285.6 million, respectively. United Bank & Trust Co., Marshalltown, Iowa. United Bank is an Iowa, state-chartered, FDIC insured commercial bank. It was chartered as a national bank in 2002 and converted to a state charter in 2022.
Total assets as of December 31, 2023 and 2022 were approximately $313.3 million and $303.0 million, respectively. United Bank & Trust Co., Marshalltown, Iowa. United Bank is an Iowa, state-chartered, FDIC insured commercial bank. It was chartered as a national bank in 2002 and converted to a state charter in 2022.
Commercial and agricultural real estate loans represent approximately 56% of the loan portfolio.
Commercial and agricultural real estate loans represent approximately 55% of the loan portfolio.
The United Way is one organization that our Company and employees are involved with through time and generous donations. The Company contributed over $190 thousand to various charitable and community organizations in 2022. Company employees volunteered approximately 10,000 hours serving various charitable organizations in our Banks’ communities.
The United Way is one organization that our Company and employees are involved with through time and generous donations. The Company contributed over $205 thousand to various charitable and community organizations in 2023. Company employees volunteered approximately 10,600 hours serving various charitable organizations in our Banks’ communities.
Approximately 54% of the loan portfolio consists of loans made for commercial purposes.
Approximately 55% of the loan portfolio consists of loans made for commercial purposes.
Total assets as of December 31, 2022 and 2021 were approximately $258.5 million and $252.4 million, respectively. 5 Table of Contents Business Strategy and Operations As a multi-bank holding company for six community banks, the Company emphasizes strong personal relationships to provide products and services that meet the needs of the Banks’ customers.
Total assets as of December 31, 2023 and 2022 were approximately $254.7 million and $258.5 million, respectively. 5 Business Strategy and Operations As a multi-bank holding company for six community banks, the Company emphasizes strong personal relationships to provide products and services that meet the needs of the Banks’ customers.
It has an experienced staff of bank officers including many who have spent the majority of their banking careers with First National and who emphasize long-term customer relationships. 4 Table of Contents As of December 31, 2022, First National had capital of $76.8 million and 122 full-time equivalent employees.
It has an experienced staff of bank officers including many who have spent the majority of their banking careers with First National and who emphasize long-term customer relationships. 4 As of December 31, 2023, First National had capital of $84.8 million and 119 full-time equivalent employees.
Total assets as of December 31, 2022 and 2021 were approximately $215.5 million and $208.9 million, respectively. Boone Bank & Trust Co., Boone, Iowa. Boone Bank is an Iowa, state-chartered, FDIC insured commercial bank.
Total assets as of December 31, 2023 and 2022 were approximately $201.7 million and $215.5 million, respectively. Boone Bank & Trust Co., Boone, Iowa. Boone Bank is an Iowa, state-chartered, FDIC insured commercial bank.
The Presidents of the Banks and the human resources officers are responsible for compensation, recruitment, development and retention. The Company annually reviews a succession plan for key employees. The Company employs approximately 270 employees, of which 94% are full-time employees and the remaining 6% are part-time employees. Of the 270 employees, 125 employees were considered officers of the Company.
The Presidents of the Banks and the human resources officers are responsible for compensation, recruitment, development and retention. The Company annually reviews a succession plan for key employees. The Company employs approximately 273 employees, of which 93% are full-time employees and the remaining 7% are part-time employees. Of the 273 employees, 127 employees were considered officers of the Company.
It conducts business from its main office located in Story City and a full-service office located in Garner. As of December 31, 2022, Reliance Bank had capital of $21.3 million and 34 full-time equivalent employees. Reliance Bank had net income for the years ended December 31, 2022 and 2021 of approximately $2.4 million and $3.2 million, respectively.
It conducts business from its main office located in Story City and a full-service office located in Garner. As of December 31, 2023, Reliance Bank had capital of $23.8 million and 32 full-time equivalent employees. Reliance Bank had net income for the years ended December 31, 2023 and 2022 of approximately $1.7 million and $2.4 million, respectively.
As of December 31, 2022, approximately 64% of our current workforce was female and 36% was male. Approximately 4% of our workforce consisted of ethnically diverse employees as of December 31, 2022. There are no labor unions involved with the Company and we consider our relationship with our employees to be satisfactory.
As of December 31, 2023, approximately 66% of our current workforce was female and 34% was male. Approximately 3% of our workforce consisted of ethnically diverse employees as of December 31, 2023. There are no labor unions involved with the Company and we consider our relationship with our employees to be satisfactory.
The major employers in the Des Moines metro market are State of Iowa, Principal Financial Group, Wells Fargo, UnityPoint Health, Mercy Medical Center, Nationwide Insurance, Corteva Agriscience, Hy-Vee Food Corp and John Deere. First National maintains two offices in Osceola, Iowa with a population of 5,400. Osceola is the county seat of Clarke County.
The major employers in the Des Moines metro market are Principal Financial Group, Wells Fargo, UnityPoint Health, MercyOne Medical, Nationwide Insurance, Amazon, Hy-Vee Food Inc. and John Deere. First National maintains two offices in Osceola, Iowa with a population of 5,500. Osceola is the county seat of Clarke County.
It has a strong presence in agricultural, commercial and residential real estate lending. As of December 31, 2022, State Bank had capital of $12.9 million and 20 full-time equivalent employees. State Bank had net income for the years ended December 31, 2022 and 2021 of approximately $2.6 million and $3.3 million, respectively.
It has a strong presence in agricultural, commercial and residential real estate lending. As of December 31, 2023, State Bank had capital of $15.2 million and 21 full-time equivalent employees. State Bank had net income for the years ended December 31, 2023 and 2022 of approximately $1.4 million and $2.6 million, respectively.
As of December 31, 2022, Boone Bank had capital of $7.6 million and 20 full-time equivalent employees. Boone Bank had net income for the years ended December 31, 2022 and 2021 of approximately $1.3 million and $1.9 million, respectively. Total assets as of December 31, 2022 and 2021 were approximately $158.2 million and $159.0 million, respectively.
As of December 31, 2023, Boone Bank had capital of $9.7 million and 20 full-time equivalent employees. Boone Bank had net income for the years ended December 31, 2023 and 2022 of approximately $740 thousand and $1.3 million, respectively. Total assets as of December 31, 2023 and 2022 were approximately $149.4 million and $158.2 million, respectively.
Thomas 63 President and Director of United Bank; previously Senior Loan Officer of United Bank. Michael A. Wilson 58 Executive Vice President of Innovation and Corporate Services; previously Chief Lending Officer of a privately held bank in Iowa. 15 Table of Contents
Thomas 64 President and Director of United Bank; previously Senior Loan Officer of United Bank. Michael A. Wilson 59 Chief Lending Officer; previously Executive Vice President of Innovation and Corporate Services of the Company and Chief Lending Officer of a privately held bank in Iowa. 15
United Bank had net income for the years ended December 31, 2022 and 2021 of approximately $1.2 million. Total assets as of December 31, 2022 and 2021 were approximately $129.8 million and $126.4 million, respectively. Iowa State Savings Bank, Creston, Iowa. Iowa State Bank is an Iowa, state-chartered, FDIC insured commercial bank. Iowa State Bank was organized in 1883.
United Bank had net income for the years ended December 31, 2023 and 2022 of approximately $1.0 million and $1.2 million, respectively. Total assets as of December 31, 2023 and 2022 were approximately $118.5 million and $129.8 million, respectively. Iowa State Savings Bank, Creston, Iowa. Iowa State Bank is an Iowa, state-chartered, FDIC insured commercial bank.
In general, enforcement actions must be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions, or inactions, may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Applicable law also requires public disclosure of final enforcement actions by the federal banking agencies.
In general, enforcement actions must be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions, or inactions, may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.
Putzier 61 President and Director of Boone Bank. Richard J. Schreier 55 President and Director of Reliance Bank. Adam R. Snodgrass 42 President and Director of Iowa State Bank; previously CEO, CFO and director of Iowa State Bank prior to the Iowa State Bank Acquisition Robert A.
Director and Chairman of Boone Bank and Reliance Bank. Jeffrey K. Putzier 62 President and Director of Boone Bank. Richard J. Schreier 56 President and Director of Reliance Bank. Adam R. Snodgrass 43 President and Director of Iowa State Bank; previously CEO, CFO and director of Iowa State Bank prior to the Iowa State Bank Acquisition. Robert A.
Generally, reserves of 3% had to be maintained against total transaction accounts of $640.6 million or less (subject to an exemption not in excess of the first $32.4 million of transaction accounts). A reserve of $18.246 million plus 10% of amounts in excess of $640.6 million had to be maintained in the event total transaction accounts exceeded $640.6 million.
Generally, reserves of 3% had to be maintained against total transaction accounts of $691.7 million or less (subject to an exemption not in excess of the first $36.1 million of transaction accounts). A reserve of $19.668 million plus 10% of amounts in excess of $691.7 million had to be maintained in the event total transaction accounts exceeded $691.7 million.
The annual indexation of the reserve requirement exemption amount and the low reserve tranche for 2023 is required by statute but will not affect depository institutions' reserve requirements, which will remain zero.
The annual indexation of the reserve requirement exemption amount and the low reserve tranche for 2023 is required by statute but will not affect depository institutions' reserve requirements, which will remain zero. Currently the Board has no plans to re-impose reserve requirements but retains the right to do so.
Currently the Board has no plans to re-impose reserve requirements but retains the right to do so. 13 Table of Contents Regulatory Enforcement Authority The enforcement powers available to federal and state banking regulators are substantial and include, among other things, the ability to assess civil monetary penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties.
Regulatory Enforcement Authority The enforcement powers available to federal and state banking regulators are substantial and include, among other things, the ability to assess civil monetary penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties.
Loan-to-value ratios generally do not exceed 75% of the cost or value of the assets. Loans are normally guaranteed by the principal(s). These loans also include Paycheck Protection Program (“PPP”) loans originated as a part of the CARES Act. Commercial and agricultural operating and term loans represent approximately 15% of the loan portfolio.
Loan-to-value ratios generally do not exceed 75% of the cost or value of the assets. Loans are normally guaranteed by the principal(s). Commercial and agricultural operating and term loans represent approximately 16% of the loan portfolio.
Among the instruments used to implement these objectives are open market operations in U.S. Government securities, changes in reserve requirements against bank deposits and the Federal Reserve Discount Rate, which is the interest rate charged member banks to borrow from the Federal Reserve Bank.
Government securities, changes in reserve requirements against bank deposits and the Federal Reserve Discount Rate, which is the interest rate charged member banks to borrow from the Federal Reserve Bank.
Iowa State Bank was acquired by the Company in 2019 through a stock transaction for cash (“Iowa State Bank Acquisition”). Iowa State Bank provides full-service banking to businesses and residents within Creston, Iowa and the surrounding areas. While its primary emphasis is in agricultural lending, Iowa State Bank also provides the traditional lending services typically offered by community banks.
Iowa State Bank was organized in 1883. Iowa State Bank was acquired by the Company in 2019 through a stock transaction for cash (“Iowa State Bank Acquisition”). Iowa State Bank provides full-service banking to businesses and residents within Creston, Iowa and the surrounding areas.
Each executive officer has served in his current position for the past five years with the exception of John P. Nelson, John L. Pierschbacher, Adam R. Snodgrass, Robert A. Thomas and Michael A. Wilson. Mr. Nelson was appointed president and chief executive officer of the Company on June 29, 2018. Mr.
Each executive officer has served in his current position for the past five years with the exception of Dan E. Johnson, Adam R. Snodgrass, Robert A. Thomas and Michael A. Wilson. Mr. Johnson was appointed President of State Bank on January 16, 2023. Mr. Snodgrass was appointed as president of Iowa State Bank on October 25, 2019. Mr.
Director and Chairman of State Bank and United Bank and Director of First National and Iowa State Bank; previously Chief Financial Officer and Secretary of the Company. John L. Pierschbacher 63 Chief Financial Officer, Director and Secretary of the Company. Director and Chairman of Boone Bank and Reliance Bank; previously Controller of the Company. Jeffrey K.
Johnson 52 President and Director of State Bank; previously Senior Loan Officer of State Bank. John P. Nelson 57 Chief Executive Officer, President and Director of the Company. Director and Chairman of First National, State Bank and United Bank and Director of Iowa State Bank. John L. Pierschbacher 64 Chief Financial Officer, Director and Secretary of the Company.
National Monetary Policies In addition to being affected by general economic conditions, the earnings and growth of the Banks are affected by the regulatory authorities’ policies, including the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply, credit conditions and interest rates.
Applicable law also requires public disclosure of final enforcement actions by the federal banking agencies. 13 National Monetary Policies In addition to being affected by general economic conditions, the earnings and growth of the Banks are affected by the regulatory authorities’ policies, including the Federal Reserve.
It conducts business from its main office located in Creston and full-service offices located in Creston and Lenox. As of December 31, 2022, Iowa State Bank had capital of $21.4 million and 33 full-time equivalent employees. Iowa State Bank had net income for year ended December 31, 2022 and 2021 of approximately $2.3 million and $2.1 million, respectively.
While its primary emphasis is in agricultural lending, Iowa State Bank also provides the traditional lending services typically offered by community banks. It conducts business from its main office located in Creston and full-service offices located in Creston and Lenox. As of December 31, 2023, Iowa State Bank had capital of $23.4 million and 34 full-time equivalent employees.
Removed
Approximately 1% of the loan portfolio consists of loans made for consumer purposes.
Added
Iowa State Bank had net income for year ended December 31, 2023 and 2022 of approximately $2.0 million and $2.3 million, respectively.
Removed
As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.
Added
An important function of the Federal Reserve is to regulate the money supply, credit conditions and interest rates. Among the instruments used to implement these objectives are open market operations in U.S.
Removed
A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.
Removed
The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. Financial institutions first became eligible to elect to be subject to this new definition as of March 31, 2020.
Removed
Pierschbacher was appointed chief financial officer of the Company on June 29, 2018. Mr. Snodgrass was appointed as president of Iowa State Bank on October 25, 2019. Mr. Thomas was appointed as president of United Bank on July 1, 2020. Michael A. Wilson was appointed as executive vice president of innovation and corporate services on September 30, 2022.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

35 edited+15 added−11 removed95 unchanged
Biggest changeExcess liquidity or the inability to maintain liquidity through deposits, borrowing, sale of securities or other sources could have a substantial negative impact on our liquidity. We maintain liquidity primarily through customer deposits and through access to other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB) overnight borrowings and purchased federal funds.
Biggest changeWe maintain liquidity primarily through customer deposits and through access to other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB) overnight borrowings and purchased federal funds. If governmental programs or economic conditions change and generate excess liquidity due to increases in deposit balances, we might experience excess liquidity issues.
Operational Risks The Company may not be able to attract and retain key personnel and other skilled employees. Our success depends, in large part, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees.
Operational Risks The Company may not be able to attract and retain key personnel and other skilled employees. Our success depends, in large part, on the skills of our management team and our ability to recruit, retain and motivate key officers and employees.
The weakening of these standards or procedures for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, our inability to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers may negatively impact the quality of our loan portfolio, result in loan defaults, foreclosures and additional charge-offs and necessitate that we significantly increase our allowance for loan losses, therefore reducing our earnings.
The weakening of these standards or procedures for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, our inability to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers may negatively impact the quality of our loan portfolio, result in loan defaults, foreclosures and additional charge-offs and necessitate that we significantly increase our allowance for credit losses, therefore reducing our earnings.
A change in the supply or demand for our common stock, or other events affecting our business, may have a more significant impact on the price of our stock than would be the case for more actively traded companies. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Consequently, a change in the supply or demand for our common stock, or other events affecting our business, may have a more significant impact on the price of our stock than would be the case for more actively traded companies. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Although we maintain a system of internal controls and procedures designed to reduce the risk of loss from employee or customer fraud or misconduct and employee errors as well as insurance coverage to mitigate against some operational risks, including data processing system failures and errors and customer or employee fraud; these internal controls may fail to prevent or detect such an occurrence, or such an occurrence may not be insured or exceed applicable insurance limits. 19 Table of Contents In addition, there have also been a number of cases where financial institutions have been the victim of fraud related to unauthorized wire and automated clearinghouse transactions.
Although we maintain a system of internal controls and procedures designed to reduce the risk of loss from employee or customer fraud or misconduct and employee errors; as well as insurance coverage to mitigate against some operational risks, including data processing system failures and errors and customer or employee fraud; these internal controls may fail to prevent or detect such an occurrence, or such an occurrence may not be insured or exceed applicable insurance limits. 19 In addition, there have also been a number of cases where financial institutions have been the victim of fraud related to unauthorized wire and automated clearinghouse transactions.
We are a separate and distinct legal entity from our Banks, and we receive substantially all of our operating cash flows from dividends and other payments from our Banks. These dividends and payments are the principal source of funds to pay dividends on our common stock.
We are a separate and distinct legal entity from our Banks, and we receive substantially all of our operating cash flows from dividends and other payments from our Banks. These dividends and payments are the principal source of funds to pay dividends on our common stock and pay our operating expenses.
Many of our competitors have substantially greater resources to invest in technological improvements and there is a risk we could become less competitive if we are unable to take advantage of these improvements due to the cost limitations, difficulties in implementation or otherwise. 21 Table of Contents A breach of information security, compliance breach, or error by one of the Company ’ s agents or vendors could negatively affect the Company ’ s reputation and business.
Many of our competitors have substantially greater resources to invest in technological improvements and there is a risk we could become less competitive if we are unable to take advantage of these improvements due to the cost limitations, difficulties in implementation or otherwise. 21 A breach of information security, compliance breach, or error by one of the Company ’ s agents or vendors could negatively affect the Company ’ s reputation and business.
Because of the inherent uncertainty of the estimates required to apply these policies, no assurance can be given that application of alternative policies or methods might not result in the reporting of different amounts of the fair value of securities available for sale, the allowance for loan losses, goodwill valuation and, accordingly, net income.
Because of the inherent uncertainty of the estimates required to apply these policies, no assurance can be given that application of alternative policies or methods might not result in the reporting of different amounts of the allowance for credit losses, the fair value of securities available-for-sale, goodwill valuation and, accordingly, net income.
To the extent that any portion of the unrealized losses in our portfolio of investment securities is determined to have OTTI and is credit loss related, we will recognize a charge to our earnings in the quarter during which such determination is made, and our earnings and capital ratios will be adversely impacted.
To the extent that any portion of the unrealized losses in our portfolio of investment securities is determined to have credit loss, we will recognize a charge to our earnings in the quarter during which such determination is made, and our earnings and capital ratios will be adversely impacted.
Commercial real estate loans were a significant portion of our total loan portfolio as of December 31, 2022. The market value of real estate securing these loans can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
Commercial real estate loans were a significant portion of our total loan portfolio as of December 31, 2023. The market value of real estate securing these loans can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
In addition, if the revenue and cash flows generated from any of our other intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge.
In addition, if the revenue and cash flows generated from any of our other intangible assets are not sufficient to support its net book value, we may be required to record an impairment charge.
In particular, the national economy is now facing challenges due to the significant inflationary pressures that began building during late 2021 and throughout the course of 2022, resulting in significant upward pressure on consumer and wholesale prices.
In particular, the national economy is facing challenges due to inflationary pressures that began building during late 2021 and throughout the course of 2022 and 2023, resulting in significant upward pressure on consumer and wholesale prices.
Any change in the level of our dividends or the suspension of the payment thereof could have a material adverse effect on the market price of our common stock. 23 Table of Contents Risk related to volatility of the Company ’ s stock.
Any change in the level of our dividends or the suspension of the payment thereof could have a material adverse effect on the market price of our common stock. 23 Risk related to volatility of the Company ’ s stock.
Our business, financial condition and results of operations may be adversely affected by these changes if continued over a period of time. 22 Table of Contents The Company may be adversely affected by risks associated with completed and potential acquisitions.
Our business, financial condition and results of operations may be adversely affected by these changes if continued over a period of time. 22 The Company may be adversely affected by risks associated with completed and potential acquisitions.
Any increase in provision expense will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. 17 Table of Contents Loans to agricultural-related borrowers are subject to factors beyond the Company ’ s control, including fluctuations in commodity and livestock prices, government trade policies and other risks, which could negatively impact the Company ’ s loan portfolio.
Any increase in credit loss expense will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. 17 Loans to agricultural-related borrowers are subject to factors beyond the Company ’ s control, including fluctuations in commodity and livestock prices, government trade policies and other risks, which could negatively impact the Company ’ s loan portfolio.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors or misconduct could also subject us to civil claims for negligence.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors or misconduct could also subject us to civil claims for negligence or regulatory enforcement actions.
We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in the Company being required to restate prior period financial statements in material amounts. Changes in these standards are continuously occurring, and given the current economic and regulatory environment, more significant changes may occur.
We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in the need to restate prior period financial statements in material amounts. Changes in these standards are continuously occurring, and given the current economic and regulatory environment, more significant changes may occur in the future.
Generally, a fixed income security is determined to have OTTI when it appears unlikely that we will receive all of the principal and interest due in accordance with the original terms of the investment.
Generally, a fixed income security is determined to have credit losses when it appears unlikely that we will receive all of the principal and interest due in accordance with the original terms of the investment.
Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses to be funded through provision expense.
Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses to be funded through credit loss expense.
If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that was anticipated at the time of originating the loan, which could cause an increase in charge-offs, resulting in the need to increase our provision for loan losses and adversely affecting our operating results and financial condition.
If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that was anticipated at the time of originating the loan, which could cause an increase in charge-offs, resulting in the need to increase our credit loss expense and adversely affecting our operating results and financial condition.
Liquidity and Interest Rate Risks Fair values of investments in the Company ’ s securities portfolio may adversely change. As of December 31, 2022, the fair value of our securities portfolio was approximately $786.4 million.
Liquidity and Interest Rate Risks Fair values of investments in the Company ’ s securities portfolio may adversely change. As of December 31, 2023, the fair value of our securities portfolio was approximately $736.4 million.
These critical accounting policies relate to (1) the fair value and possible impairment losses on investment securities available for sale, (2) the allowance for loan losses, and (3) impairment of goodwill.
These critical accounting policies relate to (1) the allowance for credit losses, (2) the fair value of securities available-for-sale, and (3) impairment of goodwill.
The Company’s provision for loan losses may be impacted by the borrower’s ability to service their debt if inflation is prolonged. 16 Table of Contents Credit Risks The Company ’ s business depends on our ability to successfully manage credit risk. The operation of our business requires us to manage credit risk.
The Company’s credit loss expenses may be impacted by the borrower’s ability to service their debt if inflation is prolonged. 16 Credit Risks The Company ’ s business depends on our ability to successfully manage credit risk. The operation of our business requires us to manage credit risk.
These rate increases, which are expected to continue into and during 2023, have the potential to overly reduce economic activity and tip the domestic economy into a recessionary period of slower or negative growth.
These rate increases have the potential to overly reduce economic activity and tip the domestic economy into a recessionary period of slower or negative growth.
Higher inflation may affect the Company ’ s interest rates, provision for loan losses and general operating expenses. Consumer inflation, as measured by the Consumer Price Index for All Urban Consumers (“CPI”) has increased 6.5% for the year ended December 31, 2022.
Higher inflation may affect the Company ’ s interest rates, credit loss expenses and general operating expenses. Consumer inflation, as measured by the Consumer Price Index for All Urban Consumers (“CPI”) has increased 3.4% and 6.5% for the years ended December 31, 2023 and 2022, respectively.
If management's estimates or assumptions are incorrect, we may experience a material loss.
If management's estimates or assumptions prove to be incorrect, we may experience a material loss.
Because the Company has grown in part through acquisitions, goodwill and intangible assets are included in the consolidated assets reflected in our financial statements. Goodwill and intangible assets were $14.4 million as of December 31, 2022.
Because we have grown in part through acquisitions, goodwill and intangible assets are included in the consolidated assets reflected in our financial statements. Goodwill and intangible assets were $13.9 million as of December 31, 2023.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for loan losses or increase significantly; we will need additional provisions to increase the allowance.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the allowance for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.
In 2022, the fair value of the securities portfolio has significantly declined due to rising interest rates. To mitigate these risks, we have access to lines of credit that provide additional liquidity, if needed. Our investment securities are analyzed quarterly to determine whether, in the opinion of management, any of the securities have other-than-temporary impairment (OTTI).
To mitigate the risk of selling securities in an unrealized loss position to fund cash flow needs, we have access to lines of credit that provide additional liquidity, if needed. Our investment securities are analyzed quarterly to determine whether, in the opinion of management, any of the securities have credit losses.
Identity theft, successful unauthorized intrusions and similar unauthorized conduct could result in reputational damage and financial losses to the Company. An impairment charge of goodwill or other intangibles could have a material adverse impact on the Company ’ s results of operations and financial condition.
In addition, we may be required to expend additional resources to enhance our protective measures or to investigate and remediate any information security vulnerabilities or exposures. An impairment charge of goodwill or other intangibles could have a material adverse impact on the Company ’ s results of operations and financial condition.
The implementation of such changes could have a material adverse effect on our financial condition and results of operations.
The implementation of such changes could have a material adverse effect on our financial condition and results of operations. 20 The Company ’ s accounting policies and methods require management to make estimates about matters that are inherently uncertain. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.
If the Company ’ s actual loan losses exceed the allowance for loan losses or increase significantly, the Company ’ s net income will decrease. We maintain an allowance for loan losses at a level believed to be adequate to absorb estimated losses inherent in the existing loan portfolio.
If the Company ’ s actual credit losses exceed the allowance for credit losses or increase significantly, the Company ’ s net income will decrease. The allowance for credit losses for loans represents management's estimate of all expected credit losses over the expected contractual life of our existing loan portfolio.
If governmental programs or economic conditions change and generate excess liquidity due to increases in deposit balances, we might experience excess liquidity issues. Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated increase or reductions in our liquidity.
Conversely, our liquidity could be negatively impacted if we are unable to maintain appropriate levels of liquidity through deposits, borrowing, sale of securities or other sources. Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated increase or reductions in our liquidity.
Management believes our earning assets have the appropriate maturity and repricing characteristics to optimize earnings and interest rate risk positions. 18 Table of Contents The inability to deploy liquidity may adversely affect the Company ’ s business. Maintaining adequate liquidity is essential to the banking business.
We monitor our interest rate risk exposure; however, we can provide no assurance that our efforts will appropriately protect us in the future from interest rate risk exposure. 18 The inability to deploy liquidity may adversely affect the Company ’ s business. Maintaining adequate liquidity is essential to the banking business.
Removed
Determination of the allowance is inherently subjective as it requires significant estimates and management’s judgment of credit risks and future trends, all of which may undergo material changes.
Added
Also, if charge-offs in future periods exceed the allowance for credit losses or increase significantly; we will need additional credit loss expenses to increase the allowance.
Removed
Changes in interest rates could adversely affect the Company ’ s results of operations and financial condition. The FOMC increased its target for the short-term federal funds interest rate by 4.25% in 2022 after remaining stable during 2021. Intermediate and longer-term rates increased in 2022 after remaining low in 2021.
Added
The fair value of the securities portfolio has an unrealized loss of $62.3 million as of December 31, 2023, resulting primarily from the negative impact of increased interest rates on the fair value of the portfolio.
Removed
With interest rates significantly increasing during 2022 in response to inflationary pressure in the economy, the Company’s challenge will be managing its interest expense, as the interest-bearing liabilities (deposits and other borrowings) reprice more quickly than earning assets (loans and investment securities), placing downward pressure on the net interest margin.
Added
Changes in interest rates could adversely affect the Company ’ s results of operations and financial condition. Our earnings depend substantially on our interest rate spread, which is the difference between (i) the interest rates we earn on loans, securities, and other interest-earning assets, and (ii) the interest rates we pay on deposits, other borrowings, and other interest-bearing liabilities.
Removed
A reduction in the net interest margin could negatively affect our results of operations, including earnings. In response to this challenge, we model quarterly the changes in income that would result from various changes in interest rates.
Added
We are exposed to interest rate risk because our interest-earning assets and interest-bearing liabilities do not react uniformly or concurrently to changes in interest rates since the two have different time periods for adjustment and can be tied to different measures of rates.
Removed
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the Current Expected Credit Loss model, or CECL.
Added
Market interest rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities, including the Federal Reserve. Throughout 2022 and 2023, the FOMC has raised the federal funds rate to its current targeted rate between 5.25% and 5.5% in an effort to curb inflation.
Removed
Under the CECL model, which we must adopt as of January 1, 2023, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment, at the net amount expected to be collected.
Added
As market interest rates rise, we experience competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income. In addition, inflationary pressures will increase our operating costs and could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance.
Removed
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
Added
In addition, certain of our noninterest income and noninterest expenses are subject to adverse effect in a rising interest rate environment.
Removed
The CECL model differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance.
Added
Identity theft, successful unauthorized intrusions and similar unauthorized conduct could result in reputational damage and financial losses to the Company. Security breaches involving us, the Banks or any third parties with which we do business could expose us to liability and litigation, adversely affecting our reputation and operating revenues.
Removed
Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. The Company is currently finalizing the CECL model and upon adoption of ASU 2016-13 (CECL) in the first quarter of 2023 anticipates an increase to the allowance for credit losses for loans and unfunded commitments liability of approximately $600 thousand to $1.0 million.
Added
In connection with our business, we collect and retain significant volumes of sensitive business and personally identifiable information, including social security numbers of our customers and other personally identifiable information of our customers and employees, on our data systems.
Removed
See Note 1 to our consolidated financial statements included in Item 8 of this Report for further discussion. 20 Table of Contents The Company ’ s accounting policies and methods require management to make estimates about matters that are inherently uncertain.
Added
We and the third parties with which we conduct business are subject to the risk of security breaches, which may be due to the failure of our data encryption technologies or otherwise, involving the receipt, transmission, and storage of confidential customer and other personally identifiable information, including account takeovers, unavailability of service, computer viruses, or other malicious code, cyberattacks, or other events, any of which may arise from human error, fraud or malice on the part of employees or third parties or from accidental technological failure.
Removed
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.
Added
If one or more of these events occurs, it could result in the disclosure of confidential customer information, impairment of our ability to provide products and services to our customers, damage to our reputation with our customers and the market, additional costs (such as costs for repairing systems or adding new personnel or protection technologies), regulatory penalties, and financial losses for us, our customers and other third parties.
Added
Such events could also cause interruptions or malfunctions in the operations of our customers, or other third parties with which we engage in business.
Added
Such events could also damage our reputation with customers and third parties with whom we do business, which could lead to loss of customers and business opportunities and have a material adverse effect on our financial condition and results of operation.
Added
Risks and exposures related to cybersecurity attacks have increased as a result of greater reliance on remote working, and are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, the proliferation of malicious actors internationally, and the expanding use of technology-based products and services by us and our customers.
Added
Cybersecurity risk and other security matters are also a major focus of regulatory authorities. We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches and that we will not suffer losses related to a security breach in the future, which losses may be material.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed6 unchanged
Biggest changeAll of the Bank offices are owned by the respective Banks, with the exception of First National’s West Glen office which is owned by the Company and leased to First National. All of the properties owned by the Banks are free of any mortgages. The West Glen office owned by the Company is subject to a $3.7 million mortgage.
Biggest changeAll of the Bank offices are owned by the respective Banks, with the exception of First National’s West Glen office which is owned by the Company and leased to First National. All of the properties owned by the Banks are free of any mortgages.
ITEM 2. PROPERTIES The Company's office is housed in the main office of First National located at 405 5th Street, Ames, Iowa. There is a lease agreement between the Company and First National.
ITEM 2. PROPERTIES The Company's office is housed in the main office of First National located at 405 5th Street, Ames, Iowa and an office owned by the Company at 323 6 th Street, Ames, Iowa. There is a lease agreement between the Company and First National.
Added
The West Glen office and Ames office owned by the Company are subject to a $3.1 million and $388 thousand mortgage, respectively.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS The Banks are from time-to-time parties to various legal actions arising in the normal course of business. The Company believes that there is no threatened or pending proceeding against the Company or the Banks, which, if determined adversely, would have a material adverse effect on the business or financial condition of the Company or the Banks.
Biggest changeITEM 3. LEGAL PROCEEDINGS The Banks are from time-to-time parties to various legal actions arising in the ordinary course of business. The Company believes that there is no threatened or pending proceeding against the Company or the Banks, which, if determined adversely, would have a material adverse effect on the business or financial condition of the Company or the Banks.
Added
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 25 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−1 removed2 unchanged
Biggest changeBeginning in July 2020 the dividends were declared and paid in the same quarter before returning to the previous practice in August 2021. In February 2023, the Company declared a quarterly cash dividend of approximately $2.4 million or $0.27 per share, payable on May 15, 2023.
Biggest changeIn February 2024, the Company declared a quarterly cash dividend of approximately $2.4 million or $0.27 per share, payable on May 15, 2024.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On February 28, 2023, the Company had approximately 249 shareholders of record and approximately 3,298 additional beneficial owners whose shares were held in nominee titles through brokerage or other accounts.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On February 28, 2024, the Company had approximately 249 shareholders of record and approximately 3,298 additional beneficial owners whose shares were held in nominee titles through brokerage or other accounts.
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended December 31, 2022.
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended December 31, 2023.
Total Number Maximum of Shares Number of Purchased as Shares that Total Part of May Yet Be Number Average Publicly Purchased of Shares Price Paid Announced Under Period Purchased Per Share Plans The Plan October 1, 2022 to October 31, 2022 (1) - $ - - - November 1, 2022 to November 30, 2022 (1) and (2) - $ - - 100,000 December 1, 2022 to December 31, 2022 (2) - $ - - 100,000 Total - - (1) The Stock Repurchase Plan adopted in November 2021 expired in November 2022 and no shares remain available for purchase under this plan.
Total Number Maximum of Shares Number of Purchased as Shares that Total Part of May Yet Be Number Average Publicly Purchased of Shares Price Paid Announced Under Period Purchased Per Share Plans The Plan October 1, 2023 to October 31, 2023 (1) - $ - - 100,000 November 1, 2023 to November 30, 2023 (1) and (2) - $ - - 100,000 December 1, 2023 to December 31, 2023 (2) - $ - - 100,000 Total - - (1) The Stock Repurchase Plan adopted in November 2022 expired in November 2023 and no shares remain available for purchase under this plan as a result of the expiration.
The Company does not maintain or sponsor any equity compensation plans covering the directors, its executives or employees of the Company or the Banks. On November 14, 2022, the Board of Directors approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock.
The Company does not maintain or sponsor any equity compensation plans covering the directors, its executives or employees of the Company or the Banks. On November 8, 2023, the Board of Directors approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock.
(2) A successor Stock Repurchase Plan was approved and became effective on November 14, 2022 and authorized the purchase of up to 100,000 shares. This plan is scheduled to expire on November 8, 2023. No shares were purchased under this plan during November or December 2022.
(2) A successor Stock Repurchase Plan was approved and became effective on November 9, 2023 and authorized the purchase of up to 100,000 shares. This plan is scheduled to expire on November 13, 2024. No shares were purchased under this plan during November or December 2023.
This Stock Repurchase Plan replaced the previous Stock Repurchase Plan (approved in November 2021) that expired in November 2022. The Company purchased 100,000 shares in 2022 and 30,580 shares in 2021 under the Stock Repurchase Plans that were in effect during 2022 and 2021.
This Stock Repurchase Plan replaced the previous Stock Repurchase Plan (approved in November 2022) that expired in November 2023. The Company did not purchase shares in 2023 and purchased 100,000 shares in 2022 under the Stock Repurchase Plans that were in effect during 2023 and 2022.
The Company’s common stock is traded on the NASDAQ Capital Market under the symbol “ATLO”. Trading in the Company’s common stock is, however, relatively limited. The closing price of the Company’s common stock was $24.22 on February 28, 2023.
The Company’s common stock is traded on the NASDAQ Capital Market under the symbol “ATLO”. Trading in the Company’s common stock is, however, relatively limited. The closing price of the Company’s common stock was $18.46 on February 28, 2024. The Company declared aggregate annual cash dividends in 2023 and 2022 of approximately $9.7 million or $1.08 per share.
Removed
The Company declared aggregate annual cash dividends in 2022 and 2021 of approximately $9.7 million and $11.8 million, respectively, or $1.08 per share in 2022 and $1.29 per share in 2021. Dividends are typically declared in one quarter and then paid in the subsequent quarter.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

107 edited+36 added−31 removed73 unchanged
Biggest changeThe following table sets forth information regarding changes in the Company's allowance for loan losses for the most recent three years (dollars in thousands) : 2022 2021 2020 Balance at beginning of period $ 16,621 $ 17,215 $ 12,619 Charge-offs: Real estate Construction - - - 1-4 Family residential 23 34 18 Commercial - - 444 Agricultural - - - Commercial 41 113 628 Agricultural 7 - 48 Consumer and other 21 29 272 Total charge-offs 92 176 1,410 Recoveries: Real estate Construction - - 1 1-4 Family residential 8 268 6 Commercial 3 4 26 Agricultural - - - Commercial 4 5 14 Agricultural - 48 - Consumer and other 27 14 278 Total recoveries 42 339 325 Net charge-offs (recoveries) 50 (163 ) 1,085 Provisions charged (credited) to operations (874 ) (757 ) 5,681 Balance at end of period $ 15,697 $ 16,621 $ 17,215 Average loans outstanding $ 1,169,157 $ 1,141,750 $ 1,138,265 Ratio of net charge-offs (recoveries) during the period to average loans outstanding 0.00 % -0.01 % 0.10 % Ratio of allowance for loan losses to total loans net of deferred fees 1.26 % 1.43 % 1.50 % 45 Table of Contents The following table sets forth information regarding net charge-offs to average loans outstanding by loan type during the years ended December 31, 2022 and 2021 (in thousands). 2022 2021 Net Net charge-offs charge-offs Net (recoveries) Net (recoveries) charge-offs Average to average charge-offs Average to average (recoveries) Loans loans (recoveries) Loans loans Net charge-offs (recoveries): Real estate Construction $ - $ 43,905 0.00 % $ - $ 44,745 0.00 % 1-4 Family residential 15 266,029 0.01 % (234 ) 224,639 -0.10 % Commercial (3 ) 519,161 0.00 % (4 ) 504,343 0.00 % Agricultural - 155,989 0.00 % - 151,178 0.00 % Commercial 37 72,844 0.05 % 108 105,265 0.10 % Agricultural 7 95,029 0.01 % (48 ) 96,774 -0.05 % Consumer and other (6 ) 16,200 -0.04 % 15 14,806 0.10 % Totals $ 50 $ 1,169,157 0.00 % $ (163 ) $ 1,141,750 -0.01 % General reserves for loan categories range from 1.10% to 1.97% of the outstanding loan balances as of December 31, 2022.
Biggest changeThe following table sets forth information regarding net charge-offs to average loans outstanding by loan type during the years ended December 31, 2023 and 2022 (in thousands). 2023 2022 Net Net charge-offs charge-offs Net (recoveries) Net (recoveries) charge-offs Average to average charge-offs Average to average (recoveries) Loans loans (recoveries) Loans loans Net charge-offs (recoveries): Real estate Construction $ - $ 62,056 0.00 % $ - $ 43,905 0.00 % 1-4 Family residential (5 ) 287,062 0.00 % 15 266,029 0.01 % Multi-family - 190,525 0.00 % - 175,154 0.00 % Commercial (5 ) 347,267 0.00 % (3 ) 344,007 0.00 % Agricultural - 160,199 0.00 % - 155,989 0.00 % Commercial 28 85,914 0.03 % 37 72,844 0.05 % Agricultural 198 93,813 0.21 % 7 95,029 0.01 % Consumer and other (3 ) 16,403 -0.02 % (6 ) 16,200 -0.04 % Totals $ 213 $ 1,243,239 0.02 % $ 50 $ 1,169,157 0.00 % Pooled reserves for loan categories range from 0.64% to 2.69% of the outstanding loan balances as of December 31, 2023.
The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for loan losses, incorporating a variety of risk considerations, both quantitative and qualitative.
The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for credit losses, incorporating a variety of risk considerations, both quantitative and qualitative.
The Banks follow a loan policy, which has been approved by both the board of directors of the Company and the Banks and is overseen by both Company and Bank management. These policies establish lending limits, review and grading criteria and other guidelines such as loan administration and allowance for loan losses.
The Banks follow a loan policy, which has been approved by both the board of directors of the Company and the Banks and is overseen by both Company and Bank management. These policies establish lending limits, review and grading criteria and other guidelines such as loan administration and allowance for credit losses.
This analysis measures the estimated change in net interest income in the event of hypothetical changes in interest rates. Another measure of interest rate sensitivity is the gap ratio. This ratio indicates the amount of interest-earning assets repricing within a given period in comparison to the amount of interest-bearing liabilities repricing within the same period of time.
This analysis measures the estimated change in net interest income in the event of hypothetical changes in interest rates. 48 Another measure of interest rate sensitivity is the gap ratio. This ratio indicates the amount of interest-earning assets repricing within a given period in comparison to the amount of interest-bearing liabilities repricing within the same period of time.
The adequacy of the allowance for loan losses is evaluated quarterly by management, the Company and respective Bank boards. This evaluation focuses on specific loan reviews, changes in the type and volume of the loan portfolio given the current economic conditions and historical loss experience.
The adequacy of the allowance for credit losses is evaluated quarterly by management, the Company and respective Bank boards. This evaluation focuses on specific loan reviews, changes in the type and volume of the loan portfolio given the current economic conditions and historical loss experience.
For further discussion concerning the allowance for loan losses and the process of establishing specific reserves, see the section of this Annual Report entitled “Asset Quality Review and Credit Risk Management” and “Analysis of the Allowance for Loan Losses”.
For further discussion concerning the allowance for credit losses and the process of establishing specific reserves, see the section of this Annual Report entitled “Asset Quality Review and Credit Risk Management” and “Analysis of the Allowance for Credit Losses”.
In general, as loan volume increases, the general reserve levels increase with that growth and as loan volume decreases, the general reserve levels decrease with that decline. The allowance relating to commercial real estate is the largest reserve component.
In general, as loan volume increases, the pooled reserve levels increase with that growth and as loan volume decreases, the pooled reserve levels decrease with that decline. The allowance relating to commercial real estate is the largest reserve component.
Rate sensitive certificates of deposits in excess of $250,000 are subject to somewhat higher volatility with regard to renewal volume as the Banks adjust rates based upon funding needs. In the event a substantial volume of certificates is not renewed, the Company has sufficient liquid assets and borrowing lines to fund significant runoff.
Rate sensitive certificates of deposits in excess of $250,000 are subject to somewhat higher volatility with regard to renewal volume as the Banks adjust rates based upon funding needs. In the event a substantial volume of certificates is not renewed, the Company believes it has sufficient liquid assets and borrowing lines to fund significant runoff.
Liquidity is derived primarily from core deposit growth and retention; principal and interest payments on loans; principal and interest payments, sale, maturity, and prepayment of investment securities; net cash provided from operations; and access to other funding sources. Other funding sources include federal funds purchased lines, FHLB advances and other capital market sources.
Liquidity is derived primarily from core deposit growth and retention; principal and interest payments on loans; principal and interest payments, sale, maturity, and prepayment of investment securities; net cash provided from operations; and access to other funding sources. Other funding sources include federal funds purchased lines, Federal Reserve BTFP, FHLB advances and other capital market sources.
The timing of these credit commitments varies with the underlying borrowers; however, the Company believes it has satisfactory liquidity to fund these obligations as of December 31, 2022. The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities.
The timing of these credit commitments varies with the underlying borrowers; however, the Company believes it has satisfactory liquidity to fund these obligations as of December 31, 2023. The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities.
The Company completed a quantitative assessment of goodwill as of October 1, 2022 which indicated that goodwill was not impaired. Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the previous assessment. Accordingly, the Company concluded that there is no impairment of goodwill as of December 31, 2022.
The Company completed a quantitative assessment of goodwill as of October 1, 2023 which indicated that goodwill was not impaired. Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the previous assessment. Accordingly, the Company concluded that there is no impairment of goodwill as of December 31, 2023.
As of December 31, 2022, the level of liquidity and capital resources of the Company remain at a satisfactory level and compare favorably to that of other FDIC insured institutions. Management believes that the Company's liquidity sources will be sufficient to support its existing operations for the foreseeable future.
As of December 31, 2023, management believes that the level of liquidity and capital resources of the Company remain at a satisfactory level and compare favorably to that of other FDIC insured institutions and that the Company's liquidity sources will be sufficient to support its existing operations for the foreseeable future.
Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no other known trends in liquidity and cash flow needs as of December 31, 2022, that are of concern to management.
Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no other known trends in liquidity and cash flow needs as of December 31, 2023, that are of concern to management.
Examples of forward-looking statements include but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements.
Examples of forward-looking statements include but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, asset quality, liquidity, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements.
Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified the allowance for loan losses, the fair value determination of investment securities and the assessment of goodwill to be the Company’s most critical accounting policies.
Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified the allowance for credit losses, the fair value determination of investment securities and the assessment of goodwill to be the Company’s most critical accounting policies.
Beginning in July 2020 the dividends were declared and paid in the same quarter before returning to the previous practice in August 2021. ** See page 31 for further discussion of this Non-GAAP financial measure. The following discussion is provided for the consolidated operations of the Company and its Banks.
Beginning in July 2020 the dividends were declared and paid in the same quarter before returning to the previous practice in August 2021. ** See page 32 for further discussion of this Non-GAAP financial measure. 27 The following discussion is provided for the consolidated operations of the Company and its Banks.
Factors that could cause actual results to differ from those discussed in the forward-looking statement include, but are not limited to: ● Local, regional and national economic conditions and the impact they may have on the Company and its customers, and management’s assessment of that impact on its estimates including, but not limited to, the allowance for loan losses and fair value of other real estate owned.
Factors that could cause actual results to differ from those discussed in the forward-looking statement include, but are not limited to: ● Local, regional and national economic conditions and the impact they may have on the Company and its customers, and management’s assessment of that impact on its estimates including, but not limited to, the allowance for credit losses, collateral values and fair value of other real estate owned.
To the extent actual results differ from forecasts and management’s judgment, the allowance for loan losses may be greater or lesser than future charge-offs.
To the extent actual results differ from forecasts and management’s judgment, the allowance for credit losses may be greater or lesser than future charge-offs.
The current economic environment, characterized by increasing interest rates in response to significant inflationary pressures in the economy and the potential for a period of slower or negative economic growth resulting from efforts to dampen economic activity, has heightened the level of challenges, risks and uncertainties facing our business, including the following: ● Market interest rates are expected to continue increasing during the course of 2023 in response to inflationary pressues on the economy which could adversely affect our net interest income, net interest margin and earnings; ● We may experience a potential slowdown in demand for our products and services, including the demand for traditional loans, although we believe the decline may be offset, in whole or in part, due to inflation and higher interest rates; ● We may experience an increase in risk of delinquencies, defaults and foreclosures, as well as declining collateral values and further impairment of the ability of our borrowers to repay their loans, all of which may result in additional credit charges and other losses in our loan portfolio; ● Goodwill is currently evaluated for impairment quarterly and goodwill has been determined to not be impaired as of December 31, 2022.
The current economic environment, characterized by elevated short-term interest rates in response to inflationary pressures in the economy and the potential for a period of slower or negative economic growth resulting from efforts to dampen economic activity, has heightened the level of challenges, risks and uncertainties facing our business, including the following: ● Market interest rates may continue to increase during the course of 2024 in response to inflationary pressures on the economy which could adversely affect our net interest income, net interest margin and earnings; ● We may experience a potential slowdown in demand for our products and services, including the demand for traditional loans, although we believe the decline may be offset, in whole or in part, due to inflation and higher interest rates; ● We may experience an increase in risk of delinquencies, defaults and foreclosures, as well as declining collateral values and further impairment of the ability of our borrowers to repay their loans, all of which may result in additional credit charges and other losses in our loan portfolio; ● Goodwill is currently evaluated for impairment quarterly and goodwill has been determined to not be impaired as of December 31, 2023.
Interest-bearing accounts earn interest at rates established by Bank management based on competitive market factors and the Company’s need for funds. While 68.4% of the Banks’ certificates of deposit mature in the next year, it is anticipated that many of these certificates will be renewed.
Interest-bearing accounts earn interest at rates established by Bank management based on competitive market factors and the Company’s need for funds. While 87.0% of the Banks’ certificates of deposit mature in the next year, it is anticipated that many of these certificates will be renewed.
Of particular relevance are the economic conditions in the concentrated geographic area in central, north-central and south-central Iowa in which the Banks conduct their operations. ● Adequacy of the allowance for loan losses and changes in the level of nonperforming assets and charge-offs. ● Inflation and interest rate, securities market and monetary fluctuations, including increases in interest rates initiated during 2022 and expected to continue during 2023 in response to significant inflationary pressures affecting the national economy. ● Changes in the fair value of securities available-for-sale, which negatively impacted our capital position during 2022, and management’s assessments of other-than-temporary impairment of such securities. ● The effects of and changes in trade and monetary and fiscal policies and laws, including the changes in assessment rates established by the Federal Deposit Insurance Corporation for its Deposit Insurance Fund and interest rate policies of the Federal Open Market Committee of the Federal Reserve Board. ● Changes in sources and uses of funds, including loans, deposits and borrowings, including the ability of the Banks to maintain unsecured federal funds lines with correspondent banks. ● Changes imposed by regulatory agencies to increase capital to a level greater than the level currently required for well capitalized financial institutions. ● Political instability, acts of war or terrorism and natural disasters. ● The timely development and acceptance of new products and services and perceived overall value of these products and services by customers. ● Revenues being lower than expected. ● Changes in consumer spending, borrowings and savings habits. ● Changes in the financial performance and/or condition of the Company’s borrowers. ● Credit quality deterioration, which could cause an increase in the provision for loan losses. ● Technological changes and operational and reputational risks related to breaches of data security and cyber-attacks. ● The ability to increase market share and control expenses. ● Changes in the competitive environment among financial or bank holding companies and other financial service providers. 50 Table of Contents ● The effect of changes in laws and regulations with which the Company and the Banks must comply, including developments and changes related to the implementation of the Dodd-Frank Act and the effect of any Federal tax reform on the operations of the Company and its customers. ● Changes in the securities markets. ● The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the FASB, International Financial Reporting Standards and other accounting standard setters, including the adoption of the CECL model for estimating credit losses within the loan and investment portfolios. ● The costs and effects of legal and regulatory developments, including the resolution of regulatory or other governmental inquiries and the results of regulatory examinations or reviews. ● Recent changes in the U.S. trade policy, including imposition of tariffs by the U.S. government and retaliatory tariffs imposed by foreign governments and the potential negative effect of these actions on the Company’s borrowers. ● The ability of the Company to successfully integrate the operations of financial institutions it has acquired or may acquire in the future. ● The Company’s success at managing the risks involved in the foregoing items.
Of particular relevance are the economic conditions in the concentrated geographic area in central, north-central and south-central Iowa in which the Banks conduct their operations. ● Adequacy of the allowance for credit losses and changes in the level of nonperforming assets and charge-offs. ● Inflation and interest rate, securities market and monetary fluctuations, including increases in interest rates initiated during 2022 and 2023 in response to significant inflationary pressures affecting the national economy. ● Changes in the fair value of securities available-for-sale and management’s evaluation of credit losses of such securities. ● The effects of and changes in trade and monetary and fiscal policies and laws, including the changes in assessment rates established by the Federal Deposit Insurance Corporation for its Deposit Insurance Fund and interest rate policies of the Federal Open Market Committee of the Federal Reserve Board. ● Changes in sources and uses of funds, including loans, deposits and borrowings, including the ability of the Banks to maintain unsecured federal funds lines with correspondent banks. ● Changes imposed by regulatory agencies to increase capital to a level greater than the level currently required for well capitalized financial institutions. 49 ● Political instability, acts of war or terrorism, natural disasters and pandemics. ● The timely development and acceptance of new products and services and perceived overall value of these products and services by customers. ● Revenues being lower than expected. ● Changes in consumer spending, borrowings and savings habits. ● Changes in the financial performance and/or condition of the Company’s borrowers. ● Credit quality deterioration, which could cause an increase in the allowance for credit losses. ● Technological changes and operational and reputational risks related to breaches of data security and cyber-attacks. ● The ability to increase market share and control expenses. ● Changes in the competitive environment among financial or bank holding companies and other financial service providers. ● The effect of changes in laws and regulations with which the Company and the Banks must comply, including developments and changes related to the implementation of the Dodd-Frank Act and the effect of any Federal tax reform on the operations of the Company and its customers. ● Changes in the securities markets. ● The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the FASB, International Financial Reporting Standards and other accounting standard setters. ● The costs and effects of legal and regulatory developments, including the resolution of regulatory or other governmental inquiries and the results of regulatory examinations or reviews. ● Recent changes in the U.S. trade policy, including imposition of tariffs by the U.S. government and retaliatory tariffs imposed by foreign governments and the potential negative effect of these actions on the Company’s borrowers. ● The ability of the Company to successfully integrate the operations of financial institutions it has acquired or may acquire in the future. ● The Company’s success at managing the risks involved in the foregoing items.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following financial data of the Company for the three years ended December 31, 2020 through 2022 is derived from the Company's historical audited financial statements and related footnotes.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following financial data of the Company for the three years ended December 31, 2021 through 2023 is derived from the Company's historical audited financial statements and related footnotes.
For further information, refer to the Non-GAAP Financial Measures section of this report. 33 Table of Contents Rate and Volume Analysis The rate and volume analysis is used to determine how much of the change in interest income or expense is the result of a change in volume or a change in interest rate.
For further information, refer to the Non-GAAP Financial Measures section of this report. 34 Rate and Volume Analysis The rate and volume analysis is used to determine how much of the change in interest income or expense is the result of a change in volume or a change in interest rate.
The liquidity and capital resources discussion will cover the following topics: ● Review of the Company’s Current Liquidity Sources ● Review of the Consolidated Statements of Cash Flows ● Review of Company Only Cash Flows ● Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flow Needs ● Capital Resources 47 Table of Contents Review of the Company’s Current Liquidity Sources Liquid assets of cash on hand, balances due from other banks and interest-bearing deposits in financial institutions for December 31, 2022 and 2021 totaled $27.9 million and $89.1 million, respectively.
The liquidity and capital resources discussion will cover the following topics: ● Review of the Company’s Current Liquidity Sources ● Review of the Consolidated Statements of Cash Flows ● Review of Company Only Cash Flows ● Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flow Needs ● Capital Resources Review of the Company’s Current Liquidity Sources Liquid assets of cash on hand, balances due from other banks and interest-bearing deposits in financial institutions for December 31, 2023 and 2022 totaled $55.1 million and $27.9 million, respectively.
Management believes Bank earning assets currently have the appropriate maturity and repricing characteristics to optimize earnings and the Banks’ interest rate risk positions. ● The agricultural community is subject to commodity price fluctuations.
Management believes Bank earning assets currently have the appropriate maturity and repricing characteristics to optimize earnings and the Banks’ interest rate risk positions. ● The agricultural industry is subject to commodity price fluctuations and other risks.
The revenue bonds are to be paid from 16 revenue sources in 2022 and 2021.
The revenue bonds are to be paid from 16 revenue sources in 2023 and 2022.
The following discussion will provide a summary review of important items relating to: ● Challenges, Risks and Uncertainties ● Key Performance Indicators ● Industry Results ● Critical Accounting Policies ● Non-GAAP Financial Measures ● Income Statement Review ● Balance Sheet Review ● Asset Quality Review and Credit Risk Management ● Liquidity and Capital Resources ● Interest Rate Risk ● Inflation ● Forward-Looking Statements and Business Risks 27 Table of Contents Challenges, Risks and Uncertainties Management has identified certain events or circumstances that have the potential to negatively impact the Company’s financial condition and results of operations in the future and is attempting to position the Company to best respond to those challenges. ● If interest rates continue to increase over a relatively short period of time due to higher inflationary numbers or other factors, the interest rate environment may present a challenge to the Company.
The following discussion will provide a summary review of important items relating to: ● Challenges, Risks and Uncertainties ● Critical Accounting Policies ● Non-GAAP Financial Measures ● Income Statement Review ● Balance Sheet Review ● Asset Quality Review and Credit Risk Management ● Liquidity and Capital Resources ● Interest Rate Risk ● Inflation ● Forward-Looking Statements and Business Risks 28 Challenges, Risks and Uncertainties Management has identified certain events or circumstances that have the potential to negatively impact the Company’s financial condition and results of operations in the future and is attempting to position the Company to best respond to those challenges. ● If short-term interest rates remain elevated or continue to increase over a relatively short period of time due to inflationary pressures or other factors, the interest rate environment may present a challenge to the Company.
Management believes that the allowance for loan losses as of December 31, 2022 remains adequate based on its analysis of the non-performing assets and the portfolio as a whole.
Management believes that the allowance for credit losses as of December 31, 2023 remains adequate based on its analysis of the non-performing assets and the portfolio as a whole.
As of December 31, 2022, the most likely impact of these financial instruments on revenues, expenses, or cash flows of the Company would come from unidentified credit risk causing higher provision expense for loan losses in future periods. These financial instruments are not expected to have a significant impact on the liquidity or capital resources of the Company.
As of December 31, 2023, the most likely impact of these financial instruments on revenues, expenses, or cash flows of the Company would come from unidentified credit risk causing higher credit loss expense in future periods. These financial instruments are not expected to have a significant impact on the liquidity or capital resources of the Company.
The investment portfolio provides the Company with a significant amount of liquidity since all investments are classified as available-for-sale as of December 31, 2022 and 2021. The investments have pretax net unrealized losses of $83.6 million as of December 31, 2022 and pretax net unrealized gains of $3.8 million as of December 31, 2021.
The investment portfolio provides the Company with a significant amount of liquidity since all investments are classified as available-for-sale as of December 31, 2023 and 2022. The investments have pretax net unrealized losses of $62.3 million and $83.6 million as of December 31, 2023 and 2022, respectively.
Loans to any one borrower are limited by applicable state and federal banking laws. 36 Table of Contents Maturities and Sensitivities of Loans to Changes in Interest Rates as of December 31, 2022 The contractual maturities of the Company's loan portfolio are as shown below.
Loans to any one borrower are limited by applicable state and federal banking laws. 37 Maturities and Sensitivities of Loans to Changes in Interest Rates as of December 31, 2023 The contractual maturities of the Company's loan portfolio are as shown below.
It is not anticipated at the present time that loans held for sale will become a significant portion of total assets. Investment Portfolio Total investments as of December 31, 2022 were $786.4 million, a decrease of $44.6 million or 5.4% from the prior year end.
It is not anticipated at the present time that loans held for sale will become a significant portion of total assets. Investment Portfolio Total investments as of December 31, 2023 were $736.4 million, a decrease of $50.0 million or 6.4% from the prior year end.
Non-performing Assets The following table sets forth information concerning the Company's non-performing assets for the past three years ended December 31, 2022 (dollars in thousands) : 2022 2021 2020 Nonperforming assets: Nonaccrual loans $ 14,722 $ 12,670 $ 15,273 Loans 90 days or more past due - 169 39 Total nonperforming loans 14,722 12,839 15,312 Securities available-for-sale - - - Other real estate owned - 218 218 Total nonperforming assets $ 14,722 $ 13,057 $ 15,530 Ratio of nonaccrual loans to total loans outstanding 1.19 % 1.09 % 1.33 % Ratio of allowance for loan losses to nonaccrual loans 106.62 % 131.18 % 112.72 % The accrual of interest on nonaccrual and other impaired loans is generally discontinued at 90 days or when, in the opinion of management, the borrower may be unable to meet payments as they become due.
Non-performing Assets The following table sets forth information concerning the Company's non-performing assets for the past three years ended December 31, 2023 (dollars in thousands) : 2023 2022 2021 Nonperforming assets: Nonaccrual loans $ 13,811 $ 14,722 $ 12,670 Loans 90 days or more past due 108 - 169 Total nonperforming loans 13,919 14,722 12,839 Securities available-for-sale - - - Other real estate owned - - 218 Total nonperforming assets $ 13,919 $ 14,722 $ 13,057 Ratio of nonaccrual loans to total loans outstanding 1.07 % 1.19 % 1.09 % Ratio of allowance for credit losses to nonaccrual loans 121.47 % 106.62 % 131.18 % The accrual of interest on nonaccrual and other impaired loans is generally discontinued at 90 days or when, in the opinion of management, the borrower may be unable to meet payments as they become due.
The decrease in return on average assets when comparing 2022 to 2021 was primarily a result of a reduction in earnings.
The decrease in return on average equity and return on average assets when comparing 2023 to 2022 was primarily a result of a reduction in earnings.
The Company’s level of non-performing loans as a percentage of loans of 1.19% as of December 31, 2022, is higher than the Iowa State Average peer group of FDIC insured institutions as of December 31, 2022, of 0.33%.
The Company’s level of non-performing loans as a percentage of loans of 1.08% as of December 31, 2023, is higher than the Iowa State Average peer group of FDIC insured institutions as of December 31, 2023, of 0.39%.
Capital Resources The Company’s total stockholders’ equity decreased to $149.1 million at December 31, 2022, from $207.8 million at December 31, 2021. As of December 31, 2022 and 2021, stockholders’ equity as a percentage of total assets was 7.0% and 9.7%, respectively.
Capital Resources The Company’s total stockholders’ equity increased to $165.8 million at December 31, 2023, from $149.1 million at December 31, 2022. As of December 31, 2023 and 2022, stockholders’ equity as a percentage of total assets was 7.7% and 7.0%, respectively.
The second table includes the average liabilities and related expense to determine the average rate paid on interest-bearing liabilities. The net interest margin is equal to the interest income less the interest expense divided by average earning assets. Refer to the net interest income discussion following the tables for additional detail.
The second table includes the average liabilities and related expense to determine the average rate paid on interest-bearing liabilities. The net interest margin is equal to the interest income less the interest expense divided by average earning assets.
A sustained reduction in deposit volume would have a significant negative impact on the Company’s operations and liquidity. The Company had $11.4 million and $7.0 million of brokered deposits as of December 31, 2022 and 2021, respectively. The Company has approximately $389.0 million of uninsured deposits as of December 31, 2022.
A sustained reduction in deposit volume would have a significant negative impact on the Company’s operations and liquidity. The Company had $6.9 million and $11.4 million of brokered deposits as of December 31, 2023 and 2022, respectively. The Company has approximately $590 million of estimated uninsured deposits as of December 31, 2023.
The Company reported net income of $19.3 million for the year ended December 31, 2022 compared to $23.9 million for the year ended December 31, 2021. This represents a decrease in net income of 19.3% when comparing 2022 with 2021.
The Company reported net income of $10.8 million for the year ended December 31, 2023 compared to $19.3 million for the year ended December 31, 2022. This represents a decrease in net income of 44% when comparing 2023 with 2022.
Due to potential changes in conditions, it is at least reasonably possible that changes in management’s assessment of other-than-temporary impairment will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements. 30 Table of Contents Goodwill Goodwill arose in connection with four acquisitions consummated in previous periods.
Due to potential changes in conditions, it is at least reasonably possible that changes in management’s assessment of credit losses may occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements. Goodwill Goodwill arose in connection with four acquisitions consummated in previous periods.
For the years December 31, 2022 and 2021, the Company's non-GAAP net interest margin was 2.55% and 2.83%, respectively, computed on an FTE basis. For further information, refer to the Non-GAAP Financial Measures section of this report. Net interest income during 2022 and 2021 totaled $53.2 million and $56.0 million, respectively, representing a 4.9% decrease in 2022 compared to 2021.
For the years December 31, 2023 and 2022, the Company's non-GAAP net interest margin was 2.20% and 2.62%, respectively, computed on an FTE basis. For further information, refer to the Non-GAAP Financial Measures section of this report. Net interest income during 2023 and 2022 totaled $44.6 million and $53.2 million, respectively, representing a 15.9% decrease in 2023 compared to 2022.
As of December 31, 2022, commercial real estate loans have general reserves ranging from 1.34% to 1.61%. Other factors considered when determining the adequacy of the general reserve include historical losses; watch, substandard and impaired loan volume; the ability to collect past due loans; loan growth; loan-to-value ratios; loan administration; collateral values; and economic factors.
As of December 31, 2023, commercial real estate loans have a pooled reserve of 1.50%. 45 Other factors considered when determining the adequacy of the pooled reserve include historical losses; watch, substandard and impaired loan volume; the ability to collect past due loans; loan growth; loan-to-value ratios; loan administration; collateral values; and economic factors.
As of December 31, 2022, the Company had outstanding FHLB advances and other borrowings of $39.1 million, no federal funds purchased, and securities sold under agreements to repurchase of $40.7 million. Total investments as of December 31, 2022, were $786.4 million compared to $831.0 million as of year-end 2021.
As of December 31, 2023, the Company had outstanding FHLB advances and other borrowings of $110.6 million, no federal funds purchased, and securities sold under agreements to repurchase of $54.0 million. Total investments as of December 31, 2023, were $736.4 million compared to $786.4 million as of year-end 2022.
The Company's investment portfolio had an expected duration of 4.06 years and 4.07 years as of December 31, 2022 and 2021, respectively. 38 Table of Contents At December 31, 2022 and 2021, the Company’s investment securities portfolio included securities issued by 289 and 298 government municipalities and agencies located within 30 and 28 states with a fair value of $286.0 million and $292.9 million, respectively.
The Company's investment portfolio had an expected duration of 3.55 years and 4.06 years as of December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, the Company’s investment securities portfolio included securities issued by 272 and 289 government municipalities and agencies located within 30 states with a fair value of $269.9 million and $286.0 million, respectively.
Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.
Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. 31 Declines in the fair value of available-for-sale securities below their cost are evaluated for credit losses and reflected in earnings as a credit loss expense.
Net loans comprise approximately 57% of total assets as of the end of 2022. The objective in managing loan portfolio risk is to reduce the risk of loss resulting from a customer’s failure to perform according to the terms of a transaction and to quantify and manage credit risk on a portfolio basis.
The objective in managing loan portfolio risk is to reduce the risk of loss resulting from a customer’s failure to perform according to the terms of a transaction and to quantify and manage credit risk on a portfolio basis.
Years Ended December 31, (dollars in thousands, except per share amounts) 2022 2021 2020 STATEMENT OF INCOME DATA Interest income $ 61,553 $ 60,482 $ 62,941 Interest expense 8,309 4,485 8,098 Net interest income 53,244 55,997 54,843 Provision (credit) for loan losses (874 ) (757 ) 5,681 Net interest income after provision (credit) for loan losses 54,118 56,754 49,162 Noninterest income 9,687 10,537 10,620 Noninterest expense 38,644 36,618 36,551 Income before provision for income tax 25,161 30,673 23,231 Provision for income taxes 5,868 6,760 4,381 Net income $ 19,293 $ 23,913 $ 18,850 DIVIDENDS AND EARNINGS PER SHARE DATA Cash dividends declared* $ 9,739 $ 11,753 $ 6,859 Cash dividends declared per share* $ 1.08 $ 1.29 $ 0.75 Basic and diluted earnings per share $ 2.14 $ 2.62 $ 2.06 Weighted average shares outstanding 9,033,410 9,114,379 9,148,244 BALANCE SHEET DATA Total assets $ 2,134,926 $ 2,137,041 $ 1,975,648 Net loans 1,226,011 1,144,108 1,129,505 Deposits 1,897,957 1,878,019 1,716,446 Stockholders' equity 149,098 207,778 209,486 Equity to assets ratio 6.98 % 9.72 % 10.60 % FINANCIAL PERFORMANCE Net income $ 19,293 $ 23,913 $ 18,850 Average assets 2,134,947 2,082,705 1,866,188 Average stockholders' equity 168,752 209,135 198,880 Return on assets (net income divided by average assets) 0.90 % 1.15 % 1.01 % Return on equity (net income divided by average equity) 11.43 % 11.43 % 9.48 % Net interest margin (net interest income divided by average earning assets)** 2.55 % 2.83 % 3.13 % Efficiency ratio (noninterest expense divided by noninterest income plus net interest income) 61.41 % 55.04 % 55.83 % Dividend payout ratio (dividends per share divided by net income per share)* 50.47 % 49.24 % 36.41 % Dividend yield (dividends per share divided by closing year-end market price)* 4.57 % 5.27 % 3.12 % Equity to assets ratio (average equity divided by average assets) 7.90 % 10.04 % 10.66 % * Dividends are typically declared in one quarter and then paid in the subsequent quarter.
Years Ended December 31, (dollars in thousands, except per share amounts) 2023 2022 2021 STATEMENT OF INCOME DATA Interest income $ 74,301 $ 61,553 $ 60,482 Interest expense 29,676 8,309 4,485 Net interest income 44,625 53,244 55,997 Credit loss expense (benefit) 789 (874 ) (757 ) Net interest income after credit loss expense (benefit) 43,836 54,118 56,754 Noninterest income 9,215 9,687 10,537 Noninterest expense 40,162 38,644 36,618 Income before provision for income tax 12,889 25,161 30,673 Provision for income taxes 2,072 5,868 6,760 Net income $ 10,817 $ 19,293 $ 23,913 DIVIDENDS AND EARNINGS PER SHARE DATA Cash dividends declared* $ 9,712 $ 9,739 $ 11,753 Cash dividends declared per share* $ 1.08 $ 1.08 $ 1.29 Basic and diluted earnings per share $ 1.20 $ 2.14 $ 2.62 Weighted average shares outstanding 8,992,167 9,033,410 9,114,379 BALANCE SHEET DATA Total assets $ 2,155,481 $ 2,134,926 $ 2,137,041 Net loans 1,277,812 1,226,011 1,144,108 Deposits 1,811,831 1,897,957 1,878,019 Stockholders' equity 165,788 149,098 207,778 Equity to assets ratio 7.69 % 6.98 % 9.72 % FINANCIAL PERFORMANCE Net income $ 10,817 $ 19,293 $ 23,913 Average assets 2,140,034 2,134,947 2,082,705 Average stockholders' equity 153,530 168,752 209,135 Return on assets (net income divided by average assets) 0.51 % 0.90 % 1.15 % Return on equity (net income divided by average equity) 7.05 % 11.43 % 11.43 % Net interest margin (net interest income divided by average earning assets)** 2.20 % 2.62 % 2.83 % Efficiency ratio (noninterest expense divided by noninterest income plus net interest income) 74.60 % 61.41 % 55.04 % Dividend payout ratio (dividends per share divided by net income per share)* 90.00 % 50.47 % 49.24 % Dividend yield (dividends per share divided by closing year-end market price)* 5.06 % 4.57 % 5.27 % Equity to assets ratio (average equity divided by average assets) 7.17 % 7.90 % 10.04 % * Dividends are typically declared in one quarter and then paid in the subsequent quarter.
Noninterest expense for the Company consists of all operating expenses other than interest expense on deposits and other borrowed funds. Salaries and employee benefits are the largest component of the Company’s operating expenses and comprise 59% and 61% of noninterest expense in 2022 and 2021, respectively.
Noninterest expense for the Company consists of all operating expenses other than interest expense on deposits and other borrowed funds. Salaries and employee benefits are the largest component of the Company’s operating expenses and comprise 59% of noninterest expense in 2023 and 2022. Noninterest expense during the years ended 2023 and 2022 totaled $40.2 million and $38.6 million, respectively.
As the following chart indicates, the Company’s non-performing assets have increased by 13% from December 31, 2021 and total $14.7 million as of December 31, 2022.
As the following chart indicates, the Company’s non-performing assets have decreased by 5% from December 31, 2022 and total $13.9 million as of December 31, 2023.
In estimating other-than-temporary impairment losses, management considers (1) the intent to sell the investment securities and the more likely than not requirement that the Company will be required to sell the investment securities prior to recovery (2) the length of time and the extent to which the fair value has been less than cost and (3) the financial condition and near-term prospects of the issuer.
In estimating credit losses, management considers (1) the intent to sell the investment securities and the more likely than not requirement that the Company will be required to sell the investment securities prior to recovery and (2) the financial condition and near-term prospects of the issuer.
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: 2022 2021 Net interest income (GAAP) $ 53,244 $ 55,997 Tax-equivalent adjustment (1) 690 823 Net interest income on an FTE basis (non-GAAP) 53,934 56,820 Average interest-earning assets $ 2,114,234 $ 2,008,217 Net interest margin on an FTE basis (non-GAAP) 2.55 % 2.83 % Reconciliation of net interest income and annualized net interest spread on an FTE basis to GAAP: 2022 2021 Net interest income (GAAP) $ 53,244 $ 55,997 Tax-equivalent adjustment (1) 690 823 Net interest income on an FTE basis (non-GAAP) 53,934 56,820 Average assets $ 2,134,947 $ 2,082,705 Net interest spread on an FTE basis (non-GAAP) 2.53 % 2.73 % (1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent for the years ended December 31, 2022 and 2021, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. 31 Table of Contents Income Statement Review The following highlights a comparative discussion of the major components of net income and their impact for the last two years.
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: 2023 2022 Net interest income (GAAP) $ 44,625 $ 53,244 Tax-equivalent adjustment (1) 609 690 Net interest income on an FTE basis (non-GAAP) 45,234 53,934 Average interest-earning assets $ 2,059,506 $ 2,060,959 Net interest margin on an FTE basis (non-GAAP) 2.20 % 2.62 % (1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent for the years ended December 31, 2023 and 2022, adjusted to reflect the effect of the nondeductible interest expense associated with owning tax-exempt securities and loans. 32 Income Statement Review The following highlights a comparative discussion of the major components of net income and their impact for the last two years.
The following table summarizes the outstanding amount of, and the average rate on, borrowed funds as of December 31, 2022 and 2021 (dollars in thousands) . 2022 2021 Average Average Balance Rate Balance Rate Federal funds purchased and repurchase agreements $ 40,676 2.50 % $ 39,851 0.25 % FHLB advances and other borrowings 39,120 4.39 % 3,000 1.57 % Total $ 79,796 3.43 % $ 42,851 0.35 % 41 Table of Contents Average Annual Borrowed Funds The following table sets forth the average amount of and the average rate paid on borrowed funds for the years ended December 31, 2022 and 2021 (dollars in thousands) . 2022 2021 Average Average Average Average Balance Rate Balance Rate Federal funds purchased and repurchase agreements $ 41,143 1.17 % $ 37,705 0.25 % FHLB advances and other borrowings 14,731 3.49 % 3,000 1.57 % Total $ 55,874 1.78 % $ 40,705 0.35 % Off-Balance-Sheet Arrangements The Company is party to financial instruments with off-balance-sheet risk in the normal course of business.
The following table summarizes the outstanding amount of, and the average rate on, borrowed funds as of December 31, 2023 and 2022 (dollars in thousands) . 2023 2022 Average Average Balance Rate Balance Rate Federal funds purchased and repurchase agreements $ 53,994 2.83 % $ 40,676 2.50 % Other borrowings 110,588 4.63 % 39,120 4.39 % Total $ 164,582 4.04 % $ 79,796 3.43 % Average Annual Borrowed Funds The following table sets forth the average amount of and the average rate paid on borrowed funds for the years ended December 31, 2023 and 2022 (dollars in thousands) . 2023 2022 Average Average Balance Rate Balance Rate Federal funds purchased and repurchase agreements $ 48,602 2.80 % $ 41,143 1.17 % Other borrowings 84,316 4.56 % 14,731 3.49 % Total $ 132,918 3.92 % $ 55,874 1.78 % 43 Off-Balance-Sheet Arrangements The Company is party to financial instruments with off-balance-sheet risk in the normal course of business.
The Company employs 19 individuals to assist with financial reporting, human resources, marketing, audit, compliance, technology systems, property appraisals, training and the coordination of management activities, in addition to 247 full-time equivalent individuals employed by the Banks.
Some Banks also offer investment services through a third-party broker-dealer. The Company employs 24 individuals to assist the Banks with financial reporting, human resources, marketing, audit, compliance, technology systems, property appraisals, training and the coordination of management activities, in addition to 243 full-time equivalent individuals employed by the Banks.
Investment Maturities as of December 31, 2022 The investments in the following table are reported by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without prepayment penalties (in thousands) .
Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without prepayment penalties (in thousands) .
For the years ended December 31, 2022 and 2021, interest income, which would have been recorded under the original terms of nonaccrual loans, was approximately $733 thousand and $650 thousand, respectively.
The average balances of impaired loans for the years ended December 31, 2023 and 2022 were $12.7 million and $13.0 million, respectively. For the years ended December 31, 2023 and 2022, interest income, which would have been recorded under the original terms of nonaccrual loans, was approximately $768 thousand and $733 thousand, respectively.
Management’s process for obtaining and validating the fair value of investment securities is discussed in Note 16 of the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Management’s process for obtaining and validating the fair value of investment securities is discussed in Note 16 of the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report. 39 Investment Maturities as of December 31, 2023 The investments in the following table are reported by contractual maturity.
The Iowa State Average Report (consisting of 246 banks in the State of Iowa) loan to deposit ratio as of December 31, 2022 was 72%. As of December 31, 2022, the majority of the loans were originated directly by the Banks to borrowers within the Banks’ principal market areas. There are no foreign loans outstanding during the years presented.
As of December 31, 2023, the majority of the loans were originated directly by the Banks to borrowers within the Banks’ principal market areas. There are no foreign loans outstanding during the years presented.
Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings. Loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely.
Pre-ASC 326 CECL Adoption: The allowance for credit losses is established through a credit loss expense that is treated as an expense which would be charged against earnings. Loans are charged against the allowance for credit losses when management believes that collectability of the principal is unlikely.
The purpose of this discussion is to focus on significant factors affecting the Company's financial condition and results of operations. 26 Table of Contents The Company does not engage in any material business activities apart from its ownership of the Banks.
The purpose of this discussion is to focus on significant factors affecting the Company's financial condition and results of operations. The Company does not engage in any material business activities apart from its ownership of the Banks. Products and services offered by the Banks are for commercial and consumer purposes, including loans, deposits and wealth management services.
The lower balance of liquid assets as of December 31, 2022 primarily relates to decreased deposits at the Federal Reserve Bank as the funds were invested. Other sources of liquidity available to the Banks as of December 31, 2022 include available borrowing capacity with the FHLB of $285.3 million and federal funds borrowing capacity at correspondent banks of $100.6 million.
The higher balance of liquid assets as of December 31, 2023 primarily relates to increased deposits at the Federal Reserve Bank. Other sources of liquidity available to the Banks as of December 31, 2023 include available borrowing capacity with the FHLB of $280.9 million and federal funds borrowing capacity at correspondent banks of $101.5 million.
Net cash provided by financing activities for the years ended December 31, 2022 and 2021 totaled $44.9 million and $154.1 million, respectively. The change in net cash provided by financing activities in 2022 was due primarily to a lower increase in deposits.
The change in net cash provided by (used in) investing activities in 2023 was primarily due to fewer purchases of securities. Net cash provided by (used in) financing activities for the years ended December 31, 2023 and 2022 totaled ($11.1) million and $44.9 million, respectively.
Average Deposits by Type The following table sets forth the average balances for each major category of deposit and the weighted average interest rate paid for deposits during the years ended December 31, 2022 and 2021 (dollars in thousands) . 2022 2021 Average Average Amount Rate Amount Rate Non-interest bearing checking deposits $ 397,436 0.00 % $ 375,167 0.00 % Interest bearing checking deposits 612,419 0.47 % 564,780 0.13 % Money market deposits 457,053 0.48 % 436,320 0.21 % Savings deposits 228,031 0.18 % 211,835 0.11 % Time certificates 206,401 0.88 % 234,626 1.04 % $ 1,901,340 $ 1,822,728 40 Table of Contents Deposit Maturity The following table shows the amounts and remaining maturities of time certificates of deposit that had balances in excess of the FDIC insurance limit of $250 thousand as of December 31, 2022 and 2021 (in thousands) . 2022 2021 3 months or less $ 14,444 $ 4,624 Over 3 through 6 months 13,261 8,578 Over 6 through 12 months 7,166 21,327 Over 12 months 8,015 6,264 Total $ 42,886 $ 40,793 The following table shows the amounts and remaining maturities of estimated uninsured time certificates of deposit as of December 31, 2022 and 2021 ( in thousands ). 2022 2021 3 months or less $ 8,862 $ 3,124 Over 3 through 6 months 8,010 7,608 Over 6 through 12 months 5,109 20,307 Over 12 months 8,616 13,838 Total $ 30,597 $ 44,877 Borrowed Funds Borrowed funds that may be utilized by the Company are comprised of FHLB advances, federal funds purchased and securities sold under agreements to repurchase (repurchase agreements).
Average Deposits by Type The following table sets forth the average balances for each major category of deposit and the weighted average interest rate paid for deposits during the years ended December 31, 2023 and 2022 (dollars in thousands) . 2023 2022 Average Average Amount Rate Amount Rate Non-interest bearing checking deposits $ 373,704 0.00 % $ 397,436 0.00 % Interest bearing checking deposits 609,965 1.61 % 612,419 0.47 % Money market deposits 395,351 1.45 % 457,053 0.48 % Savings deposits 207,314 0.59 % 228,031 0.18 % Time certificates 255,434 3.01 % 206,401 0.88 % $ 1,841,768 $ 1,901,340 Deposit Maturity The following table shows the amounts and remaining maturities of time certificates of deposit that had balances in excess of the FDIC insurance limit of $250 thousand as of December 31, 2023 and 2022 (in thousands) . 2023 2022 3 months or less $ 32,036 $ 14,444 Over 3 through 6 months 15,808 13,261 Over 6 through 12 months 16,427 7,166 Over 12 months 3,961 8,015 Total $ 68,232 $ 42,886 42 The following table shows the amounts and remaining maturities of estimated uninsured time certificates of deposit as of December 31, 2023 and 2022 ( in thousands ). 2023 2022 3 months or less $ 21,942 $ 8,862 Over 3 through 6 months 11,174 8,010 Over 6 through 12 months 18,355 5,109 Over 12 months 7,701 8,616 Total $ 59,172 $ 30,597 Borrowed Funds Borrowed funds that may be utilized by the Company are comprised of the Federal Reserve Bank Term Funding Program (BTFP), FHLB advances, federal funds purchased and securities sold under agreements to repurchase (repurchase agreements).
The Company considers non-performing loans to generally include nonaccrual loans, loans past due 90 days or more and still accruing and other loans that may or may not meet the former nonperforming criteria but are considered to meet the definition of impaired.
The Company considers non-performing loans to generally include nonaccrual loans, loans past due 90 days or more and still accruing and other loans that may or may not meet the former nonperforming criteria but are considered to meet the definition of impaired. 44 The allowance for credit losses related to these impaired loans was approximately $118 thousand and $95 thousand at December 31, 2023 and 2022, respectively.
All six Banks demonstrated profitable operations during 2022 and 2021. The Company’s return on average equity was 11.43% in both 2022 and 2021. The return on average equity stayed the same due to a reduction in both earnings and equity. The return on average assets for 2022 was 0.90% compared to 1.15% in 2021.
All six Banks demonstrated profitable operations during 2023 and 2022. The Company’s return on average equity for 2023 was 7.05% compared to 11.43% in 2022. The return on average assets for 2023 was 0.51% compared to 0.90% in 2022.
Due to potential changes in conditions and upon CECL adoption as described in Note 1, it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.
Due to potential changes in conditions, including economic disruption, high inflation levels, and rising interest rates, it is at least reasonably possible that changes in estimates will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.
The revenue sources that represent 5% or more, individually, as a percent of the total revenue bonds are summarized in the following table (in thousands) : 2022 2021 Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value Revenue bonds by revenue source Sales tax $ 31,768 $ 28,917 $ 31,632 $ 31,896 Water 21,754 19,792 22,611 22,924 College and universities, primarily dormitory revenues 19,550 17,368 17,169 17,353 Sewer 13,333 11,592 14,248 14,327 Leases 10,863 9,929 8,788 8,894 Other 39,840 36,654 27,300 27,338 Total revenue bonds by revenue source $ 137,108 $ 124,252 $ 121,748 $ 122,732 Deposits Total deposits were $1.90 billion and $1.88 billion as of December 31, 2022 and 2021, respectively.
The revenue sources that represent 5% or more, individually, as a percent of the total revenue bonds are summarized in the following table (in thousands) : 2023 2022 Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value Revenue bonds by revenue source Sales tax $ 29,409 $ 27,284 $ 31,768 $ 28,917 Water 20,394 18,968 21,754 19,792 College and universities, primarily dormitory revenues 16,944 15,340 19,550 17,368 Sewer 12,771 11,465 13,333 11,592 Leases 8,060 7,421 10,863 9,929 Other 35,402 33,064 39,840 36,654 Total revenue bonds by revenue source $ 122,980 $ 113,542 $ 137,108 $ 124,252 41 Deposits Total deposits were $1.81 billion and $1.90 billion as of December 31, 2023 and 2022, respectively.
The Company's federal income tax rate was 21% for the years ended December 31, 2022 and 2021. The increase in the effective tax rate in 2022 was due to a non-recurring $780 thousand adjustment to deferred taxes for the reduction in future Iowa bank franchise tax rates enacted in the second quarter of 2022.
The decrease in income tax expense and higher than expected tax rate in 2022 was due to a $780 thousand adjustment to deferred taxes for the reduction in future Iowa bank franchise tax rates enacted in the second quarter of 2022.
The effects of inflation can magnify the growth of assets and, if significant, require that equity capital increase at a faster rate than would be otherwise necessary. 49 Table of Contents Forward-Looking Statements and Business Risks Certain statements contained in the foregoing Management’s Discussion and Analysis and elsewhere in this Annual Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified.
Forward-Looking Statements and Business Risks Certain statements contained in the foregoing Management’s Discussion and Analysis and elsewhere in this Annual Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified.
The decrease in earnings in 2022 from 2021 is primarily the result of higher interest expense on deposits and fewer Paycheck Protection Program (“PPP”) fees recognized into income, offset in part by an increase in interest income on loans and taxable securities. Earnings per share for 2022 were $2.14 compared to $2.62 in 2021.
The decrease in earnings in 2023 from 2022 is primarily the result of higher interest expense on deposits and other borrowed funds and an increase in credit loss expense, offset in part by an increase in interest income on loans. Earnings per share for 2023 were $1.20 compared to $2.14 in 2022.
For example, real estate loan interest income increased $1.6 million in 2022 compared to 2021. Increased volume of real estate loans increased interest income in 2022 by $2.3 million and lower interest rates decreased interest income in 2022 by $654 thousand.
For example, real estate loan interest income increased $7.4 million in 2023 compared to 2022. Increased volume of real estate loans increased interest income in 2023 by $2.4 million and higher interest rates increased interest income in 2023 by $5.0 million.
The Company has unconsolidated cash and interest-bearing deposits totaling $3.6 million that is available as of December 31, 2022 to provide additional liquidity to the Banks. 48 Table of Contents Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flow Needs Commitments to extend credit totaled $262.9 million as of December 31, 2022 compared to a total of $223.4 million at the end of 2021.
Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flow Needs Commitments to extend credit totaled $262.7 million as of December 31, 2023 compared to a total of $262.9 million at the end of 2022.
Review of the Consolidated Statements of Cash Flows Net cash provided by operating activities for the years ended December 31, 2022 and 2021 totaled $21.2 million and $30.5 million, respectively. The change in net cash provided by operating activities in 2022 was primarily due to a decrease in net income and proceeds from the sales of loans held for sale.
Review of the Consolidated Statements of Cash Flows Net cash provided by operating activities for the years ended December 31, 2023 and 2022 totaled $19.5 million and $21.2 million, respectively.
(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21% for the years ended December 31, 2022 and 2021. 32 Table of Contents Average Balances and Interest Rates (continued) LIABILITIES AND STOCKHOLDERS' EQUITY 2022 2021 Average Revenue/ Yield/ Average Revenue/ Yield/ balance expense rate balance expense rate Interest-bearing liabilities Deposits Savings, interest-bearing checking and money markets accounts $ 1,297,503 $ 5,498 0.42 % $ 1,212,935 $ 1,908 0.16 % Time deposits 206,401 1,818 0.88 % 234,626 2,434 1.04 % Total deposits 1,503,904 7,316 0.49 % 1,447,561 4,342 0.30 % Other borrowed funds 55,874 993 1.78 % 40,705 143 0.35 % Total interest-bearing liabilities 1,559,778 8,309 0.53 % 1,488,266 4,485 0.30 % Noninterest-bearing liabilities Noninterest-bearing checking 397,436 375,167 Other liabilities 8,981 10,137 Stockholders' equity 168,752 209,135 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,134,947 $ 2,082,705 Net interest income (FTE) (3) $ 53,934 2.55 % $ 56,820 2.83 % Spread Analysis (FTE) (3) Interest income/average assets $ 62,243 2.92 % $ 61,305 2.94 % Interest expense/average assets 8,309 0.39 % 4,485 0.22 % Net interest income/average assets 53,934 2.53 % 56,820 2.73 % (3) Net interest income (FTE) and Spread Analysis (FTE) are non-GAAP financial measures.
(3) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21% for the years ended December 31, 2023 and 2022. 33 Average Balances and Interest Rates (continued) 2023 2022 Average Revenue/ Yield/ Average Revenue/ Yield/ balance expense rate balance expense rate LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits Savings, interest-bearing checking and money markets accounts $ 1,212,630 $ 16,794 1.38 % $ 1,297,503 $ 5,498 0.42 % Time deposits 255,434 7,677 3.01 % 206,401 1,818 0.88 % Total deposits 1,468,064 24,471 1.67 % 1,503,904 7,316 0.49 % Other borrowed funds 132,918 5,205 3.92 % 55,874 993 1.78 % Total interest-bearing liabilities 1,600,982 29,676 1.85 % 1,559,778 8,309 0.53 % Noninterest-bearing liabilities Noninterest-bearing checking 373,704 397,436 Other liabilities 11,818 8,981 Stockholders' equity 153,530 168,752 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,140,034 $ 2,134,947 Net interest income (FTE) (4) $ 45,234 $ 53,934 Net interest spread (FTE) 1.79 % 2.49 % Net interest margin (FTE) (4) 2.20 % 2.62 % (4) Net interest income (FTE) is a non-GAAP financial measure.
As of December 31, 2022 and 2021, the investment portfolio comprised 37% and 39% of total assets, respectively. The decrease in investments is primarily due to a decline in fair value of the portfolio due to interest rate increases during 2022. The decrease is offset in part by purchases of U.S. treasuries and municipal securities.
As of December 31, 2023 and 2022, the investment portfolio comprised 34% and 37% of total assets, respectively. The decrease in investments during 2023 is primarily due to maturities in excess of purchases. The decrease is offset in part by lower unrealized losses in the investment portfolio.
Although interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services, increases in inflation generally have resulted in increased interest rates.
Although interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services, increases in inflation generally have resulted in increased interest rates. The effects of inflation can magnify the growth of assets and, if significant, require that equity capital increase at a faster rate than would be otherwise necessary.
The following table sets forth information regarding changes in the Company's specific reserve on loans individually evaluated for impairment and loans individually evaluated for impairment for the most recent three years (dollars in thousands) : 2022 2021 2020 Specific reserve on loans individually evaluated for impairment $ 95 $ 1,392 $ 1,819 Loans individually evaluated for impairment $ 14,386 $ 12,312 $ 15,273 Percentage increase (decrease) in specific reserve on loans individually evaluated for impairment -93 % -23 % 770 % Percentage increase (decrease) in loans individually evaluated for impairment 17 % -19 % 219 % 46 Table of Contents Allocation of the Allowance for Loan Losses The following table sets forth information concerning the Company’s allocation of the allowance for loan losses for the most recent three years (dollars in thousands) : 2022 2021 2020 Amount % * Amount % * Amount % * Balance at end of period applicable to: Real Estate Construction $ 730 4 % $ 675 4 % $ 725 4 % 1-4 family residential 3,028 23 % 2,752 21 % 2,581 19 % Commercial 7,235 44 % 8,406 44 % 8,930 43 % Agricultural 1,625 13 % 1,584 13 % 1,595 13 % Commercial 1,153 6 % 1,170 7 % 1,453 11 % Agricultural 1,705 9 % 1,836 10 % 1,696 9 % Consumer and other 221 1 % 198 1 % 235 1 % $ 15,697 100 % $ 16,621 100 % $ 17,215 100 % * Percent of loans in each category to total loans.
The following table sets forth information regarding changes in the Company's specific reserve on loans individually evaluated for impairment and loans individually evaluated for impairment for the most recent three years (dollars in thousands) : 2023 2022 2021 Specific reserve on loans individually evaluated for credit losses $ 118 $ 95 $ 1,392 Loans individually evaluated for credit losses $ 13,794 $ 14,386 $ 12,312 Percentage increase (decrease) in specific reserve on loans individually evaluated for credit losses 24 % -93 % -23 % Percentage increase (decrease) in loans individually evaluated for credit losses -4 % 17 % -19 % Allocation of the Allowance for Credit Losses The following table sets forth information concerning the Company’s allocation of the allowance for credit losses for the most recent three years (dollars in thousands) : 2023 2022 2021 Amount % * Amount % * Amount % * Balance at end of period applicable to: Real Estate Construction $ 408 5 % $ 730 4 % $ 675 4 % 1-4 family residential 3,333 22 % 3,028 23 % 2,752 21 % Multi-family 2,542 15 % 2,493 15 % 2,501 15 % Commercial 5,236 28 % 4,742 29 % 5,905 29 % Agricultural 1,238 13 % 1,625 13 % 1,584 13 % Commercial 1,955 7 % 1,153 6 % 1,170 7 % Agricultural 1,607 9 % 1,705 9 % 1,836 10 % Consumer and other 457 1 % 221 1 % 198 1 % $ 16,776 100 % $ 15,697 100 % $ 16,621 100 % * Percent of loans in each category to total loans. 46 Liquidity and Capital Resources Liquidity management is the process by which the Company, through its Banks’ Asset and Liability Committees (ALCO), ensures adequate liquid funds are available to meet its financial commitments on a timely basis, at a reasonable cost and within acceptable risk tolerances.
Management’s objectives are to control interest rate risk and to ensure predictable and consistent growth of earnings and capital. Interest rate risk management focuses on fluctuations in net interest income identified through computer simulations to evaluate volatility, varying interest rate, spread and volume assumptions. The risk is quantified and compared against tolerance levels.
Interest rate risk management focuses on fluctuations in net interest income identified through computer simulations to evaluate volatility, varying interest rate, spread and volume assumptions. The risk is quantified and compared against tolerance levels. The Company uses a third-party computer software simulation modeling program to measure its exposure to potential interest rate changes.
This trend may continue in the near term, which could result in impairment charges and increase the unrealized losses reported as part of our consolidated comprehensive income; and ● In meeting our objective to maintain our capital levels and liquidity position, our Board of Directors could reduce, or determine to altogether forego, payment of future dividends in order to maintain and/or strengthen our capital and liquidity position. 28 Table of Contents Key Performance Indicators Certain key performance indicators for the Company and the industry are presented in the following chart.
This trend may continue in the near term, which could result in credit losses and increase the unrealized losses reported as part of our consolidated comprehensive income; and ● In meeting our objective to maintain our capital levels and liquidity position, our Board of Directors could reduce, or determine to altogether forego, payment of future dividends in order to maintain and/or strengthen our capital and liquidity position. 29 Critical Accounting Policies The discussion contained in this Item 7 and other disclosures included within this Annual Report are based on the Company’s audited consolidated financial statements which appear in Item 8 of this Annual Report.
Borrowed funds are an alternative funding source to deposits and can be used to fund the Company’s assets and unforeseen liquidity needs. FHLB advances are loans from the FHLB that can mature daily or have longer maturities for fixed or floating rates of interest. Federal funds purchased are borrowings from other banks that mature daily.
The BTFP allows for borrowing from the Federal Reserve Bank up to the par value of the pledged collateral. FHLB advances are loans from the FHLB that can mature daily or have longer maturities for fixed or floating rates of interest. Federal funds purchased are borrowings from other banks that mature daily.
The decrease in noninterest income in 2022 compared to 2021 is primarily due to fewer gains on sale of residential loans held for sale as refinancing volume has slowed and offset in part by an increase in wealth management income due to growth in assets under management and new account relationships.
Noninterest income during the years ended 2023 and 2022 totaled $9.2 million and $9.7 million, respectively. The decrease in noninterest income in 2023 compared to 2022 is primarily due to fewer gains on sale of residential loans held for sale as refinancing volume has slowed and a decrease in wealth management income primarily due to a decline in estate fees.

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