UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20202021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number 0-32637
AMES NATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Iowa | 42-1039071 | |
(State of Incorporation) | (I. R. S. Employer | |
Identification Number) |
405 Fifth Street
Ames, Iowa 50010
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (515) 232-6251
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common stock | ATLO | NASDAQ |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated filer ☒☐ Non-accelerated filer ☐☒ Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2020,30, 2021, there were 9,122,747 shares of common stock, par value $2, outstanding.
INDEX
Page
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PART I. | |||
Item 1. | |||
Consolidated Balance Sheets at June 30, | |||
Consolidated Statements of Income for the three and six months ended June 30, | |||
Consolidated Statements of Cash Flows for the six months ended June 30, | |||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1.A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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55 |
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June 30, | December 31, | |||||||
ASSETS | 2020 | 2019 | ||||||
Cash and due from banks | $ | 32,528,234 | $ | 34,616,880 | ||||
Interest-bearing deposits in financial institutions and federal funds sold | 145,990,834 | 108,947,624 | ||||||
Securities available-for-sale | 513,615,814 | 479,843,448 | ||||||
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost | 3,154,800 | 3,138,900 | ||||||
Loans receivable, net | 1,146,046,388 | 1,048,147,496 | ||||||
Loans held for sale | 2,033,360 | 2,776,785 | ||||||
Bank premises and equipment, net | 17,628,860 | 17,810,605 | ||||||
Accrued income receivable | 10,801,448 | 11,788,409 | ||||||
Other real estate owned | 631,647 | 4,003,684 | ||||||
Bank-owned life insurance | 2,878,838 | 2,842,713 | ||||||
Deferred income taxes, net | - | 1,151,016 | ||||||
Intangible assets, net | 3,524,814 | 3,959,260 | ||||||
Goodwill | 12,424,434 | 12,114,559 | ||||||
Other assets | 5,712,963 | 6,041,126 | ||||||
Total assets | $ | 1,896,972,434 | $ | 1,737,182,505 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES | ||||||||
Deposits | ||||||||
Noninterest-bearing checking | $ | 332,285,659 | $ | 267,441,988 | ||||
Interest-bearing checking | 483,065,694 | 461,857,728 | ||||||
Savings and money market | 553,546,573 | 481,642,221 | ||||||
Time, $250,000 and over | 69,189,546 | 74,206,421 | ||||||
Other time | 205,455,750 | 208,026,740 | ||||||
Total deposits | 1,643,543,222 | 1,493,175,098 | ||||||
Securities sold under agreements to repurchase | 36,892,657 | 42,033,570 | ||||||
FHLB advances | 3,000,000 | 5,000,000 | ||||||
Dividends payable | - | 2,213,459 | ||||||
Deferred income taxes, net | 1,194,894 | - | ||||||
Accrued expenses and other liabilities | 11,191,759 | 7,180,906 | ||||||
Total liabilities | 1,695,822,532 | 1,549,603,033 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 and 9,222,747 as of June 30, 2020 and December 31, 2019, respectively | 18,245,494 | 18,445,494 | ||||||
Additional paid-in capital | 17,001,736 | 18,794,141 | ||||||
Retained earnings | 151,910,115 | 146,225,085 | ||||||
Accumulated other comprehensive income | 13,992,557 | 4,114,752 | ||||||
Total stockholders' equity | 201,149,902 | 187,579,472 | ||||||
Total liabilities and stockholders' equity | $ | 1,896,972,434 | $ | 1,737,182,505 |
See Notes to Consolidated Financial Statements.
AMES NATIONAL CORPORATION AND SUBSIDIARIES (in thousands, except share and per share data) |
|
|
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Interest and dividend income: | ||||||||||||||||
Loans, including fees | $ | 12,569,869 | $ | 10,808,142 | $ | 25,156,883 | $ | 21,509,571 | ||||||||
Securities: | ||||||||||||||||
Taxable | 1,917,332 | 1,554,713 | 3,738,572 | 3,043,565 | ||||||||||||
Tax-exempt | 954,525 | 1,067,955 | 1,864,422 | 2,168,529 | ||||||||||||
Other interest and dividend income | 195,703 | 290,465 | 713,015 | 528,033 | ||||||||||||
Total interest income | 15,637,429 | 13,721,275 | 31,472,892 | 27,249,698 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 1,898,046 | 2,606,384 | 4,548,412 | 4,965,216 | ||||||||||||
Other borrowed funds | 59,355 | 184,634 | 198,527 | 383,848 | ||||||||||||
Total interest expense | 1,957,401 | 2,791,018 | 4,746,939 | 5,349,064 | ||||||||||||
Net interest income | 13,680,028 | 10,930,257 | 26,725,953 | 21,900,634 | ||||||||||||
Provision for loan losses | 1,566,476 | 68,320 | 3,882,631 | 166,414 | ||||||||||||
Net interest income after provision for loan losses | 12,113,552 | 10,861,937 | 22,843,322 | 21,734,220 | ||||||||||||
Noninterest income: | ||||||||||||||||
Wealth management income | 909,728 | 1,019,143 | 1,771,461 | 1,803,757 | ||||||||||||
Service fees | 305,544 | 387,133 | 746,237 | 757,429 | ||||||||||||
Securities gains, net | 43,910 | 1,890 | 429,925 | 1,890 | ||||||||||||
Gain on sale of loans held for sale | 572,718 | 224,031 | 839,458 | 396,757 | ||||||||||||
Merchant and card fees | 410,414 | 386,384 | 836,254 | 747,525 | ||||||||||||
Other noninterest income | 185,910 | 194,358 | 436,081 | 431,289 | ||||||||||||
Total noninterest income | 2,428,224 | 2,212,939 | 5,059,416 | 4,138,647 | ||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | 5,812,449 | 4,797,497 | 11,587,645 | 9,513,325 | ||||||||||||
Data processing | 1,336,401 | 872,064 | 2,527,453 | 1,763,445 | ||||||||||||
Occupancy expenses, net | 656,752 | 518,559 | 1,347,938 | 1,117,564 | ||||||||||||
FDIC insurance assessments | 49,857 | 91,666 | 49,857 | 191,895 | ||||||||||||
Professional fees | 397,755 | 382,983 | 741,479 | 771,829 | ||||||||||||
Business development | 181,546 | 248,178 | 445,689 | 516,775 | ||||||||||||
Intangible asset amortization | 217,223 | 139,314 | 434,446 | 302,978 | ||||||||||||
New market tax credit projects amortization | 145,390 | - | 290,771 | - | ||||||||||||
Other operating expenses, net | 302,138 | 167,717 | 724,282 | 496,923 | ||||||||||||
Total noninterest expense | 9,099,511 | 7,217,978 | 18,149,560 | 14,674,734 | ||||||||||||
Income before income taxes | 5,442,265 | 5,856,898 | 9,753,178 | 11,198,133 | ||||||||||||
Provision for income taxes | 1,014,600 | 1,239,305 | 1,771,000 | 2,343,105 | ||||||||||||
Net income | $ | 4,427,665 | $ | 4,617,593 | $ | 7,982,178 | $ | 8,855,028 | ||||||||
Basic and diluted earnings per share | $ | 0.49 | $ | 0.50 | $ | 0.87 | $ | 0.96 | ||||||||
Dividends declared per share | $ | - | $ | 0.24 | $ | 0.25 | $ | 0.48 |
June 30, | December 31, | |||||||
ASSETS | 2021 | 2020 | ||||||
(unaudited) | (audited) | |||||||
Cash and due from banks | $ | 24,890 | $ | 24,819 | ||||
Interest-bearing deposits in financial institutions and federal funds sold | 141,282 | 166,704 | ||||||
Securities available-for-sale | 740,102 | 596,999 | ||||||
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost | 3,427 | 3,148 | ||||||
Loans receivable, net | 1,124,435 | 1,129,505 | ||||||
Loans held for sale | 311 | 1,621 | ||||||
Bank premises and equipment, net | 16,925 | 17,340 | ||||||
Accrued income receivable | 9,596 | 11,143 | ||||||
Bank-owned life insurance | 2,950 | 2,916 | ||||||
Deferred income taxes, net | 323 | 0 | ||||||
Intangible assets, net | 2,813 | 3,133 | ||||||
Goodwill | 12,424 | 12,424 | ||||||
Other assets | 5,982 | 5,896 | ||||||
Total assets | $ | 2,085,460 | $ | 1,975,648 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES | ||||||||
Deposits | ||||||||
Noninterest-bearing checking | $ | 375,735 | $ | 349,500 | ||||
Interest-bearing checking | 564,268 | 528,796 | ||||||
Savings and money market | 658,482 | 581,224 | ||||||
Time, $250 and over | 49,430 | 60,019 | ||||||
Other time | 183,484 | 196,907 | ||||||
Total deposits | 1,831,399 | 1,716,446 | ||||||
Securities sold under agreements to repurchase | 33,268 | 37,293 | ||||||
FHLB advances | 3,000 | 3,000 | ||||||
Deferred income taxes, net | 0 | 1,731 | ||||||
Accrued expenses and other liabilities | 7,671 | 7,691 | ||||||
Total liabilities | 1,875,338 | 1,766,161 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 as of June 30, 2021 and December 31, 2020 | 18,245 | 18,245 | ||||||
Additional paid-in capital | 17,002 | 17,002 | ||||||
Retained earnings | 165,466 | 158,217 | ||||||
Accumulated other comprehensive income | 9,409 | 16,023 | ||||||
Total stockholders' equity | 210,122 | 209,487 | ||||||
Total liabilities and stockholders' equity | $ | 2,085,460 | $ | 1,975,648 |
See Notes to Consolidated Financial Statements.
AMES NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 4,427,665 | $ | 4,617,593 | $ | 7,982,178 | $ | 8,855,028 | ||||||||
Unrealized gains on securities before tax: | ||||||||||||||||
Unrealized holding gains arising during the period | 12,729,731 | 4,469,777 | 13,600,333 | 10,041,561 | ||||||||||||
Less: reclassification adjustment for gains realized in net income | 43,910 | 1,890 | 429,925 | 1,890 | ||||||||||||
Other comprehensive income, before tax | 12,685,821 | 4,467,887 | 13,170,408 | 10,039,671 | ||||||||||||
Tax effect related to other comprehensive income | (3,171,456 | ) | (1,116,972 | ) | (3,292,603 | ) | (2,509,918 | ) | ||||||||
Other comprehensive income, net of tax | 9,514,365 | 3,350,915 | 9,877,805 | 7,529,753 | ||||||||||||
Comprehensive income | $ | 13,942,030 | $ | 7,968,508 | $ | 17,859,983 | $ | 16,384,781 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Interest and dividend income: | ||||||||||||||||
Loans, including fees | $ | 12,127 | $ | 12,570 | $ | 24,111 | $ | 25,157 | ||||||||
Securities: | ||||||||||||||||
Taxable | 2,212 | 1,918 | 4,201 | 3,739 | ||||||||||||
Tax-exempt | 823 | 954 | 1,667 | 1,864 | ||||||||||||
Other interest and dividend income | 169 | 196 | 347 | 713 | ||||||||||||
Total interest income | 15,331 | 15,638 | 30,326 | 31,473 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 1,124 | 1,898 | 2,418 | 4,548 | ||||||||||||
Other borrowed funds | 35 | 60 | 72 | 199 | ||||||||||||
Total interest expense | 1,159 | 1,958 | 2,490 | 4,747 | ||||||||||||
Net interest income | 14,172 | 13,680 | 27,836 | 26,726 | ||||||||||||
Provision (credit) for loan losses | (20 | ) | 1,567 | (446 | ) | 3,883 | ||||||||||
Net interest income after provision (credit) for loan losses | 14,192 | 12,113 | 28,282 | 22,843 | ||||||||||||
Noninterest income: | ||||||||||||||||
Wealth management income | 1,145 | 909 | 2,077 | 1,771 | ||||||||||||
Service fees | 347 | 305 | 680 | 746 | ||||||||||||
Securities gains, net | 0 | 44 | 0 | 430 | ||||||||||||
Gain on sale of loans held for sale | 380 | 572 | 884 | 839 | ||||||||||||
Merchant and card fees | 556 | 410 | 1,020 | 836 | ||||||||||||
Other noninterest income | 208 | 188 | 481 | 437 | ||||||||||||
Total noninterest income | 2,636 | 2,428 | 5,142 | 5,059 | ||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | 5,772 | 5,813 | 11,279 | 11,588 | ||||||||||||
Data processing | 1,310 | 1,336 | 2,682 | 2,527 | ||||||||||||
Occupancy expenses, net | 639 | 657 | 1,367 | 1,348 | ||||||||||||
FDIC insurance assessments | 148 | 50 | 287 | 50 | ||||||||||||
Professional fees | 515 | 397 | 911 | 741 | ||||||||||||
Business development | 254 | 182 | 491 | 446 | ||||||||||||
Intangible asset amortization | 160 | 217 | 320 | 434 | ||||||||||||
New market tax credit projects amortization | 159 | 146 | 319 | 291 | ||||||||||||
Other operating expenses, net | 457 | 301 | 764 | 724 | ||||||||||||
Total noninterest expense | 9,414 | 9,099 | 18,420 | 18,149 | ||||||||||||
Income before income taxes | 7,414 | 5,442 | 15,004 | 9,753 | ||||||||||||
Provision for income taxes | 1,535 | 1,015 | 3,102 | 1,771 | ||||||||||||
Net income | $ | 5,879 | $ | 4,427 | $ | 11,902 | $ | 7,982 | ||||||||
Basic and diluted earnings per share | $ | 0.64 | $ | 0.49 | $ | 1.30 | $ | 0.87 | ||||||||
Dividends declared per share | $ | 0.26 | $ | 0 | $ | 0.51 | $ | 0.25 |
See Notes to Consolidated Financial Statements.
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Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive Income, Net of | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Taxes | Equity | |||||||||||||||||||
Balance, March 31, 2019 | 9,242,822 | $ | 18,485,644 | $ | 19,276,388 | $ | 139,910,979 | $ | 103,747 | $ | 177,776,758 | |||||||||||||
Net income | - | - | - | 4,617,593 | - | 4,617,593 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 3,350,915 | 3,350,915 | ||||||||||||||||||
Retirement of stock | (10,700 | ) | (21,400 | ) | (256,621 | ) | - | - | (278,021 | ) | ||||||||||||||
Cash dividends declared, $0.24 per share | - | - | - | (2,215,709 | ) | - | (2,215,709 | ) | ||||||||||||||||
Balance, June 30, 2019 | 9,232,122 | $ | 18,464,244 | $ | 19,019,767 | $ | 142,312,863 | $ | 3,454,662 | $ | 183,251,536 | |||||||||||||
Balance, March 31, 2020 | 9,188,594 | $ | 18,377,188 | $ | 18,155,547 | $ | 147,482,450 | $ | 4,478,192 | $ | 188,493,377 | |||||||||||||
Net income | - | - | - | 4,427,665 | - | 4,427,665 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 9,514,365 | 9,514,365 | ||||||||||||||||||
Retirement of stock | (65,847 | ) | (131,694 | ) | (1,153,811 | ) | - | - | (1,285,505 | ) | ||||||||||||||
Balance, June 30, 2020 | 9,122,747 | $ | 18,245,494 | $ | 17,001,736 | $ | 151,910,115 | $ | 13,992,557 | $ | 201,149,902 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(in thousands)
Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive Income (Loss), | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Net of Taxes | Equity | |||||||||||||||||||
Balance, December 31, 2018 | 9,293,305 | $ | 18,586,610 | $ | 20,461,724 | $ | 137,891,821 | $ | (4,075,091 | ) | $ | 172,865,064 | ||||||||||||
Net income | - | - | - | 8,855,028 | - | 8,855,028 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 7,529,753 | 7,529,753 | ||||||||||||||||||
Retirement of stock | (61,183 | ) | (122,366 | ) | (1,441,957 | ) | - | - | (1,564,323 | ) | ||||||||||||||
Cash dividends declared, $0.48 per share | - | - | - | (4,433,986 | ) | - | (4,433,986 | ) | ||||||||||||||||
Balance, June 30, 2019 | 9,232,122 | $ | 18,464,244 | $ | 19,019,767 | $ | 142,312,863 | $ | 3,454,662 | $ | 183,251,536 | |||||||||||||
Balance, December 31, 2019 | 9,222,747 | $ | 18,445,494 | $ | 18,794,141 | $ | 146,225,085 | $ | 4,114,752 | $ | 187,579,472 | |||||||||||||
Net income | - | - | - | 7,982,178 | - | 7,982,178 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 9,877,805 | 9,877,805 | ||||||||||||||||||
Retirement of stock | (100,000 | ) | (200,000 | ) | (1,792,405 | ) | (1,992,405 | ) | ||||||||||||||||
Cash dividends declared, $0.25 per share | - | - | - | (2,297,148 | ) | - | (2,297,148 | ) | ||||||||||||||||
Balance, June 30, 2020 | 9,122,747 | $ | 18,245,494 | $ | 17,001,736 | $ | 151,910,115 | $ | 13,992,557 | �� | $ | 201,149,902 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income | $ | 5,879 | $ | 4,427 | $ | 11,902 | $ | 7,982 | ||||||||
Unrealized gains (losses) on securities before tax: | ||||||||||||||||
Unrealized holding gains (losses) arising during the period | 3,015 | 12,730 | (8,818 | ) | 13,600 | |||||||||||
Less: reclassification adjustment for gains realized in net income | 0 | 44 | 0 | 430 | ||||||||||||
Other comprehensive income (loss), before tax | 3,015 | 12,686 | (8,818 | ) | 13,170 | |||||||||||
Tax effect related to other comprehensive income (loss) | (753 | ) | (3,171 | ) | 2,204 | (3,292 | ) | |||||||||
Other comprehensive income (loss), net of tax | 2,262 | 9,515 | (6,614 | ) | 9,878 | |||||||||||
Comprehensive income | $ | 8,141 | $ | 13,942 | $ | 5,288 | $ | 17,860 |
See Notes to Consolidated Financial Statements.
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 7,982,178 | $ | 8,855,028 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 3,882,631 | 166,414 | ||||||
Provision for off-balance sheet commitments | 41,000 | - | ||||||
Amortization of securities, available-for-sale, loans and deposits, net | 252,269 | 739,633 | ||||||
Amortization of intangible asset | 434,446 | 302,978 | ||||||
Depreciation | 711,942 | 576,757 | ||||||
Deferred income taxes | (946,692 | ) | 125,049 | |||||
Securities (gains), net | (429,925 | ) | (1,890 | ) | ||||
(Gain) on sales of loans held for sale | (839,458 | ) | (396,757 | ) | ||||
Proceeds from loans held for sale | 41,226,181 | 17,485,451 | ||||||
Originations of loans held for sale | (39,643,298 | ) | (17,454,352 | ) | ||||
Loss on sale of premises and equipment, net | - | 500 | ||||||
Amortization of investment in new market tax credit projects | 290,771 | - | ||||||
(Gain) on sale of other real estate owned, net | (21,958 | ) | (43,414 | ) | ||||
Change in assets and liabilities: | ||||||||
Decrease in accrued income receivable | 986,961 | 417,561 | ||||||
(Increase) decrease in other assets | 28,462 | (523,361 | ) | |||||
Increase in accrued expenses and other liabilities | 3,969,853 | 651,186 | ||||||
Net cash provided by operating activities | 17,925,363 | 10,900,783 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of securities available-for-sale | (102,224,803 | ) | (35,113,621 | ) | ||||
Proceeds from sale of securities available-for-sale | 5,462,657 | 5,973,154 | ||||||
Proceeds from maturities and calls of securities available-for-sale | 75,571,989 | 38,381,532 | ||||||
Purchase of FHLB stock | (116,500 | ) | (3,912,500 | ) | ||||
Proceeds from the redemption of FHLB stock | 100,600 | 4,448,000 | ||||||
Net (increase) in interest bearing deposits in financial institutions and federal funds sold | (37,043,210 | ) | (41,377,929 | ) | ||||
Net (increase) decrease in loans | (101,265,019 | ) | 16,896,403 | |||||
Net proceeds from the sale of other real estate owned | 3,404,733 | 655,161 | ||||||
Purchase of bank premises and equipment | (528,647 | ) | (492,149 | ) | ||||
Cash paid for bank acquired | (309,875 | ) | - | |||||
Other | (36,125 | ) | (28,300 | ) | ||||
Net cash (used in) investing activities | (156,984,200 | ) | (14,570,249 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Increase in deposits | 150,614,117 | 23,402,168 | ||||||
Decrease in securities sold under agreements to repurchase | (5,140,913 | ) | (8,981,386 | ) | ||||
Payments on FHLB borrowings | (2,000,000 | ) | (12,600,000 | ) | ||||
Dividends paid | (4,510,608 | ) | (4,355,737 | ) | ||||
Stock repurchases | (1,992,405 | ) | (1,564,323 | ) | ||||
Net cash provided by (used in) financing activities | 136,970,191 | (4,099,278 | ) | |||||
Net (decrease) in cash and due from banks | (2,088,646 | ) | (7,768,744 | ) | ||||
CASH AND DUE FROM BANKS | ||||||||
Beginning | 34,616,880 | 30,384,066 | ||||||
Ending | $ | 32,528,234 | $ | 22,615,322 |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
| Comprehensive | Total | ||||||||||||||||||||||
Common Stock | Additional Paid- | Retained | Income, Net of | Stockholders' | ||||||||||||||||||||
Shares | Amount | in Capital | Earnings | Taxes | Equity | |||||||||||||||||||
Balance, March 31, 2020 | 9,188,594 | $ | 18,377 | $ | 18,156 | $ | 147,483 | $ | 4,478 | $ | 188,494 | |||||||||||||
Net income | - | 0 | 0 | 4,427 | 0 | 4,427 | ||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 9,515 | 9,515 | ||||||||||||||||||
Repurchase and retirement of stock | (65,847 | ) | (132 | ) | (1,154 | ) | 0 | 0 | (1,286 | ) | ||||||||||||||
Balance, June 30, 2020 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 151,910 | $ | 13,993 | $ | 201,150 | |||||||||||||
Balance, March 31, 2021 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 161,959 | $ | 7,147 | $ | 204,353 | |||||||||||||
Net income | - | 0 | 0 | 5,879 | 0 | 5,879 | ||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 2,262 | 2,262 | ||||||||||||||||||
Cash dividends declared, $0.26 per share | - | 0 | 0 | (2,372 | ) | 0 | (2,372 | ) | ||||||||||||||||
Balance, June 30, 2021 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 165,466 | $ | 9,409 | $ | 210,122 |
|
| Accumulated Other Comprehensive | Total | |||||||||||||||||||||
Common Stock | Additional Paid- | Retained | Income (Loss), | Stockholders' | ||||||||||||||||||||
Shares | Amount | in Capital | Earnings | Net of Taxes | Equity | |||||||||||||||||||
Balance, December 31, 2019 | 9,222,747 | $ | 18,445 | $ | 18,794 | $ | 146,225 | $ | 4,115 | $ | 187,579 | |||||||||||||
Net income | - | 0 | 0 | 7,982 | 0 | 7,982 | ||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 9,878 | 9,878 | ||||||||||||||||||
Repurchase and retirement of stock | (100,000 | ) | (200 | ) | (1,792 | ) | 0 | 0 | (1,992 | ) | ||||||||||||||
Cash dividends declared, $0.25 per share | - | 0 | 0 | (2,297 | ) | 0 | (2,297 | ) | ||||||||||||||||
Balance, June 30, 2020 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 151,910 | $ | 13,993 | $ | 201,150 | |||||||||||||
Balance, December 31, 2020 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 158,217 | $ | 16,023 | $ | 209,487 | |||||||||||||
Net income | - | 0 | 0 | 11,902 | 0 | 11,902 | ||||||||||||||||||
Other comprehensive (loss) | - | 0 | 0 | 0 | (6,614 | ) | (6,614 | ) | ||||||||||||||||
Cash dividends declared, $0.51 per share | - | 0 | 0 | (4,653 | ) | 0 | (4,653 | ) | ||||||||||||||||
Balance, June 30, 2021 | 9,122,747 | $ | 18,245 | $ | 17,002 | $ | 165,466 | $ | 9,409 | $ | 210,122 |
See Notes to Consolidated Financial Statements.
|
|
|
|
2020 | 2019 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash payments for: | ||||||||
Interest | $ | 5,259,558 | $ | 5,148,519 | ||||
Income taxes | 675,614 | 2,248,474 | ||||||
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES | ||||||||
Transfer of loans receivable to other real estate owned | $ | 10,738 | $ | - |
AMES NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Six Months Ended June 30, 2021 and 2020
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 11,902 | $ | 7,982 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision (credit) for loan losses | (446 | ) | 3,883 | |||||
Provision (credit) for off-balance sheet commitments | (3 | ) | 41 | |||||
Amortization of securities, available-for-sale, loans and deposits, net | 1,167 | 252 | ||||||
Amortization of intangible assets | 320 | 434 | ||||||
Depreciation | 688 | 712 | ||||||
Deferred income taxes | 151 | (947 | ) | |||||
Securities (gains), net | 0 | (430 | ) | |||||
(Gain) on sales of loans held for sale | (884 | ) | (839 | ) | ||||
Proceeds from loans held for sale | 39,161 | 41,226 | ||||||
Originations of loans held for sale | (36,967 | ) | (39,643 | ) | ||||
Loss on sale and disposal of premises and equipment, net | 13 | 0 | ||||||
Amortization of investment in New Markets Tax Credit projects | 319 | 291 | ||||||
Impairment of other real estate owned | 81 | 0 | ||||||
(Gain) on sale of other real estate owned, net | 0 | (22 | ) | |||||
Change in assets and liabilities: | ||||||||
Decrease in accrued income receivable | 1,547 | 987 | ||||||
Decrease in other assets | 401 | 28 | ||||||
Increase (decrease) in accrued expenses and other liabilities | (18 | ) | 3,970 | |||||
Net cash provided by operating activities | 17,432 | 17,925 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of securities available-for-sale | (217,484 | ) | (102,225 | ) | ||||
Proceeds from sale of securities available-for-sale | 0 | 5,463 | ||||||
Proceeds from maturities and calls of securities available-for-sale | 63,971 | 75,572 | ||||||
Purchase of FHLB stock | (286 | ) | (117 | ) | ||||
Proceeds from the redemption of FHLB stock | 7 | 101 | ||||||
Net (increase) decrease in interest-bearing deposits in financial institutions and federal funds sold | 25,422 | (37,043 | ) | |||||
Net (increase) decrease in loans | 5,262 | (101,265 | ) | |||||
Net proceeds from the sale of other real estate owned | 0 | 3,405 | ||||||
Purchase of bank premises and equipment | (578 | ) | (529 | ) | ||||
Cash paid for bank acquired | 0 | (310 | ) | |||||
Other | (35 | ) | (36 | ) | ||||
Net cash (used in) investing activities | (123,721 | ) | (156,984 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Increase in deposits | 115,038 | 150,614 | ||||||
(Decrease) in securities sold under agreements to repurchase | (4,025 | ) | (5,141 | ) | ||||
Payments on FHLB borrowings | 0 | (2,000 | ) | |||||
Dividends paid | (4,653 | ) | (4,511 | ) | ||||
Stock repurchases | 0 | (1,992 | ) | |||||
Net cash provided by financing activities | 106,360 | 136,970 | ||||||
Net increase (decrease) in cash and due from banks | 71 | (2,089 | ) | |||||
CASH AND DUE FROM BANKS | ||||||||
Beginning | 24,819 | 34,617 | ||||||
Ending | $ | 24,890 | $ | 32,528 |
AMES NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (unaudited)
(in thousands)
Six Months Ended June 30, 2021 and 2020
2021 | 2020 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW | ||||||||
INFORMATION | ||||||||
Cash payments for: | ||||||||
Interest | $ | 2,873 | $ | 5,260 | ||||
Income taxes | 2,823 | 676 | ||||||
SUPPLEMENTAL DISCLOSURE OF NONCASH | ||||||||
INVESTING ACTIVITIES | ||||||||
Transfer of loans receivable to other real estate owned | $ | 560 | $ | 11 |
See Notes to Consolidated Financial Statements.
AMES NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)(unaudited)
1. | Significant Accounting Policies |
The consolidated financial statements for the three and six months ended June 30, 20202021 and 20192020 are unaudited. In the opinion of the management of Ames National Corporation (the "Company"), these financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the requirements for interim financial statements. The interim financial statements and notes thereto should be read in conjunction with the year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 20192020 (the “Annual Report”). The consolidated financial statements include the accounts of the Company and its wholly-owned banking subsidiaries (the “Banks”). All significant intercompany balances and transactions have been eliminated in consolidation.
Goodwill: Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill resulting from acquisitions is not amortized, but is tested for impairment annually or whenever events change and circumstances indicate that it is more likely than not that an impairment loss has occurred. Goodwill is tested for impairment with an estimation of the fair value of a reporting unit.
The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. As none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. AtThe Company completed a quantitative assessment of goodwill as of June 30,May 31, 2020 Company management has performed a goodwill impairment assessment and determinedwhich indicated that goodwill was not impaired.
Reclassifications: Certain reclassifications have been made Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the prior consolidated financial statements to conform toprevious assessment. Accordingly, the current period presentation. These reclassifications hadCompany concluded there is 0 impairment of goodwill as of noJune 30, 2021. effect on stockholders’ equity and net income of the prior periods.
New and Pending Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In October 2019, the FASB voted to approve amendments to the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The amendment delays the effective date for our Company until interim and annual periods beginning after December 15, 2022. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models, along with refining the implementation of the software and its approach for determining the expected credit losses under the new guidance. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s financial statements. The Company is continuing to evaluate the extent of the potential impact.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates Step 2 from the goodwill impairment test. For public companies, this update became effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment tests with a measurement date after January 1, 2017. ASU 2017-04 was adopted on January 1, 2020 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No.2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update became effective for interim and annual periods in fiscal years beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis, and the new disclosures were adopted on a prospective basis. The adoption did not have a material effect on the Company’s consolidated financial statements.
2. |
|
On October 25, 2019, the Company completed the purchase of Iowa State Savings Bank (“ISSB”), including its’ 4 branches in Creston, Diagonal, Lennox and Corning, Iowa (the “Acquisition”). The Acquisition was consistent with the Bank’s strategy to strengthen and expand its Iowa market share. ISSB’s acquired assets and liabilities were recorded at fair value at the date of acquisition. This bank was purchased for cash consideration of $22.6 million. As a result of the acquisition, the Company recorded a core deposit intangible asset of $1,891,000 and goodwill of approximately $2,680,000. The results of operations for this acquisition have been included since the transaction date of October 25, 2019. Since the acquisition date, there has been no significant credit deterioration of the acquired loans.
The following table summarizes the fair value of the total consideration transferred as a part of the ISSB Acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction (in thousands):
Cash consideration transferred | $ | 22,643 | ||
Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
Cash and due from banks | $ | 3,188 | ||
Federal funds sold | 2,792 | |||
Interest bearing deposits in financial institutions | 21,035 | |||
Securities available-for-sale | 33,615 | |||
Federal Home Loan Bank stock at cost | 365 | |||
Loans receivable | 137,776 | |||
Accrued interest receivable | 2,888 | |||
Bank premises and equipment | 2,452 | |||
Other real estate owned | 3,582 | |||
Bank owned life insurance | 2,499 | |||
Core deposit intangible asset | 1,891 | |||
Other assets | 204 | |||
Deposits | (188,631 | ) | ||
Securities sold under repurchase agreements | (1,747 | ) | ||
Accrued interest payable and other liabilities | (1,946 | ) | ||
Total identifiable net assets | 19,963 | |||
Goodwill | $ | 2,680 |
On October 25, 2019, associated with the ISSB Acquisition, the contractual balance of loans receivable acquired was $139,703,000 and the contractual balance of the deposits assumed was $188,068,000. Loans receivable acquired include commercial real estate, 1-4 family real estate, agricultural real estate, commercial operating, agricultural operating and consumer loans. During the first quarter of 2020, an additional $310,000 of goodwill was recorded due to an adjustment to the initial purchase price.
The acquired loans associated with the ISSB Acquisition at contractual values as of October 25, 2019 were determined to be risk rated as follows (in thousands):
Pass | $ | 121,346 | ||
Watch | 12,333 | |||
Special Mention | - | |||
Substandard | 6,024 | |||
Total loans acquired at book value | $ | 139,703 |
The core deposit intangible asset is amortized to expense on a declining basis over a period of ten years. The loan market valuation is accreted to income on the effective yield method over a ten year period. The time deposits market valuation is amortized to expense on a declining basis over a two year period.
| Dividends |
On July 8, 2020,14, 2021, the Company declared a cash dividend on its common stock, payable on August 14, 202013, 2021 to stockholders of record as of July 31, 2020,30, 2021, equal to $0.25$0.26 per share.
| Earnings Per Share |
Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three months ended June 30, 20202021 and 20192020 was 9,128,8489,122,747 and 9,239,969,9,128,848, respectively. The weighted average outstanding shares for the six months ended June 30, 20202021 and 20192020 were 9,174,0219,122,747 and 9,250,392,9,174,021, respectively. The Company had 0 potentially dilutive securities outstanding during the periods presented.
| Off-Balance Sheet Arrangements |
The Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2019.2020.
| Fair Value Measurements |
Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.
Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The following table presents the balances of assets measured at fair value on a recurring basis by level as of June 30, 20202021 and December 31, 20192020 (in thousands):
Description | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
2021 | ||||||||||||||||||||||||||||||||
U.S. government treasuries | $ | 100,547 | $ | 100,547 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
U.S. government agencies | 116,358 | 0 | 116,358 | 0 | ||||||||||||||||||||||||||||
U.S. government mortgage-backed securities | 168,737 | 0 | 168,737 | 0 | ||||||||||||||||||||||||||||
State and political subdivisions | 275,205 | 0 | 275,205 | 0 | ||||||||||||||||||||||||||||
Corporate bonds | 79,255 | 0 | 79,255 | 0 | ||||||||||||||||||||||||||||
$ | 740,102 | $ | 100,547 | $ | 639,555 | $ | 0 | |||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||
U.S. government treasuries | $ | 9,280 | $ | 9,280 | $ | - | $ | - | $ | 12,053 | $ | 12,053 | $ | 0 | $ | 0 | ||||||||||||||||
U.S. government agencies | 104,288 | - | 104,288 | - | 111,199 | 0 | 111,199 | 0 | ||||||||||||||||||||||||
U.S. government mortgage-backed securities | 107,150 | - | 107,150 | - | 150,195 | 0 | 150,195 | 0 | ||||||||||||||||||||||||
State and political subdivisions | 216,797 | - | 216,797 | - | 251,584 | 0 | 251,584 | 0 | ||||||||||||||||||||||||
Corporate bonds | 76,101 | - | 76,101 | - | 71,968 | 0 | 71,968 | 0 | ||||||||||||||||||||||||
$ | 513,616 | $ | 9,280 | $ | 504,336 | $ | - | $ | 596,999 | $ | 12,053 | $ | 584,946 | $ | 0 | |||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
U.S. government treasuries | $ | 9,452 | $ | 9,452 | $ | - | $ | - | ||||||||||||||||||||||||
U.S. government agencies | 126,433 | - | 126,433 | - | ||||||||||||||||||||||||||||
U.S. government mortgage-backed securities | 81,128 | - | 81,128 | - | ||||||||||||||||||||||||||||
State and political subdivisions | 195,302 | - | 195,302 | - | ||||||||||||||||||||||||||||
Corporate bonds | 67,528 | - | 67,528 | - | ||||||||||||||||||||||||||||
$ | 479,843 | $ | 9,452 | $ | 470,391 | $ | - |
Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. U.S. government agencies, mortgage-backed securities, state and political subdivisions, and most corporate bonds are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment or a change in previously recognized impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level within the valuation hierarchy as of June 30, 20202021 and December 31, 20192020 (in thousands):
Description | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
2021 | ||||||||||||||||||||||||||||||||
Loans receivable | $ | 8,751 | $ | 0 | $ | 0 | $ | 8,751 | ||||||||||||||||||||||||
Other real estate owned | 778 | 0 | 0 | 778 | ||||||||||||||||||||||||||||
Total | $ | 9,529 | $ | 0 | $ | 0 | $ | 9,529 | ||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||
Loans receivable | $ | 2,017 | $ | - | $ | - | $ | 2,017 | $ | 10,306 | $ | 0 | $ | 0 | $ | 10,306 | ||||||||||||||||
Other real estate owned | 632 | - | - | 632 | 218 | 0 | 0 | 218 | ||||||||||||||||||||||||
Total | $ | 2,649 | $ | - | $ | - | $ | 2,649 | $ | 10,524 | $ | 0 | $ | 0 | $ | 10,524 | ||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
Loans receivable | $ | 535 | $ | - | $ | - | $ | 535 | ||||||||||||||||||||||||
Other real estate owned | 4,004 | - | - | 4,004 | ||||||||||||||||||||||||||||
Total | $ | 4,539 | $ | - | $ | - | $ | 4,539 |
The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of June 30, 20202021 and December 31, 20192020 are as follows (in thousands):
2020 | 2021 | ||||||||||||||||||||||
Estimated | Valuation | Range | Estimated | Valuation |
| Range | |||||||||||||||||
Fair Value | Techniques | Unobservable Inputs | (Average) | Fair Value | Techniques | Unobservable Inputs | (Average) | ||||||||||||||||
Impaired Loans | $ | 2,017 | Evaluation of collateral | Estimation of value | NM* | ||||||||||||||||||
Loans receivable | $ | 8,751 | Evaluation of collateral | Estimation of value | NM* | ||||||||||||||||||
Other real estate owned | $ | 632 | Appraisal | Appraisal adjustment | 6% | - | 8% | (7%) | $ | 778 | Appraisal | Appraisal adjustment | 6% | - | 8% | (7%) | |||||||
2019 | 2020 | ||||||||||||||||||||||
Estimated | Valuation | Range | Estimated | Valuation | Unobservable Inputs | Range | |||||||||||||||||
Fair Value | Techniques | Unobservable Inputs | (Average) | Fair Value | Techniques | (Average) | |||||||||||||||||
Impaired Loans | $ | 535 | Evaluation of collateral | Estimation of value | NM* | ||||||||||||||||||
Loans receivable | $ | 10,306 | Evaluation of collateral | Estimation of value | NM* | ||||||||||||||||||
Other real estate owned | $ | 4,004 | Appraisal | Appraisal adjustment | 6% | - | 8% | (7%) | $ | 218 | Appraisal | Appraisal adjustment | 6% | - | 8% | (7%) |
* Evaluations of the underlying assets are completed for each collateral dependent impaired loan with a specific reserve. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered included aging of receivables, condition of the collateral, potential market for the collateral and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.
GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.
The following table includes the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of June 30, 20202021 and December 31, 20192020 (in thousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||
Fair Value | Estimated | Estimated | Fair Value | Estimated | Estimated | |||||||||||||||||||||||||||||
Hierarchy | Carrying | Fair | Carrying | Fair | Hierarchy | Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||
Level | Amount | Value | Amount | Value | Level | Amount | Value | Amount | Value | |||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||
Cash and due from banks | Level 1 | $ | 32,528 | $ | 32,528 | $ | 34,617 | $ | 34,617 | Level 1 | $ | 24,890 | $ | 24,890 | $ | 24,819 | $ | 24,819 | ||||||||||||||||
Interest-bearing deposits | Level 1 | 145,991 | 145,991 | 108,948 | 108,948 | |||||||||||||||||||||||||||||
Interest-bearing deposits in financial institutions and federal funds sold | Level 1 | 141,282 | 141,282 | 166,704 | 166,704 | |||||||||||||||||||||||||||||
Securities available-for-sale | See previous table | 513,616 | 513,616 | 479,843 | 479,843 | See previous table | 740,102 | 740,102 | 596,999 | 596,999 | ||||||||||||||||||||||||
FHLB and FRB stock | Level 2 | 3,155 | 3,155 | 3,139 | 3,139 | Level 2 | 3,427 | 3,427 | 3,148 | 3,148 | ||||||||||||||||||||||||
Loans receivable, net | Level 2 | 1,146,046 | 1,106,246 | 1,048,147 | 1,025,032 | Level 2 | 1,124,435 | 1,102,745 | 1,129,505 | 1,116,352 | ||||||||||||||||||||||||
Loans held for sale | Level 2 | 2,033 | 2,033 | 2,777 | 2,777 | Level 2 | 311 | 311 | 1,621 | 1,621 | ||||||||||||||||||||||||
Accrued income receivable | Level 1 | 10,801 | 10,801 | 11,788 | 11,788 | Level 1 | 9,596 | 9,596 | 11,143 | 11,143 | ||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||
Deposits | Level 2 | $ | 1,643,543 | $ | 1,646,977 | $ | 1,493,175 | $ | 1,495,155 | Level 2 | $ | 1,831,399 | $ | 1,833,779 | $ | 1,716,446 | $ | 1,720,023 | ||||||||||||||||
Securities sold under agreements to repurchase | Level 1 | 36,893 | 36,893 | 42,034 | 42,034 | Level 1 | 33,268 | 33,268 | 37,293 | 37,293 | ||||||||||||||||||||||||
FHLB advances | Level 2 | 3,000 | 3,110 | 5,000 | 4,935 | Level 2 | 3,000 | 3,069 | 3,000 | 3,111 | ||||||||||||||||||||||||
Accrued interest payable | Level 1 | 966 | 966 | 1,163 | 1,163 | Level 1 | 532 | 532 | 829 | 829 |
The methodologies used to determine fair value as of June 30, 20202021 did not change from the methodologies described in the December 31, 20192020 Annual Financial Statements.
Commitments to extend credit and standby letters of credit: The fair values of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and credit worthiness of the counterparties. The carrying value and fair value of the commitments to extend credit and standby letters of credit are not considered significant.
Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
| Debt Securities |
The amortized cost of securities available-for-sale and their approximate fair values as of June 30, 20202021 and December 31, 20192020 are summarized below (in thousands):
2020: | Gross | Gross | ||||||||||||||||||||||||||||||
2021: | Gross | Gross | ||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | Amortized | Unrealized | Unrealized | Estimated | |||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
U.S. government treasuries | $ | 8,893 | $ | 387 | $ | - | $ | 9,280 | $ | 100,543 | $ | 382 | $ | (378 | ) | $ | 100,547 | |||||||||||||||
U.S. government agencies | 99,091 | 5,203 | (6 | ) | 104,288 | 113,012 | 3,703 | (357 | ) | 116,358 | ||||||||||||||||||||||
U.S. government mortgage-backed securities | 104,063 | 3,114 | (27 | ) | 107,150 | 168,068 | 2,013 | (1,344 | ) | 168,737 | ||||||||||||||||||||||
State and political subdivisions | 211,593 | 5,322 | (118 | ) | 216,797 | 270,241 | 5,692 | (728 | ) | 275,205 | ||||||||||||||||||||||
Corporate bonds | 71,319 | 4,793 | (11 | ) | 76,101 | 75,693 | 3,619 | (57 | ) | 79,255 | ||||||||||||||||||||||
$ | 494,959 | $ | 18,819 | $ | (162 | ) | $ | 513,616 | $ | 727,557 | $ | 15,409 | $ | (2,864 | ) | $ | 740,102 |
2019: | Gross | Gross | ||||||||||||||||||||||||||||||
2020: | Gross | Gross | ||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | Amortized | Unrealized | Unrealized | Estimated | |||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
U.S. government treasuries | $ | 9,392 | $ | 64 | $ | (4 | ) | $ | 9,452 | $ | 11,725 | $ | 328 | $ | 0 | $ | 12,053 | |||||||||||||||
U.S. government agencies | 124,913 | 1,609 | (89 | ) | 126,433 | 106,337 | 4,875 | (13 | ) | 111,199 | ||||||||||||||||||||||
U.S. government mortgage-backed securities | 80,295 | 867 | (34 | ) | 81,128 | 146,889 | 3,337 | (31 | ) | 150,195 | ||||||||||||||||||||||
State and political subdivisions | 193,745 | 1,852 | (295 | ) | 195,302 | 243,438 | 8,182 | (36 | ) | 251,584 | ||||||||||||||||||||||
Corporate bonds | 66,012 | 1,542 | (26 | ) | 67,528 | 67,247 | 4,722 | (1 | ) | 71,968 | ||||||||||||||||||||||
$ | 474,357 | $ | 5,934 | $ | (448 | ) | $ | 479,843 | $ | 575,636 | $ | 21,444 | $ | (81 | ) | $ | 596,999 |
The amortized cost and fair value of debt securities available-for-sale as of June 30, 2020,2021, are shown below by expected maturity. Expected maturity will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 48,856 | $ | 49,216 | $ | 57,814 | $ | 58,258 | ||||||||
Due after one year through five years | 234,542 | 243,595 | 295,926 | 302,378 | ||||||||||||
Due after five years through ten years | 181,220 | 189,531 | 337,265 | 342,042 | ||||||||||||
Due after ten years | 30,341 | 31,274 | 36,552 | 37,424 | ||||||||||||
Total | $ | 494,959 | $ | 513,616 | $ | 727,557 | $ | 740,102 |
Securities with a carrying value of $197.1$199.1 million and $180.0$202.0 million at June 30, 20202021 and December 31, 2019,2020, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.
The proceeds and gains and losses foron securities available-for-sale for the three and six months ended June 30, 20202021 and 20192020 are summarized below (in thousands):
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Proceeds from sales of securities available-for-sale | $ | 2,078 | $ | 5,973 | $ | 5,463 | $ | 5,973 | $ | 0 | $ | 2,078 | $ | 0 | $ | 5,463 | ||||||||||||||||
Gross realized gains on securities available-for-sale | 44 | 21 | 430 | 21 | 0 | 44 | 0 | 430 | ||||||||||||||||||||||||
Gross realized losses on securities available-for-sale | - | (19 | ) | - | (19 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Tax provision applicable to net realized gains on securities available-for-sale | 11 | - | 108 | - |
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are summarized as of June 30, 20202021 and December 31, 20192020 are summarized as follows (in thousands):
Less than 12 Months | 12 Months or More | Total | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||||||||||||
2020: | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
2021: | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government treasuries | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 56,269 | $ | (378 | ) | $ | 0 | $ | 0 | $ | 56,269 | $ | (378 | ) | ||||||||||||||||||||||
U.S. government agencies | 938 | (6 | ) | - | - | 938 | (6 | ) | 24,179 | (357 | ) | 0 | 0 | 24,179 | (357 | ) | ||||||||||||||||||||||||||||||||
U.S. government mortgage-backed securities | 11,784 | (25 | ) | 1,712 | (2 | ) | 13,496 | (27 | ) | 105,041 | (1,344 | ) | 0 | 0 | 105,041 | (1,344 | ) | |||||||||||||||||||||||||||||||
State and political subdivisions | 6,697 | (114 | ) | 180 | (4 | ) | 6,877 | (118 | ) | 57,806 | (727 | ) | 181 | (1 | ) | 57,987 | (728 | ) | ||||||||||||||||||||||||||||||
Corporate bonds | 493 | (11 | ) | - | - | 493 | (11 | ) | 4,320 | (57 | ) | 0 | 0 | 4,320 | (57 | ) | ||||||||||||||||||||||||||||||||
$ | 19,912 | $ | (156 | ) | $ | 1,892 | $ | (6 | ) | $ | 21,804 | $ | (162 | ) | $ | 247,615 | $ | (2,863 | ) | $ | 181 | $ | (1 | ) | $ | 247,796 | $ | (2,864 | ) |
Less than 12 Months | 12 Months or More | Total | Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||||||||||||
2019: | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
2020: | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government treasuries | $ | 3,023 | $ | (4 | ) | $ | - | $ | - | $ | 3,023 | $ | (4 | ) | ||||||||||||||||||||||||||||||||||
U.S. government agencies | 23,827 | (85 | ) | 2,520 | (4 | ) | 26,347 | (89 | ) | $ | 6,016 | $ | (7 | ) | $ | 896 | $ | (6 | ) | $ | 6,912 | $ | (13 | ) | ||||||||||||||||||||||||
U.S. government mortgage-backed securities | 14,885 | (28 | ) | 1,934 | (6 | ) | 16,819 | (34 | ) | 5,097 | (31 | ) | 0 | 0 | 5,097 | (31 | ) | |||||||||||||||||||||||||||||||
State and political subdivisions | 17,512 | (125 | ) | 5,954 | (170 | ) | 23,466 | (295 | ) | 7,875 | (34 | ) | 180 | (2 | ) | 8,055 | (36 | ) | ||||||||||||||||||||||||||||||
Corporate bonds | 4,129 | (26 | ) | - | - | 4,129 | (26 | ) | 534 | (1 | ) | 0 | 0 | 534 | (1 | ) | ||||||||||||||||||||||||||||||||
$ | 63,376 | $ | (268 | ) | $ | 10,408 | $ | (180 | ) | $ | 73,784 | $ | (448 | ) | $ | 19,522 | $ | (73 | ) | $ | 1,076 | $ | (8 | ) | $ | 20,598 | $ | (81 | ) |
Gross unrealized losses on debt securities totaled $162,000$2.9 million as of June 30, 2020.2021. These unrealized losses are generally due to changes in interest rates or general market conditions. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, state or political subdivision, or corporations. Management then determines whether downgrades by bond rating agencies have occurred, and reviews industry analysts’ reports. The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates. Management concluded that the gross unrealized losses on debt securities were temporary. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values and management’s assessments will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.
| Loans Receivable and Credit Disclosures |
The composition of loans receivable as of June 30, 20202021 and December 31, 20192020 is as follows (inthousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||
Real estate - construction | $ | 51,045 | $ | 47,895 | $ | 46,164 | $ | 45,497 | ||||||||
Real estate - 1 to 4 family residential | 205,254 | 201,510 | 226,683 | 213,562 | ||||||||||||
Real estate - commercial | 463,077 | 435,850 | 498,561 | 496,357 | ||||||||||||
Real estate - agricultural | 160,286 | 160,771 | 152,157 | 151,992 | ||||||||||||
Commercial 1 | 158,217 | 84,084 | 106,016 | 122,535 | ||||||||||||
Agricultural | 109,066 | 111,945 | 98,233 | 102,586 | ||||||||||||
Consumer and other | 17,704 | 18,791 | 15,622 | 15,048 | ||||||||||||
1,164,649 | 1,060,846 | 1,143,436 | 1,147,577 | |||||||||||||
Less: | ||||||||||||||||
Allowance for loan losses | (16,005 | ) | (12,619 | ) | (16,893 | ) | (17,215 | ) | ||||||||
Deferred loan fees 2 | (2,598 | ) | (80 | ) | ||||||||||||
Deferred loan fees and costs, net 2 | (2,108 | ) | (857 | ) | ||||||||||||
Loans receivable, net | $ | 1,146,046 | $ | 1,048,147 | $ | 1,124,435 | $ | 1,129,505 |
1 | Commercial loan portfolio includes $37.6 million and $50.9 million of Paycheck Protection Program ("PPP") loans as of June 30, 2021 and December 31, 2020, |
2 | Deferred loan fees and costs, net includes $2.3 million and $0.9 million of fees, net of costs, related to the PPP loans as of June 30, 2021 and December 31, 2020, |
The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted December 27, 2020 and the American Rescue Plan Act, enacted March 11, 2021, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA.
Activity in the allowance for loan losses, on a disaggregated basis, for the three and sixmonths ended June 30, 20202021 and 20192020 is as follows (in thousands):
Three Months Ended June 30, 2020 | Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | $ | 753 | $ | 2,336 | $ | 6,552 | $ | 1,563 | $ | 1,672 | $ | 1,815 | $ | 218 | $ | 14,909 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | 868 | $ | 2,383 | $ | 9,049 | $ | 1,498 | $ | 1,262 | $ | 1,614 | $ | 233 | $ | 16,907 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision (credit) for loan losses | 96 | 183 | 724 | 150 | 366 | 15 | 32 | 1,566 | (130 | ) | 217 | (161 | ) | 116 | (123 | ) | 56 | 5 | (20 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans charged-off | - | 3 | 1 | - | 2 | - | 2 | 8 | 0 | 3 | 1 | 0 | 1 | 5 | 3 | 13 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans charged-off | - | (17 | ) | (413 | ) | - | (46 | ) | - | (2 | ) | (478 | ) | 0 | 0 | 0 | 0 | 0 | 0 | (7 | ) | (7 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | 849 | $ | 2,505 | $ | 6,864 | $ | 1,713 | $ | 1,994 | $ | 1,830 | $ | 250 | $ | 16,005 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 738 | $ | 2,603 | $ | 8,889 | $ | 1,614 | $ | 1,140 | $ | 1,675 | $ | 234 | $ | 16,893 |
Six Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | $ | 672 | $ | 2,122 | $ | 5,362 | $ | 1,326 | $ | 1,458 | $ | 1,478 | $ | 201 | $ | 12,619 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | 725 | $ | 2,581 | $ | 8,930 | $ | 1,595 | $ | 1,453 | $ | 1,696 | $ | 235 | $ | 17,215 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision (credit) for loan losses | 176 | 397 | 1,944 | 387 | 578 | 352 | 49 | 3,883 | 13 | (214 | ) | (43 | ) | 19 | (202 | ) | (26 | ) | 7 | (446 | ) | |||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans charged-off | 1 | 3 | 2 | - | 4 | - | 4 | 14 | 0 | 266 | 2 | 0 | 2 | 5 | 7 | 282 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans charged-off | - | (17 | ) | (444 | ) | - | (46 | ) | - | (4 | ) | (511 | ) | 0 | (30 | ) | 0 | 0 | (113 | ) | 0 | (15 | ) | (158 | ) | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | 849 | $ | 2,505 | $ | 6,864 | $ | 1,713 | $ | 1,994 | $ | 1,830 | $ | 250 | $ | 16,005 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 738 | $ | 2,603 | $ | 8,889 | $ | 1,614 | $ | 1,140 | $ | 1,675 | $ | 234 | $ | 16,893 |
Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||
1-4 Family | ||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | ||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||
Balance, March 31, 2019 | $ | 736 | $ | 1,850 | $ | 4,770 | $ | 1,258 | $ | 1,610 | $ | 1,392 | $ | 196 | $ | 11,812 | ||||||||||||||||
Provision (credit) for loan losses | (15 | ) | (1 | ) | 136 | 43 | (21 | ) | (61 | ) | (13 | ) | 68 | |||||||||||||||||||
Recoveries of loans charged-off | - | 1 | - | - | 1 | 1 | 4 | 7 | ||||||||||||||||||||||||
Loans charged-off | - | (3 | ) | - | - | - | - | (15 | ) | (18 | ) | |||||||||||||||||||||
Balance, June 30, 2019 | $ | 721 | $ | 1,847 | $ | 4,906 | $ | 1,301 | $ | 1,590 | $ | 1,332 | $ | 172 | $ | 11,869 |
Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||
1-4 Family | ||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | ||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||
Balance, March 31, 2020 | $ | 753 | $ | 2,336 | $ | 6,552 | $ | 1,563 | $ | 1,672 | $ | 1,815 | $ | 218 | $ | 14,909 | ||||||||||||||||
Provision for loan losses | 96 | 183 | 724 | 150 | 366 | 15 | 33 | 1,567 | ||||||||||||||||||||||||
Recoveries of loans charged-off | 0 | 3 | 1 | 0 | 2 | 0 | 1 | 7 | ||||||||||||||||||||||||
Loans charged-off | 0 | (17 | ) | (413 | ) | 0 | (46 | ) | 0 | (2 | ) | (478 | ) | |||||||||||||||||||
Balance, June 30, 2020 | $ | 849 | $ | 2,505 | $ | 6,864 | $ | 1,713 | $ | 1,994 | $ | 1,830 | $ | 250 | $ | 16,005 |
Six Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1-4 Family | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | $ | 699 | $ | 1,820 | $ | 4,615 | $ | 1,198 | $ | 1,777 | $ | 1,384 | $ | 191 | $ | 11,684 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | $ | 672 | $ | 2,122 | $ | 5,362 | $ | 1,326 | $ | 1,458 | $ | 1,478 | $ | 201 | $ | 12,619 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provision (credit) for loan losses | 11 | 27 | 291 | 103 | (211 | ) | (53 | ) | (2 | ) | 166 | 176 | 397 | 1,944 | 387 | 578 | 352 | 49 | 3,883 | |||||||||||||||||||||||||||||||||||||||||||||
Recoveries of loans charged-off | 11 | 3 | - | - | 29 | 1 | 4 | 48 | 1 | 3 | 2 | 0 | 4 | 0 | 4 | 14 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans charged-off | - | (3 | ) | - | - | (5 | ) | - | (21 | ) | (29 | ) | 0 | (17 | ) | (444 | ) | 0 | (46 | ) | 0 | (4 | ) | (511 | ) | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 | $ | 721 | $ | 1,847 | $ | 4,906 | $ | 1,301 | $ | 1,590 | $ | 1,332 | $ | 172 | $ | 11,869 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | 849 | $ | 2,505 | $ | 6,864 | $ | 1,713 | $ | 1,994 | $ | 1,830 | $ | 250 | $ | 16,005 |
Allowance for loan losses disaggregated on the basis of impairment analysis method as of June 30, 20202021 and December 31, 20192020 is as follows (in thousands)thousands):
2020 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | 150 | $ | - | $ | - | $ | 558 | $ | 40 | $ | 6 | $ | 754 | $ | 0 | $ | 15 | $ | 1,486 | $ | 0 | $ | 0 | $ | 132 | $ | 28 | $ | 1,661 | ||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 849 | 2,355 | 6,864 | 1,713 | 1,436 | 1,790 | 244 | 15,251 | 738 | 2,588 | 7,403 | 1,614 | 1,140 | 1,543 | 206 | 15,232 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2020 | $ | 849 | $ | 2,505 | $ | 6,864 | $ | 1,713 | $ | 1,994 | $ | 1,830 | $ | 250 | $ | 16,005 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2021 | $ | 738 | $ | 2,603 | $ | 8,889 | $ | 1,614 | $ | 1,140 | $ | 1,675 | $ | 234 | $ | 16,893 |
2019 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | 209 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 209 | $ | 0 | $ | 150 | $ | 1,486 | $ | 0 | $ | 115 | $ | 40 | $ | 28 | $ | 1,819 | ||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 672 | 1,913 | 5,362 | 1,326 | 1,458 | 1,478 | 201 | 12,410 | 725 | 2,431 | 7,444 | 1,595 | 1,338 | 1,656 | 207 | 15,396 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2019 | $ | 672 | $ | 2,122 | $ | 5,362 | $ | 1,326 | $ | 1,458 | $ | 1,478 | $ | 201 | $ | 12,619 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2020 | $ | 725 | $ | 2,581 | $ | 8,930 | $ | 1,595 | $ | 1,453 | $ | 1,696 | $ | 235 | $ | 17,215 |
Loans receivable disaggregated on the basis of impairment analysis method as of June 30, 20202021 and December 31, 20192020 is as follows (in thousands):
2020 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | 1,192 | $ | 11,136 | $ | 2,063 | $ | 1,775 | $ | 1,711 | $ | 24 | $ | 17,901 | $ | 0 | $ | 953 | $ | 10,153 | $ | 628 | $ | 271 | $ | 650 | $ | 41 | $ | 12,696 | ||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 51,045 | 204,062 | 451,941 | 158,223 | 156,442 | 107,355 | 17,680 | 1,146,748 | 46,164 | 225,730 | 488,408 | 151,529 | 105,745 | 97,583 | 15,581 | 1,130,740 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2020 | $ | 51,045 | $ | 205,254 | $ | 463,077 | $ | 160,286 | $ | 158,217 | $ | 109,066 | $ | 17,704 | $ | 1,164,649 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2021 | $ | 46,164 | $ | 226,683 | $ | 498,561 | $ | 152,157 | $ | 106,016 | $ | 98,233 | $ | 15,622 | $ | 1,143,436 |
2019 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 1-4 Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Residential | Commercial | Agricultural | Consumer | Construction | Residential | Commercial | Agricultural | Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | Real Estate | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | and Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | 1,204 | $ | 83 | $ | 84 | $ | 462 | $ | 2,951 | $ | 4 | $ | 4,788 | $ | 167 | $ | 1,340 | $ | 10,258 | $ | 1,664 | $ | 940 | $ | 859 | $ | 45 | $ | 15,273 | ||||||||||||||||||||||||||||||||
Collectively evaluated for impairment | 47,895 | 200,306 | 435,767 | 160,687 | 83,622 | 108,994 | 18,787 | 1,056,058 | 45,330 | 212,222 | 486,099 | 150,328 | 121,595 | 101,727 | 15,003 | 1,132,304 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2019 | $ | 47,895 | $ | 201,510 | $ | 435,850 | $ | 160,771 | $ | 84,084 | $ | 111,945 | $ | 18,791 | $ | 1,060,846 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2020 | $ | 45,497 | $ | 213,562 | $ | 496,357 | $ | 151,992 | $ | 122,535 | $ | 102,586 | $ | 15,048 | $ | 1,147,577 |
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company applies its normal loan review procedures to identify loans that should be evaluated for impairment.
Impaired loans, on a disaggregated basis, as of June 30, 20202021 and December 31, 20192020 (in thousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | Unpaid | |||||||||||||||||||||||||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Principal | Related | Recorded | Principal | Related | Recorded | Principal | Related | |||||||||||||||||||||||||||||||||||||
Investment | Balance | Allowance | Investment | Balance | Allowance | Investment | Balance | Allowance | Investment | Balance | Allowance | |||||||||||||||||||||||||||||||||||||
With no specific reserve recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Real estate - construction | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 0 | $ | 0 | $ | - | $ | 167 | $ | 167 | $ | - | ||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 224 | 269 | - | 460 | 796 | - | 932 | 995 | - | 416 | 475 | - | ||||||||||||||||||||||||||||||||||||
Real estate - commercial | 11,136 | 11,907 | - | 83 | 435 | - | 137 | 167 | - | 242 | 578 | - | ||||||||||||||||||||||||||||||||||||
Real estate - agricultural | 2,063 | 2,079 | - | 84 | 97 | - | 628 | 684 | - | 1,664 | 1,698 | - | ||||||||||||||||||||||||||||||||||||
Commercial | 523 | 568 | - | 462 | 517 | - | 271 | 302 | - | 274 | 318 | - | ||||||||||||||||||||||||||||||||||||
Agricultural | 1,178 | 1,335 | - | 2,951 | 3,071 | - | 312 | 504 | - | 377 | 542 | - | ||||||||||||||||||||||||||||||||||||
Consumer and other | 6 | 6 | - | 4 | 4 | - | 4 | 4 | - | 8 | 10 | - | ||||||||||||||||||||||||||||||||||||
Total loans with no specific reserve: | 15,130 | 16,164 | - | 4,044 | 4,920 | - | 2,284 | 2,656 | - | 3,148 | 3,788 | - | ||||||||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Real estate - construction | - | - | - | - | - | - | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 968 | 1,293 | 150 | 744 | 755 | 209 | 21 | 21 | 15 | 924 | 1,278 | 150 | ||||||||||||||||||||||||||||||||||||
Real estate - commercial | - | - | - | - | - | - | 10,016 | 10,157 | 1,486 | 10,016 | 10,157 | 1,486 | ||||||||||||||||||||||||||||||||||||
Real estate - agricultural | - | - | - | - | - | - | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Commercial | 1,252 | 1,252 | 558 | - | - | - | 0 | 0 | 0 | 666 | 1,247 | 115 | ||||||||||||||||||||||||||||||||||||
Agricultural | 533 | 535 | 40 | - | - | - | 338 | 342 | 132 | 482 | 484 | 40 | ||||||||||||||||||||||||||||||||||||
Consumer and other | 18 | 18 | 6 | - | - | - | 37 | 39 | 28 | 37 | 39 | 28 | ||||||||||||||||||||||||||||||||||||
Total loans with specific reserve: | 2,771 | 3,098 | 754 | 744 | 755 | 209 | 10,412 | 10,559 | 1,661 | 12,125 | 13,205 | 1,819 | ||||||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Real estate - construction | - | - | - | - | - | - | 0 | 0 | 0 | 167 | 167 | 0 | ||||||||||||||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 1,192 | 1,562 | 150 | 1,204 | 1,551 | 209 | 953 | 1,016 | 15 | 1,340 | 1,753 | 150 | ||||||||||||||||||||||||||||||||||||
Real estate - commercial | 11,136 | 11,907 | - | 83 | 435 | - | 10,153 | 10,324 | 1,486 | 10,258 | 10,735 | 1,486 | ||||||||||||||||||||||||||||||||||||
Real estate - agricultural | 2,063 | 2,079 | - | 84 | 97 | - | 628 | 684 | 0 | 1,664 | 1,698 | 0 | ||||||||||||||||||||||||||||||||||||
Commercial | 1,775 | 1,820 | 558 | 462 | 517 | - | 271 | 302 | 0 | 940 | 1,565 | 115 | ||||||||||||||||||||||||||||||||||||
Agricultural | 1,711 | 1,870 | 40 | 2,951 | 3,071 | - | 650 | 846 | 132 | 859 | 1,026 | 40 | ||||||||||||||||||||||||||||||||||||
Consumer and other | 24 | 24 | 6 | 4 | 4 | - | 41 | 43 | 28 | 45 | 49 | 28 | ||||||||||||||||||||||||||||||||||||
$ | 17,901 | $ | 19,262 | $ | 754 | $ | 4,788 | $ | 5,675 | $ | 209 | $ | 12,696 | $ | 13,215 | $ | 1,661 | $ | 15,273 | $ | 16,993 | $ | 1,819 |
Average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 20202021 and 20192020 (in thousands):
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||||||||
Recorded | Income | Recorded | Income | Recorded | Income | Recorded | Income | |||||||||||||||||||||||||
Investment | Recognized | Investment | Recognized | Investment | Recognized | Investment | Recognized | |||||||||||||||||||||||||
With no specific reserve recorded: | ||||||||||||||||||||||||||||||||
Real estate - construction | $ | - | $ | - | $ | - | $ | - | $ | 84 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
Real estate - 1 to 4 family residential | 164 | - | 209 | 6 | 619 | 11 | 164 | 0 | ||||||||||||||||||||||||
Real estate - commercial | 10,877 | - | 135 | 29 | 139 | 0 | 10,877 | 0 | ||||||||||||||||||||||||
Real estate - agricultural | 1,429 | - | 78 | - | 860 | 0 | 1,429 | 0 | ||||||||||||||||||||||||
Commercial | 468 | 2 | 235 | - | 544 | 0 | 468 | 2 | ||||||||||||||||||||||||
Agricultural | 2,092 | - | 943 | - | 328 | 1 | 2,092 | 0 | ||||||||||||||||||||||||
Consumer and other | 45 | - | - | - | 4 | 0 | 45 | 0 | ||||||||||||||||||||||||
Total loans with no specific reserve: | 15,075 | 2 | 1,600 | 35 | 2,578 | 12 | 15,075 | 2 | ||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||
Real estate - construction | - | - | - | - | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 1,031 | - | 89 | - | 57 | 0 | 1,031 | 0 | ||||||||||||||||||||||||
Real estate - commercial | 488 | - | - | - | 10,016 | 0 | 488 | 0 | ||||||||||||||||||||||||
Real estate - agricultural | - | - | - | - | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Commercial | 710 | - | 2,535 | - | 0 | 0 | 710 | 0 | ||||||||||||||||||||||||
Agricultural | 495 | - | - | - | 371 | 0 | 495 | 0 | ||||||||||||||||||||||||
Consumer and other | 9 | - | 7 | - | 40 | 0 | 9 | 0 | ||||||||||||||||||||||||
Total loans with specific reserve: | 2,733 | - | 2,631 | - | 10,484 | 0 | 2,733 | - | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Real estate - construction | - | - | - | - | 84 | 0 | 0 | 0 | ||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 1,195 | - | 298 | 6 | 676 | 11 | 1,195 | 0 | ||||||||||||||||||||||||
Real estate - commercial | 11,365 | - | 135 | 29 | 10,155 | 0 | 11,365 | 0 | ||||||||||||||||||||||||
Real estate - agricultural | 1,429 | - | 78 | - | 860 | 0 | 1,429 | 0 | ||||||||||||||||||||||||
Commercial | 1,178 | 2 | 2,770 | - | 544 | 0 | 1,178 | 2 | ||||||||||||||||||||||||
Agricultural | 2,587 | - | 943 | - | 699 | 1 | 2,587 | 0 | ||||||||||||||||||||||||
Consumer and other | 54 | - | 7 | - | 44 | 0 | 54 | 0 | ||||||||||||||||||||||||
$ | 17,808 | $ | 2 | $ | 4,231 | $ | 35 | $ | 13,062 | $ | 12 | $ | 17,808 | $ | 2 |
Six Months Ended June 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Average | Interest | Average | Interest | |||||||||||||
Recorded | Income | Recorded | Income | |||||||||||||
Investment | Recognized | Investment | Recognized | |||||||||||||
With no specific reserve recorded: | ||||||||||||||||
Real estate - construction | $ | - | $ | - | $ | - | $ | - | ||||||||
Real estate - 1 to 4 family residential | 263 | - | 223 | 26 | ||||||||||||
Real estate - commercial | 7,279 | - | 133 | 60 | ||||||||||||
Real estate - agricultural | 980 | 6 | 76 | - | ||||||||||||
Commercial | 466 | 2 | 239 | - | ||||||||||||
Agricultural | 2,378 | - | 629 | - | ||||||||||||
Consumer and other | 31 | - | - | - | ||||||||||||
Total loans with no specific reserve: | 11,397 | 8 | 1,300 | 86 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Real estate - construction | - | - | - | - | ||||||||||||
Real estate - 1 to 4 family residential | 935 | - | 97 | - | ||||||||||||
Real estate - commercial | 325 | - | - | - | ||||||||||||
Real estate - agricultural | - | - | - | - | ||||||||||||
Commercial | 473 | - | 2,490 | - | ||||||||||||
Agricultural | 330 | - | - | - | ||||||||||||
Consumer and other | 6 | - | 10 | 1 | ||||||||||||
Total loans with specific reserve: | 2,069 | - | 2,597 | 1 | ||||||||||||
Total | ||||||||||||||||
Real estate - construction | - | - | - | - | ||||||||||||
Real estate - 1 to 4 family residential | 1,198 | - | 320 | 26 | ||||||||||||
Real estate - commercial | 7,604 | - | 133 | 60 | ||||||||||||
Real estate - agricultural | 980 | 6 | 76 | - | ||||||||||||
Commercial | 939 | 2 | 2,729 | - | ||||||||||||
Agricultural | 2,708 | - | 629 | - | ||||||||||||
Consumer and other | 37 | - | 10 | 1 | ||||||||||||
$ | 13,466 | $ | 8 | $ | 3,897 | $ | 87 |
Six Months Ended June 30, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Average | Interest | Average | Interest | |||||||||||||
Recorded | Income | Recorded | Income | |||||||||||||
Investment | Recognized | Investment | Recognized | |||||||||||||
With no specific reserve recorded: | ||||||||||||||||
Real estate - construction | $ | 111 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Real estate - 1 to 4 family residential | 551 | 11 | 263 | 0 | ||||||||||||
Real estate - commercial | 173 | 297 | 7,279 | 0 | ||||||||||||
Real estate - agricultural | 1,128 | 25 | 980 | 6 | ||||||||||||
Commercial | 454 | 0 | 466 | 2 | ||||||||||||
Agricultural | 344 | 14 | 2,378 | 0 | ||||||||||||
Consumer and other | 5 | 0 | 31 | 0 | ||||||||||||
Total loans with no specific reserve: | 2,766 | 347 | 11,397 | 8 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Real estate - construction | 0 | 0 | 0 | 0 | ||||||||||||
Real estate - 1 to 4 family residential | 346 | 0 | 935 | 0 | ||||||||||||
Real estate - commercial | 10,016 | 0 | 325 | 0 | ||||||||||||
Real estate - agricultural | 0 | 0 | 0 | 0 | ||||||||||||
Commercial | 222 | 0 | 473 | 0 | ||||||||||||
Agricultural | 408 | 0 | 330 | 0 | ||||||||||||
Consumer and other | 39 | 0 | 6 | 0 | ||||||||||||
Total loans with specific reserve: | 11,031 | 0 | 2,069 | 0 | ||||||||||||
Total | ||||||||||||||||
Real estate - construction | 111 | 0 | 0 | 0 | ||||||||||||
Real estate - 1 to 4 family residential | 897 | 11 | 1,198 | 0 | ||||||||||||
Real estate - commercial | 10,189 | 297 | 7,604 | 0 | ||||||||||||
Real estate - agricultural | 1,128 | 25 | 980 | 6 | ||||||||||||
Commercial | 676 | 0 | 939 | 2 | ||||||||||||
Agricultural | 752 | 14 | 2,708 | 0 | ||||||||||||
Consumer and other | 44 | 0 | 37 | 0 | ||||||||||||
$ | 13,797 | $ | 347 | $ | 13,466 | $ | 8 |
The interest foregone on nonaccrual loans for the three months ended June 30, 20202021 and 20192020 was approximately $312,000$170 thousand and $59,000,$312 thousand, respectively. The interest foregone on nonaccrual loans for the six months ended June 30, 20202021 and 20192020 was approximately $501,000$369 thousand and $117,000,$501 thousand, respectively.
Nonaccrual loans at June 30, 20202021 and December 31, 20192020 were $17,901,000$12.7 million and $4,788,000$15.3 million, respectively.
The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $1,276,000$10.8 million as of June 30, 2020,2021, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $1,171,000$11.3 million as of December 31, 2019,2020, all of which were included in impaired and nonaccrual loans.
The Company’s TDRs, on a disaggregated basis, occurring in the three and six months ended June 30, 2021 and 2020, were as follows (dollars in thousands):
Three Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | |||||||||||||||||||
Real estate - construction | 0 | $ | 0 | $ | 0 | 0 | $ | 0 | $ | 0 | ||||||||||||||
Real estate - 1 to 4 family residential | 1 | 425 | 425 | 0 | 0 | 0 | ||||||||||||||||||
Real estate - commercial | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Real estate - agricultural | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commercial | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Agricultural | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
1 | $ | 425 | $ | 425 | 0 | $ | 0 | $ | 0 |
Six Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | |||||||||||||||||||
Real estate - construction | 0 | $ | 0 | $ | 0 | 0 | $ | 0 | $ | 0 | ||||||||||||||
Real estate - 1 to 4 family residential | 3 | 578 | 578 | 0 | 0 | 0 | ||||||||||||||||||
Real estate - commercial | 0 | 0 | 0 | 1 | 184 | 184 | ||||||||||||||||||
Real estate - agricultural | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commercial | 1 | 58 | 58 | 1 | 61 | 61 | ||||||||||||||||||
Agricultural | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
4 | $ | 636 | $ | 636 | 2 | $ | 245 | $ | 245 |
During the three months ended June 30, 2021, the Company granted concessions to one borrower facing financial difficulties which was unrelated to COVID-19. The loan was restructured with a lower interest rate and the amortization period was extended longer than a typical loan. During the three months ended June 30, 2020, and 2019,the Company did not grant any concessions to borrowers that are facing financial difficulties. During the six months ended June 30, 2021, the Company granted concessions to three borrowers facing financial difficulties. The loans were restructured with a lower interest rate or amortization periods longer than a typical loan. During the six months ended June 30, 2020, the Company granted concessions to two borrowers facing financial difficulties. One loan was secured by commercial real estate and the second loan was secured by a commercial operating note. Payments on these loans were deferred for six months and the interest rate was reduced below the market interest rate. During the six months ended June 30, 2019, the Company did not grant concessions to any borrowers facing financial difficulty. COVID-19 related loan modifications are not reported as TDR’s.
There were 0 TDR loans that were modified during the six months ended June 30, 20202021 and twelve months ended June 30, 20192021 that had payment defaults. The Company considers TDR loans to have payment default when it is past due 60 days or more.
There were $16,0000 net charge-offs and $16 thousand of net charge-offs related to TDRs for the three months ended June 30, 20202021 and $31,0002020, respectively. There were $262 thousand of net recoveries and $31 thousand of net charge-offs related to TDRs for the six months ended June 30, 2020.2021 There were 0 charge-offs related to TDRsand 2020, respectively. No additional specific reserve was provided for the three and six months ended June 30, 2019.2021 and 2020.
Section 4013 of the CARES Act, “Temporary Relief From TDRs,” allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, extended to January 1, 2022 under the Coronavirus Response and Relief Supplemental Appropriations Act, or 60 days after the termination of the COVID-19 national emergency. In March 2020, various regulatory agencies, includingfederal banking regulators in consultation with the Board of Governors of the Federal Reserve System and the FDIC, (the "agencies")FASB issued an interagency statementstatements that include similar guidance on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” a restructuring of debt constitutes a TDR if the creditor grants a concession and the debtor is experiencing financial difficulties. The agencies confirmed with the staff of the FASBprovided that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g.,
As of sixJune 30, 2021, the Company had 4 COVID-19 months)related loan modifications such as payment deferrals, fee waivers, extensionsstill in the modification period with a total outstanding principal balance of repayment terms, or other delays$15.3 million. As of December 31, 2020, the Company had 24 COVID-19 related loan modifications still in payment thatthe modification period with a total outstanding principal balance of $45.9 million. Modified loans continue to accrue interest and are insignificant. Borrowers considered current are those that are less than 30 daysevaluated for past due status based on their contractual payments at the time a modification program is implemented. The Company is applying this guidance to qualifying loan modifications. There were $122,778,000 of loans modified under these rules during the six months ended June 30, 2020. These loans did not have financial difficulty prior to the COVID-19 pandemic and were generally modified for principal and interestrevised payment deferral or interest only payments for up to six months.terms.
An aging analysis of the recorded investments in loans, on a disaggregated basis, as of June 30, 20202021 and December 31, 2019,2020, is as follows (in thousands):
2020 | 90 Days | 90 Days | ||||||||||||||||||||||||||||||||||||||||||||||
2021 | 90 Days | 90 Days | ||||||||||||||||||||||||||||||||||||||||||||||
30-89 | or Greater | Total | or Greater | 30-89 | or Greater | Total | or Greater | |||||||||||||||||||||||||||||||||||||||||
Past Due | Past Due | Past Due | Current | Total | Accruing | Past Due | Past Due | Past Due | Current | Total | Accruing | |||||||||||||||||||||||||||||||||||||
Real estate - construction | $ | 429 | $ | - | $ | 429 | $ | 50,616 | $ | 51,045 | $ | - | $ | 0 | $ | 0 | $ | 0 | $ | 46,164 | $ | 46,164 | $ | 0 | ||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 749 | 233 | 982 | 204,272 | 205,254 | 109 | 791 | 103 | 894 | 225,789 | 226,683 | 4 | ||||||||||||||||||||||||||||||||||||
Real estate - commercial | 4,940 | 10,325 | 15,265 | 447,812 | 463,077 | - | 2,525 | 0 | 2,525 | 496,036 | 498,561 | 0 | ||||||||||||||||||||||||||||||||||||
Real estate - agricultural | 586 | 2,004 | 2,590 | 157,696 | 160,286 | - | 577 | 0 | 577 | 151,580 | 152,157 | 0 | ||||||||||||||||||||||||||||||||||||
Commercial | 268 | 1,572 | 1,840 | 156,377 | 158,217 | - | 828 | 6 | 834 | 105,182 | 106,016 | 0 | ||||||||||||||||||||||||||||||||||||
Agricultural | 149 | 1,747 | 1,896 | 107,170 | 109,066 | 532 | 67 | 294 | 361 | 97,872 | 98,233 | 0 | ||||||||||||||||||||||||||||||||||||
Consumer and other | 30 | 20 | 50 | 17,654 | 17,704 | - | 23 | 5 | 28 | 15,594 | 15,622 | 0 | ||||||||||||||||||||||||||||||||||||
$ | 7,151 | $ | 15,901 | $ | 23,052 | $ | 1,141,597 | $ | 1,164,649 | $ | 641 | $ | 4,811 | $ | 408 | $ | 5,219 | $ | 1,138,217 | $ | 1,143,436 | $ | 4 |
2019 | 90 Days | 90 Days | ||||||||||||||||||||||||||||||||||||||||||||||
2020 | 90 Days | 90 Days | ||||||||||||||||||||||||||||||||||||||||||||||
30-89 | or Greater | Total | or Greater | 30-89 | or Greater | Total | or Greater | |||||||||||||||||||||||||||||||||||||||||
Past Due | Past Due | Past Due | Current | Total | Accruing | Past Due | Past Due | Past Due | Current | Total | Accruing | |||||||||||||||||||||||||||||||||||||
Real estate - construction | $ | 1,796 | $ | - | $ | 1,796 | $ | 46,099 | $ | 47,895 | $ | - | $ | 169 | $ | 167 | $ | 336 | $ | 45,161 | $ | 45,497 | $ | 0 | ||||||||||||||||||||||||
Real estate - 1 to 4 family residential | 811 | 290 | 1,101 | 200,409 | 201,510 | 188 | 1,523 | 176 | 1,699 | 211,863 | 213,562 | 6 | ||||||||||||||||||||||||||||||||||||
Real estate - commercial | 387 | - | 387 | 435,463 | 435,850 | - | 152 | 56 | 208 | 496,149 | 496,357 | 0 | ||||||||||||||||||||||||||||||||||||
Real estate - agricultural | 422 | - | 422 | 160,349 | 160,771 | - | 574 | 1,618 | 2,192 | 149,800 | 151,992 | 0 | ||||||||||||||||||||||||||||||||||||
Commercial | 518 | 237 | 755 | 83,329 | 84,084 | - | 283 | 3 | 286 | 122,249 | 122,535 | 3 | ||||||||||||||||||||||||||||||||||||
Agricultural | 666 | 2,587 | 3,253 | 108,692 | 111,945 | 62 | 79 | 458 | 537 | 102,049 | 102,586 | 30 | ||||||||||||||||||||||||||||||||||||
Consumer and other | 146 | 6 | 152 | 18,639 | 18,791 | 5 | 18 | 16 | 34 | 15,014 | 15,048 | 0 | ||||||||||||||||||||||||||||||||||||
$ | 4,746 | $ | 3,120 | $ | 7,866 | $ | 1,052,980 | $ | 1,060,846 | $ | 255 | $ | 2,798 | $ | 2,494 | $ | 5,292 | $ | 1,142,285 | $ | 1,147,577 | $ | 39 |
The increase in the 90 days or greater loans from December 31, 2019 is primarily due to one hospitality loan as of June 30, 2020.
The credit risk profile by internally assigned grade, on a disaggregated basis, as of June 30, 20202021 and December 31, 20192020 is as follows (in thousands):
2020 | Construction | Commercial | Agricultural | |||||||||||||||||||||||||||||||||||||||||||||
2021 | Construction | Commercial | Agricultural | |||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Commercial | Agricultural | Total | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | Total | |||||||||||||||||||||||||||||||||||||
Pass | $ | 38,995 | $ | 352,549 | $ | 115,509 | $ | 135,955 | $ | 79,597 | $ | 722,605 | $ | 44,565 | $ | 360,863 | $ | 123,723 | $ | 92,810 | $ | 81,986 | $ | 703,947 | ||||||||||||||||||||||||
Watch | 12,050 | 90,122 | 33,718 | 16,302 | 24,570 | 176,762 | 246 | 77,746 | 21,918 | 8,520 | 14,842 | 123,272 | ||||||||||||||||||||||||||||||||||||
Special Mention | - | 5,015 | - | 1,057 | - | 6,072 | 1,353 | 22,315 | 171 | 1,336 | 0 | 25,175 | ||||||||||||||||||||||||||||||||||||
Substandard | - | 4,255 | 8,996 | 3,128 | 3,188 | 19,567 | 0 | 27,484 | 5,717 | 3,079 | 755 | 37,035 | ||||||||||||||||||||||||||||||||||||
Substandard-Impaired | - | 11,136 | 2,063 | 1,775 | 1,711 | 16,685 | 0 | 10,153 | 628 | 271 | 650 | 11,702 | ||||||||||||||||||||||||||||||||||||
$ | 51,045 | $ | 463,077 | $ | 160,286 | $ | 158,217 | $ | 109,066 | $ | 941,691 | $ | 46,164 | $ | 498,561 | $ | 152,157 | $ | 106,016 | $ | 98,233 | $ | 901,131 |
2019 | Construction | Commercial | Agricultural | |||||||||||||||||||||||||||||||||||||||||||||
2020 | Construction | Commercial | Agricultural | |||||||||||||||||||||||||||||||||||||||||||||
Real Estate | Real Estate | Real Estate | Commercial | Agricultural | Total | Real Estate | Real Estate | Real Estate | Commercial | Agricultural | Total | |||||||||||||||||||||||||||||||||||||
Pass | $ | 41,073 | $ | 387,274 | $ | 118,692 | $ | 62,655 | $ | 90,083 | $ | 699,777 | $ | 39,980 | $ | 346,591 | $ | 110,925 | $ | 101,858 | $ | 80,075 | $ | 679,429 | ||||||||||||||||||||||||
Watch | 6,822 | 29,209 | 32,780 | 16,147 | 15,248 | 100,206 | 5,350 | 88,113 | 33,144 | 15,897 | 20,793 | 163,297 | ||||||||||||||||||||||||||||||||||||
Special Mention | - | 4,581 | - | - | - | 4,581 | 0 | 23,753 | 175 | 52 | 0 | 23,980 | ||||||||||||||||||||||||||||||||||||
Substandard | - | 14,703 | 9,215 | 4,820 | 3,663 | 32,401 | 0 | 27,642 | 6,084 | 3,788 | 859 | 38,373 | ||||||||||||||||||||||||||||||||||||
Substandard-Impaired | - | 83 | 84 | 462 | 2,951 | 3,580 | 167 | 10,258 | 1,664 | 940 | 859 | 13,888 | ||||||||||||||||||||||||||||||||||||
$ | 47,895 | $ | 435,850 | $ | 160,771 | $ | 84,084 | $ | 111,945 | $ | 840,545 | $ | 45,497 | $ | 496,357 | $ | 151,992 | $ | 122,535 | $ | 102,586 | $ | 918,967 |
The credit risk profile based on payment activity, on a disaggregated basis, as of June 30, 20202021 and December 31, 20192020 is as follows (in thousands)thousands):
2020 | 1-4 Family | ||||||||||||||||||||||||
2021 | 1-4 Family | ||||||||||||||||||||||||
Residential | Consumer | Residential | Consumer | ||||||||||||||||||||||
Real Estate | and Other | Total | Real Estate | and Other | Total | ||||||||||||||||||||
Performing | $ | 203,953 | $ | 17,684 | $ | 221,637 | $ | 225,725 | $ | 15,581 | $ | 241,306 | |||||||||||||
Non-performing | 1,301 | 20 | 1,321 | 958 | 41 | 999 | |||||||||||||||||||
$ | 205,254 | $ | 17,704 | $ | 222,958 | $ | 226,683 | $ | 15,622 | $ | 242,305 |
2019 | 1-4 Family | ||||||||||||||||||||||||
2020 | 1-4 Family | ||||||||||||||||||||||||
Residential | Consumer | Residential | Consumer | ||||||||||||||||||||||
Real Estate | and Other | Total | Real Estate | and Other | Total | ||||||||||||||||||||
Performing | $ | 200,117 | $ | 18,782 | $ | 218,899 | $ | 212,282 | $ | 15,003 | $ | 227,285 | |||||||||||||
Non-performing | 1,393 | 9 | 1,402 | 1,280 | 45 | 1,325 | |||||||||||||||||||
$ | 201,510 | $ | 18,791 | $ | 220,301 | $ | 213,562 | $ | 15,048 | $ | 228,610 |
|
|
As a result of the acquisition of ISSB in 2019, goodwill of $2.7 million was recognized. Goodwill recognized in the Acquisition was primarily attributable to an expanded market share and economies of scale expected from combining the operations of ISSB. For income tax purposes, goodwill associated with ISSB is amortized over a fifteen year period. Goodwill for this acquisition and previous acquisitions is not amortized but is evaluated for impairment at least annually.
| Intangible assets |
In conjunction with the acquisition of ISSB in 2019, the Company recorded $1.9 million in core deposit intangible assets. The following sets forth the carrying amounts and accumulated amortization of the intangible assets at June 30, 20202021 and December 31, 20192020 (in thousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||
Gross | Accumulated | Gross | Accumulated | Gross | Accumulated | Gross | Accumulated | |||||||||||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||||||||||
Core deposit intangible asset | $ | 6,411 | $ | 3,140 | $ | 6,411 | $ | 2,745 | $ | 6,411 | $ | 3,774 | $ | 6,411 | $ | 3,493 | ||||||||||||||||
Customer list | 535 | 281 | 535 | 242 | 535 | 359 | 535 | 320 | ||||||||||||||||||||||||
Total | $ | 6,946 | $ | 3,421 | $ | 6,946 | $ | 2,987 | $ | 6,946 | $ | 4,133 | $ | 6,946 | $ | 3,813 |
The weighted average remaining life of the intangible assets is 4.0approximately 4 years as of June 30, 20202021 and 4.2 years as of December 31, 2019.2020.
The following sets forth the activity related to the intangible assets for the three and six months ended June 30, 20202021 and 20192020 (in thousands):
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Beginning intangible assets, net | $ | 3,742 | $ | 2,514 | $ | 3,959 | $ | 2,678 | $ | 2,973 | $ | 3,742 | $ | 3,133 | $ | 3,959 | ||||||||||||||||
Amortization | (217 | ) | (139 | ) | (434 | ) | (303 | ) | (160 | ) | (217 | ) | (320 | ) | (434 | ) | ||||||||||||||||
Ending intangible assets, net | $ | 3,525 | $ | 2,375 | $ | 3,525 | $ | 2,375 | $ | 2,813 | $ | 3,525 | $ | 2,813 | $ | 3,525 |
Estimated remaining amortization expense on intangible assets for the years ending December 31 is as follows (in thousands):
2020 | $ | 392 | ||
2021 | 628 | |||
2022 | 574 | |||
2023 | 502 | |||
2024 | 337 | |||
2025 | 301 | |||
After | 791 | |||
Total | $ | 3,525 |
2021 | $ | 308 | ||
2022 | 574 | |||
2023 | 502 | |||
2024 | 337 | |||
2025 | 300 | |||
2026 | 268 | |||
After | 524 | |||
Total | $ | 2,813 |
| Pledged Collateral Related to Securities Sold Under Repurchase Agreements |
The repurchase agreements mature daily and the following sets forth the pledged collateral at estimated fair value related to securities sold under repurchase agreements as of June 30, 20202021 and December 31, 20192020 (in thousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||
Securities sold under agreements to repurchase: | ||||||||||||||||
U.S. government treasuries | $ | 2,486 | $ | 3,528 | $ | 2,049 | $ | 2,069 | ||||||||
U.S. government agencies | 39,793 | 35,557 | 36,612 | 39,362 | ||||||||||||
U.S. government mortgage-backed securities | 14,495 | 19,614 | 12,686 | 14,320 | ||||||||||||
Total pledged collateral | $ | 56,774 | $ | 58,699 | $ | 51,347 | $ | 55,751 |
In the event the repurchase agreements exceed the estimated fair value of the pledged securities available-for-sale, the Company has unpledged securities available-for-sale that may be pledged on the repurchase agreements.
| Borrowings |
On June 11, 2021, the Company entered into a promissory note and line of credit agreement with an unaffiliated bank, providing for a five-year 4000000 dollar line of credit facility. The Company had 0 outstanding borrowings on the line of credit as of June 30, 2021.
11. | Income Taxes |
The tax effects of temporary differences related to income taxes are included in deferred income taxes. The change in deferred income taxes since December 31, 20192020 is due primarily to the increasedecrease in the net unrealized gains on investment securities.
12. | Commitments, Contingencies and Concentrations of Credit Risk |
On April 16, 2021, the Company entered into a $1.7 million commitment with a contractor to build a new branch in West Des Moines, Iowa. The full commitment was remaining at June 30, 2021.
13. | Regulatory Matters |
On June 30,March 31, 2020, the Banks qualified for and elected to use the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 8%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. Beginning inOn January 1, 2021the CBLR will increaseincreased to 8.5% for the calendar year. The CBLRyear and will again increase to 9% beginning January 1, 2022. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. If an electing banking organization fails to satisfy one or more of the qualifying criteria but maintains a leverage ratio of greater than 8%, that banking organization would have a “grace period” of up to two quarters during which it could continue to use the community bank leverage ratio framework and be deemed to meet the “well capitalized” capital ratio requirements. As long as the banking organization is able to return to compliance with all the qualifying criteria within two quarters, it continues to be deemed to meet the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule. State Bank & Trust was below 8.5% but greater than 8% as of June 30, 2021 and has until September 30, 2021 to return to compliance with all qualifying criteria of the CBLR. First National Bank was below 8.5% but greater than 8% as of June 30, 2021 and has until December 31, 2021 to return to compliance with all qualifying criteria of the CBLR.
The Company and the Banks’ capital amounts and ratios as of June 30, 20202021 and December 31, 20192020 are as follows (dollars in thousands):
To Be Well | To Be Well | |||||||||||||||||||||||||||||||
Capitalized Under | Capitalized Under | |||||||||||||||||||||||||||||||
Prompt Corrective | Prompt Corrective | |||||||||||||||||||||||||||||||
Actual | Action Provisions | Actual | Action Provisions | |||||||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||
As of June 30, 2020: | ||||||||||||||||||||||||||||||||
As of June 30, 2021: | ||||||||||||||||||||||||||||||||
Community Bank Leverage Ratio: | ||||||||||||||||||||||||||||||||
(Tier 1 capital to average assets for leverage ratio): | ||||||||||||||||||||||||||||||||
Boone Bank & Trust | $ | 13,508 | 9.3 | % | $ | 11,658 | 8.0 | % | $ | 14,345 | 9.0 | % | $ | 13,542 | 8.5 | % | ||||||||||||||||
First National Bank | 84,372 | 8.7 | 78,018 | 8.0 | 90,457 | 8.5 | 90,814 | 8.5 | ||||||||||||||||||||||||
Iowa State Savings Bank | 20,913 | 9.4 | 17,873 | 8.0 | 22,305 | 9.0 | 20,949 | 8.5 | ||||||||||||||||||||||||
Reliance State Bank | 22,330 | 9.8 | 18,283 | 8.0 | 24,146 | 9.0 | 22,885 | 8.5 | ||||||||||||||||||||||||
State Bank & Trust | 15,881 | 8.8 | 14,403 | 8.0 | 17,950 | 8.3 | 18,390 | 8.5 | ||||||||||||||||||||||||
United Bank & Trust | 10,204 | 9.6 | 8,537 | 8.0 | 10,720 | 8.8 | 10,355 | 8.5 |
To Be Well | To Be Well | |||||||||||||||||||||||||||||||||||||||
Capitalized Under | Capitalized Under | |||||||||||||||||||||||||||||||||||||||
For Capital | Prompt Corrective | Prompt Corrective | ||||||||||||||||||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | Actual | Action Provisions | ||||||||||||||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||
As of December 31, 2019: | ||||||||||||||||||||||||||||||||||||||||
Total capital (to risk- weighted assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 180,834 | 14.3 | % | $ | 132,878 | 10.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||
As of December 31, 2020: | ||||||||||||||||||||||||||||||||||||||||
Community Bank Leverage Ratio: | ||||||||||||||||||||||||||||||||||||||||
(Tier 1 capital to average assets for leverage ratio): | ||||||||||||||||||||||||||||||||||||||||
Boone Bank & Trust | 14,205 | 14.1 | 10,610 | 10.50 | $ | 10,105 | 10.0 | % | $ | 13,967 | 9.2 | % | $ | 12,170 | 8.0 | % | ||||||||||||||||||||||||
First National Bank | 87,375 | 13.9 | 66,180 | 10.50 | 63,028 | 10.0 | 86,071 | 8.6 | 80,393 | 8.0 | ||||||||||||||||||||||||||||||
Iowa State Savings Bank | 20,610 | 14.2 | 15,208 | 10.50 | 14,483 | 10.0 | 21,610 | 9.4 | 18,321 | 8.0 | ||||||||||||||||||||||||||||||
Reliance State Bank | 24,487 | 13.0 | 19,778 | 10.50 | 18,836 | 10.0 | 23,278 | 9.4 | 19,741 | 8.0 | ||||||||||||||||||||||||||||||
State Bank & Trust | 16,800 | 13.5 | 13,115 | 10.50 | 12,490 | 10.0 | 16,564 | 8.5 | 15,657 | 8.0 | ||||||||||||||||||||||||||||||
United Bank & Trust | 10,775 | 14.3 | 7,910 | 10.50 | 7,534 | 10.0 | 10,539 | 9.2 | 9,180 | 8.0 | ||||||||||||||||||||||||||||||
Tier 1 capital (to risk- weighted assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 167,514 | 13.2 | % | $ | 107,568 | 8.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||
Boone Bank & Trust | 13,274 | 13.1 | 8,589 | 8.50 | $ | 8,084 | 8.0 | % | ||||||||||||||||||||||||||||||||
First National Bank | 80,665 | 12.8 | 53,574 | 8.50 | 50,423 | 8.0 | ||||||||||||||||||||||||||||||||||
Iowa State Savings Bank | 20,151 | 13.9 | 12,311 | 8.50 | 11,587 | 8.0 | ||||||||||||||||||||||||||||||||||
Reliance State Bank | 22,166 | 11.8 | 16,010 | 8.50 | 15,069 | 8.0 | ||||||||||||||||||||||||||||||||||
State Bank & Trust | 15,233 | 12.2 | 10,617 | 8.50 | 9,992 | 8.0 | ||||||||||||||||||||||||||||||||||
United Bank & Trust | 9,955 | 13.2 | 6,403 | 8.50 | 6,027 | 8.0 | ||||||||||||||||||||||||||||||||||
Tier 1 capital (to average- assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 167,544 | 10.1 | % | $ | 66,234 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
Boone Bank & Trust | 13,274 | 9.5 | 5,604 | 4.00 | $ | 7,005 | 5.0 | % | ||||||||||||||||||||||||||||||||
First National Bank | 80,665 | 9.3 | 34,702 | 4.00 | 43,378 | 5.0 | ||||||||||||||||||||||||||||||||||
Iowa State Savings Bank | 20,151 | 9.5 | 8,453 | 4.00 | 10,567 | 5.0 | ||||||||||||||||||||||||||||||||||
Reliance State Bank | 22,166 | 10.0 | 8,886 | 4.00 | 11,108 | 5.0 | ||||||||||||||||||||||||||||||||||
State Bank & Trust | 15,233 | 9.5 | 6,384 | 4.00 | 7,980 | 5.0 | ||||||||||||||||||||||||||||||||||
United Bank & Trust | 9,955 | 9.8 | 4,073 | 4.00 | 5,091 | 5.0 | ||||||||||||||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 167,544 | 13.2 | % | $ | 88,585 | 7.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
Boone Bank & Trust | 13,274 | 13.1 | 7,074 | 7.00 | $ | 6,568 | 6.5 | % | ||||||||||||||||||||||||||||||||
First National Bank | 80,665 | 12.8 | 44,120 | 7.00 | 40,968 | 6.5 | ||||||||||||||||||||||||||||||||||
Iowa State Savings Bank | 20,151 | 13.9 | 10,138 | 7.00 | 9,414 | 6.5 | ||||||||||||||||||||||||||||||||||
Reliance State Bank | 22,166 | 11.8 | 13,185 | 7.00 | 12,243 | 6.5 | ||||||||||||||||||||||||||||||||||
State Bank & Trust | 15,233 | 12.2 | 8,743 | 7.00 | 8,119 | 6.5 | ||||||||||||||||||||||||||||||||||
United Bank & Trust | 9,955 | 13.2 | 5,273 | 7.00 | 4,897 | 6.5 |
14. | Subsequent Events |
Management evaluated subsequent events through the date the financial statements were issued. There were no significant events or transactions occurring after June 30, 2020,2021, but prior to August 6, 2020,5, 2021, that provided additional evidence about conditions that existed at June 30, 2020.2021. Except for dividends declared on July 8, 2020,14, 2021, there were no other significant events or transactions that provided evidence about conditions that did not exist at June 30, 2020.2021.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Ames National Corporation (the “Company”) is a bank holding company established in 1975 that owns and operates six bank subsidiaries in central Iowa (the “Banks”). The following discussion is provided for the consolidated operations of the Company and its Banks, First National Bank, Ames, Iowa (First National), State Bank & Trust Co. (State Bank), Boone Bank & Trust Co. (Boone Bank), Reliance State Bank (Reliance Bank), United Bank & Trust NA (United Bank) and Iowa State Savings Bank (Iowa State Bank). 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. Wealth management services includes financial planning and managing trust, agencies, estates and investment brokerage accounts. The Company employs sixteen individuals to assist with financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to 269254 full-time equivalent individuals employed by the Banks.
The Company’s primary competitive strategy is to utilize seasoned and competent Bank management and local decision making authority to provide customers with faster response times and more flexibility in the products and services offered. This strategy is viewed as providing an opportunity to increase revenues through creating a competitive advantage over other financial institutions. The Company also strives to remain operationally efficient to provide better profitability while enabling the Company to offer more competitive loan and deposit rates.
The Company announced the closing of two branches of Iowa State Bank located in Diagonal and Corning, Iowa and the closing of one branch of First National located in Murray, Iowa as a result of limited customer activity. We expect to serve these customers at other branches.
The principal sources of Company revenues and cash flow are: (i) interest and fees earned on loans made by the Company and Banks; (ii) interest on fixed income investments held by the Banks; (iii) fees on wealth management services provided by those Banks exercising trust powers; (iv) service fees on deposit accounts maintained at the BanksBanks; (v) gain on sale of loans; and (v)(vi) merchant and card fees. The Company’s principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) provision for loan losses; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks’ loan and deposit functions; (v) occupancy expenses for maintaining the Bank’s facilities; and (vi) professional fees. The largest component contributing to the Company’s net income is net interest income, which is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on interest bearinginterest-bearing liabilities (primarily deposits and other borrowings). One of management’s principal functions is to manage the spread between interest earned on earning assets and interest paid on interest bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk.
The Company had net income of $4,428,000,$5.9 million, or $0.64 per share, for the three months ended June 30, 2021, compared to net income of $4.4 million, or $0.49 per share, for the three months ended June 30, 2020. The increase in earnings is primarily the result of a decrease in provision for loan losses due to a higher level of provision in 2020 comparedas a result of the onset of the COVID-19 pandemic and a reduction in interest expense due to net income of $4,618,000, or $0.50 per share,declines in market interest rates.
Net loan recoveries totaled $6 thousand for the three months ended June 30, 2019.
The decrease in earnings is primarily due2021 compared to net loan charge offs of $471 thousand for the additionalthree months ended June 30, 2020. A (credit) for loan losses of ($20) thousand was recognized for the three months ended June 30, 2021 as compared to a $1.6 million provision for loan losses inloss for the three months ended June 30, 2020. The increase in the provisioncredit for loan losses was primarily due to theimproving economic slowdown associated with COVID-19 and to a lesser extent the increase in net charge-offs.conditions. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect the loans associated with hospitality and entertainment industries. As of June 30, 2020 approximately 8.3% of our loan portfolio is associated with these industries. There have been requestsprovision for loan payment modifications across all loan portfolios. These modifications werelosses in 2020 was primarily relateddue to payment deferrals or interest only payments for up to six months. The total loans modified was approximately $122,778,000 as of June 30, 2020. The federal government is providing numerous programs to lessen the effects of COVID-19 on the economy and on our loan portfolio. The severityonset of the effect of COVID-19 on our operations is difficult to determine at this time. The State of Iowa has been easing restrictions on non-essential businesses. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.pandemic.
Net loan charge-offs totaled $470,000 and $11,000 for the three months ended June 30, 2020 and 2019, respectively. The provision for loan losses totaled $1,566,000 and $68,000 for the three months ended June 30, 2020 and 2019, respectively.
The Company had net income of $7,982,000, or $0.87 per share, for the six months ended June 30, 2020, compared to net income of $8,855,000, or $0.96 per share, for the six months ended June 30, 2019.
The decrease in earnings is primarily the result of the additional provision for loan losses in 2020. The increase in the provision for loan losses was primarily due to the economic slowdown associated with COVID-19 and to a lesser extent loan growth and the increase in net charge-offs.
Net loan charge-offs (recoveries) totaled $497,000 and ($19,000) for the six months ended June 30, 2020 and 2019, respectively. The provision for loan losses totaled $3,883,000 and $166,000 for the six months ended June 30, 2020 and 2019, respectively.
The following management discussion and analysis will provide a review of important items relating to:
● | Challenges and COVID-19 Status, Risks and Uncertainties |
● | Key Performance Indicators and 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 |
● | Forward-Looking Statements and Business Risks |
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Challenges and COVID-19 Status, Risks and Uncertainties
Prior to the onset of the COVID-19 pandemic during the first quarter of 2020, management had
Management has identified certain events or circumstances that may negatively impact the Company’s financial condition and results of operations in the future and detailed its effortsis attempting to position the Company to best respond to those challenges. These challenges are addressed in the Company’s most recent Annual Report on Form 10-K filed on March 10, 2020.12, 2021.
The Company conducts business in the State of Iowa and Iowa began to place significant restrictions on companies and individuals on March 9, 2020 as a result of the COVID-19 pandemic. The State of Iowa has eased many of the restrictions related to the COVID-19 pandemic. As an organization that focuses on community banking, we are concerned about the health of our customers, employees and local communities and keep that thought at the forefront of our decisions. The Company, as a financial institution, is considered an essential business and therefore continues to operate. The Company’s bank lobbies are generally open to the public, with business also being transacted through our drive up facilities, online, telephone or by appointment. Some of the mitigations in place at our offices related to COVID-19 include face coverings, social distancing, frequent hand washing, and protective shields. Although the Company anticipates moving toward normalized operations, changes in restrictions by governmental authorities may change these plans.
The onsetcontinuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing the Companyour business and itscontinuation of operations, including the following:
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● | As evidenced by the level of loans classified as substandard and watch as of June 30, 2021, we continue to experience a higher 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 |
● | Throughout the COVID-19 |
● | In meeting our objective to maintain our capital levels and liquidity position through the COVID-19 pandemic, our Board of Directors may reduce or determine to altogether forego payment of future dividends in order to maintain and/or strengthen our capital and liquidity position. |
Key
Key Performance Indicators and Industry Results
Certain key performance indicators for the Company and the industry are presented in the following chart. The industry figures are compiled by the Federal Deposit Insurance Corporation (the “FDIC”) and are derived from 5,1164,978 commercial banks and savings institutions insured by the FDIC. Management reviews these indicators on a quarterly basis for purposes of comparing the Company’s performance from quarter-to-quarter against the industry as a whole.
Selected Indicators for the Company and the Industry
3 Months | 6 Months | Years Ended December 31, | 3 Months | 6 Months | Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ended | Ended | 3 Months Ended | Ended | Ended | 3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2020 | March 31, 2020 | 2019 | 2018 | June 30, 2021 | March 31, 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company | Company | Industry* | Company | Industry* | Company | Industry* | Company | Company | Industry* | Company | Industry* | Company | Industry* | |||||||||||||||||||||||||||||||||||||||||||||||||||
Return on assets | 0.94 | % | 0.88 | % | 0.81 | % | 0.38 | % | 1.14 | % | 1.29 | % | 1.23 | % | 1.35 | % | 1.12 | % | 1.16 | % | 1.19 | % | 1.38 | % | 1.01 | % | 0.72 | % | 1.14 | % | 1.29 | % | ||||||||||||||||||||||||||||||||
Return on equity | 9.09 | % | 8.27 | % | 7.44 | % | 3.50 | % | 9.48 | % | 11.40 | % | 10.09 | % | 11.98 | % | 11.39 | % | 11.46 | % | 11.52 | % | 13.73 | % | 9.48 | % | 6.88 | % | 9.48 | % | 11.38 | % | ||||||||||||||||||||||||||||||||
Net interest margin | 3.10 | % | 3.14 | % | 3.18 | % | 3.13 | % | 3.21 | % | 3.36 | % | 3.23 | % | 3.40 | % | 2.84 | % | 2.85 | % | 2.86 | % | 2.56 | % | 3.13 | % | 2.82 | % | 3.21 | % | 3.36 | % | ||||||||||||||||||||||||||||||||
Efficiency ratio | 56.49 | % | 57.10 | % | 57.73 | % | 58.50 | % | 58.51 | % | 56.63 | % | 55.90 | % | 56.27 | % | 56.01 | % | 55.86 | % | 55.70 | % | 59.96 | % | 55.83 | % | 59.78 | % | 58.51 | % | 56.63 | % | ||||||||||||||||||||||||||||||||
Capital ratio | 10.35 | % | 10.63 | % | 10.92 | % | 10.44 | % | 12.05 | % | 9.66 | % | 12.18 | % | 9.70 | % | 9.84 | % | 10.08 | % | 10.33 | % | 9.97 | % | 10.66 | % | 8.81 | % | 12.05 | % | 9.66 | % |
*Latest available data
Key performances indicators include:
● | Return on Assets |
This ratio is calculated by dividing net income by average assets. It is used to measure how effectively the assets of the Company are being utilized in generating income. The Company's annualized return on average assets was 0.94%1.12% and 1.27%0.94% for the three months ended June 30, 20202021 and 2019,2020, respectively. This ratio declinedincrease was primarily due to an increasethe result of a decrease in the provision for loan losses for the three months ended June 30, 2020 as comparedloss and a reduction in interest expense due to 2019.market rate decreases.
● | Return on Equity |
This ratio is calculated by dividing net income by average equity. It is used to measure the net income or return the Company generated for the shareholders’ equity investment in the Company. The Company's return on average equity was at 9.09%11.39% and 10.32%9.09% for the three months ended June 30, 20202021 and 2019,2020, respectively. This ratio declinedincrease was primarily due to an increasethe result of a decrease in the provision for loan losses for the three months ended June 30, 2020 as comparedloss and a reduction in interest expense due to 2019.market rate decreases.
● | Net Interest Margin |
The net interest margin for the three months ended June 30, 2021 and 2020 was 2.84% and 2019 was 3.10% and 3.20%, respectively. The ratio is calculated by dividing tax equivalent net interest income by average earning assets. Earning assets are primarily made up of loans and investments that earn interest. This ratio is used to measure how well the Company is able to maintain interest rates on earning assets above those of interest-bearing liabilities, which is the interest expense paid on deposits and other borrowings.
● | Efficiency Ratio |
This ratio is calculated by dividing noninterest expense by the sum of net interest income and noninterest income. The ratio is a measure of the Company’s ability to manage noninterest expenses. The Company’s efficiency ratio was 56.49%56.01% and 54.92%56.49% for the three months ended June 30, 20202021 and 2019,2020, respectively. The efficiency ratio remains comparablehas slightly improved compared to the priorsame quarter last year.
● | Capital Ratio |
The average capital ratio is calculated by dividing average total equity capital by average total assets. It measures the level of average assets that are funded by shareholders’ equity. Given an equal level of risk in the financial condition of two companies, the higher the capital ratio, generally the more financially sound the company. The Company’s capital ratio of 10.35%9.84% as of June 30, 20202021 is comparablesimilar to the industry average of 10.44%9.97% as of March 31, 2020.2021.
Industry Results:
The FDIC Quarterly Banking Profile reported the following results for the first quarter of 20202021:
Quarterly Net Income Falls by 69.6%More Than Tripled From Firstthe Year-Ago Quarter 2019
Aggregate netNet income for the 5,116 FDIC-insured commercial banks and savings institutions totaled $18.5$76.8 billion duringin first quarter 2021, an increase of $17.3 billion (29.1%) from fourth quarter 2020 a decline of $42.2and $58.3 billion (69.6%(315.3%) from a year ago. The declineAggregate negative provision expense of $14.5 billion, which declined $17.7 billion from fourth quarter 2020, drove the improvement in net income is a reflection of deteriorating economic activity, which resulted in an increase in provision expenses and goodwill impairment charges. The decline was broad-based, as slightly more than half (55.9%)from the previous quarter. Three-fourths of all banks (74.8%) reported annual declines inhigher quarterly net income.income compared with the year-ago quarter. The share of unprofitable banks increasedinstitutions dropped from 7.4% a year ago to 3.9%. The banking industry reported an aggregate return on average assets ratio of 1.38%, up 1 percentage point from a year ago to 7.3%. The average return on assets ratio declinedand 28 basis points from 1.35% in firstfourth quarter 2019 to 0.38% in the current quarter.2020.
Net Interest Income Declines 1.4% From 12 Months AgoMargin Contracted Further to a New Record Low
On an annual basis, net interest income declined for the second consecutive quarter, falling by $2 billion (1.4%) from a year ago. Less than half (44.6%) of all banks reported annual declines in net interest income. The average net interest margin (NIM) for the banking industry was down 29contracted 57 basis points from a year ago to 3.13%2.56%, the lowest level on record in the Quarterly Banking Profile (QBP). Net interest income declined $7.6 billion (5.6%) from first quarter 2020 as the declineyear-over-year reduction in average earning asset yieldsinterest income (down $29.8 billion, or 17.6%) outpaced the decline in average funding costs. The year over-year compression ofinterest expense (down $22.2 billion, or 68.7%). Despite the NIM was broad-based, as it declined for all five asset size groups featuredaggregate decline in the Quarterly Banking Profile.
Noninterest Income Increases 2.3% From a Year Ago
Noninterestnet interest income, of $66.9 billion increased by $1.5 billion (2.3%) from 12 months ago. The annual increase was broad-based, as almost two-thirds (64.7%)more than three-fifths of all banks (64.4%) reported higher noninterest income.net interest income compared with a year ago. The year-over-year increase in noninterest income was led byaverage yield on earning assets declined 1.1% points from the all other noninterest income category,year-ago quarter to 2.76%, while the average cost of funding earning assets declined 54 basis points to 0.20%, both of which includes merchant credit card fees, annual credit card fees, and credit card interchange fees. This category of income rose by $6.6 billion (22.7%), but was partially offset by declines in trading revenue on equity contracts (down $3.9 billion, or 136%) and servicing fee income (down $3.3 billion, or 215.3%).are record lows.
More Than Two-Thirds of Banks Reported Higher Noninterest Expense Increases Almost 12% From First Quarter 2019Income Year Over Year
Noninterest expense increasedMore than two thirds of all banks (67.9%) reported an annual increase in noninterest income. Increased revenue from servicing fees, loan sales, and trading activities lifted noninterest income by $13.6$9.9 billion (11.8%(14.8%) to $76.8 billion from a year ago. Goodwill impairment charges, driven by a few institutions, rose by $8.4Servicing fee revenue increased $5.2 billion, net gains on loan sales increased $4.5 billion, and trading revenue increased $3.8 billion. Approximately three outA decline in “other noninterest income” of every four banks (72.2%$4.3 billion (12.1%) reported annual increasespartially offset the improvement in noninterest expense. All otherincome from the year-ago quarter.
Noninterest Expense Declined From the Year-Ago Quarter
A decline in amortization expense of intangible assets drove a $4.1 billion (3.2%) reduction in total noninterest expense rose by $3.4year over year. Amortization expense declined $8.4 billion (7.3%(88.8%), and. An increase in salary and employee benefits grew by $1.4(up $6.2 billion (2.5%or 10.6%). The average offset the annual reduction in noninterest expense. Average assets per employee increasedrose $1.1 million from $8.8 milliona year ago to $10.9 million.
Nearly two-thirds of all banks (65.3%) reported higher noninterest expense year over year. However, the average efficiency ratio (noninterest expense as a percentage of net interest income plus noninterest income, which indicates the cost of generating bank income) during this period declined 2.7 percentage points to 60.5%. Banks in first quarter 2019 to $9.8 millionall QBP asset size groups reported improvements in first quarter 2020.this ratio.
Provisions for Credit Losses Increase From a Year AgoWere Negative for the First Time on Record
DueProvisions for credit losses (provisions) declined $17.7 billion (552.6%) from the previous quarter and $67.2 billion from the year-ago quarter to deteriorating economic conditions andnegative $14.5 billion, the implementationlowest level on record. Less than one-fourth of all institutions (24.5%) reported higher provisions compared with the year-ago quarter. The number of banks that have adopted current expected credit lossesloss (CECL) accounting methodology, which requires banksrose by 41 to allocate for expected losses over the life320 from fourth quarter 2020. CECL adopters reported aggregate negative provisions of the loan, provisions for credit losses increased by $38.8 billion (279.9%) from a year ago to $52.7 billion. Two hundred forty three banks adopted the CECL accounting standards in the first quarter. These institutions reported an aggregate $47.6 billion in provisions for credit losses. Almost half (49.9%) of all banks reported year-over-year increases in provisions for credit losses.
Net Charge-Offs Rise Almost 15% From a Year Ago
Net charge-offs totaled $14.6$14.9 billion in the first quarter, an increasea reduction of $1.9$16.1 billion (14.9%)from the previous quarter and a reduction of $63.0 billion from one year ago. Provisions for banks that have not adopted CECL accounting totaled $391.4 million (a reduction of $1.7 billion from a quarter ago and $4.0 billion from one year ago. Slightly more than two-thirds (68%) of the increase in total net charge-offs was in the commercial and industrial (C&I) loan portfolio. C&I loan portfolio net charge-offs increased by $1.3 billion (86.9%). Credit card portfolio net charge-offs increased by $387.3 million (4.4%). The average net charge-off rate rose by 5 basis points from a year ago to 0.55%. The C&I net charge-off rate rose by 20 basis points from a year ago to 0.47% but remains below a recent high of 0.50%ago).
Noncurrent Loan Rate Remains Stable at 0.93%The Coverage Ratio Remained Above the Financial Crisis Average
NoncurrentThe allowance for loan balances (90and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual status) increased by $7status (coverage ratio) declined 9.4% points to 174.2% from fourth quarter 2020. This ratio remains above the financial crisis average of 79.1%. Coverage ratios for banks in the largest two QBP asset size groups (“$10 billion (7.3%to $250 billion” and “greater than $250 billion”) declined the most from the previousfourth quarter the highest quarterly dollar increase since first2020.
The Noncurrent Rate Declined Modestly From Fourth Quarter 2020
Loans and leases that were 90 days or more past due or in nonaccrual status (noncurrent loans and leases) declined $5.9 billion (4.6%) to $122.9 billion from fourth quarter 2010. Slightly less than half (46%) of all banks reported quarterly increases in2020. The noncurrent loan balances. Noncurrent loan balances in all major loan categories increasedrate for total loans and leases improved 5 basis points to 1.14% from the previous quarter. C&IHowever, the noncurrent loan balancesrate for construction and development loans increased by $3.6 billion (20.7%) and nonfarm nonresidential noncurrent loan balances increased by $2 billion (25.3%). The average noncurrent loan rate rose just 27 basis points from the previous quarter to 0.93%0.72%, because of an increase in total loans and leases that also occurred in the quarter. The C&I noncurrent rate for home equity credit lines increased by 45 basis points from the previous quarter to 0.83%2.17%.
Total Assets Rise 8.6%Net Charge-Off Volume Declined From Fourththe Year-Ago Quarter 2019
Total assets rose by $1.6 trillion (8.6%) fromDuring the previousyear ending first quarter driven by increases2021, net charge-offs declined $5.4 billion (36.8%), and the net charge-off rate fell 20 basis points to 0.34%, slightly above the record low of 0.32%. Reductions in cash andcharged-off credit card balances due from depository institutions (up $740.4(down $3.3 billion, or 44.4%36.4%) and loancharged-off commercial and lease balances (up $442.9industrial (C&I) loans (down $1.2 billion, or 4.2%). Banks increased their securities holdings by $226.9 billion (5.7%43.5%) duringcontributed most to the first quarter, with most of the growth led by mortgage-backed securities (up $152.6 billion, or 6.4%). With recent short term rate reductions in the first quarter, unrealized gains on available-for-sale securities rose by $41.8 billion (151.7%) and unrealized gains on held-to-maturity securities grew by $18.4 billion (110.2%).decline.
Loan Balances Register Strong GrowthTotal Assets Increased From the Previous Quarter
Total assets increased $680.9 billion (3.1%) from fourth quarter 2020 to $22.6 trillion. Cash and balances due from depository institutions expanded $440.1 billion (13.8%), and securities rose a Year Agorecord $366.9 billion (7.2%). Mortgage-backed securities led the quarterly growth, rising $220.4 billion (7.2%), followed by growth in U.S. Treasury securities, which rose $110.7 billion (11.5%). Total loan and lease volume declined by a modest 0.4% from the previous quarter. Together, the asset growth and loan volume contraction led to a decline in the net loans and leases to total assets ratio to 47.0%, a record low.
Loan Volume Continued to Decline, Driven by a Reduction in Credit Card Balances
Total loan and lease balances expanded by $442.9contracted $38.7 billion (4.2%(0.4%) from the previous quarter. Slightly more than half (58.7%) of all banks increased their loan and lease balances from fourth quarter 2019. Almost all of the major loan categories reported quarterly increases. The C&I loan portfolio increased by $339.4 billion (15.4%), with most of the growth concentrated at the largest banks. Unfunded C&I loan commitments declined by $269 billion (12.7%), the largest quarterly dollar decreaseA reduction in the ten years for which data are available. Loans to nondepository institutions grew by $87.0 billion (17.8%), while credit card balances (down $60.9 billion, or 7.4%) drove the quarterly decline in loan volume. Unused credit card commitments declined by $68.6for a fourth consecutive quarter (down $364.6 billion, (7.3%or 9.2%). OverThis was the past 12 months,largest percentage reduction in credit card commitments since first quarter 2009. Growth in Paycheck Protection Program loans, guaranteed by the Small Business Administration, grew $61.2 billion from the previous quarter to $469.4 billion.
Compared with the year-ago quarter, total loan and lease balances rosedeclined $136.3 billion (1.2%). This was the first annual contraction in loan and lease volume reported by $813.7the banking industry since third quarter 2011. Reductions in credit card balances (down $111.9 billion, (8%or 12.8%), and C&I loans (down $93.2 billion, or 3.7%) drove the highest annual decline in loan volume. Despite the aggregate decline in loan volume, more than two-thirds of all banks (71.9%) reported year-over-year growth rate since first quarter 2008.in loan and lease volume.
Deposit Growth Remained Strong
Deposits Increase $1.2 Trillion From the Previous Quarter
Total deposit balances grew by $1.2 trillion (8.5%$635.2 billion (3.6%) from fourth quarter 2019. Interest-bearing accounts increased by $639.62020 to $18.5 trillion, continuing several quarters of unprecedented deposit growth. Among deposit categories, deposits above $250,000 (up $424.8 billion, (6.4%or 4.7%) and noninterest-bearing accounts expanded by $446.3deposits (up $371.1 billion, (14.1%). Domestic deposits in accounts larger than $250,000 increased by $761.4 billion (10.8%or 8.1%) from fourth quarter 2019. Deposits held in foreign offices rose by $155.9 billion (11.8%). Nondeposit liabilities, which includes fed funds purchased, repurchase agreements, Federal Home Loan Bank (FHLB) advances, and secured and unsecured borrowings, increased by $147.1 billion (11.3%)grew most from the previous quarter. The riseDeposits as a percentage of total assets reached a record high for the QBP of 81.8% in nondeposit liabilities was primarily attributable to FHLB advances, which increased by $130.2 billion (27%). On an annual basis, total deposits increased by $1.9 trillion (13.3%), the largest year-over-year growth rate ever reported by the Quarterly Banking Profile.first quarter 2021.
Equity Capital Increases From the Previous QuarterContinued to Grow
Equity capital increasedrose $26.1 billion (1.2%) from fourth quarter 2020, supported by $4.2an increase in retained earnings of $15.3 billion (0.2%(40.5%). Cash dividends totaled $23.9 billion, up 9.4% from the previous quarter. Declared dividends of $32.7 billion exceeded the quarterly net income of $18.5 billion, resulting in a $14.2 billion reduction of retained earnings. Twelve insured institutionsFewer institutions—six banks with $2 billion in total assets were below theof $536.5 million— reported capital ratios that did not meet Prompt Corrective Action (PCA) requirements for the well-capitalizedwell capitalized category, as definedcompared with eight banks that did not meet this requirement in fourth quarter 2020. The number of banks that are not “well capitalized” for Prompt Corrective Action purposes.PCA purposes is the lowest on record.
TwoThree New Banks OpenOpened in First Quarter 20202021
TheThree new banks opened and 25 institutions merged in first quarter 2021. No banks failed during the quarter. With these changes, the number of FDIC-insured commercial banks and savings institutions declined from 5,1775,002 to 5,116 during4,978 in first quarter 2020. Two new banks were added, 57 institutions were absorbed by mergers, and one bank failed.2021. The number of institutions on the FDIC’s “Problem Bank List” increaseddeclined by one to 55 from 51 in fourth quarter 2019 to 54.2020. Total assets of problem banks declined $1.7 billion from $46.2 billionthe fourth quarter to $44.5$54.2 billion.
Critical Accounting Policies
The discussion contained in this Item 2 and other disclosures included within this report are based, in part, on the Company’s audited December 31, 20192020 consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained in these statements is, for the most part, based on the financial effects of transactions and events that have already occurred. However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
The Company’s significant accounting policies are described in the “Notes to Consolidated Financial Statements” accompanying the Company’s audited financial 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 assessment of other-than-temporary impairment for investment securities and the assessment of goodwill impairment to be the Company’s most critical accounting policies.
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. 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. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors. Qualitative factors include various considerations regarding the general economic environment in the Company’s market area. 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. Due to potential changes in conditions, including the recent onset ofeconomic disruption and uncertainties resulting from the COVID-19 pandemic, 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.
For further discussion concerning the allowance for loan losses and the process of establishing specific reserves, see the section of the Annual Report on Form 10-K entitled “Asset Quality Review and Credit Risk Management” and “Analysis of the Allowance for Loan Losses”.
Fair Value and Other-Than-Temporary Impairment of Investment Securities
The Company’s securities available-for-sale portfolio is carried at fair value with “fair value” being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. 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. 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. Due to potential changes in conditions, including the recent onset ofeconomic disruption and uncertainties resulting from the COVID-19 pandemic, 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.
Goodwill
Goodwill arose in connection with four acquisitions consummated in previous periods. Goodwill is tested annually for impairment or more often if conditions indicate a possible impairment. For the purposes of goodwill impairment testing, determination of the fair value of a reporting unit involves the use of significant estimates and assumptions. Impairment would arise if the fair value of a reporting unit is less than its carrying value. At June 30, 2020,2021, Company’s management has completed the goodwill impairment assessment and determined goodwill was not impaired. Actual future test results may differ from the present evaluation of impairment due to changes in the conditions used in the current evaluation. Goodwill may be impaired in the future if the effects of the COVID-19 restrictionspandemic negatively impacts our net income and fair value, particularly of our most recent acquisition.value. An impairment of goodwill would decrease the Company’s earnings during the period in which the impairment is recorded.
Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the Company’s presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis. Management believes these non-GAAP financial measures are widely used in the financial institutions industry and provide useful information to both management and investors to analyze and evaluate the Company’s financial performance. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. These non-GAAP disclosures should not be considered an alternative to the Company’s GAAP results. The following table reconciles the non-GAAP financial measures of net interest income and net interest margin on an FTE basis to GAAP (dollars in thousands).
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||
Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: | Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: | |||||||||||||||||||||||||||||||||||||||
Net interest income (GAAP) | $ | 13,680 | $ | 10,930 | $ | 26,726 | $ | 21,901 | $ | 14,172 | $ | 13,680 | $ | 27,836 | $ | 26,726 | $ | 13,664 | $ | 13,046 | ||||||||||||||||||||
Tax-equivalent adjustment (1) | 255 | 284 | 496 | 576 | 218 | 255 | 443 | 496 | 225 | 241 | ||||||||||||||||||||||||||||||
Net interest income on an FTE basis (non-GAAP) | 13,935 | 11,214 | 27,222 | 22,477 | 14,390 | 13,935 | 28,279 | 27,222 | 13,889 | 13,287 | ||||||||||||||||||||||||||||||
Average interest-earning assets | $ | 1,797,290 | $ | 1,400,685 | $ | 1,733,323 | $ | 1,397,269 | $ | 2,026,045 | $ | 1,797,290 | $ | 1,984,184 | $ | 1,733,323 | $ | 1,941,859 | $ | 1,669,356 | ||||||||||||||||||||
Net interest margin on an FTE basis (non-GAAP) | 3.10 | % | 3.20 | % | 3.14 | % | 3.22 | % | �� | 2.84 | % | 3.10 | % | 2.85 | % | 3.14 | % | 2.86 | % | 3.18 | % |
(1) Computed on a tax-equivalent basis using an incremental federal income tax rate of 21 percent, adjusted to reflect the effect of the tax-exempt interest income associated with owning tax-exempt securities and loans. |
Income Statement Review for the Three Months ended June 30,, 2020 2021 and 20192020
The following highlights a comparative discussion of the major components of net income and their impact for the three months ended June 30, 20202021 and 2019:2020:
AVERAGE BALANCES AND INTEREST RATES
The following two tables are used to calculate the Company’s non-GAAP net interest margin.margin on an FTE basis. The first table includes the Company’s average assets and the related income to determine the average yield on earning assets. 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 interest income less interest expense divided by average earning assets. Refer to the net interest income discussion following the tables for additional detail.
AVERAGE BALANCE SHEETS AND INTEREST RATES | ||||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||
Loans (1) | ||||||||||||||||||||||||
Commercial | $ | 145,337 | $ | 1,642 | 4.52 | % | $ | 82,133 | $ | 1,119 | 5.45 | % | ||||||||||||
Agricultural | 111,289 | 1,322 | 4.75 | % | 81,803 | 1,304 | 6.37 | % | ||||||||||||||||
Real estate | 881,437 | 9,371 | 4.25 | % | 712,534 | 8,174 | 4.59 | % | ||||||||||||||||
Consumer and other | 18,195 | 235 | 5.16 | % | 16,694 | 211 | 5.06 | % | ||||||||||||||||
Total loans (including fees) | 1,156,258 | 12,570 | 4.35 | % | 893,164 | 10,808 | 4.84 | % | ||||||||||||||||
Investment securities | ||||||||||||||||||||||||
Taxable | 317,447 | 1,948 | 2.45 | % | 255,671 | 1,555 | 2.43 | % | ||||||||||||||||
Tax-exempt (2) | 176,812 | 1,208 | 2.73 | % | 202,232 | 1,352 | 2.67 | % | ||||||||||||||||
Total investment securities | 494,259 | 3,156 | 2.55 | % | 457,903 | 2,907 | 2.54 | % | ||||||||||||||||
Interest-bearing deposits with banks and federal funds sold | 146,773 | 166 | 0.45 | % | 49,618 | 290 | 2.34 | % | ||||||||||||||||
Total interest-earning assets | 1,797,290 | $ | 15,892 | 3.54 | % | 1,400,685 | $ | 14,005 | 4.00 | % | ||||||||||||||
Noninterest-earning assets | 83,938 | 53,992 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 1,881,228 | $ | 1,454,677 |
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30, 2021 2020 Average Revenue/ Yield/ Average Revenue/ Yield/ balance expense rate balance expense rate ASSETS (dollars in thousands) Interest-earning assets Loans (1) Commercial Agricultural Real estate Consumer and other Total loans (including fees) Investment securities Taxable Tax-exempt (2) Total investment securities Interest-bearing deposits with banks and federal funds sold Total interest-earning assets Noninterest-earning assets TOTAL ASSETS (1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%. |
AVERAGE BALANCE SHEETS AND INTEREST RATES | ||||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||
Interest-bearing checking, savings accounts and money markets | $ | 1,026,705 | $ | 699 | 0.27 | % | $ | 790,872 | $ | 1,616 | 0.82 | % | ||||||||||||
Time deposits | 277,939 | 1,199 | 1.73 | % | 222,740 | 990 | 1.78 | % | ||||||||||||||||
Total deposits | 1,304,644 | 1,898 | 0.58 | % | 1,013,612 | 2,606 | 1.03 | % | ||||||||||||||||
Other borrowed funds | 50,800 | 59 | 0.47 | % | 40,930 | 185 | 1.80 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,355,444 | 1,957 | 0.58 | % | 1,054,542 | 2,791 | 1.06 | % | ||||||||||||||||
Noninterest-bearing liabilities | ||||||||||||||||||||||||
Noninterest-bearing checking | 318,609 | 212,929 | ||||||||||||||||||||||
Other liabilities | 12,412 | 8,315 | ||||||||||||||||||||||
Stockholders' equity | 194,763 | 178,890 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,881,228 | $ | 1,454,676 | ||||||||||||||||||||
Net interest income | $ | 13,935 | 3.10 | % | $ | 11,214 | 3.20 | % | ||||||||||||||||
Spread Analysis | ||||||||||||||||||||||||
Interest income/average assets | $ | 15,892 | 3.38 | % | $ | 14,005 | 3.85 | % | ||||||||||||||||
Interest expense/average assets | $ | 1,957 | 0.42 | % | $ | 2,791 | 0.77 | % | ||||||||||||||||
Net interest income/average assets | $ | 13,935 | 2.96 | % | $ | 11,214 | 3.08 | % |
AVERAGE BALANCE SHEETS AND INTEREST RATES
Three Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
LIABILITIES AND | ||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||
Interest-bearing checking, savings accounts and money markets | $ | 1,227,954 | $ | 489 | 0.16 | % | $ | 1,026,705 | $ | 699 | 0.27 | % | ||||||||||||
Time deposits | 239,546 | 635 | 1.06 | % | 277,939 | 1,199 | 1.73 | % | ||||||||||||||||
Total deposits | 1,467,500 | 1,124 | 0.31 | % | 1,304,644 | 1,898 | 0.58 | % | ||||||||||||||||
Other borrowed funds | 40,247 | 35 | 0.35 | % | 50,800 | 59 | 0.47 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,507,747 | 1,159 | 0.31 | % | 1,355,444 | 1,957 | 0.58 | % | ||||||||||||||||
Noninterest-bearing liabilities | ||||||||||||||||||||||||
Noninterest-bearing checking | 374,312 | 318,609 | ||||||||||||||||||||||
Other liabilities | 9,292 | 12,412 | ||||||||||||||||||||||
Stockholders' equity | 206,403 | 194,763 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,097,754 | $ | 1,881,228 | ||||||||||||||||||||
Net interest income (FTE)(3) | $ | 14,390 | 2.84 | % | $ | 13,935 | 3.10 | % | ||||||||||||||||
Spread Analysis (FTE) | ||||||||||||||||||||||||
Interest income/average assets | $ | 15,549 | 2.96 | % | $ | 15,892 | 3.38 | % | ||||||||||||||||
Interest expense/average assets | $ | 1,159 | 0.22 | % | $ | 1,957 | 0.42 | % | ||||||||||||||||
Net interest income/average assets | $ | 14,390 | 2.74 | % | $ | 13,935 | 2.96 | % |
(3) Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.
Net Interest Income
For the three months ended June 30, 20202021 and 2019,2020, the Company's net interest margin adjusted for tax exempt income was 3.10%2.84% and 3.20%3.10%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended June 30, 20202021 totaled $13,680,000$14.2 million compared to $10,930,000$13.7 million for the three months ended June 30, 2019.2020.
For the three months ended June 30, 2020,2021, interest income increased $1,916,000,declined $307 thousand, or 14%2%, when compared to the same period in 2019.2020. The increase from 2019 wasreduction is primarily attributable to increased loan volume, related to the Acquisition. The increase in loan interest income due to loan volume waslower market interest rates, offset in part by an increase in foregone interest on nonaccrual loansthe average balance of $253,000.interest-earning assets and $1.3 million of fees recognized from Paycheck Protection Program (PPP) loans. The increase in average balances of interest-earning assets was primarily driven by the deployment of increased deposits.
Interest expense decreased $834,000,declined $799 thousand, or 30%41%, for the three months ended June 30, 20202021 when compared to the same period in 2019.2020. The lower interest expense for the period is primarily attributable to a decreasedecline in rates on deposits due to market interest rates.rates and was offset in part by increases in average deposit balances. The increase in deposit balances was due primarily to government stimulus programs.
Provision (Credit) for Loan Losses
A provision(credit) for loan losses of $1,566,000($20) thousand was recognized for the three months ended June 30, 20202021 as compared to $68,000a provision for loan losses of $1.6 million for the three months ended June 30, 2019.2020. Net loan charge offsrecoveries totaled $470,000$6 thousand for the three months ended June 30, 20202021 compared to $11,000net loan charge offs of $471 thousand for the three months ended June 30, 2019.2020. The increase in the provision(credit) for loan losses was primarily due to theimproving economic slowdown associated with COVID-19 and to a lesser extent the increase in net charge-offs.conditions. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect loans associated with the hospitality and entertainment industries. As of June 30, 2020 approximately 8.3% of our loan portfolio is associated with these industries. There have been requestsprovision for loan payment modifications across all loan portfolios. These modifications werelosses in 2020 was primarily relateddue to payment deferrals or interest only payments for up to six months. The total loans modified was approximately $122,778,000 as of June 30, 2020. The federal government is providing numerous programs to lessen the effects of COVID-19 on the economy and on our loan portfolio. The severityonset of the effect of COVID-19 on our operations is difficult to determine at this time. The State of Iowa has been easing restrictions on non-essential businesses. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.pandemic.
Noninterest Income and Expense
Noninterest income for the three months ended June 30, 20202021 totaled $2,428,000$2.6 million as compared to $2,213,000$2.4 million for the three months ended June 30, 2019,2020, an increase of 10%9%. The increase in noninterest income was primarily due to gainan increase in wealth management income and partially offset by a decrease in gains on sale of residential loans held for sale from increasedas refinancing has slowed. The increase in wealth management income was primarily related to growth in the assets under management, fueled by a low interest rate environmentfavorable equity market and to a lesser extent the Acquisition.new account relationships.
Noninterest expense for the three months ended June 30, 20202021 totaled $9,100,000$9.4 million compared to $7,218,000$9.1 million recorded for the three months ended June 30, 2019,2020, an increase of 26%3%. Most of theThe increase was related to the Acquisition. Excluding the Acquisition, the increases were related to salaries and employee benefits, data processing and the amortization of the investment in Federal New Market Tax Credit projects, offset in part by a decrease in FDIC insurance assessments. Salaries and employee benefits, excluding the Acquisition, increased 6%is primarily due to normal increases in salaries, other employee benefits including health insurance costs and additional personnel. Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees. The decreasean increase in FDIC insurance assessments, was due to the receiptprofessional fees and impairment of a small bank credit as the deposit insurance reserve ratio exceeded 1.35%. The remaining credit was fully utilized in the second quarter.other real estate owned. The efficiency ratio was 56.5%56.0% for the second quarter of 20202021 as compared to 54.9%56.5% in the second quarter of 2019.2020.
Income Taxes
Income tax expense for the three months ended June 30, 20202021 totaled $1,015,000$1.5 million compared to $1,239,000$1.0 million recorded for the three months ended June 30, 2019.2020. The effective tax rate was 19%21% and 21%19% for the three months ended June 30, 20202021 and 2019,2020, respectively. The lower than expected tax rate in 20202021 and 20192020 was due primarily to tax-exempt interest income and New MarketMarkets Tax Credits further lowered the tax rate in 2020.Credits.
Income Statement Review for the Six Months ended June 30, 20202021 and 20192020
The following highlights a comparative discussion of the major components of net income and their impact for the six months ended June 30, 20202021 and 2019:2020:
AVERAGE BALANCES AND INTEREST RATES
The following two tables are used to calculate the Company’s non-GAAP net interest margin.margin on an FTE basis. The first table includes the Company’s average assets and the related income to determine the average yield on earning assets. The second table includes the average liabilities and related expense to determine the average rate paid on interest bearinginterest-bearing liabilities. The net interest margin is equal to interest income less interest expense divided by average earning assets. Refer to the net interest income discussion following the tables for additional detail.
AVERAGE BALANCE SHEETS AND INTEREST RATES | ||||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||
Loans (1) | ||||||||||||||||||||||||
Commercial | $ | 115,369 | $ | 2,723 | 4.72 | % | $ | 83,164 | $ | 2,239 | 5.38 | % | ||||||||||||
Agricultural | 110,792 | 3,021 | 5.45 | % | 81,511 | 2,587 | 6.35 | % | ||||||||||||||||
Real estate | 872,044 | 18,928 | 4.34 | % | 713,274 | 16,267 | 4.56 | % | ||||||||||||||||
Consumer and other | 18,339 | 485 | 5.29 | % | 16,678 | 416 | 4.99 | % | ||||||||||||||||
Total loans (including fees) | 1,116,544 | 25,157 | 4.51 | % | 894,627 | 21,509 | 4.81 | % | ||||||||||||||||
Investment securities | ||||||||||||||||||||||||
Taxable | 310,656 | 3,802 | 2.45 | % | 253,421 | 3,044 | 2.40 | % | ||||||||||||||||
Tax-exempt (2) | 173,649 | 2,360 | 2.72 | % | 205,633 | 2,745 | 2.67 | % | ||||||||||||||||
Total investment securities | 484,305 | 6,162 | 2.54 | % | 459,054 | 5,789 | 2.52 | % | ||||||||||||||||
Interest-bearing deposits with banks and federal funds sold | 132,474 | 650 | 0.98 | % | 43,588 | 528 | 2.42 | % | ||||||||||||||||
Total interest-earning assets | 1,733,323 | $ | 31,969 | 3.69 | % | 1,397,269 | $ | 27,826 | 3.98 | % | ||||||||||||||
Noninterest-earning assets | 82,742 | 53,300 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 1,816,065 | $ | 1,450,569 |
AVERAGE BALANCE SHEETS AND INTEREST RATES
Six Months Ended June 30, 2021 2020 Average Revenue/ Yield/ Average Revenue/ Yield/ balance expense rate balance expense rate ASSETS (dollars in thousands) Interest-earning assets Loans (1) Commercial Agricultural Real estate Consumer and other Total loans (including fees) Investment securities Taxable Tax-exempt (2) Total investment securities Interest-bearing deposits with banks and federal funds sold Total interest-earning assets Noninterest-earning assets TOTAL ASSETS (1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%. |
AVERAGE BALANCE SHEETS AND INTEREST RATES | ||||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||
Interest-bearing checking, savings accounts and money markets | $ | 991,298 | $ | 2,083 | 0.42 | % | $ | 788,786 | $ | 3,133 | 0.79 | % | ||||||||||||
Time deposits | 280,386 | 2,465 | 1.76 | % | 218,380 | 1,832 | 1.68 | % | ||||||||||||||||
Total deposits | 1,271,684 | 4,548 | 0.72 | % | 1,007,166 | 4,965 | 0.99 | % | ||||||||||||||||
Other borrowed funds | 50,495 | 199 | 0.79 | % | 42,188 | 384 | 1.82 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,322,179 | 4,747 | 0.72 | % | 1,049,354 | 5,349 | 1.02 | % | ||||||||||||||||
Noninterest-bearing liabilities | ||||||||||||||||||||||||
Noninterest-bearing checking | 289,350 | 216,522 | ||||||||||||||||||||||
Other liabilities | 11,561 | 8,090 | ||||||||||||||||||||||
Stockholders' equity | 192,975 | 176,603 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,816,065 | $ | 1,450,569 | ||||||||||||||||||||
Net interest income | $ | 27,222 | 3.14 | % | $ | 22,477 | 3.22 | % | ||||||||||||||||
Spread Analysis | ||||||||||||||||||||||||
Interest income/average assets | $ | 31,969 | 3.52 | % | $ | 27,826 | 3.84 | % | ||||||||||||||||
Interest expense/average assets | $ | 4,747 | 0.52 | % | $ | 5,349 | 0.74 | % | ||||||||||||||||
Net interest income/average assets | $ | 27,222 | 3.00 | % | $ | 22,477 | 3.10 | % |
AVERAGE BALANCE SHEETS AND INTEREST RATES
Six Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||
balance | expense | rate | balance | expense | rate | |||||||||||||||||||
LIABILITIES AND | ||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||
Interest-bearing checking, savings accounts and money markets | $ | 1,192,220 | $ | 968 | 0.16 | % | $ | 991,298 | $ | 2,083 | 0.42 | % | ||||||||||||
Time deposits | 245,756 | 1,450 | 1.18 | % | 280,386 | 2,465 | 1.76 | % | ||||||||||||||||
Total deposits | 1,437,976 | 2,418 | 0.34 | % | 1,271,684 | 4,548 | 0.72 | % | ||||||||||||||||
Other borrowed funds | 40,468 | 72 | 0.36 | % | 50,495 | 199 | 0.79 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,478,444 | 2,490 | 0.34 | % | 1,322,179 | 4,747 | 0.72 | % | ||||||||||||||||
Noninterest-bearing liabilities | ||||||||||||||||||||||||
Noninterest-bearing checking | 364,508 | 289,350 | ||||||||||||||||||||||
Other liabilities | 9,928 | 11,561 | ||||||||||||||||||||||
Stockholders' equity | 207,710 | 192,975 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,060,590 | $ | 1,816,065 | ||||||||||||||||||||
Net interest income (FTE)(3) | $ | 28,279 | 2.85 | % | $ | 27,222 | 3.14 | % | ||||||||||||||||
Spread Analysis (FTE) | ||||||||||||||||||||||||
Interest income/average assets | $ | 30,769 | 2.99 | % | $ | 31,969 | 3.52 | % | ||||||||||||||||
Interest expense/average assets | $ | 2,490 | 0.24 | % | $ | 4,747 | 0.52 | % | ||||||||||||||||
Net interest income/average assets | $ | 28,279 | 2.74 | % | $ | 27,222 | 3.00 | % |
(3) Net interest income (FTE) is a non-GAAP financial measure. For further information, refer to the Non-GAAP Financial Measures section of this report.
Net Interest Income
For the six months ended June 30, 20202021 and 2019,2020, the Company's net interest margin adjusted for tax exempt income was 3.14%2.85% and 3.22%3.14%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the six months ended June 30, 20202021 totaled $26,726,000$27.8 million compared to $21,901,000$26.7 million for the six months ended June 30, 2019.2020.
For the six months ended June 30, 2020,2021, interest income increased $4,223,000,declined $1.1 million, or 15%4%, when compared to the same period in 2019.2020. The increase from 2019 wasdecrease is primarily attributable to increased loan volume, related to the Acquisition. The increase in loan interest income due to loan volume wasa reduction in interest rates, offset in part by $2.2 million of fees recognized from PPP loans, an increase in foregonethe average balance of interest-earning assets, and $347 thousand of recognized nonaccrual interest on nonaccrual loansincome. The increase in average balances of $384,000.interest-earning assets was primarily driven by the deployment of increased deposits.
Interest expense decreased $602,000,declined $2.3 million, or 11%48%, for the six months ended June 30, 20202021 when compared to the same period in 2019.2020. The lower interest expense for the period is primarily attributable to a decreasedecline in rates on deposits due to market interest rates.rates and offset in part by increases in average deposit balances.
Provision (credit) for Loan Losses
A provision(credit) for loan losses of $3,883,000($446) thousand was recognized for the six months ended June 30, 20202021 as compared to $166,000a provision for loan losses of $3.9 million for the six months ended June 30, 2019.2020. Net loan charge offsrecoveries totaled $497,000$124 thousand for the six months ended June 30, 20202021 compared to net loan recoveriescharge offs of $19,000$497 thousand for the six months ended June 30, 2019.2020. The increase in the provision(credit) for loan losses was primarily due to loan recoveries, a reduction in a specific reserve and improving economic conditions. The provision for loan losses in 2020 was primarily due to the economic slowdown associated withonset of the COVID-19 and to a lesser extent loan growth and the increase in net charge-offs.pandemic.
Noninterest Income and Expense
Noninterest income for the six months ended June 30, 2021 and 2020 totaled $5,059,000 as compared to $4,139,000$5.1 million for the six months ended June 30, 2019, an increase of 22%.both periods. Wealth management income increased, but was offset by a decrease in securities gains when comparing periods. The increase in noninterestwealth management income was primarily duerelated to an increasegrowth in security gains, gain on sale of loans held for sale due to increased refinancing inthe assets under management, fueled by a low interest rate environment,favorable equity market and the Acquisition.new account relationships.
Noninterest expense for the six months ended June 30, 20202021 totaled $18,150,000$18.4 million compared to $14,675,000$18.1 million recorded for the six months ended June 30, 2019,2020, an increase of 24%1%. Most of the increase was related to the Acquisition. Excluding the Acquisition, the increases were related toan increase in FDIC insurance assessments and professional fees, offset by a decrease in salaries and employee benefits data processing andwhich was primarily due to a reduction in the amortizationnumber of the investment in Federal New Market Tax Credit projects, offset in part by a decrease in FDIC insurance assessments. Salaries and benefits was the largest component of the increase in noninterest expense which includes normal increases in salaries, other employee benefits including health insurance costs and additional personnel. Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees. The efficiency ratio was 57.1%55.9% and 56.4%57.1% for the six months ended June 30, 2021 and 2020, and 2019, respectively.
Income Taxes
Income tax expense for the six months ended June 30, 2020 and 20192021 totaled $1,771,000 and $2,343,000, respectively. The effective tax rate was 18% and 21%$3.1 million compared to $1.8 million recorded for the six months ended June 30, 20202020. The effective tax rate was 21% and 2019,18% for the six months ended June 30, 2021 and 2020, respectively. The lower than expected tax rate in 20202021 and 20192020 was due primarily to tax-exempt interest income and New MarketMarkets Tax Credits further lowered the tax rate in 2020.Credits.
Balance Sheet Review
As of June 30, 2020,2021, total assets were $1,896,972,000,$2.1 billion, a $159,790,000$109.8 million increase compared to December 31, 2019. The2020. This increase in assets is primarily interest bearing depositsdue to investment securities and loans, was funded primarily by deposits.growth in our deposits due in part to federal government stimulus programs and a lack of other desirable fixed income alternatives for our customers.
Investment Portfolio
The investment portfolio totaled $513,616,000$740.1 million as of June 30, 2020,2021, an increase of $33,773,000$143.1 million from the December 31, 20192020 balance of $479,843,000.$597.0 million. The increase in securities available-for-sale is primarily due to purchases of municipal,treasuries, mortgage-backed securities, and corporate bonds, offset in part by maturities in the U.S. Government Agency portfolio.municipals as deposit growth exceeded loan growth.
On a quarterly basis, the investment portfolio is reviewed for other-than-temporary impairment. As of June 30, 2020,2021, gross unrealized losses of $162,000,$2.9 million, are considered to be temporary in nature due to the interest rate environment of 2020 and other general economic factors. As a result of the economic slowdown resulting from the COVID-19 pandemic, certain bonds in the investment portfolio may become other-than-temporarily impaired and could negatively affect the Company’s net income. As a result of the Company’s favorable liquidity position, the Company does not have the intent to sell securities with an unrealized loss at the present time. In addition, management believes it is more likely than not that the Company will hold these securities until recovery of their fair value to cost basis and avoid considering present unrealized loss positionsexpects full principal and interest to be other-than-temporary.collected. Therefore, the Company does not consider these investments to have other-than-temporary impairment as of June 30, 2021.
At June 30, 2021, the Company’s investment securities portfolio included securities issued by 289 government municipalities and agencies located within 26 states with a fair value of $275.2 million. At December 31, 2020, the Company’s investment securities portfolio included securities issued by 267279 government municipalities and agencies located within 2224 states with a fair value of $216.8 million. At December 31, 2019, the Company’s investment securities portfolio included securities issued by 251 government municipalities and agencies located within 18 states with a fair value of $195.3$251.6 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. TheStorm Lake, Iowa, general obligation bonds with a fair value of $8.0 million (approximately 2.9% of the fair value of the government municipalities and agencies) represent the largest exposure to any one municipality or agency for the Company as of June 30, 2020 was $3.1 million (approximately 1.4%2021; the bonds are repayable from the levy of continuing annual tax on all the taxable property within the territory of the fair valuecity of the governmental municipalities and agencies) represented by the West Des Moines, Iowa Community School District to be repaid by sales tax revenues and property taxes.Storm Lake.
The Company’s procedures for evaluating investments in states, municipalities and political subdivisions include but are not limited to reviewing the offering statement and the most current available financial information, comparing yields to yields of bonds of similar credit quality, confirming capacity to repay, assessing operating and financial performance, evaluating the stability of tax revenues, considering debt profiles and local demographics, and for revenue bonds, assessing the source and strength of revenue structures for municipal authorities. These procedures, as applicable, are utilized for all municipal purchases and are utilized in whole or in part for monitoring the portfolio of municipal holdings. The Company does not utilize third party credit rating agencies as a primary component of determining if the municipal issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment, and, therefore, does not compare internal assessments to those of the credit rating agencies. Credit rating downgrades are utilized as an additional indicator of credit weakness and as a reference point for historical default rates.
The following table summarizes the total general obligation and revenue bonds in the Company’s investment securities portfolios as of June 30, 20202021 and December 31, 20192020 identifying the state in which the issuing government municipality or agency operates (inin thousands):
2020 | 2019 | 2021 | 2020 | |||||||||||||||||||||||||||||
Estimated | Estimated | Estimated | Estimated | |||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||
General Obligation bonds: | ||||||||||||||||||||||||||||||||
Iowa | $ | 55,991 | $ | 57,557 | $ | 58,457 | $ | 59,072 | $ | 70,703 | $ | 72,449 | $ | 69,943 | $ | 72,442 | ||||||||||||||||
Nebraska | 14,672 | 14,667 | 15,019 | 15,446 | ||||||||||||||||||||||||||||
Texas | 10,802 | 11,216 | 11,243 | 11,382 | 14,093 | 14,550 | 11,253 | 11,927 | ||||||||||||||||||||||||
Washington | 8,385 | 8,698 | 6,530 | 6,629 | 11,064 | 11,317 | 7,329 | 7,702 | ||||||||||||||||||||||||
Pennsylvania | 7,805 | 7,949 | 7,895 | 7,989 | ||||||||||||||||||||||||||||
Oregon | 6,269 | 6,492 | 3,441 | 3,505 | ||||||||||||||||||||||||||||
Other (2020: 13 states; 2019: 12 states) | 21,962 | 22,480 | 14,727 | 14,870 | ||||||||||||||||||||||||||||
Other (2021: 15 states; 2020: 14 states) | 40,491 | 41,015 | 32,014 | 32,989 | ||||||||||||||||||||||||||||
Total general obligation bonds | $ | 111,214 | $ | 114,392 | $ | 102,293 | $ | 103,447 | $ | 151,023 | $ | 153,998 | $ | 135,558 | $ | 140,506 | ||||||||||||||||
Revenue bonds: | ||||||||||||||||||||||||||||||||
Iowa | $ | 71,086 | $ | 72,040 | $ | 78,281 | $ | 78,624 | $ | 68,812 | $ | 69,851 | $ | 65,461 | $ | 67,048 | ||||||||||||||||
Texas | 8,634 | 9,094 | 480 | 476 | 11,922 | 12,291 | 8,625 | 9,189 | ||||||||||||||||||||||||
Other (2020: 15 states; 2019: 12 states) | 20,659 | 21,271 | 12,691 | 12,755 | ||||||||||||||||||||||||||||
Nebraska | 8,547 | 8,501 | 6,588 | 6,753 | ||||||||||||||||||||||||||||
Other (2021: 19 states; 2020: 17 states) | 29,937 | 30,564 | 27,206 | 28,088 | ||||||||||||||||||||||||||||
Total revenue bonds | $ | 100,379 | $ | 102,405 | $ | 91,452 | $ | 91,855 | $ | 119,218 | $ | 121,207 | $ | 107,880 | $ | 111,078 | ||||||||||||||||
Total obligations of states and political subdivisions | $ | 211,593 | $ | 216,797 | $ | 193,745 | $ | 195,302 | $ | 270,241 | $ | 275,205 | $ | 243,438 | $ | 251,584 |
As of June 30, 20202021 and December 31, 2019,2020, the revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as community school facilities, college and university dormitory facilities, water utilities and electrical utilities. The revenue bonds are to be paid from primarily 6 primary revenue sources. 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)thousands):
2020 | 2019 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Revenue bonds by revenue source | ||||||||||||||||
Sales tax | $ | 37,679 | $ | 38,064 | $ | 37,928 | $ | 38,173 | ||||||||
Water | 19,411 | 19,969 | 7,271 | 7,272 | ||||||||||||
College and universities, primarily dormitory revenues | 12,207 | 12,621 | 14,016 | 14,103 | ||||||||||||
Leases | 7,493 | 7,680 | 7,291 | 7,351 | ||||||||||||
Electric power & light revenues | 6,133 | 6,283 | 4,370 | 4,405 | ||||||||||||
Sewer | 5,404 | 5,644 | 4,612 | 4,645 | ||||||||||||
Other | 12,052 | 12,144 | 15,964 | 15,906 | ||||||||||||
Total revenue bonds by revenue source | $ | 100,379 | $ | 102,405 | $ | 91,452 | $ | 91,855 |
2021 | 2020 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Revenue bonds by revenue source | ||||||||||||||||
Sales tax | $ | 39,123 | $ | 39,721 | $ | 32,654 | $ | 33,380 | ||||||||
Water | 20,708 | 21,173 | 21,934 | 22,660 | ||||||||||||
College and universities, primarily dormitory revenues | 13,082 | 13,430 | 11,332 | 11,810 | ||||||||||||
Sewer | 14,172 | 14,356 | 11,302 | 11,724 | ||||||||||||
Leases | 7,805 | 7,934 | 7,050 | 7,253 | ||||||||||||
Electric power & light revenues | 6,141 | 6,329 | 7,075 | 7,279 | ||||||||||||
Other | 18,187 | 18,264 | 16,533 | 16,972 | ||||||||||||
Total revenue bonds by revenue source | $ | 119,218 | $ | 121,207 | $ | 107,880 | $ | 111,078 |
Loan Portfolio
The loan portfolio, net of the allowance for loan losses, totaled $1,146,046,000$1.12 billion and $1,048,147,000$1.13 billion as of June 30, 20202021 and December 31, 2019,2020, respectively. The increase in loansdecrease was primarily due to government guaranteeda reduction in PPP and agricultural loans, underoffset in part by an increase in the Paycheck Protection Program (“PPP”).1-4 family residential loan portfolio. The PPP loans totaled $78.3$37.6 million and $50.9 million as of June 30, 2020.2021 and December 31, 2020, respectively. The PPP loans bear an interest rate of 1.0% and primarilygenerally have a two to five year maturity. The Small Business Administration is providinghas provided fees to financial institutions to originate the PPP loans with recognition of the fees over the life of the loans. Under certain conditionsThe Company has $2.3 million of unrecognized net PPP loan fees as of June 30, 2021. Management expects these loans mayto be forgiven and the net fees associated with these loans will be accelerated into interest income.
Deposits
Deposits totaled $1,643,543,000$1.83 billion and $1,493,175,000$1.72 billion as of June 30, 20202021 and December 31, 2019,2020, respectively. The increasechange in deposits since December 31, 20192020 was primarily due to account balances in interest-bearing checking accounts, money market and certificate of deposit public funds and retail interest-bearing checking accounts, offset in part by a declineincreases in account balances of retail, money marketcommercial, and certificate of deposits.public funds. Balance fluctuations were primarily due to government stimulus programs and normal customer activity, as corporate customers’ liquidity needs vary at any given time. In addition, fundsFunds disbursed under the PPP program were deposited into customer accounts and willmay impact overall deposit fluctuations as customers spend those funds according to the PPP rules. We believe that depositguidelines. Deposit levels could decreasemay be impacted in future periods as a result of theby additional government stimulus or distressed economic conditions in our market areas related to the COVID-19 pandemic and the low interest rates.conditions.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase totaled $36,893,000 as
Off-Balance Sheet Arrangements
The Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2019.2020.
Asset Quality Review and Credit Risk Management
The Company’s credit risk is historically centered in the loan portfolio, which on June 30, 20202021 totaled $1,146,046,000$1.12 billion compared to $1,048,147,000$1.13 billion as of December 31, 2019.2020. Net loans comprise 60%54% of total assets as of June 30, 2020.2021. 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 an agreement and to quantify and manage credit risk on a portfolio basis. The Company’s level of problem loans (consisting of nonaccrual loans and loans past due 90 days or more) as a percentage of total loans was 1.63%1.11% at June 30, 2020,2021, as compared to 0.48%1.33% at December 31, 2019.2020. The increasedecrease in the level of problem loans is due primarily to the deteriorationpayoffs of one loan relationship in the hospitality portfolio.nonaccrual loans. The Company’s level of problem loans as a percentage of total loans at June 30, 20202021 of 1.63%1.11% is higher as compared to the Iowa State Average peer group of FDIC insured institutions as of March 31, 2020,2021, of 0.82%0.59%, most recent available.
Impaired loans totaled $17,901,000$12.7 million as of June 30, 20202021 and have increased $13,113,000decreased $2.6 million as compared to the impaired loans of $4,788,000$15.3 million as of December 31, 2019.2020. The increasedecrease is primarily due to one hospitality loan relationship.payoffs of nonaccrual loans.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company applies its normal loan review procedures to identify loans that should be evaluated for impairment.
The Company had TDRs of $1,276,000$10.8 million as of June 30, 20202021 and $1,171,000$11.3 million as of December 31, 2019,2020, all of which were included in impaired and nonaccrual loans.
TDRs are monitored and reported on a quarterly basis. Certain TDRs are on nonaccrual status at the time of restructuring. These borrowings are typically returned to accrual status after the following: sustained repayment performance in accordance with the restructuring agreement for a reasonable period of at least sixnine months; and, management is reasonably assured of future performance. If the TDR meets these performance criteria and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will return to performing status.
On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in lightSection 4013 of the economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic. The guidance interprets current accounting standards and indicates thatCARES Act, “Temporary Relief From TDRs,” allows financial institutions may presume that borrowers are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program. These modifications may include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificantoption to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. This temporary suspension may only be applied to modifications of loans in which the borrower is lessthat were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on its contractual payments atMarch 1, 2020 and ending on the time a modification program is implemented. The agencies confirmedearlier of December 31, 2020, extended to January 1, 2022 under the Coronavirus Response and Relief Supplemental Appropriations Act, or 60 days after the termination of the COVID-19 national emergency. In March 2020, federal banking regulators in consultation with the FASB issued interagency statements that include similar guidance on loan modifications and reporting for financial institutions working with the staff of the FASBcustomers affected by COVID-19. The interagency statement provided that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs.
For TDRs that were on nonaccrual status before the modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company will continue to evaluate all TDRs for possible impairment and, as necessary, recognize impairment through the allowance. No additional specific reserves werereserve was provided for the three and six months ended June 30, 20202021 and 2019.2020. The Company had $16,000no charge-offs and $31,000$262 thousand of recoveries for TDR’s for the three and six months ended June 30, 2021, respectively. The Company had $16 thousand and $31 thousand of charge-offs for TDR’s for the three and six months ended June 30, 2020, respectively. There were no charge-offs related to TDRs for the three and six months ended June 30, 2019. The Company does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in troubled debt restructurings or whose loans are on nonaccrual.
Loans past due 90 days or more that are still accruing interest are reviewed no less frequently than quarterly to determine if there continues to be a strong reason that the credit should not be placed on non-accrual.nonaccrual. As of June 30, 2020, non-accrual2021, nonaccrual loans totaled $17,901,000$12.7 million and there were $641,000$4 thousand of loans past due 90 days and still accruing. This compares to non-accrualnonaccrual loans of $4,788,000$15.3 million and loans past due 90 days and still accruing totaled $255,000$39 thousand as of December 31, 2019.2020. The increasedecrease in non-accrualnonaccrual loans is due primarily to a hospitality loan.payoffs of nonaccrual loans. Real estate owned totaled $632,000$778 thousand and $4,004,000$218 thousand as of June 30, 20202021 and December 31, 2019,2020, respectively.
The agricultural real estate and agricultural operating loan portfolio classifications remain elevated as a result of lower grain prices.elevated. The watch and special mention loans in these categories totaled $58,288,000$36.9 million as of June 30, 20202021 as compared to $48,028,000$54.1 million as of December 31, 2019.2020. This increasedecrease is primarilygenerally due to onepayments received from various agricultural customer relationship.customers. The substandard and impaired loans in these categories totaled $15,957,000$7.8 million and $9.5 million as of June 30, 2020 as compared to $15,913,000 as of2021 and December 31, 2019. The Iowa agricultural economy remains challenged as the result of the price of commodities, including corn, soybeans, cattle, hogs and ethanol, along with export concerns. The effects of the COVID-19 pandemic could exacerbate these challenges.2020, respectively.
The watch and special mention loans classified as commercial real estate totaled $95,137,000$100.1 million as of June 30, 20202021 as compared to $33,790,000$111.9 million as of December 31, 2019. This increase in commercial real estate loans was due primarily to the hospitality loan portfolio.2020. The substandard and impaired commercial real estate loans totaled $15,391,000$37.6 million and $37.9 million as of June 30, 2020 as compared to $14,786,000 as of2021 and December 31, 2019.2020, respectively.
The allowance for loan losses as a percentage of outstanding loans as of June 30, 20202021 was 1.37%1.48%, as compared to 1.19%1.50% at December 31, 2019.2020. The allowance for loan losses totaled $16,005,000$16.9 million and $12,619,000$17.2 million as of June 30, 20202021 and December 31, 2019,2020, respectively. PPP loans are government guaranteed and the impact on the allowance for loan loss was not significant.
The allowance for loan losses is management’s best estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Factors considered in establishing an appropriate allowance include: an assessment of the financial condition of the borrower, a realistic determination of value and adequacy of underlying collateral, the condition of the local economy and the condition of the specific industry of the borrower, an analysis of the levels and trends of loan categories and a review of delinquent and classified loans. The increasedecrease in the allowance for loan losses is mainly due to increased risk associated with thenet loan portfolio due to the economic slowdown associated with COVID-19recoveries and to a lesser extent organic growthreduction in thea specific reserve, offset in part by higher loan portfolio.balances from year-end excluding PPP loans. Additional increases in the allowance for loan losses are anticipatedpossible if the effects of the COVID-19 conditions negatively impacts our loan portfolio. These increases may be due to increased charge-offs or an increase in the qualitative factors. The qualitative factors are considered as a part of our allowance for loan loss calculation and may deteriorate if the economic effects of COVID-19 continueworsen in the State of Iowa and a resumption to typical social and economic activity is delayed.
Liquidity and Capital Resources
Liquidity management is the process by which the Company, through its Banks’ Asset and Liability Committees (ALCO), ensures that adequate liquid funds are available to meet its financial commitments on a timely basis, at a reasonable cost and within acceptable risk tolerances. These commitments include funding credit obligations to borrowers, funding of mortgage originations pending delivery to the secondary market, withdrawals by depositors, maintaining adequate collateral for pledging for public funds, trust deposits and borrowings, paying dividends to shareholders, payment of operating expenses, funding capital expenditures and maintaining deposit reserve requirements.
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 securities available-for-sale; 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.
As of June 30, 2020,2021, the level of liquidity and capital resources of the Company remain at a satisfactory level. Management believes that the Company's liquidity sources will be sufficient to support its existing operations for the foreseeable future.
The liquidity and capital resources discussion will cover the following topics:
● | Review of the Company’s Current Liquidity Sources |
● | Review of Statements of Cash Flows |
● | Company Only Cash Flows |
● | Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs |
● | Capital Resources |
Review of the Company’s Current Liquidity Sources
Liquid assets of cash and due from banks and interest-bearing deposits in financial institutions and federal funds sold as of June 30, 20202021 and December 31, 20192020 totaled $178,519,000$166.2 million and $143,565,000,$191.5 million, respectively, and management believes these sources provide an adequate level of liquidity given current economic conditions.
Other sources of liquidity available to the Banks as of June 30, 20202021 include outstanding lines of credit with the FHLB of Des Moines, Iowa of $213,884,000,$244.0 million, with $3,000,000$3.0 million of outstanding FHLB advances. The Company also has a $4 million line of credit with an unaffiliated bank, with no outstanding borrowings as of June 30, 2021. Federal funds borrowing capacity at correspondent banks was $110,102,000,$107.9 million, with no outstanding federal fund purchase balances as of June 30, 2020.2021. The Company had securities sold under agreements to repurchase totaling $36,893,000$33.3 million as of June 30, 2020.2021.
Total investments as of June 30, 20202021 were $513,616,000$740.1 million compared to $479,843,000$597.0 million as of December 31, 2019.2020. These investments provide the Company with a significant amount of liquidity since all of the investments are classified as available-for-sale as of June 30, 2020.2021.
The investment portfolio serves an important role in the overall context of balance sheet management in terms of balancing capital utilization and liquidity. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment, liquidity and credit considerations. The portfolio’s scheduled maturities and payments represent a significant source of liquidity.
Review of the Consolidated Statements of Cash Flows
Net cash provided by operating activities for the six months ended June 30, 20202021 totaled $17,925,000$17.4 million compared to $10,901,000$17.9 million for the six months ended June 30, 2019, an increase of $7,024,000. This increase was primarily due to the proceeds from loans held for sale,2020, a decrease in the balance of accrued income receivable and an increase in accrued expenses and other liabilities, offset in part by the increase in originations from loans held for sale.$493 thousand.
Net cash used in investing activities for the six months ended June 30, 20202021 was $156,984,000$123.7 million compared to $14,570,000$157.0 million for the six months ended June 30, 2019.2020. The increasedecrease of $142,414,000$33.3 million in cash used in investing activities was primarily due to a higher level ofdecrease in interest-bearing deposits in financial institutions and loans, and purchases of investments, offset in part by proceeds from the maturities and callsan increase in purchases of investments.
Net cash provided by financing activities for the six months ended June 30, 20202021 totaled $136,970,000$106.4 million compared to $4,099,000 used in financing activities$137.0 million for the six months ended June 30, 2019.2020. The increasedecrease in cash provided by financing activities of $141,069,000$30.6 million was primarily due to ana lower increase in deposits and a lower amount of repayments of FHLB advances in 2020 as compared to 2019.between periods. As of June 30, 2020,2021, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.
Review of Company Only Cash Flows
The Company’s liquidity on an unconsolidated basis is heavily dependent upon dividends paid to the Company by the Banks. The Banks provide adequate liquidity to pay the Company’s expenses and stockholder dividends. Dividends paid by the Banks to the Company amounted to $4,859,000$4.7 million and $6,368,000$4.9 million for the six months ended June 30, 20202021 and 2019,2020, respectively. Various federal and state statutory provisions limit the amounts of dividends banking subsidiaries are permitted to pay to their holding companies without regulatory approval. Federal Reserve policy further limits the circumstances under which bank holding companies may declare dividends. For example, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. In addition, the Federal Reserve and the FDIC have issued policy statements, which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. Federal and state banking regulators may also restrict the payment of dividends by order.
The Company, on an unconsolidated basis, has interest-bearing deposits totaling $2,867,000$2.7 million as of June 30, 2020 that are presently available to provide additional liquidity to the Banks.2021.
Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs
On April 16, 2021, the Company entered into a commitment with a contractor to build a new branch in West Des Moines, Iowa for $1.7 million. No other material capital expenditures or material changes in the capital resource mix are anticipated at this time. The primary cash flow uncertainty would be a sudden decline in deposits causing the Banks to liquidate securities. Historically, the Banks have maintained an adequate level of short-term marketable investments to fund the temporary declines in deposit balances. There are no known trends in liquidity and cash flow needs as of June 30, 20202021 that are of concern to management.
Capital Resources
The Company’s total stockholders’ equity as of June 30, 20202021 totaled $201,150,000$210.1 million and was $13,571,000 higher$635 thousand more than the $187,579,000$209.5 million recorded as of December 31, 2019.2020. The increase in stockholders’ equity was primarily due tothe result of the retention of net income and an increase in other comprehensive income,excess of dividends, offset in part by dividends declared and stock repurchases.a reduction in accumulated other comprehensive income. The increasedecrease in other comprehensive income is created by lowerhigher market interest rates compared to December 31, 2019,2020, which resulted in higherlower fair values in the securities available-for-sale portfolio. At June 30, 20202021 and December 31, 2019,2020, stockholders’ equity as a percentage of total assets was 10.6%10.1% and 10.8%10.6%, respectively. The capital levels of the Company exceed applicable regulatory guidelines as of June 30, 2020.2021.
Forward-Looking Statements and Business Risks
The Private Securities Litigation Reform Act of 1995 provides the Company with the opportunity to make cautionary statements regarding forward-looking statements contained in this Quarterly Report, including forward-looking statements concerning the Company’s future financial performance and asset quality. Any forward-looking statement contained in this Quarterly Report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, asset quality, plans and objectives may vary materially from those expressed in the forward-looking statements. The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following: the substantial negative impact of the COVID-19 restrictionspandemic on national, regional and local economies in general and on our customers in particular; competitive products and pricing available in the marketplace; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses resulting from the COVID-19 restrictionspandemic or as dictated by new market conditions or regulatory requirements; fiscal and monetary policies of the U.S. government; changes in governmental regulations affecting financial institutions (including regulatory fees and capital requirements); changes in prevailing interest rates; credit risk management and asset/liability management; the financial and securities markets; the availability of and cost associated with sources of liquidity; and other risks and uncertainties inherent in the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s annual report on Form 10-K. Management intends to identify forward-looking statements when using words such as “believe”, “expect”, “intend”, “anticipate”, “estimate”, “should”, “forecasting” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company undertakes no obligation to revise or update such forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Quantitative and Qualitative Disclosures About Market Risk |
The Company's market risk is comprised primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk results from the changes in market interest rates which may adversely affect the Company's net interest income. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Company's primary market risk exposure and how it has been managed year-to-date in 20202021 changed significantly when compared to 2019.2020. Uncertainty due to the federal governmental actions stemming from reactions to the COVID-19 pandemic, may cause market interest rates to deviate from historical norms.
Controls and Procedures |
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There was no change in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
OTHER INFORMATION |
Legal Proceedings |
Not applicable
Risk Factors |
The COVID-19 pandemic has adversely impacted, and is expected to continue adversely impacting, our business and financial results, andManagement does not believe there have been any material changes in the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted at this time givenrisk factors that were disclosed in the evolving nature ofCompany's Form 10-K filed with the pandemic, including the scope and duration of the pandemic, the short and long term effects on national, state and local economies and actions taken by governmental authorities in response to the pandemic.
The COVID-19 pandemic has negatively impacted the national, Iowa and local economies in which the Company conducts business, created significant volatility and disruption in financial markets, and substantially increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and significant restrictions on companies and individuals beginning in IowaSEC on March 9, 2020. The State of Iowa has eased many of these restrictions related to the COVID-19 pandemic. As a result, the demand for our products and services may be significantly impacted, including the demand for new loans and a decrease in deposits. Furthermore, the pandemic will likely result in the recognition of an elevated level of credit losses in our loan portfolios and continued increases in our allowance for loan losses, particularly if businesses remain closed or not fully operational, the impact on the Iowa and local economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold in our investment portfolio, as well as reductions in the unrealized gains component of other comprehensive income. Additionally, goodwill arising from recent bank acquisitions could become impaired if our net income and the fair value of the acquired assets decline due to the economic slowdown. Each of the foregoing events could negatively impact our revenues, earnings or both, as well as our financial condition.
Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. The Company, as a financial institution, is considered an essential business and, therefore, continues to operate and maintain our customer relationships. The Company’s bank lobbies are generally open to the public, with business also being transacted through our drive up facilities, online, telephone or by appointment. Some of the mitigations in place at our offices related to COVID-19 include face coverings, social distancing, frequent hand washing, and protective shields. Although the Company anticipates moving toward normalized operations, changes in restrictions by governmental authorities may change these plans. Current and future governmental actions may temporarily require the Company to conduct business related to foreclosures, repossessions, payments deferrals and other customer-related transactions differently. The Company could also take actions to preserve its capital levels, such as lowering or suspending dividends, in response to the COVID-19 pandemic.
The extent to which the COVID-19 pandemic impacts our business, prospects, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted at this time due to the evolving nature of the pandemic, including the scope and duration of the pandemic, the short and long term effects on national, state and local economies and actions taken by governmental authorities and other third parties in response to the pandemic.12, 2021.
Unregistered Sales of Equity Securities and Use of Proceeds |
In November, 2019,April, 2021, the Company approved a Stock Repurchase Plan which provided for the repurchase of up to 100,000 shares of the Company’s common stock. As of June 30, 2020,2021, there were no100,000 shares remaining to be purchased under the plan. Ames National Corporation completed the stock repurchase program in April, 2020 and the price per share averaged $19.92.
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchases” (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 June 30, 2020.2021.
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 | ||||||||||||
April 1, 2020 to April 30, 2020 | 65,847 | $ | 19.52 | 65,847 | - | |||||||||||
May 1, 2020 to May 31, 2020 | - | $ | - | - | - | |||||||||||
June 1, 2020 to June 30, 2020 | - | $ | - | - | - | |||||||||||
Total | 65,847 | 65,847 |
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 | ||||||||||||
April 1, 2021 to April 30, 2021 | - | $ | - | - | 100,000 | |||||||||||
May 1, 2021 to May 31, 2021 | - | $ | - | - | 100,000 | |||||||||||
June 1, 2021 to June 30, 2021 | - | $ | - | - | 100,000 | |||||||||||
Total | - | - |
Item 3. | Defaults Upon Senior Securities |
Not applicable
Mine Safety Disclosures |
Not applicable
Other information |
Not applicable
Exhibits |
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31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350. |
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. |
101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL (1) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document (1) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (1) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) | |
104 | Cover |
(1) These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMES NATIONAL CORPORATION |
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DATE: August | By: | /s/ John P. Nelson |
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John P. Nelson, Chief Executive Officer and President |
By: | /s/ John L. Pierschbacher | |||
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