AVERAGE BALANCE SHEETS AND INTEREST RATES
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Six Months ended June 30,
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2014
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2013
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Average
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Revenue/
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Yield/
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Average
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Revenue/
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Yield/
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balance
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expense
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rate
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balance
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expense
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rate
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LIABILITIES AND
STOCKHOLDERS' EQUITY
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(dollars in thousands)
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Interest-bearing liabilities
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Deposits
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NOW, savings accounts and money markets
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$
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611,376
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$
|
594
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|
0.19
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%
|
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$
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598,414
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$
|
596
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|
0.20
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%
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Time deposits > $100,000
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95,871
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|
478
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1.00
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%
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97,759
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567
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1.16
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%
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Time deposits < $100,000
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142,607
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|
683
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0.96
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%
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152,450
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|
|
|
832
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|
|
1.09
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%
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Total deposits
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849,854
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|
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1,755
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|
0.41
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%
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848,623
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|
|
|
1,995
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|
|
|
0.47
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%
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Other borrowed funds
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73,528
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|
598
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1.63
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%
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65,079
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|
|
591
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|
|
1.82
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%
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Total Interest-bearing liabilities
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923,382
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2,353
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0.51
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%
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913,702
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|
|
2,586
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|
|
0.57
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%
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Noninterest-bearing liabilities
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Demand deposits
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170,840
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166,388
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Other liabilities
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5,991
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6,932
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Stockholders' equity
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147,912
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145,696
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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1,248,125
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$
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1,232,718
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Net interest income
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$
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19,498
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3.27
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%
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$
|
18,061
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3.10
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%
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Spread Analysis
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Interest income/average assets
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$
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21,851
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3.50
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%
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$
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20,647
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3.35
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%
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Interest expense/average assets
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$
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2,353
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0.38
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%
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$
|
2,586
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0.42
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%
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Net interest income/average assets
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$
|
19,498
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3.12
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%
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$
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18,061
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2.93
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%
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|
Net Interest Income
For the six months ended June 30, 2014 and 2013, the Company's net interest margin adjusted for tax exempt income was 3.27% and 3.10%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the six months ended June 30, 2014 totaled $17,713,000 compared to $16,192,000 for the six months ended June 30, 2013.
For the six months ended June 30, 2014, interest income increased $1,288,000, or 6.9%, when compared to the same period in 2013. The increase from 2013 was primarily attributable an increase in the average balance of real estate loans, higher yields on taxable securities available-for-sale and the recognition of $281,000 of interest income on several nonaccrual loans that were returned to accrual during the period. The higher average balances of real estate loans were due primarily to increased loan demand. The higher yield on securities available-for-sale is due primarily to the slowdown in the payments received on U.S. Government mortgage-backed securities.
Interest expense decreased $233,000, or 9.0%, for the six months ended June 30, 2014 when compared to the same period in 2013. The lower interest expense for the period is primarily attributable to lower average rates paid on time deposits and a decrease in the average balance of time deposits. The lower yields were due primarily to continued low market interest rates.
Provision for Loan Losses
The Company’s provision for loan losses was $75,000 and $74,000 for the six months ended June 30, 2014 and 2013, respectively. Net loan charge-offs were $130,000 and $28,000 for the six months ended June 30, 2014 and 2013, respectively.
Noninterest Income and Expense
Noninterest income increased $748,000 or 19.0% for the six months ended June 30, 2014 compared to the same period in 2013. The increase in noninterest income is primarily due to the gain on the sale of the Company’s office location near Iowa State University in Ames, Iowa and an increase in wealth management service income. These positive non-interest income factors were partially offset be a decrease in the level of gains realized on the sale of loans held for sale and a decrease in securities gains. The decrease in the gain realized on the sale of loans held for sale due to decreased secondary market volume as refinancing activity has slowed. Excluding net security gains and the gain on the sale and disposal of premises and equipment, non-interest income decreased $196,000, or 5.6%.
Noninterest expense decreased $219,000 or 2.0% for the six months ended June 30, 2014 compared to the same period in 2013 primarily as a result of lower other real estate owned expenses, offset in part by increased salaries and benefits due to normal salary increases and higher performance awards associated with increased profitability. The lower other real estate owned expense was due to no impairment write downs in 2014 as compared to $670,000 of impairment write downs in 2013. Excluding impairment write downs of other real estate owned, noninterest expense increased $451,000, or 4.4%.
Income Taxes
The provision for income taxes expense for the six months ended June 30, 2014 and 2013 was $3,199,000 and $2,228,000, representing an effective tax rate of 28% and 25%, respectively. The increase in the effective rate is due primarily to an increase in the percentage of taxable income to total income as a result of a higher volume of taxable earning assets.
Balance Sheet Review
As of June 30, 2014, total assets were $1,235,704,000, a $2,620,000 increase compared to December 31, 2013. Assets remain relatively unchanged as compared to last year.
Investment Portfolio
The investment portfolio totaled $599,239,000 as of June 30, 2014, an increase of $19,200,000 or 3.3% from the December 31, 2013 balance of $580,039,000. The increase in the investment portfolio was primarily due to an increase in U.S. government agencies portfolio and an increase in the unrealized gain on securities, offset in part by pay downs of U.S. government mortgage-backed securities and maturities of state and political subdivision bonds.
On a quarterly basis, the investment portfolio is reviewed for other-than-temporary impairment. As of June 30, 2014, gross unrealized losses of $3,060,000, are considered to be temporary in nature due to the increasing interest rate environment of 2014 and other general economic factors. 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 positions to be other-than-temporary.
At June 30, 2014, the Company’s investment securities portfolio included securities issued by 320 government municipalities and agencies located within 25 states with a fair value of $301.2 million. At December 31, 2013, the Company’s investment securities portfolio included securities issued by 315 government municipalities and agencies located within 25 states with a fair value of $315.2 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. The largest exposure to any one municipality or agency as of June 30, 2014 was $5.5 million (approximately 1.8% of the fair value of the governmental municipalities and agencies) represented by the Urbandale, Iowa Community School District to be repaid by sales tax revenues and property taxes.
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, 2014 and December 31, 2013 identifying the state in which the issuing government municipality or agency operates.
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At June 30, 2014
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|
|
At December 31, 2013
|
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|
|
|
|
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|
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|
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|
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|
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Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
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Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
Obligations of states and political subdivisions:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Obligation bonds:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iowa
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|
$
|
82,308,764
|
|
|
$
|
83,690,331
|
|
|
$
|
89,366,543
|
|
|
$
|
90,185,483
|
|
Texas
|
|
|
11,691,807
|
|
|
|
11,977,097
|
|
|
|
12,157,710
|
|
|
|
12,194,442
|
|
Minnesota
|
|
|
9,385,648
|
|
|
|
9,558,928
|
|
|
|
10,675,196
|
|
|
|
10,822,010
|
|
Pennsylvania
|
|
|
7,364,432
|
|
|
|
7,375,301
|
|
|
|
7,351,955
|
|
|
|
7,259,169
|
|
Other (2014: 16 states; 2013: 17 states)
|
|
|
32,210,359
|
|
|
|
32,745,443
|
|
|
|
36,825,202
|
|
|
|
37,119,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general obligation bonds
|
|
$
|
142,961,010
|
|
|
$
|
145,347,100
|
|
|
$
|
156,376,606
|
|
|
$
|
157,580,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iowa
|
|
$
|
140,977,598
|
|
|
$
|
143,715,031
|
|
|
$
|
147,961,627
|
|
|
$
|
147,879,830
|
|
Other (2014: 12 states; 2013: 10 states)
|
|
|
12,003,818
|
|
|
|
12,146,675
|
|
|
|
9,839,225
|
|
|
|
9,763,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue bonds
|
|
$
|
152,981,416
|
|
|
$
|
155,861,706
|
|
|
$
|
157,800,852
|
|
|
$
|
157,643,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations of states and political subdivisions
|
|
$
|
295,942,426
|
|
|
$
|
301,208,806
|
|
|
$
|
314,177,458
|
|
|
$
|
315,224,133
|
|
As of June 30, 2014 and December 31, 2013, 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 9 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.
|
|
At June 30, 2014
|
|
|
At December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue bonds by revenue source
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales tax
|
|
$
|
96,513,793
|
|
|
$
|
98,875,738
|
|
|
$
|
92,533,182
|
|
|
$
|
92,904,707
|
|
College and universities, primarily dormitory revenues
|
|
|
15,596,133
|
|
|
|
15,704,657
|
|
|
|
15,608,810
|
|
|
|
15,340,745
|
|
Water
|
|
|
12,682,193
|
|
|
|
12,682,246
|
|
|
|
13,263,506
|
|
|
|
12,988,423
|
|
Leases
|
|
|
9,921,226
|
|
|
|
9,902,432
|
|
|
|
10,202,006
|
|
|
|
9,977,022
|
|
Electric
|
|
|
7,147,480
|
|
|
|
7,385,821
|
|
|
|
5,950,969
|
|
|
|
6,091,440
|
|
Other
|
|
|
11,120,591
|
|
|
|
11,310,812
|
|
|
|
20,242,379
|
|
|
|
20,340,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue bonds by revenue source
|
|
$
|
152,981,416
|
|
|
$
|
155,861,706
|
|
|
$
|
157,800,852
|
|
|
$
|
157,643,284
|
|
Loan Portfolio
The loan portfolio, net of the allowance for loan losses of $8,517,000, totaled $549,980,000 as of June 30, 2014, a decrease of $14,521,000, or 2.6%, from the December 31, 2013 balance of $564,502,000. The decrease in the loan portfolio is primarily due to a decrease in the agricultural operating loan portfolio and commercial real estate loan portfolio, offset in part by an increase in the one-to-four family real estate and real estate construction portfolios. The decline in the agricultural operating loan portfolio is due primarily to agricultural customers’ prepaying 2014 operating expenses in 2013 for tax planning purposes and crop input discounts. Subsequently, in the first quarter of 2014, 2013 agricultural operating lines are repaid.
Deposits
Deposits totaled $982,570,000 as of June 30, 2014, a decrease of $29,233,000, or 2.9%, from the December 31, 2013 balance of $1,011,803,000. The decrease in deposits occurred primarily in demand deposits and NOW accounts, offset in part by an increase in retail money market accounts.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase and federal funds purchased totaled $61,152,000 as of June 30, 2014, an increase of $21,535,000, or 54.4%, from the December 31, 2013 balance of $39,617,000. The increase was primarily related to a commercial customer transferring funds to a repurchase account from a commercial checking account and an increase in an existing commercial customer’s repurchase account balance.
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, 2013.
Asset Quality Review and Credit Risk Management
The Company’s credit risk is historically centered in the loan portfolio, which on June 30, 2014 totaled $549,980,000 compared to $564,502,000 as of December 31, 2013. Net loans comprise 44.5% of total assets as of June 30, 2014. The object in managing loan portfolio risk is to reduce the risk of loss resulting from a customer’s failure to perform according to the terms of a transaction and to quantify and manage credit risk on a portfolio basis. The 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 0.23% at June 30, 2014, as compared to 0.44% at December 31, 2013 and 0.99% at June 30, 2013. The Company’s level of problem loans as a percentage of total loans at June 30, 2014 of 0.23% is lower than the Company’s peer group (347 bank holding companies with assets of $1 billion to $3 billion) of 1.40% as of March 31, 2014.
Impaired loans, net of specific reserves, totaled $967,000 as of June 30, 2014 and were lower than impaired loans of $2,244,000 as of December 31, 2013 and $4,771,000 as of June 30, 2013. The decrease in impaired loans from December 31, 2013 is due primarily to credit improvements and payments received on impaired loans during the six months ended June 30, 2014.
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 $733,000 as of June 30, 2014, of which all were included in impaired loans and on nonaccrual status. The Company had TDRs of $1,424,000 as of December 31, 2013, all of which were included in impaired loans and $1,237,000 were on nonaccrual status and $187,000 were included on accrual status.
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 six 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.
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, recognizes impairment through the allowance. The Company had one charge-off related to TDRs for the six months ended June 30, 2014 in the amount of $44,000 and no charge-offs for the six months ended June 30, 2013.
Loans past due 90 days or more that are still accruing interest are reviewed no less frequently than quarterly to determine if there is a strong reason that the credit should not be placed on non-accrual. As of June 30, 2014, non-accrual loans totaled $1,314,000; there were no loans past due 90 days and still accruing. This compares to non-accrual loans of $2,508,000 and $27,000 loans past due 90 days and still accruing as of December 31, 2013. Other real estate owned totaled $8,929,000 as of June 30, 2014 and $8,861,000 as of December 31, 2013.
The allowance for loan losses as a percentage of outstanding loans as of June 30, 2014 and December 31, 2013 was 1.52% and 1.50%, respectively. The allowance for loan losses totaled $8,517,000 and $8,572,000 as of June 30, 2014 and December 31, 2013, respectively. Net charge-offs of loans totaled $130,000 and $28,000 for the six months ended June 30, 2014 and 2013, respectively.
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.
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, 2014, 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:
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Review of the Company’s Current Liquidity Sources
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Review of Statements of Cash Flows
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Company Only Cash Flows
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Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs
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Review of the Company’s Current Liquidity Sources
Liquid assets of cash and due from banks and interest-bearing deposits in financial institutions as of June 30, 2014 and December 31, 2013 totaled $50,145,000 and $47,898,000, respectively, and provide a level of liquidity.
Other sources of liquidity available to the Banks as of June 30, 2014 include outstanding lines of credit with the Federal Home Loan Bank of Des Moines, Iowa of $120,685,000, with $14,504,000 of outstanding FHLB advances at June 30, 2014. Federal funds borrowing capacity at correspondent banks was $109,808,000, with no outstanding federal fund balances as of June 30, 2014. The Company had securities sold under agreements to repurchase totaling $61,152,000 and long-term repurchase agreements of $20,000,000 as of June 30, 2014.
Total investments as of June 30, 2014 were $599,239,000 compared to $580,039,000 as of December 31, 2013. 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, 2014.
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 represent a significant source of liquidity.
Review of Statements of Cash Flows
Net cash provided by operating activities for the six months ended June 30, 2014 totaled $10,069,000 compared to the $12,404,000 for the six months ended June 30, 2013. The decrease of $2,335,000 in net cash provided by operating activities was primarily due to an increase in other assets, an increase in the gain on the sale and disposal of premises and equipment and a decrease in amortization, offset by an increase in net income.
Net cash provided by (used in) investing activities for the six months ended June 30, 2014 was $204,000 and compares to $(24,240,000) for the six months ended June 30, 2013. The increase in cash provided by investing activities of $24,444,000 was primarily due to changes in securities available-for-sale and decreases in loans, offset by increases in interest bearing deposits in financial institutions.
Net cash used in financing activities for the six months ended June 30, 2014 totaled $10,825,000 compared to $3,540,000 for the six months ended June 30, 2013. The increase of $7,284,000 in net cash used in financing activities was primarily due to a decrease in deposits, offset in part by an increase in securities sold under agreements to repurchase. As of June 30, 2014, the Company did not have any external debt financing, off-balance sheet financing arrangements, or derivative instruments linked to its stock.
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 Company requires adequate liquidity to pay its expenses and pay stockholder dividends. For the six months ended June 30, 2014, dividends paid by the Banks to the Company amounted to $3,800,000 compared to $3,600,000 for the same period in 2013. 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 quarterly dividend declared by the Company increased to $0.18 per share in 2014 from $0.16 per share in 2013.
The Company, on an unconsolidated basis, has interest bearing deposits and marketable investment securities totaling $10,414,000 as of June 30, 2014 that are presently available to provide additional liquidity to the Banks.
Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs
As previously noted, First National and First Bank have entered into the Purchase Agreement under which First National will purchase from First Bank substantially all its assets, including loans, and assume substantially all its liabilities, including deposit accounts. At closing, First National will pay First Bank approximately $4.7 million, adjusted by First Bank’s net income (loss) from January 1, 2014 through the acquisition date, as well as certain other items. The Company expects to fund the purchase price from cash reserves held at First National and does not anticipate that any third-party financing will be required to consummate the transaction.
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, 2014 that are of concern to management.
Capital Resources
The Company’s total stockholders’ equity as of June 30, 2014 totaled $152,325,000 and was higher than the $142,106,000 recorded as of December 31, 2013. The increase in stockholders’ equity was primarily due to net income, reduced by dividends declared and increased by accumulated other comprehensive income. The increase in other comprehensive income is created by 2014 market interest rates trending lower, which resulted in higher fair values in the securities available-for-sale portfolio. At June 30, 2014 and December 31, 2013, stockholders’ equity as a percentage of total assets was 12.33% and 11.52%, respectively. The capital levels of the Company exceed applicable regulatory guidelines as of June 30, 2014.
In early July 2013, the Federal Reserve Board and the FDIC issued interim final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revise minimum capital requirements and adjust prompt corrective action thresholds. The interim final rule revises the regulatory capital elements, adds a new common equity Tier I capital ratio, and increases the minimum Tier I capital ratio requirement. The revisions also permit banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income and implement a new capital conservation buffer. The final rule will become effective January 1, 2015, subject to a transition period. Management is in the process of assessing the effect the Basel III Rules may have on the Company's and the Bank's capital positions and will monitor developments in this area.
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: economic conditions, particularly in the concentrated geographic area in which the Company and its affiliate banks operate; 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 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; the Company’s ability to successfully integrate the assets being purchased from First Bank into its operations on a timely and cost effective basis; and other risks and uncertainties inherent in the Company’s business, including those discussed under the headings “Risk Factors” and “Forward-Looking Statements and Business Risks” in the Company’s Annual Report. Management intends to identify forward-looking statements when using words such as “believe”, “expect”, “intend”, “anticipate”, “estimate”, “should” 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.