# Ames National Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Ames National Corp](/companies/atlo.md) (CIK 1132651)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 21:05 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030643
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1132651/000143774923030643/atlo20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1132651/000143774923030643/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $8.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $20.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $597.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $2.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $8.7m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.97 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $12.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $3.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $7.3m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $90.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $2.15bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $2.01bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $146.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 59,548 characters.

### Overview

Ames National Corporation (the “Company”) is a bank holding company established in 1975 that owns and operates six bank subsidiaries in central, north-central and south-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 Co. (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 twenty-two 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 244 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 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 Banks; (v) gain on sale of loans; and (vi) merchant and card fees. The Company’s principal expenses are: (i) interest expense on deposit accounts and other borrowings; (ii) credit loss expense; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks’ loan and deposit functions; (v) occupancy expenses for maintaining the Banks’ 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-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 $2.9 million, or $0.33 per share, for the three months ended September 30, 2023, compared to net income of $5.5 million, or $0.62 per share, for the three months ended September 30, 2022. The decrease in earnings is primarily the result of higher interest expense on deposits and other borrowed funds, offset in part by an increase in interest income on loans. The higher interest expense on deposits is due to an increase in market rates. Since March 1, 2022, The Federal Open Market Committee has increased its target for the federal funds interest rate by 5.25%. The increase in interest income on loans was primarily due to higher rates and growth in the loan portfolio.

Net loan recoveries totaled $4 thousand for the three months ended September 30, 2023 compared to net loan charge-offs of $3 thousand for the three months ended September 30, 2022. A credit loss benefit of ($274) thousand was recognized for the three months ended September 30, 2023 as compared to a credit loss benefit of ($520) thousand for the three months ended September 30, 2022.

The following management discussion and analysis will provide a review of important items relating to:

- Challenges
- 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

### Challenges

Management has identified certain events or circumstances that may negatively impact the Company’s financial condition and results of operations in the future and is attempting to position the Company to best respond to those challenges. These challenges are addressed in the Company’s most recent Annual Report on Form 10-K filed on March 10, 2023.

### 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 4,198 community 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 Ended September 30, 2023 Company | 9 Months Ended | 6 Months Ended June 30, 2023 Company | Industry\* | Years Ended December 31, 2022 Company | Industry\* | 2021 Company | Industry\* |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Return on assets | 0.55% | 0.54% | 0.54% | 1.05% | 0.90% | 1.15% | 1.15% | 1.25% |
| Return on equity | 7.60% | 7.47% | 7.40% | 11.12% | 11.43% | 12.01% | 11.43% | 11.61% |
| Net interest margin | 2.11% | 2.21% | 2.26% | 3.44% | 2.55% | 3.45% | 2.83% | 3.27% |
| Efficiency ratio | 75.12% | 74.27% | 73.87% | 63.43% | 61.41% | 61.36% | 55.04% | 61.42% |
| Capital ratio | 7.23% | 7.26% | 7.28% | 10.68% | 7.90% | 10.51% | 10.04% | 10.16% |

\*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 0.55% and 1.05% for the three months ended September 30, 2023 and 2022, respectively. This ratio decrease was primarily the result of lower net interest income.

- 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 7.60% and 13.65% for the three months ended September 30, 2023 and 2022, respectively. This ratio decrease was primarily the result of lower net interest income.

- Net Interest Margin

The net interest margin for the three months ended September 30, 2023 and 2022 was 2.11% and 2.71%, 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 75.12% and 59.48% for the three months ended September 30, 2023 and 2022, respectively. The efficiency ratio has increased compared to the same quarter last year primarily due to a reduction in net interest income.

- 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 7.23% as of September 30, 2023 is lower than the industry average of 10.68% as of June 30, 2023. All of the Company’s six affiliate banks are considered well-capitalized as defined by federal capital regulations. For further information on the regulatory capital, see Note 14 – Regulatory Matters in the notes to the financial statements of this Form 10-Q.

### 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, 2022 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 credit losses, the assessment of fair value for investment securities and the assessment of goodwill impairment to be the Company’s most critical accounting policies.

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the allowance for credit losses use the current expected credit loss (CECL) methodology. The following is a discussion of the methodologies used by the Company both pre- and post-adoption of ASC 326.

Post-ASC 326 CECL Adoption:

The allowance for credit losses for loans represents management's estimate of all expected credit losses over the expected contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.

We employ a disciplined process and methodology to establish our allowance for credit losses that has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

Based upon this methodology, management establishes an asset-specific allowance for loans that do not share risk characteristics with other loans based on the amount of expected credit losses calculated on those loans and charges off amounts determined to be uncollectible. Factors we consider in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

When a loan does not share risk characteristics with other loans, we measure expected credit loss as the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan's effective interest rate except that, for collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. In accordance with our appraisal policy, the fair value of collateral-dependent loans is based upon independent third-party appraisals or evaluations. If its determined that market conditions, changes to the property, changes in intended use of the property or other factors indicate that an appraisal or evaluation is no longer reliable, we require a validation of the appraisal or evaluation to assess whether a change in collateral value requires an additional adjustment to carrying value. If the appraisal or evaluation cannot be validated, a new appraisal or evaluation will be obtained. When we receive an updated appraisal or evaluation, management reassesses the need for adjustments to the loan's expected credit loss measurements and, where appropriate, records an adjustment. If the calculated expected credit loss is determined to be permanent, fixed or nonrecoverable, the credit loss portion of the loan will be charged off against the allowance for credit losses. Loans designated having significantly increased credit risk are generally placed on nonaccrual and remain in that status until all principal and interest payments are current and the prospects for future payments in accordance with the loan agreement are reasonably assured, at which point the loan is returned to accrual status.

In estimating the component of the allowance for credit losses for loans that share common risk characteristics, loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. Credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and purpose. This model calculates an expected life-of-loan loss percentage for each loan category by using historical loss rate analysis for all loan pools.

The component of the allowance for credit losses for loans that share common risk characteristics also considers factors for each loan class to adjust for differences between the historical period used to calculate historical loss rates and expected conditions over the remaining lives of the loans in the portfolio related to:

- Lending policies and procedures, including changes in underwriting standards and collections;
- International, national, regional and local economic conditions;
- The nature and volume of the portfolio and terms of loans;
- The experience, depth, and ability of lending management;
- The volume and severity of past due loans and other similar conditions;
- The quality of the organization’s loan review system;
- The value of underlying collateral for collateral-dependent loans;
- The existence and effect of any concentrations of credit and changes in the levels of such concentrations; and
- The effect of other external factors such as competition, legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

Such factors are used to adjust the historical loss rates so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the bank reduces, on a straight-line basis over one year, the adjustments so that the model reverts back to the historical loss rates.

The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

The allowance for credit losses for loans, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries. For further information on the allowance for credit losses for loans, see Note 1 - Summary of Significant Accounting Policies and Note 7 - Loans Receivable and Credit Disclosures in the notes to the financial statements of this Form 10-Q.

#### Pre-ASC 326 CECL Adoption:

The allowance for credit losses is established through a credit loss expense that is treated as an expense which would be charged against earnings. Loans are charged against the allowance for credit losses when management believes that collectability of the principal is unlikely. The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for credit losses, incorporating a variety of risk considerations, both quantitative and qualitative. 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 credit losses may be greater or lesser than future charge-offs. Due to potential changes in conditions, including economic disruption, high inflation levels, and rising interest rates, it is at least reasonably possible that changes in estimates will occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.

For further discussion concerning the allowance for credit 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 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 are evaluated for credit losses and reflected in earnings as a credit loss expense. In estimating credit losses, management considers (1) the intent to sell the investment securities and the more likely than not requirement that the Company will be required to sell the investment securities prior to recovery and (2) the financial condition and near-term prospects of the issuer. Due to potential changes in conditions, including economic disruption, high inflation levels, and rising interest rates, it is at least reasonably possible that changes in management’s assessment of credit losses may occur in the near term and that such changes could be material to the amounts reported in the Company’s financial statements.

Goodwill

Goodwill arose in connection with four acquisitions consummated in previous periods. 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 September 30, 2023, 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. The effects of economic disruption, high inflation levels, and rising interest rates may negatively impact our net income, fair value and correspondingly goodwill. 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).*

| Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income (GAAP) | $10,689 | $13,663 | $33,660 | $40,451 |
| Tax-equivalent adjustment (1) | 146 | 170 | 464 | 529 |
| Net interest income on an FTE basis (non-GAAP) | 10,835 | 13,833 | 34,124 | 40,980 |
| Average interest-earning assets | $2,049,289 | $2,043,342 | $2,056,912 | $2,074,050 |
| Net interest margin on an FTE basis (non-GAAP) | 2.11% | 2.71% | 2.21% | 2.63% |

(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 September 30, 2023 and 2022

The following highlights a comparative discussion of the major components of net income and their impact for the three months ended September 30, 2023 and 2022:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest 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*

*(dollars in thousands)*

| ASSETS Interest-earning assets Loans (1) | Three Months Ended September 30, 2023 Average balance | Revenue/ expense | Yield/ rate | 2022 Average balance | Revenue/ expense | Yield/ rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | $90,660 | $1,336 | 5.89% | $72,356 | $815 | 4.51% |
| Agricultural | 94,504 | 1,676 | 7.09% | 92,853 | 1,210 | 5.21% |
| Real estate | 1,049,185 | 11,384 | 4.34% | 991,574 | 9,503 | 3.83% |
| Consumer and other | 16,192 | 189 | 4.67% | 16,147 | 160 | 3.96% |
| Total loans (including fees) | 1,250,541 | 14,585 | 4.67% | 1,172,930 | 11,688 | 3.99% |
| Investment securities (2) |  |  |  |  |  |  |
| Taxable | 652,939 | 3,152 | 1.93% | 706,953 | 3,226 | 1.83% |
| Tax-exempt (3) | 103,427 | 695 | 2.69% | 125,675 | 811 | 2.58% |
| Total investment securities | 756,366 | 3,847 | 2.03% | 832,628 | 4,037 | 1.94% |
| Interest-bearing deposits with banks and federal funds sold | 42,382 | 476 | 4.49% | 37,784 | 250 | 2.65% |
| Total interest-earning assets | 2,049,289 | $18,908 | 3.69% | 2,043,342 | $15,975 | 3.13% |
| Noninterest-earning assets (2) | 81,230 |  |  | 74,987 |  |  |
| TOTAL ASSETS | $2,130,519 |  |  | $2,118,329 |  |  |

(1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included.

(2) Average investment balances include unrealized gains and losses. In reports prior to September 30, 2023 investment unrealized gains and losses were included in noninterest-earning assets.

(3) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%.

*AVERAGE BALANCE SHEETS AND INTEREST RATES*

*(dollars in thousands)*

| LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits | Three Months Ended September 30, 2023 Average balance | Revenue/ expense | Yield/ rate | 2022 Average balance | Revenue/ expense | Yield/ rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing checking, savings accounts and money markets | $1,175,939 | $4,301 | 1.46% | $1,290,911 | $1,461 | 0.45% |
| Time deposits | 266,066 | 2,217 | 3.33% | 197,731 | 386 | 0.78% |
| Total deposits | 1,442,005 | 6,518 | 1.81% | 1,488,642 | 1,847 | 0.50% |
| Other borrowed funds | 155,249 | 1,555 | 4.01% | 63,660 | 295 | 1.85% |
| Total interest-bearing liabilities | 1,597,254 | 8,073 | 2.02% | 1,552,302 | 2,142 | 0.55% |
| Noninterest-bearing liabilities |  |  |  |  |  |  |
| Noninterest-bearing checking | 367,139 |  |  | 394,845 |  |  |
| Other liabilities | 12,189 |  |  | 8,687 |  |  |
| Stockholders' equity | 153,937 |  |  | 162,495 |  |  |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $2,130,519 |  |  | $2,118,329 |  |  |
| Net interest income (FTE)(4) |  | $10,835 |  |  | $13,833 |  |
| Net interest spread (FTE) |  |  | 1.67% |  |  | 2.58% |
| Net interest margin (FTE)(4) |  |  | 2.11% |  |  | 2.71% |

(4) 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 September 30, 2023 and 2022, the Company's net interest margin adjusted for tax exempt income was 2.11% and 2.71%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the three months ended September 30, 2023 totaled $10.7 million compared to $13.7 million for the three months ended September 30, 2022.

For the three months ended September 30, 2023, interest income increased $3.0 million, or 19%, when compared to the same period in 2022. The increase is primarily due to higher average rates and growth in the loan portfolio.

Interest expense increased $5.9 million, or 277%, for the three months ended September 30, 2023 when compared to the same period in 2022. The higher interest expense for the period is primarily due to an increase in market rates on deposits. Since March 1, 2022, the Federal Open Market Committee has increased its target for the federal funds interest rate by 5.25%.

Credit Loss Expense (Benefit)

A credit loss benefit of ($274) thousand was recognized for the three months ended September 30, 2023 as compared to a credit loss benefit of ($520) thousand for the three months ended September 30, 2022. Net loan recoveries totaled $4 thousand for the three months ended September 30, 2023 compared to net loan charge-offs of $3 thousand for the three months ended September 30, 2022.

Noninterest Income and Expense

Noninterest income for the three months ended September 30, 2023 totaled $2.4 million compared to $2.3 million for the three months ended September 30, 2022, an increase of 3%.

Noninterest expense for the three months ended September 30, 2023 totaled $9.8 million compared to $9.5 million recorded for the three months ended September 30, 2022, an increase of 3%. The increase is primarily due to higher FDIC assessments and normal increases in salaries and benefits. The efficiency ratio was 75.1% for the third quarter of 2023 as compared to 59.5% in the third quarter of 2022.

Income Taxes

Income tax expense for the three months ended September 30, 2023 totaled $597 thousand compared to $1.4 million recorded for the three months ended September 30, 2022. The effective tax rate was 17% and 21% for the three months ended September 30, 2023 and 2022, respectively. The lower than expected tax rate in 2023 and 2022 was due primarily to tax-exempt interest income and New Markets Tax Credits.

### Income Statement Review for the Nine Months ended September 30, 2023 and 2022

The following highlights a comparative discussion of the major components of net income and their impact for the nine months ended September 30, 2023 and 2022:

AVERAGE BALANCES AND INTEREST RATES

The following two tables are used to calculate the Company’s non-GAAP net interest 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*

*(dollars in thousands)*

| ASSETS Interest-earning assets Loans (1) | Nine Months Ended September 30, 2023 Average balance | Revenue/ expense | Yield/ rate | 2022 Average balance | Revenue/ expense | Yield/ rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | $84,654 | $3,508 | 5.53% | $71,700 | $2,438 | 4.53% |
| Agricultural | 92,289 | 4,636 | 6.70% | 93,832 | 3,141 | 4.46% |
| Real estate | 1,044,394 | 32,978 | 4.21% | 973,314 | 27,173 | 3.72% |
| Consumer and other | 16,322 | 535 | 4.37% | 16,210 | 477 | 3.92% |
| Total loans (including fees) | 1,237,659 | 41,657 | 4.49% | 1,155,056 | 33,229 | 3.84% |
| Investment securities (2) |  |  |  |  |  |  |
| Taxable | 664,661 | 9,556 | 1.92% | 703,101 | 8,861 | 1.68% |
| Tax-exempt (3) | 111,872 | 2,212 | 2.64% | 133,225 | 2,519 | 2.52% |
| Total investment securities | 776,533 | 11,768 | 2.02% | 836,326 | 11,380 | 1.81% |
| Interest-bearing deposits with banks and federal funds sold | 42,720 | 1,484 | 4.63% | 82,668 | 675 | 1.09% |
| Total interest-earning assets | 2,056,912 | $54,909 | 3.56% | 2,074,050 | $45,284 | 2.91% |
| Noninterest-earning assets (2) | 78,761 |  |  | 70,653 |  |  |
| TOTAL ASSETS | $2,135,673 |  |  | $2,144,703 |  |  |

(1) Average loan balances include nonaccrual loans, if any. Interest income collected on nonaccrual loans has been included.

(2) Average investment balances include unrealized gains and losses. In reports prior to September 30, 2023 investment unrealized gains and losses were included in noninterest-earning assets.

(3) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax rate of 21%.

*AVERAGE BALANCE SHEETS AND INTEREST RATES*

*(dollars in thousands)*

| LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities Deposits | Nine Months Ended September 30, 2023 Average balance | Revenue/ expense | Yield/ rate | 2022 Average balance | Revenue/ expense | Yield/ rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing checking, savings accounts and money markets | $1,224,172 | $12,043 | 1.31% | $1,303,599 | $2,768 | 0.28% |
| Time deposits | 248,775 | 5,171 | 2.77% | 206,672 | 1,153 | 0.74% |
| Total deposits | 1,472,947 | 17,214 | 1.56% | 1,510,271 | 3,921 | 0.35% |
| Other borrowed funds | 123,142 | 3,571 | 3.87% | 47,412 | 383 | 1.08% |
| Total interest-bearing liabilities | 1,596,089 | 20,785 | 1.74% | 1,557,683 | 4,304 | 0.37% |
| Noninterest-bearing liabilities |  |  |  |  |  |  |
| Noninterest-bearing checking | 373,412 |  |  | 400,393 |  |  |
| Other liabilities | 11,187 |  |  | 8,697 |  |  |
| Stockholders' equity | 154,985 |  |  | 177,930 |  |  |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $2,135,673 |  |  | $2,144,703 |  |  |
| Net interest income (FTE)(4) |  | $34,124 |  |  | $40,980 |  |
| Net interest spread (FTE) |  |  | 1.82% |  |  | 2.54% |
| Net interest margin (FTE)(4) |  |  | 2.21% |  |  | 2.63% |

(4) 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 nine months ended September 30, 2023 and 2022, the Company's net interest margin adjusted for tax exempt income was 2.21% and 2.63%, respectively. Net interest income, prior to the adjustment for tax-exempt income, for the nine months ended September 30, 2023 totaled $33.7 million compared to $40.5 million for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, interest income increased $9.7 million, or 22%, when compared to the same period in 2022. The increase is primarily due to higher average rates and growth in the loan portfolio.

Interest expense increased $16.5 million, or 383%, for the three months ended September 30, 2023 when compared to the same period in 2022. The higher interest expense for the period is primarily due to an increase in market rates and change in mix of deposits. Since March 1, 2022, the Federal Open Market Committee has increased its target for the federal funds interest rate by 5.25%.

Credit Loss Expense (Benefit)

A credit loss expense of $34 thousand was recognized for the nine months ended September 30, 2023 as compared to a credit loss benefit of ($706) thousand for the nine months ended September 30, 2022. Net loan charge-offs totaled $177 thousand for the nine months ended September 30, 2023 compared to net loan charge-offs of $18 thousand for the nine months ended September 30, 2022. The credit loss expense in 2023 was primarily due to charge-offs in the agriculture loan portfolio. The credit loss benefit in 2022 was primarily due to a reduction in specific reserves and an overall improvement in the quality of the loan portfolio.

Noninterest Income and Expense

Noninterest income for the nine months ended September 30, 2023 totaled $6.9 million compared to $7.2 million for the nine months ended September 30, 2022, a decrease of 4%. The decrease in noninterest income was primarily due to fewer gains on sale of residential loans held for sale as refinancing volume has slowed.

Noninterest expense for the nine months ended September 30, 2023 totaled $30.1 million compared to $28.7 million recorded for the nine months ended September 30, 2022, an increase of 5%. The increase is primarily due to a wire fraud loss of $523 thousand recorded in the second quarter of 2023 and normal increases in salaries and employee benefits. The efficiency ratio was 74.3% and 60.2% for the nine months ended September 30, 2023 and 2022, respectively.

Income Taxes

Income tax expense for the nine months ended September 30, 2023 totaled $1.7 million compared to $4.8 million recorded for the nine months ended September 30, 2022. The effective tax rate was 17% and 24% for the nine months ended September 30, 2023 and 2022, respectively. The lower than expected tax rate in 2023 was due primarily to tax-exempt interest income and New Markets Tax Credits. The decrease in income tax expense and higher than expected tax rate in 2022 was due to a $780 thousand adjustment to deferred taxes for the reduction in future Iowa bank franchise tax rates enacted in the second quarter of 2022.

### Balance Sheet Review

As of September 30, 2023, total assets were $2.15 billion, a $19.1 million increase compared to December 31, 2022. This increase in assets is primarily due to an increase in interest-bearing deposits in financial institutions and federal funds sold, funded by an increase in other borrowings.

Investment Portfolio

The investment portfolio totaled $736.9 million as of September 30, 2023, a decrease of $49.5 million from the December 31, 2022 balance of $786.4 million. The decrease in securities available-for-sale is primarily due to maturities of investments.

On a quarterly basis, the investment portfolio is reviewed for credit losses. As of September 30, 2023, gross unrealized losses of $87.8 million, are due to the interest rate environment and are not considered credit-related. Certain bonds in the investment portfolio may incur credit losses 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 expects full principal and interest to be collected. Therefore, the Company does not have an allowance for credit losses on these investments as of September 30, 2023.

At September 30, 2023, the Company’s investment securities portfolio included securities issued by 277 government municipalities and agencies located within 30 states with a fair value of $265.3 million. At December 31, 2022, the Company’s investment securities portfolio included securities issued by 289 government municipalities and agencies located within 30 states with a fair value of $286.0 million. No one municipality or agency represents a concentration within this segment of the investment portfolio. Omaha, Nebraska, sewer revenue bonds with a fair value of $4.9 million (approximately 1.9% 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 September 30, 2023.

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 September 30, 2023 and December 31, 2022 identifying the state in which the issuing government municipality or agency operates *(in thousands):*

| Obligations of states and political subdivisions: General Obligation bonds: | 2023 Amortized Cost | Estimated Fair Value | 2022 Amortized Cost | Estimated Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Iowa | $59,748 | $53,286 | $66,168 | $60,884 |
| Texas | 29,237 | 25,832 | 29,750 | 26,241 |
| Nebraska | 19,661 | 16,374 | 20,165 | 16,845 |
| Washington | 10,835 | 9,728 | 10,911 | 9,898 |
| Oregon | 9,903 | 8,946 | 11,049 | 10,079 |
| Connecticut | 8,700 | 7,785 | 8,701 | 7,936 |
| Other (2023: 15 states; 2022: 16 states) | 33,052 | 29,372 | 33,327 | 29,868 |
| Total general obligation bonds | $171,136 | $151,323 | $180,071 | $161,751 |
| Revenue bonds: |  |  |  |  |
| Iowa | $49,254 | $45,078 | $57,330 | $53,649 |
| Texas | 14,801 | 12,555 | 14,824 | 12,680 |
| Nebraska | 9,572 | 8,048 | 9,777 | 8,265 |
| Other (2023: 23 states; 2022: 23 states) | 54,199 | 48,295 | 55,177 | 49,658 |
| Total revenue bonds | $127,826 | $113,976 | $137,108 | $124,252 |
| Total obligations of states and political subdivisions | $298,962 | $265,299 | $317,179 | $286,003 |

As of September 30, 2023 and December 31, 2022, 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 5 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):*

| Revenue bonds by revenue source | 2023 Amortized Cost | Estimated Fair Value | 2022 Amortized Cost | Estimated Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Sales tax | $29,783 | $26,713 | $31,768 | $28,917 |
| Water | 20,721 | 18,416 | 21,754 | 19,792 |
| College and universities, primarily dormitory revenues | 19,238 | 16,905 | 19,550 | 17,368 |
| Sewer | 12,778 | 11,038 | 13,333 | 11,592 |
| Leases | 9,688 | 8,763 | 10,863 | 9,929 |
| Other | 35,618 | 32,141 | 39,840 | 36,654 |
| Total revenue bonds by revenue source | $127,826 | $113,976 | $137,108 | $124,252 |

55

Loan Portfolio

The loan portfolio, net of the allowance for credit losses, totaled $1.232 billion and $1.226 billion as of September 30, 2023 and December 31, 2022, respectively. The increase was primarily due to an increase in construction and commercial operating loans, offset in part by a decrease in agricultural operating loans.

Deposits

Deposits totaled $1.83 billion and $1.90 billion as of September 30, 2023 and December 31, 2022, respectively. The decrease in savings and money market accounts was partially offset by increases in time deposits as customers moved to higher yielding accounts. Estimated uninsured deposits were approximately $583 million as of September 30, 2023. Approximately $147 million of estimated uninsured deposits were collateralized by pledged assets. Deposit balances fluctuate as customers’ liquidity needs vary at any given time and could be impacted by prevailing market interest rates, competition, and economic conditions.

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, 2022.

### Asset Quality Review and Credit Risk Management

The Company’s credit risk is historically centered in the loan portfolio, which totaled $1.232 billion and $1.226 billion as of September 30, 2023 and December 31, 2022, respectively. Net loans comprise 57% of total assets as of September 30, 2023. 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 1.23% at September 30, 2023, as compared to 1.19% at December 31, 2022. The Company’s level of problem loans as a percentage of total loans at September 30, 2023 of 1.23% is higher as compared to the Iowa State Average peer group of FDIC insured institutions as of June 30, 2023, of 0.38%, most recent available.

Substandard-Impaired loans totaled $14.0 million as of September 30, 2023 and have decreased $0.4 million as compared to the impaired loans of $14.4 million as of December 31, 2022. The decrease is primarily due to payments received during the year.

A loan is considered Substandard-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.

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 nonaccrual. As of September 30, 2023, nonaccrual loans totaled $14.6 million and there were $734 thousand of loans past due 90 days and still accruing. This compares to nonaccrual loans of $14.7 million and no loans past due 90 days and still accruing as of December 31, 2022. There was no other real estate owned as of September 30, 2023 and December 31, 2022.

The watch and special mention loans classified as agricultural real estate and operating totaled $21.3 million as of September 30, 2023 as compared to $32.5 million as of December 31, 2022. The decrease is primarily due to paydowns and a strong agricultural economy in 2023. The substandard and impaired loans in these categories totaled $6.3 million and $5.9 million as of September 30, 2023 and December 31, 2022, respectively.

The watch and special mention loans classified as commercial real estate totaled $60.4 million as of September 30, 2023 as compared to $62.1 million as of December 31, 2022. The substandard and impaired commercial real estate loans totaled $22.5 million and $26.3 million as of September 30, 2023 and December 31, 2022, respectively. The decrease in substandard and impaired commercial real estate loans is primarily due to payments received during the year.

The allowance for credit losses as a percentage of outstanding loans as of September 30, 2023 was 1.29%, as compared to 1.26% at December 31, 2022. The allowance for credit losses totaled $16.1 million and $15.7 million as of September 30, 2023 and December 31, 2022, respectively. The increase in the allowance for credit losses is mainly due to the implementation of ASC 326.

### 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 September 30, 2023, 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 on hand, balances due from other banks and interest-bearing deposits in financial institutions as of September 30, 2023 and December 31, 2022 totaled $90.1 million and $27.9 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 September 30, 2023 include outstanding lines of credit with the FHLB of Des Moines, Iowa of $281.6 million, with $19.0 million of outstanding FHLB advances. Federal funds borrowing capacity at correspondent banks was $111.0 million, with no outstanding federal fund purchase balances as of September 30, 2023. The Company had securities sold under agreements to repurchase totaling $60.9 million as of September 30, 2023.

The Federal Reserve Board created a Bank Term Funding Program (BTFP) in 2023, offering loans of up to one year in length to banks pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The BTFP allows for borrowing from the Federal Reserve Bank up to the par value of the pledged collateral and will provide an additional source of liquidity. The Company had $83.3 million borrowed under the BTFP as of September 30, 2023. The Company utilized the BTFP due to favorable lending terms as compared to other borrowings.

Total investments as of September 30, 2023 were $736.9 million compared to $786.4 million as of December 31, 2022. These investments provide the Company with liquidity since all of the investments are classified as available-for-sale as of September 30, 2023. The Company has $379.8 million of unpledged securities available-for-sale and interest-bearing deposits as of September 30, 2023. 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 nine months ended September 30, 2023 totaled $12.8 million compared to $15.0 million for the nine months ended September 30, 2022. The decrease of $2.2 million in cash provided by operating activities was primarily due to lower net income and fewer net proceeds from loans held for sale.

Net cash provided by (used in) investing activities for the nine months ended September 30, 2023 was $38.8 million compared to ($86.0) million for the nine months ended September 30, 2022. The increase of $124.8 million in cash provided by investing activities was primarily due to fewer purchases of investments.

Net cash provided by financing activities for the nine months ended September 30, 2023 totaled $10.5 million compared to $11.1 million for the nine months ended September 30, 2022. The decrease in cash provided by financing activities of $0.6 million was primarily due to a decrease in the change in deposits between periods and partially offset by proceeds from other borrowings. As of September 30, 2023, 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 $7.2 million and $7.6 million for the nine months ended September 30, 2023 and 2022, 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 $1.8 million as of September 30, 2023.

Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and Known Trends in Liquidity and Cash Flows Needs

On June 9, 2022, the Company entered into a commitment with a contractor to remodel a branch in Ames, Iowa for $4.0 million. The Company has $0.5 million of the commitment remaining at September 30, 2023. 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 September 30, 2023 that are of concern to management.

Capital Resources

The Company’s total stockholders’ equity as of September 30, 2023 totaled $146.6 million and was $2.5 million less than the $149.1 million recorded as of December 31, 2022. The decrease in stockholders’ equity was primarily the result of an increase in unrealized losses on the investment portfolio and partially offset by the retention of net income in excess of dividends. At September 30, 2023 and December 31, 2022, stockholders’ equity as a percentage of total assets was 6.8% and 7.0%, respectively. The capital levels of the Company currently exceed applicable regulatory guidelines to be considered “well capitalized” as of September 30, 2023. Unrealized losses on the investment portfolio are excluded from regulatory capital.

### Forward-Looking Statements and Business Risks

Th**e** 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 financial performance and asset quality. Forward-looking statements contained in this Quarterly Report are not historical facts and are based on management’s current beliefs, assumptions, predictions and expectations of future events, including the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions, predictions and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to management and many of which are beyond management’s control. 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. Accordingly, investors are cautioned not to place undue reliance on such forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “forecasts”, “continuing,” “ongoing,” “expects,” “views,” “intends” and similar words or phrases. The risks and uncertainties that may affect the Company’s future performance and asset quality include, but are not limited to, the following: the impact of inflation and rising interest rates on national, regional and local economies in general and on the Company’s 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 credit losses resulting from 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 headings Forward-Looking Statements and Business Risks” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022. Any forward-looking statements are qualified in their entirety by the foregoing risks and uncertainties and speak only as of the date on which such statements are made. The Company undertakes no obligation to revise or update such forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

## Controls and procedures

As filed, 1,197 characters.

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.

Filed Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030643. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.