2021 Annual Report

Goodwill and Other Intangible Assets Goodwill was $2.6 million at December 31, 2021 and 2020. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired, which originated from the acquisition of First National Bank of the Lakes in May of 2016. Goodwill is not amortized but is subject to, at a minimum, an annual test for impairment. Other intangible assets consist of core deposit relationships and favorable lease term intangibles. Total other intangible assets at December 31, 2021 and 2020 were $479,000 and $670,000, respectively. Other intangible assets are amortized over their estimated useful life. Deposits The principal sources of funds for the Company are deposits, consisting of demand deposits, money market accounts, savings accounts, and certificates of deposit. The following table presents the dollar and percentage composition of the deposit portfolio, by category, at the dates indicated: 2017 (dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Noninterest Bearing Transaction Deposits . . . . . . . . . $ 875,084 29.7 % $ 671,903 26.9 % $ 447,509 24.5 % $ 369,203 23.6 % $ 292,539 21.9 % Interest Bearing Transaction Deposits . . . . . . . . . 544,789 18.5 366,290 14.6 264,627 14.5 179,567 11.5 177,292 13.2 Savings and Money Market Deposits . . . 863,567 29.3 657,617 26.3 516,785 28.3 402,639 25.8 369,942 27.6 Time Deposits. . . . . . . 293,474 10.0 353,543 14.1 360,027 19.8 318,356 20.4 292,096 21.8 Brokered Deposits. . . . 369,323 12.5 452,283 18.1 234,362 12.9 291,169 18.7 207,481 15.5 Total Deposits . . . . $ 2,946,237 100.0 % $ 2,501,636 100.0 % $ 1,823,310 100.0 % $ 1,560,934 100.0 % $ 1,339,350 100.0 % Total deposits at December 31, 2021 were $2.95 billion, an increase of $444.6 million, or 17.8%, compared to total deposits of $2.50 billion at December 31, 2020. Noninterest bearing deposits were $875.1 million at December 31, 2021, an increase of $203.2 million, or 30.2%, compared to $671.9 million at December 31, 2020. Noninterest bearing deposits comprised 29.7% of total deposits at December 31, 2021, compared to 26.9% at December 31, 2020. Similar to the loan portfolio, the growth in core deposits has been a result of successful new client and banker acquisition initiatives and the strong, growing brand of the Bank in the Twin Cities market. However, given the prospect of higher interest rates, management believes deposits could experience fluctuations in future periods. The Company relies on increasing the deposit base to fund loan and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. At December 31, 2021, total brokered deposits were $369.3 million or 12.5% of total deposits, compared to total brokered deposits of $452.3 million, or 18.1% of total deposits at December 31, 2020. Brokered deposits decreased as a result of core deposit inflows, and the Company was able to alleviate excess liquidity by reducing brokered deposit levels as funds matured. December 31, December 31, December 31, December 31, December 31, 2021 2020 2019 2018

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