2021 Annual Report

extension of credit, is based on our management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Commercial letters of credit are issued specifically to facilitate trade or commerce and are paid directly when the underlying transaction is consummated. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company had outstanding letters of credit with the FHLB in the amount of $36.5 million and $60.1 million at December 31, 2021 and 2020, respectively, on behalf of customers and to secure public deposits. Liquidity Liquidity is the Company’s capacity to meet cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting either daily operations or financial condition. The Bank’s ALM Committee, is responsible for managing commitments to meet the needs of customers while achieving the Company’s financial objectives. The ALM Committee meets regularly to review balance sheet composition, funding capacities, and current and forecasted loan demand. The Company manages liquidity by maintaining adequate levels of cash and other assets from on- and off- balance sheet arrangements. Specifically, on-balance sheet liquidity consists of cash and due from banks and unpledged investment securities available for sale, which are referred to as primary liquidity. In regards to off-balance sheet capacity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB, the Federal Reserve Bank of Minneapolis, and a correspondent lender, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which the Company refers to as secondary liquidity. In addition, the Bank is a member of the American Financial Exchange, or AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of approved commercial banks. The availability of funds changes daily. As of December 31, 2021, the Company had no borrowings outstanding through the AFX. The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:

Primary Liquidity—On-Balance Sheet

December 31, 2021 December 31, 2020

(Dollars in thousands) Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ Securities Available for Sale . . . . . . . . . . . . . . . . . . . . . . . Total Primary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary Liquidity to Total Deposits . . . . . . . . . . (Dollars in thousands) Net Secured Borrowing Capacity with the FHLB . . . . . . $ Net Secured Borrowing Capacity with the Federal Reserve Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured Borrowing Capacity with Correspondent Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured Borrowing Capacity with Correspondent Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Secondary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary and Secondary Liquidity to Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secondary Liquidity—Off-Balance Sheet Borrowing Capacity

130,884 $

145,348 390,629 535,977

439,362

570,246 $

19.4 %

21.4 %

December 31, 2021 December 31, 2020

550,807 $

361,236

126,043

76,830

208,000

143,000

25,000

—

909,850 $

581,066

50.2 %

44.7 %

75