AMES NATIONAL CORPORATION Overview
Ames National Corporation (the "Company") is a bank holding company established in 1975 that owns and operates six bank subsidiaries in centralIowa (the "Banks"). The following discussion is provided for the consolidated operations of the Company and its Banks,First National Bank ,Ames, Iowa (First National),State Bank & Trust Co. (State Bank ),Boone Bank & Trust Co. (Boone Bank ),Reliance State Bank (Reliance Bank ),United Bank & Trust NA (United Bank ) andIowa State Savings Bank (Iowa State Bank ). The purpose of this discussion is to focus on significant factors affecting the Company's financial condition and results of operations. The Company does not engage in any material business activities apart from its ownership of the Banks. Products and services offered by the Banks are for commercial and consumer purposes including loans, deposits and wealth management services. Wealth management services includes financial planning and managing trust, agencies, estates and investment brokerage accounts. The Company employs sixteen individuals to assist with financial reporting, human resources, audit, compliance, marketing, technology systems, training, real estate valuation services and the coordination of management activities, in addition to 249 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) provision for loan losses; (iii) salaries and employee benefits; (iv) data processing costs associated with maintaining the Banks' loan and deposit functions; (v) occupancy expenses for maintaining the Bank's facilities; and (vi) professional fees. The largest component contributing to the Company's net income is net interest income, which is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on interest-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$6.7 million , or$0.74 per share, for the three months endedSeptember 30, 2021 , compared to net income of$5.7 million , or$0.62 per share, for the three months endedSeptember 30, 2020 . The increase in earnings is primarily the result of a reduction in interest expense due to declines in market interest rates and a decrease in provision for loan losses due to a higher level of provision in 2020 as a result of uncertainties associated with the economic slow-down created by the COVID-19 pandemic. Net loan recoveries totaled$31 thousand for the three months endedSeptember 30, 2021 compared to net loan charge offs of$614 thousand for the three months endedSeptember 30, 2020 . A (credit) for loan losses of($94) thousand was recognized for the three months endedSeptember 30, 2021 as compared to a$541 thousand provision for loan loss for the three months endedSeptember 30, 2020 . The credit for loan losses was primarily due to improving economic conditions. The provision for loan losses in 2020 was primarily due to uncertainties associated with the economic slow-down created by the COVID-19 pandemic. 30
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The following management discussion and analysis will provide a review of important items relating to:
? Challenges and COVID-19 Status, Risks and Uncertainties
? Key Performance Indicators and Industry Results
? Critical Accounting Policies
? Non-GAAP Financial Measures
? Income Statement Review ? Balance Sheet Review
? Asset Quality Review and Credit Risk Management
? Liquidity and Capital Resources
? Forward-Looking Statements and Business Risks
Challenges and COVID-19 Status, Risks and Uncertainties
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 onMarch 12, 2021 . The continuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our business and continuation of operations, including the following:
? Although the economy continues to rebound from the depths of the economic
slowdown associated with the pandemic, some of the Company's customers may
continue to experience decreased revenues, shortage of labor or shortage of
goods, which may correlate to an inability to make timely loan payments or
maintain payrolls. This, in turn, could adversely impact the revenues and
earnings of the Company by, among other things, requiring further increases in
the allowance for loan losses and increases in the level of charge-offs in the
loan portfolio. Management may increase the allowance if the effects of the
COVID-19 pandemic negatively impact the loan portfolio;
? Market interest rates remain at historic lows and if prolonged, couldadversely affect our net interest income, net interest margin and earnings;
? We may experience a slowdown in demand for our products and services as the
effects of the pandemic continue to linger, including the demand for
traditional loans, although we believe any decline experienced to date has
largely been offset by the new volume of PPP loans under the CARES Act and
other governmental programs established in response to the pandemic. We had
227 PPP loans with an aggregate outstanding balance of
September 30, 2021 ;
? As evidenced by the level of loans classified as substandard and watch as of
defaults and foreclosures, as well as declining collateral values and further
impairment of the ability of our borrowers to repay their loans, all of which
may result in additional credit charges and other losses in our loan
portfolio;
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? Throughout the COVID-19 pandemic we actively worked with loan customers to
evaluate prudent loan modification terms. As of
substantially all COVID-19 related loan modifications have returned to normal
payment status; and
? In meeting our objective to maintain our capital levels and liquidity position
through the COVID-19 pandemic, our Board of Directors may reduce or determine
to altogether forego payment of future dividends in order to maintain and/or
strengthen our capital and liquidity position.
Key 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
Selected Indicators for the Company and the Industry
3 Months 9 Months Years Ended December 31,
Ended Ended 3 Months Ended
September 30, 2021 June 30, 2021 2020 2019
Company Company Industry* Company Industry* Company Industry*
Return on assets 1.29 % 1.20 % 1.12 % 1.24 % 1.01 % 0.72 % 1.14 % 1.29 %
Return on equity 12.60 % 11.85 % 11.39 % 12.37 % 9.48 % 6.88 % 9.48 % 11.38 %
Net interest margin 2.97 % 2.89 % 2.84 % 2.50 % 3.13 % 2.82 % 3.21 % 3.36 %
Efficiency ratio 51.35 % 54.30 % 56.01 % 61.01 % 55.83 % 59.78 % 58.51 % 56.63 %
Capital ratio 10.27 % 10.14 % 9.84 % 10.12 % 10.66 % 8.81 % 12.05 % 9.66 %
*Latest available data
Key performances indicators include:
? Return on Assets This ratio is calculated by dividing net income by average assets. It is used to measure how effectively the assets of the Company are being utilized in generating income. The Company's annualized return on average assets was 1.29% and 1.21% for the three months endedSeptember 30, 2021 and 2020, respectively. This ratio increase was primarily the result of a decrease in the provision for loan loss and a reduction in interest expense due to market rate decreases. ? Return on Equity This ratio is calculated by dividing net income by average equity. It is used to measure the net income or return the Company generated for the shareholders' equity investment in the Company. The Company's return on average equity was at 12.60% and 11.18% for the three months endedSeptember 30, 2021 and 2020, respectively. This ratio increase was primarily the result of a decrease in the provision for loan loss and a reduction in interest expense due to market rate decreases. 32
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Table of Contents ? Net Interest Margin The net interest margin for the three months endedSeptember 30, 2021 and 2020 was 2.97% and 3.21%, 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 51.35% and 54.80% for the three months endedSeptember 30, 2021 and 2020, respectively. The efficiency ratio has improved compared to the same quarter last year primarily due to a reduction in market interest rates on deposits and a decline in the number of employees. ? Capital Ratio The average capital ratio is calculated by dividing average total equity capital by average total assets. It measures the level of average assets that are funded by shareholders' equity. Given an equal level of risk in the financial condition of two companies, the higher the capital ratio, generally the more financially sound the company. The Company's capital ratio of 10.27% as ofSeptember 30, 2021 is similar to the industry average of 10.12% as ofJune 30, 2021 . Industry Results:
The FDIC Quarterly Banking Profile reported the following results for the second quarter of 2021:
Quarterly Net Income Continued to Increase Year Over Year, Driven by a
Net income totaled$70.4 billion in second quarter 2021, an increase of$51.9 billion (281%) from the same quarter a year ago, driven by a$73 billion (117.3%) decline in provision expense. Two-thirds of all banks (66.4 %) reported year-over-year improvement in quarterly net income. The share of profitable institutions increased slightly, up 1.4% year over year to 95.8%. However, net income declined$6.4 billion (8.3%) from first quarter 2021, driven by an increase in provision expense from first quarter 2021 (up$3.7 billion to negative$10.8 billion ). The aggregate return on average assets ratio of 1.24% rose 89 basis points from a year ago but fell 14 basis points from first quarter 2021.
Net Interest Margin Contracted Further to a New Record Low
The average net interest margin contracted 31 basis points from a year ago to 2.50%-the lowest level on record. The contraction is due to the year-over-year reduction in earning asset yields (down 53 basis points to 2.68%) outpacing the decline in average funding costs (down 22 basis points to 0.18%). Both ratios declined from first quarter 2021 to record lows. Aggregate net interest income declined$2.2 billion (1.7%) from second quarter 2020. Reductions in net interest income at the largest institutions drove the aggregate decline in net interest income, as more than three-fifths of all banks (64.1%) reported higher net interest income compared with a year ago. 33
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Noninterest Income Continued to Increase Despite Lower Trading Revenue
Noninterest income increased (up$5 billion , or 7.1%) from second quarter 2020 due to improvement in several categories. During the year ending second quarter 2021, "all other noninterest income" rose$7.9 billion (27.5%), offsetting both a$5.9 billion (42.1%) decline in trading revenue and a reduction in net gains on loan sales of$1.5 billion (19.7 %). Increased income from service charges on deposit accounts (up$1.5 billion , or 21.5%) and fiduciary activities (up$1.2 billion , or 13.1%) from second quarter 2020 also supported the year-over-year improvement in noninterest income. More than two-thirds of all institutions (69.6%) reported higher noninterest income compared with the year-ago quarter.
Noninterest Expense Relative to Average Assets Declined to a Record Low
Noninterest expense rose$3.7 billion (3%) year over year, led by an increase in salary and benefit expense and "all other noninterest expense." Nearly three-fourths of all banks (74.5%) reported higher noninterest expense year over year. Higher average assets per employee (up$0.9 million ) also increased from a year ago to$11.1 million . However, noninterest expense as a percentage of average assets continued to decline, reaching a record low of 2.23%, down 14 basis points from the year-ago quarter.
Net Operating Revenue to Average Assets Continued to Decline
Net operating revenue (net interest income plus noninterest income) increased$2.8 billion (1.4%) from the year-ago quarter as improvement in noninterest income offset the decline in net interest income. However, growth in average assets and declining net interest income contributed to a 29 basis point decline in the ratio of quarterly net operating revenue to average assets. The ratio stood at 3.62% for the quarter-the lowest level since third quarter 1984.
Provision Expense Was Negative for the
Provisions for credit losses (provisions) increased
The net number of banks that have adopted current expected credit loss (CECL) accounting fell by 1 to 319 from first quarter 2021. CECL adopters reported aggregate negative provisions of$10.7 billion in second quarter, an increase of$4.3 billion from the previous quarter and a reduction of$67.6 billion from one year ago. Provisions for banks that have not adopted CECL accounting totaled negative$128.1 million (a reduction of$530.6 million from a quarter ago and$5.2 billion from one year ago).
Allowance for Loan and Lease Losses to Total Loans Remained Higher Than Pre-Pandemic Level
The allowance for loan and lease losses (ALLL) as a percentage of total loans and leases declined 41 basis points to 1.80% from the year-ago quarter due to negative provisions, but ALLL remains higher than the level of 1.18% reported in fourth quarter 2019. Similarly, the ALLL as a percentage of loans that are 90 days or more past due or in nonaccrual status (coverage ratio) declined 27 percentage points from the year-ago quarter to 178% but continued to exceed the financial crisis average of 79.1%. All insured institutions except the largest Quarterly Banking Profile asset size group (greater than$250 billion ) reported higher aggregate coverage ratios compared with first quarter 2021. 34
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Noncurrent Loans Continued to
Loans that were 90 days or more past due or in nonaccrual status (noncurrent loans) continued to decline (down$13.2 billion , or 10.8%) from first quarter 2021, supporting a 12 basis point reduction in the noncurrent rate to 1.01%. Noncurrent 1-4 family residential loans declined most among loan categories from the previous quarter (down$5.9 billion , or 10.9%), followed by noncurrent commercial and industrial (C&I) loans (down$3.1 billion , or 13.9%). Three-fifths of all banks reported a reduction in noncurrent loans compared with first quarter 2021.
The Net Charge-Off Rate Declined Further to a Record Low
Net charge-offs continued to decline for the fourth consecutive quarter (down$8.3 billion , or 53.2%). In second quarter, the net charge-off rate fell 30 basis points to 0.27%, a record low. A decline in net charge-offs of credit card loans (down$3.3 billion , or 39.8 %) and C&I loans (down$2.9 billion , or 69.7%) drove three-fourths (75.5%) of the reduction in net charge-offs from the year-ago quarter. More than half of all banks (51.6%) reported a decline in net charge-offs from a year ago.
Total Assets Increased, Especially Those With Maturities of More Than Five Years
Total assets increased$224.8 billion (1%) from first quarter 2021 to$22.8 trillion . More than four-fifths (86.1%) of all banks reported an increase in assets with contractual maturities greater than five years compared with a quarter ago. Cash and balances due from depository institutions declined$108 billion (3%), while securities rose$248.9 billion (4.5%). Growth in mortgage-backed securities (up$122.7 billion , or 3.8%) andU.S. Treasury securities (up$91.2 billion , or 8.5%) continued to spur quarterly increases in total securities. Growth in held-to-maturity securities from first quarter 2021 (up$273.6 billion , or 16.8%) outpaced that of available-for-sale (AFS) securities (down$27.3 billion , or 0.7%).
Quarterly Loan Balances Grew for the First Time Since Second Quarter 2020
Loan and lease balances increased$33.2 billion (0.3%) from the previous quarter, the first quarterly increase in loan balances since second quarter 2020. An increase in credit card loan balances (up$30.9 billion , or 4.1%) and an increase in auto loan balances (up$18.9 billion , or 3.8%) drove this growth. Half (50.3%) of all institutions reported a quarterly increase in total loans. Compared with second quarter 2020, loan and lease balances contracted slightly (down$133.9 billion , or 1.2%), driven by a reduction in C&I loans (down$360.4 billion , or 13.4%). An increase in "all other loans" (up$182.8 billion , or 18.2%) mitigated the annual contraction in total loan balances. Compared with the year-ago quarter, more than half (52.8%) of all institutions reported a decline in total loans, but more than three-quarters (76.4%) of all institutions reported an increase in unused commitments to lend.
Deposits Continued to Grow but at a Moderated Pace in Second Quarter 2021
Deposits grew$271.9 billion (1.5%) in second quarter, down from the growth rate of 3.6% reported in first quarter 2021. The deposit growth rate in second quarter is near the long-run average growth rate of 1.2%. Deposits above$250,000 continued to drive the quarterly increase (up$297.8 billion , or 3.1%) and offset a decline in deposits below$250,000 (down$53.6 billion , or 0.7%). Noninterest-bearing deposit growth (up$175 billion , or 3.5%) continued to outpace that of interest-bearing deposits (up$53.3 billion , or 0.4 %), with more than half of banks (57.3%) reporting higher noninterest-bearing deposit balances compared with the previous quarter. 35
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Equity Capital Growth Remained Strong
Equity capital rose$55.3 billion (2.5%) from first quarter 2021. Retained earnings contributed$33.9 billion to equity formation despite a decline in retained earnings from first quarter (down$19.1 billion , or 36%). Banks distributed 51.9% of second quarter earnings as dividends, which were up$12.7 billion (53%) from a quarter ago. Nearly one-third (32%) of banks reported higher dividends compared with the year-ago quarter. The number of institutions with capital ratios that did not meet Prompt Corrective Action requirements for the well-capitalized category increased by three to nine from first quarter 2021.
Three New Banks Opened in Second Quarter 2021
The number ofFDIC -insured institutions declined from 4,978 in first quarter 2021 to 4,951. During second quarter 2021, three new banks opened, 28 institutions merged with otherFDIC -insured institutions, two banks ceased operations, and no banks failed. The number of banks on theFDIC's "Problem Bank List" declined by four from first quarter to 51. Total assets of problem banks declined$8.4 billion (15.4%) from first quarter to$45.8 billion .
Critical Accounting Policies
The discussion contained in this Item 2 and other disclosures included within this report are based, in part, on the Company's auditedDecember 31, 2020 consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted inthe United States of America . The financial information contained in these statements is, for the most part, based on the financial effects of transactions and events that have already occurred. However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company's significant accounting policies are described in the "Notes to Consolidated Financial Statements" accompanying the Company's audited financial statements. Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified the allowance for loan losses, the assessment of other-than-temporary impairment for investment securities and the assessment of goodwill impairment to be the Company's most critical accounting policies. Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings. Loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely. The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem loans. On a quarterly basis, management reviews the appropriate level for the allowance for loan losses, incorporating a variety of risk considerations, both quantitative and qualitative. Quantitative factors include the Company's historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors. Qualitative factors include various considerations regarding the general economic environment in the Company's market area. To the extent actual results differ from forecasts and management's judgment, the allowance for loan losses may be greater or lesser than future charge-offs. Due to potential changes in conditions, including the economic disruption and uncertainties resulting from the COVID-19 pandemic, it is at least reasonably possible that changes in estimates will occur in the near term and that such changes could be material to the amounts reported in the Company's financial statements. 36
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For further discussion concerning the allowance for loan losses and the process of establishing specific reserves, see the section of the Annual Report on Form 10-K entitled "Asset Quality Review and Credit Risk Management" and "Analysis of the Allowance for Loan Losses".
Fair Value and Other-Than-Temporary Impairment of
The Company's securities available-for-sale portfolio is carried at fair value with "fair value" being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the intent to sell the investment securities and the more likely than not requirement that the Company will be required to sell the investment securities prior to recovery (2) the length of time and the extent to which the fair value has been less than cost and (3) the financial condition and near-term prospects of the issuer. Due to potential changes in conditions, including the economic disruption and uncertainties resulting from the COVID-19 pandemic, it is at least reasonably possible that changes in management's assessment of other-than-temporary impairment will occur in the near term and that such changes could be material to the amounts reported in the Company's financial statements.Goodwill Goodwill arose in connection with four acquisitions consummated in previous periods.Goodwill is tested annually for impairment or more often if conditions indicate a possible impairment. For the purposes of goodwill impairment testing, determination of the fair value of a reporting unit involves the use of significant estimates and assumptions. Impairment would arise if the fair value of a reporting unit is less than its carrying value. AtSeptember 30, 2021 , Company's management has completed the goodwill impairment assessment and determined goodwill was not impaired. Actual future test results may differ from the present evaluation of impairment due to changes in the conditions used in the current evaluation.Goodwill may be impaired in the future if the effects of the COVID-19 pandemic negatively impacts our net income and fair value. An impairment of goodwill would decrease the Company's earnings during the period in which the impairment is recorded. 37
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Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in
GAAP. Such non-GAAP financial measures include the Company's presentation of net
interest income and net interest margin on a fully taxable equivalent (FTE)
basis. Management believes these non-GAAP financial measures are widely used in
the financial institutions industry and provide useful information to both
management and investors to analyze and evaluate the Company's financial
performance. Limitations associated with non-GAAP financial measures include the
risks that persons might disagree as to the appropriateness of items included in
these measures and that different companies might calculate these measures
differently. These non-GAAP disclosures should not be considered an alternative
to the Company's GAAP results. The following table reconciles the non-GAAP
financial measures of net interest income and net interest margin on an FTE
basis to GAAP (dollars in thousands).
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020Reconciliation of net interest income and annualized net interest margin on an FTE basis to GAAP: Net interest income (GAAP)
$ 14,652 $
14,160 $ 42,488 $ 40,886 Tax-equivalent adjustment (1)
193 237 636 732
Net interest income on an FTE basis
(non-GAAP) 14,845 14,397 43,124 41,618
Average interest-earning assets
2.97 % 3.21 % 2.89 % 3.16 %
(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.
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Income Statement Review for the Three Months ended
The following highlights a comparative discussion of the major components of net
income and their impact for the three months ended
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
Three Months Ended September 30,
2021 2020
Average Revenue/ Yield/ Average Revenue/ Yield/
balance expense rate balance expense rate
ASSETS
(dollars in
thousands)
Interest-earning
assets
Loans (1)
Commercial $ 96,436 $ 2,411 10.00 % $ 154,887 $ 1,732 4.47 %
Agricultural 98,942 1,014 4.10 % 105,568 1,580 5.99 %
Real estate 934,427 8,936 3.83 % 890,097 9,324 4.19 %
Consumer and other 15,167 169 4.46 % 17,667 229 5.18 %
Total loans
(including fees) 1,144,972 12,530 4.38 % 1,168,219 12,865 4.41 %
Investment securities
Taxable 598,634 2,256 1.51 % 362,553 1,987 2.19 %
Tax-exempt (2) 146,805 918 2.50 % 164,010 1,128 2.75 %
Total investment
securities 745,439 3,174 1.70 % 526,563 3,115 2.37 %
Interest-bearing
deposits with banks
and federal funds
sold 108,736 168 0.62 % 101,670 176 0.69 %
Total
interest-earning
assets 1,999,147 $ 15,872 3.18 % 1,796,452 $ 16,156 3.60 %
Noninterest-earning
assets 76,490 81,654
TOTAL ASSETS $ 2,075,637 $ 1,878,106
(1) Average loan balances include nonaccrual loans, if any. Interest income collected on
nonaccrual loans has been included.
(2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental tax
rate of 21%.
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