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Dear Shareholder:

We continue to ride out the storm, which is the 3.75% increase in the Prime Rate so far this year. Banking regulations require that we test for up to a 4.00% immediate rate shock, but we never thought we would actually see it. We are hopeful that both recent and upcoming economic and inflation data, along with election results, will help signal the end to this cycle sooner than later.

Harvest is wrapping up and our farm customers have not been disappointed, as we have seen some record-breaking yields and continued favorable prices for both corn and soybeans. This bodes well for the bank in terms of both credit quality and liquidity, which has become an area of higher focus for us.

During the third quarter we recorded net earnings of $1,526,124, compared to $1,868,565 for the 3rd quarter of 2021. Earnings per share were $1.15 for the period, versus $1.44 for last year. Our performance compared to last year was down due to not having any PPP loan fees. We are still benefitting from a larger balance sheet, improved efficiency and increasing interest margins.

Year-to-date the bank had a ROA of 0.92%, compared to our local peer group of 0.97%. Our net interest margin (NIM) was at 3.03% versus, 3.20% for our peers. Our Leverage (Capital) Ratio was at 9.16%, versus 9.96% for the group.

Average loans were up for the quarter and stood at $331.1 million, versus $323.9 million last quarter and $325.8 for the same quarter a year ago. While loan demand has slowed overall, we have approximately $25.0 million of prospective loans in our pipeline that may fund in the next ninety days.

Investments were down at $247.5 million, versus $258.8 million for the prior quarter and $240.7 million a year ago. During the quarter we slowed our purchases of new securities to build additional liquidity. Going forward we expect the investment portfolio to continue to decrease, as we look to fund our current loan demand.

Total deposits were down at $518.4 million, compared to $528.2 million last quarter and $502.6 million for the same period last year. The deposit growth associated with the pandemic is over and we should return to our normal seasonal cycle. We are seeing much greater competition for deposits, as banks and credit unions seek additional liquidity.

Credit quality is strong and our metrics are now in line with our goals. Non-current Loans to Loans were at 0.28%, compared to peer of 0.69%. Charge-offs to Loans were at 0.09% for the quarter, versus peer of -0.01 %. Loan loss reserve balance was at 1.28% of total loans, compared with our peers at 1.38%.

At the end of the quarter, we had an even larger loss in our bond portfolio, which further reduced our book value per share. As a reminder this is an unrealized loss due to rising interest rates. This is not due to the credit quality of the bonds and the unrealized loss does not affect our required regulatory capital.

Generally, when interest rates rise a bank's assets (loans and investments) go down in value and the liabilities (deposits) go up in value. From an accounting perspective, the change in these values typically only apply to the investment portfolio. The bottom line is that we do not plan to sell these investments at a loss and over time these losses will go away as the bonds mature and payoff, or rates go back down.

The most recent stock transaction traded at $37.50 per share. If you have an interest in selling or buying, please co ntact Brooke Robinson at 309-457-6284 I brooke.robinson@mbwi.com or Chris at 309-457-6227 I cgavin@mbwi.com with the number of shares and the selling or offering price.

We wish you a joyous and peaceful holliday season!

Best Regards,
Chris Gavin & Gus Hart



 

   
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