Notes to Consolidated Financial Statements

Transcription

D a c o ta h b a n k s , i n c .
Annual Report 2012
Dacotah Banks, Inc.
contents
Letter to Shareholders................................ 3
Financial Highlights..................................... 5
Selected Consolidated Financial Data......6
Community Investments.............................8
Financial Statements.................................25
Directors and Management......................56
Employees.................................................. 60
annual meeting
Rolla
Bowbells
The annual stockholders’ meeting will
be held Thursday, May 23, 2013 at 1:00 pm,
at the Dakota Event Center (DEC) in
Aberdeen, SD.
Belcourt
Minot
Valley City
general offices
401 South Main Street
Suite 212
P.O. Box 1496
Aberdeen, South Dakota 57402-1496
Telephone: (605) 225-4850
Fax: (605) 225-4929
Website: www.dacotahbank.com
Email: [email protected]
Dickinson
Regent
Hettinger
New Effington
Lemmon
Bison
Mobridge
Aberdeen (2)
Cresbard
Faulkton
Sisseton
Roslyn
Webster
Hen ry
Watertown
Clark
Willow Lake
Brookings
Rapid City (2)
Sioux Falls (4)
Custer
transfer agent
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Dacotah Banks, Inc. is a one bank holding company headquartered in Aberdeen, South Dakota. The company
is the shareholder of one commercial bank operating out of thirty-two full service banking locations. General
insurance operations are conducted in fourteen of the locations.
Cover photo submitted by Taylor Gosch of Aberdeen, SD
Page 1 | Dacotah Banks, Inc. 2012 Annual Report
Banking
Dacotah Bank offers something for every person or business. We work to find
the precise features and benefits that fit each client’s unique financial needs.
Insurance
Protecting families, businesses, or farms and ranches from loss requires experience.
Dacotah Insurance has served over three generations of local customers since 1960
– a Trusted Choice independent agency.
M o rtg ag e
When our clients make their biggest investment ever for their family or their business,
we are there with memorable customer service and a commitment of no surprises.
T r u s t a n d W e a lt h M a n ag e m e n t
We help clients plan for the future, build net worth, and secure wealth.
We manage money, farmland, and oil and gas interests.
Photo submitted by Marie Maier of Lemmon, SD
Dacotah Banks, Inc. 2012 Annual Report | Page 2
To Our Shareholders
Dacotah Banks, Inc. reached a significant milestone in its
growth during 2012—late in the year assets passed $2 billion
for the first time in the Company’s history, growing 8.4% from
$1.906 billion to $2.065 billion during the year. This growth
rate exceeded the 4.2% growth in 2010 and the 5.6% growth in
2011 and was driven by increases in both deposits and loans.
Growth in deposits was expected, although not at the 8.7%
level attained; and the 7.9% increase in loans significantly
exceeded expectations.
Nearly one-half of the increased loan volume came from
three relatively new markets. Dickinson and Minot, located in
the energy region of North Dakota; and Brookings, located in
the heart of the I-29 corridor all made significant contributions
to loan growth. Net income of $17.85 million was consistent
with the growth and was a record for the Company.
Nationally, virtually all banks experienced improved
earnings, supported by increases in non-interest income
and lower provisions for loan losses. The FDIC reports that
the full year earnings for the industry in 2012 are second
only to earnings attained in 2006, just prior to the financial
crisis. The FDIC also notes that the record earnings in 2006
were accomplished with $2.7 trillion less in assets. While
2012 was a good year for the industry, a return to the high
performance levels of several years ago is proving to be
difficult. We are proud of the stability that Dacotah Banks,
Inc. has demonstrated through the crisis and the recovery.
Additional comments on the Company’s performance during
that time will be made in the Shareholder Value section of this
letter.
FINANCIAL PERFORMANCE
As mentioned earlier, the Company’s 2012 net income was
$17.85 million compared to $16.55 million for 2011, a 7.9%
increase. Net income was slightly above the 2012 budget of
$17.22 million and would have been higher but for the fact
that provisions for loan and lease losses were $750,000 over
budget. Deposits grew by $146 million, an 8.7% change
and loans grew by $109 million, a 7.9% change. The excess
deposits moved into fed funds sold or into the investment
portfolio where yields continued to fall during the year. Most
banks are experiencing increased liquidity which has created
very strong competition for loans. The Company’s net yield
on earning assets dropped from 3.92% during 2011 to 3.84%
during 2012. This compares favorably with the average net
interest margin of all United States banks of 3.32%.
The Company’s loan to deposit ratio dropped slightly from
80.7% to 80.2%.
With interest margins under pressure, it is all the more
important to improve non-interest income. Income from trust
activities improved from $717,000 during 2011 to $936,000
during 2012. Income from insurance operations improved
from $773,000 during 2011 to $1,017,000 during 2012. Fees
earned from the sale of home mortgages into the secondary
market totaled $2,634,000 in 2012.
The Company’s return of average assets (“ROA”) for 2012
was 0.93% compared to 0.91% for 2011.
The Company’s provision for loan losses during the year
was higher than was budgeted, totaling $6.75 million in 2012
compared to $5.3 million in 2011. Most of the loan losses
experienced during 2012 were associated with commercial
loans in our larger markets that were weakened during the
recession. Net loan losses were $6.04 million. We expect
lower provisions for loan losses during 2013.
GROWTH
Total assets at the end of 2012 were $2.065 billion
compared to $1.906 billion at the end of 2011. Continuing a
several year trend, the asset growth was once again driven
by deposit growth as deposits moved from $1.68 billion
to $1.83 billion, an 8.7% growth. Despite low interest rates,
depositors continue to use bank deposits as a safe place to
invest their money. Greater than budgeted growth in deposits
was not a surprise; however, the very solid growth in loans
was somewhat of a surprise. Loans grew from $1.37 billion to
$1.47 billion, a 7.9% increase.
Increased lending in the North Dakota energy region and in
the 1-29 corridor has helped offset the decreased lending to
crop producers. Several years of good yields and high prices
have decreased the amount of farm operating lines in most of
the Company’s markets.
STRENGTH
In order to remain strong the Company must maintain
an appropriate balance of growth, earnings, asset quality,
allowance for loan losses, capital and dividends. The
Company’s growth during 2012 coupled with good earnings
allowed the Company to maintain its capital levels. On a
consolidated basis as of December 31, 2012, the Company’s
Tier 1 leverage ratio was 9.61% compared to 9.17% a year
earlier, Tier 1 risk-based capital was 11.71% compared to
11.91% a year earlier and total risk based capital was 12.89%
compared to 13.16% a year earlier.
The quality of the Company’s Loan portfolio remains
strong with non-performing loans representing only 1.61%
of total loans compared to 1.74% at the end of 2011; and the
Company’s allowance for loan losses at the end of 2012 was
$18.9 million compared to $18.2 million at the end of 2011.
SHAREHOLDER VALUE
We believe that our shareholders expect and deserve
steady year-after-year improvement in growth, capital and
profitability along with consistent dividend income. As a part
of the shareholder value discussion a brief review of bank
performance during the financial crisis, as reported by FDIC
seems appropriate.
From 2007 through 2012 the percentage of unprofitable
FDIC insured institutions ranged from a low of 10.48%
during 2012 to a high of 30.84 % during 2009. During that
same period of time, Dacotah Banks, Inc. was consistently
profitable and enjoyed increased year-to-year profitability in
every year but one. Net income per share in 2007 was $11.28
compared to $16.03 in 2012. During 2007 the Company paid
$2.20 per share in dividends and dividends were paid each
year ending with $3.00 in dividends paid during 2012. At the
end of 2007 the Company’s book value per share was $122.06;
five years later at the end of 2012, the Company’s book value
was $178.82 per share, an increase of 46.5%. We believe the
Company’s focus on steady and sustainable growth and
earnings served the shareholders well during the period from
2007 through 2012, when 468 insured institutions failed and
many more were absorbed by other institutions.
to its technology and talent during the year. The Company
continues preparation for a new kind of banking that for some
folks will be less tied to brick and mortar and more tied to
technology, including hand-held devices. During 2012 the
Company devoted significant time and resources to building
a risk management system that is appropriate to the changing
banking environment, and the size of the Company.
The book value per share of the Company’s stock increased
8.1% from $165.39 on December 31, 2011 to $178.82 on
December 31, 2012. In addition, the Company paid dividends
totaling $3.00 in 2012, the highest in the Company’s history
and consistent with the philosophy of retaining most of the
earnings to support growth and capital levels.
The Company continually updates its Strategic Plan and
Vision. By December 31, 2014 the Company’s Boards and
management envision a privately-owned bank holding
company with $2.25 billion in assets with the organization
and structure in place to assure proper risk management,
effective management succession and oversight of a banking
and financial services company with $2.75 billion in assets.
With over $2 billion in assets we believe that Dacotah Banks,
Inc. is well positioned to survive and prosper in an everconsolidating industry that is increasingly dominated by very
large banking organizations.
COMMENTS ON 2012
During 2012 the Federal Open Market Committee continued
activities directed at keeping interest rates low and the
Company and other banks followed suit by lowering deposit
rates and offering more competitive rates on loans. As the
economy slowly improved and the energy activity continued
in North Dakota, our bankers found more opportunities for
lending but at the same time faced very competitive loan
pricing. The FDIC reports that 67.9% of all banks reported
year-over-year net interest margin declines during 2012.
Investments with appropriate maturities and decent yields
were particularly hard to find and the yield on the Bank’s
investment portfolio dropped continuously during the
year. As yield dropped, those in charge of the Company’s
investment portfolio resisted the temptation to purchase
longer maturities in order to accomplish higher yields in the
short term. We kept the maturities in the portfolio short and
believe we will be well positioned when interest rates rise.
Recognizing the changes taking place in the methods by
which banking services are and will be delivered and aware of
the additional risk involved, the Company added significantly
LOOKING AHEAD
As a $2 billion Company we are probably among the top
7% of the 7,083 financial institutions in the country in terms
of assets, but at the same time quite small in many respects.
According to the FDIC, as of December 31, 2012 there were
107 insured institutions with over $10 billion in assets, and
those institutions control over 80% of all banking assets. In
order to effectively compete with these large banks, we will
continue our investment in technology and we will find ways
to provide the delivery systems demanded by our customers.
We expect continued pressure on margins and strong
competition for loans. We also expect continued improvement
in the quality of our loan portfolio and anticipate relatively
lower loan loss provisions going forward. It appears we have
worked through most of the credit quality concerns carried
over from the recession.
The Company tracks profitability in all of its markets
and all are profitable as we enter 2013. The Company has
not recently added new markets; however, we are open
to expansion opportunities and we are prepared to either
acquire or establish new banks in communities that fit into
our operation.
In closing, we thank the Company’s shareholders for
their confidence, the Boards of directors for the advice
and guidance and the outstanding team of bankers who
operate the Company day-to-day, serving our customers,
communities and shareholders in such a great way.
Rodney W. Fouberg, Chairman of the Board
Richard L. Westra, President and Chief Executive Officer
Financial Highlights
(dollars in thousands, except per share data)
performance 2012
Net interest income............................................. $ 68,747
Provision for loan losses....................................... 6,750
Non-interest income .......................................... 15,969
Non-interest expense.......................................... 50,583
Net income......................................................... 17,854
Per share.......................................................... 16.03
Cash dividends declared....................................... 3,344
Per share............................................................. 3.00
Net interest margin............................................. 3.84%
Return on average assets...................................... 0.93
Return on average equity.................................... 9.31 at december 31st
2012
2011
66,654
5,300
15,109
50,945
16,546
14.87
2,894
2.60
3.92
0.91
9.37
2011
Total assets.......................................................... $ 2,065,053 1,905,762
Investment securities and deposits with banks....... 363,606 330,605
Loans, net............................................................ 1,474,330 1,365,860
Deposits.............................................................. 1,825,560 1,679,420
Borrowings......................................................... 21,005
25,009
Stockholders’ equity............................................ 199,564 184,082
Book value per share........................................... 178.82
165.39
Shares of common stock outstanding................... 1,116
1,113
Tier I leverage ratio............................................. 9.61%
9.17
Total risk-based capital........................................ 12.89
13.16
% Change
3.1%
27.4
5.7
(0.7)
7.9
7.8
15.5
15.4
(2.0)
2.2
(0.6)
% Change
8.4%
10.0
7.9
8.7
(16.0)
8.4
8.1
0.3
4.8
(2.1)
Selected Consolidated Financial Data
selected consolidated financial condition data
December 31,
20122011201020092008
(dollars in thousands)
Total assets.................................................................. $ 2,065,053 1,905,762 1,805,538 1,654,896 1,588,482
Loans, net .................................................................. Federal funds sold....................................................... 1,474,3301,365,8301,344,9711,326,8091,235,326
-
-10,000
-14,600
Investment securities................................................... 357,818325,556280,587187,095199,883
Deposits...................................................................... 1,825,5601,679,4201,587,6361,445,8331,371,287
Borrowings................................................................. 21,00525,00930,42833,94450,300
Stockholders’ equity.................................................... 199,564184,082167,725156,390148,464
selected consolidated oper ation data
Years Ended December 31,
20122011201020092008
(dollars in thousands, except per share data)
Interest income............................................................... Interest expense.............................................................. Net interest income........................................................ Provision for loan losses.................................................. Net interest income after provision for loan losses........... Non-interest income:
Income from fiduciary activities................................. Service charges on deposit accounts........................... Insurance commissions............................................... Fees on sale of residential mortgages........................... Other........................................................................ Total non-interest income......................................... Non-interest expense:
Salaries and employee benefits.................................... Occupancy, furniture and equipment, net................... Other........................................................................ Total non-interest expense........................................ Income before income taxes........................................... Income tax expense........................................................ Net income before extraordinary item............................ Sale of title plants, net................................................ Net income.................................................................... Per share of common stock:
Net income............................................................... Cash dividends declared ............................................ $ 84,802
86,656
88,585
87,059
89,493
16,05520,00224,65929,02035,287
68,74766,65463,92658,03954,206
6,7505,3006,1007,3502,475
61,99761,35457,82650,68951,731
1,202912765892740
3,9564,2594,1664,2244,220
4,068
3,8893,8703,7393,356
2,6341,8972,2561,8671,035
4,1094,1523,3792,8023,322
15,96915,10914,43613,52412,673
31,69230,77629,62428,10626,533
6,1435,8615,9735,9315,449
12,74814,30812,91013,76910,801
50,58350,94548,50747,80642,783
27,38325,51823,75516,40721,621
9,5298,9728,6905,5847,668
17,854
16,546
15,065
10,823
13,953
-
-
- -755
$ 17,854
16,546
15,065
10,823
14,708
$16.0314.8713.54 9.7313.21
$3.002.602.002.202.30
Selected Consolidated Financial Data
selected financial r atios
At or for the years ended December 31,
2012 2011 201020092008
performance r atios
Return on average assets*........................................ 0.93%
0.910.880.680.95
Return on average stockholders’ equity................... 9.31
9.379.237.099.86
Net interest margin................................................. 3.843.924.023.923.97
Non-interest income to average assets..................... 0.830.830.840.840.86
Non-interest expense to average assets..................... 2.642.802.832.982.91
Efficiency ratio....................................................... 59.7162.3161.9066.8063.97
asset quality r atios
Nonperforming loans to total loans......................... 1.61%
1.741.291.03 1.58
Allowance for loan losses to total loans.................... 1.271.321.180.841.01
Allowance for loan losses to net charge-offs............. 3.13x
5.76
12.75 1.28
7.98
capital r atios
Tier I leverage ratio................................................ 9.61%
9.178.898.918.97
Tier I risk-based capital........................................... 11.7111.9111.1210.3210.53
Total risk-based capital............................................ 12.8913.1612.2411.1211.49
*Excluding
sale of title plants in 2009 calculations.
Photo courtesy of Medora Corporation
community investments: Dickinson, ND
Medora, Inc.
According to Joel Bleth, co-founder, president and
CEO, it’s a new era for Medora, Inc. of Dickinson. “The
internet has changed everything for our business. 90%
of our business is in the U.S. and 10% is international
including 15 countries.”
While most treatment processes focus on drinking
water already at the local plant, Medora, Inc.’s focus is
upstream. “Our technology is the first of its kind in the
word to focus on cleaning water in reservoirs. Raw water
starts in lakes and rivers and goes to treatment plants.
Two thirds of Americans drink lake water. We are helping
cities like Houston and San Diego save over a million
dollars a year by treating water in their reservoirs.”
Other cities doing business with Medora, Inc. include
Los Angeles, Las Vegas, and San Francisco. Bleth said,
“We invented new science to help the city of San
Francisco. There are 400,000 water tanks to mix and we
have only provided equipment to 1,000 so the potential
market is huge.”
The North Dakota company is growing rapidly and
now employs 60 full-time and 2 part-time staffers. Being
located in North Dakota’s oil patch makes it challenging
to keep and recruit employees. “After three years of
employment we give shares to employees. About 45
employees currently have stock in the company.”
A major event for the business was a name change.
“Changing our name from Solarbee to Medora
Corporation and Medora Transportation was necessary
and huge. With the name Solarbee, engineers we did
business with thought our technology was all solar
powered. We now have solutions for the entire power
grid market.”
The company also developed new and improved
products the past couple years including TTHM Floating
Spray Nozzles. “Chlorine in drinking water can cause
a 30% increase in colon cancer,” according to Bleth.
“There is a worldwide push to treat potable water to
remove contaminants in storage facilities.”
Dacotah Bank has been impressive during this period
of transition for Medora, Inc. “I’ve worked with good
bankers over the years. When all the new banking
regulations came down on community banks I thought
the days of a great banker were over. I can’t say enough
about how I’m impressed with Jeff Moore and his team.
We had 14 loans elsewhere and needed commercial real
estate financing on top of everything. After the appraisal
came through Jeff helped us consolidate everything
into one (mortgage) loan. In just three months we got
the new financing, a million dollars in annual employee
credit card volume, and all business insurance converted
to Dacotah Bank and Dacotah Insurance.”
Business relationships often begin with financing
but Dacotah Insurance has also been important to the
relationship with Bleth’s firm. “I’ve known Tom Heisler
(with Dacotah Insurance) a long time and it’s good to
be working with him again. Jeff and his team have a
tremendous understanding of what we needed to do.
He reaffirmed that you can still do business with a great
banker!”
Photo courtesy of Killdeer Mountain Manufacturing
community investments: Killdeer, ND
killdeer mountain manufacturing
Don and Patricia Hedger, founders of Killdeer Mountain
Manufacturing, recount how their company started
from scratch in 1987 as a local economic development
concept. Don had graduated from the University of North
Dakota (UND) as an electrical engineer and had worked
in the industry for 20 years. He and Patricia wanted to
return to their hometown of Killdeer, North Dakota.
employees of which 10 are part-time. In 1994 Don was
named North Dakota’s Small Businessman of the Year.
There, Don spent time in banking and was in charge of
a small local bank. When the local economy deteriorated
in Killdeer, businesses began boarding up shop and 40%
of homes were vacant. The town’s population fell to near
700.
“We are completing a three-story, 24-two bedroom
apartment complex to open this summer. The affordable
housing project has come together under a program
with the state of North Dakota and Dacotah Bank. This
housing is badly needed not only for our own employees
but others in the region.”
The Hedgers say in response to the conditions, “we
launched a local, non-profit, public nursing home and
earlier a non-profit clinic which is now owned by St.
Joseph’s Hospital. Killdeer Mountain Manufacturing
started as a supplier to the aerospace industry with no
customers and a lot of traveling. We went through some
lean years but got things going.”
Clients include Boeing, Lockheed-Martin, Raytheon
and others. “We are now thriving in the aerospace
industry providing electronics and wiring for the Boeing
737, 777, and the Lockheed C5-A re-engining program.”
The company provides circuit boards for commercial
and military vehicles. “Third World countries have
created a high demand for aircraft and it is expected to
last for the next 30 years,” according to Hedger.
When they outgrew the local labor supply the firm
expanded to Hettinger, Dickinson, and Regent, ND.
Today Killdeer Mountain Manufacturing has 330
“We helped develop a pre-engineering degree program
at Dickinson State University to provide technical students
with a two year course of study. When they complete the
course they can transfer to North Dakota State University
to earn their bachelor of sciences degree or doctorate.”
Dacotah Bank has played an important role in the
evolution of the Hedgers’ company. “Jeff Moore
understands what we do and what we need. The
Bakken Oil Field has challenged our ability to maintain
labor so Dacotah Bank helped us install robotics for
processes that don’t require touch labor. We subscribe
to the LEAN techniques of manufacturing to ensure
profitable efficiencies.” Lean is a production practice
that considers the expenditure of resources for any goal
other than the creation of value for the end customer to
be wasteful, and thus a target for elimination.
Don and Patricia’s entrepreneurial work is not
complete, however. “Dacotah Bank has provided a lot of
help over the years because a growing company always
needs cash, operating capital. We are now working on
a Killdeer Community Center. The walls and roof are up
so it’s always good to see something come to fruition.”
Photo courtesy of Tom Heinz
community investments:
heinz, inc.
Coffee Cup Fuel Stops opened along major highways
in the region 32 years ago according to Tom Heinz,
president of Heinz, Inc. Today their locations can be
found at travel centers on I-29 in South Dakota, I-94 in
North Dakota, and I-90 in South Dakota and Wyoming.
“We position our Coffee Cup stores to serve the traveling
public, truckers, and recreational vehicle (RV) owners
looking for gas, diesel, quality foods, convenience items,
clean restrooms and showers provided in a friendly, fun
atmosphere by quality employees.”
North Dakota. They helped us project cash flows and
project reinvestments into each unit.”
Tom talks enthusiastically about the past couple
years. “We reorganized the entire Coffee Cup ownership
model in 2010. Thanks to Dacotah Bank, Heinz, Inc. now
owns four Coffee Cup Stops. Our business employs 53
full-time and 65 part-time people.”
Tom went on to say the bank has supported his family
business with advice and financing. “They have been
there with us since day one to help with the partnership
buyout and with a line of credit. They encouraged us to
grow organically and have been very receptive to our
growth plan. We hope to replicate our business model
in the future becoming destinations for our customers.”
New Corporate Average Fuel Economy (CAFE)
standards mandating fuel efficiency of the nation’s
fleet to 54.7 miles per gallon equivalent for passenger
vehicles by model year 2025 is driving a number of
changes for the travel center business. “We had to ask
ourselves, how will we continue to do business? Dacotah
Bank allowed us to become owners in South Dakota and
Heinz pointed out new brand relationships that will
be popular with guests and profitable for the business.
“Dacotah Bank helped us partner with Caribou Coffee,
Subway, and Pizza Hut Express to drive recognition and
food quality. Our store in Vermillion, SD was branded
in 2012. Branding of the store in Summit, SD will be
completed this year along with Steele, ND. Our Hot
Springs, SD Coffee Cup will be branded in 2014.”
Currently, four family members make up the leadership
team of Heinz, Inc. and Tom is looking to the future.
“With Dacotah Bank’s support we have been able to
grow and employ more people. Their assistance will
help us refine our model for the next generation.”
Photo submitted by Stu Melby Photography
community investments: Brookings , sd
medary acres greenhouse
When Brian Darnall joined Medary Acres Greenhouse
in 1971 it had already been around more than twenty
years. He and his wife Lynn bought the business in 1976
and Brian says they have enjoyed their career. “I tell
people it’s like I’ve never had a real job! Our business is
like farming. We grow crops.”
The primary service area of the local greenhouse
is a 60 mile radius of Brookings, South Dakota. The
trade area reaches communities across the Minnesota
state line; Marshall, Ivanhoe, and Canby. Other regular
springtime buyers come from Sioux Falls, Flandreau,
Watertown, and DeSmet in South Dakota and points in
between.
Medary Acres Greenhouse is open from early April to
mid-June according to Brian, “We work hard on pricing
and to keep quality competitive. We have a great crew
that will not tolerate bad looking product.”
During the selling season of April to June Medary
Acres employs 18 full-time and 12 part-time people.
Darnall says they are all gardeners and “they all love it.”
Most have been with the business 30 years or more.
After the selling season they focus their time on
building maintenance and remodeling to improve the
physical place. A new sales area was completed and
introduced to customers recently. The family-owned
business also upgraded to technically advanced cash
registers.
According to Brian, his banker, Wayne Avery,
“understands what we are doing. Our financing is
structured much like a farm operating line. He knows
our business and we know him. It’s always nice to know
Wayne is there for us. I worry about weather, inventory
pricing, and how to attract customers, not my banking.
I’m not in the bank often but when I visit everyone is
friendly and helpful.”
Photo courtesy of iStockPhoto
community investments: Lemmon, sd
lemmon livestock
When Paul Huffman bought the Lemmon Livestock sale
barn in 1997 with the help of Dacotah Bank it was about to
close. He is proud of the turnaround, “We have more than
doubled the head count to 85,000 cattle per year.”
Livestock sales occur throughout the year but
the busy season is August through March. Lemmon
Livestock attracts independent livestock producers
of Black and Red Angus, Hereford, Charlois and other
breeds from southwest North Dakota, southeast
Montana, and northwest South Dakota. Additionally,
a number of seed-stock producers rely on Lemmon
Livestock to market their herds.
According to Paul, “Our niche is feeder cattle and
production sales. We sell a lot of calves and feeder
cattle weighing 400-900 pounds and replacement
cows and heifers.”
The locally-owned business has six full-time employees
and up to 45 part-time employees during busy periods.
Huffman says a strong cattle market has made a positive
impact on the success of the business. “Good livestock
prices have helped our clients and our business the past
few years. Revenue has grown 30-40%.”
As one of America’s largest lenders to agricultural
producers, it is evident Dacotah Bank knows agriculture.
“Dacotah Bank has been awful good to me. I had been
in tough times and they came to me and said we have
to get this (auction market) going again. We had to
make changes in the day-to-day management practices
in order for the business to move forward. They never
backed off a bit and stayed with me. I don’t know if I
could have done it without Dacotah Bank.”
He has high praise for Travis Ellison, current market
president, and Dan Baumgarten, who retired as market
president for Lemmon in 2012. “I had done some
business with them before I bought the sale barn.
Dacotah Bank is very active in the community. They
support the community and me. When they say ‘here for
you’ it is a very accurate statement!”
Photo courtesy of George Dutton of Valley City
community investments: Valley City, ND
bridges city car wash
Valley City, ND needed a self-service car wash. Joe
Faure and Jim Retterath, partners in RFM Investments,
recognized the opportunity. In December 2011 they
bought a piece of commercial property and went to
work. The car wash opened in November 2012. They
purchased and installed combination touch-free and
soft-touch equipment from a supplier in Billings, MT.
Bridges Car Wash caters to people who drive cars and
pickups in the Valley City and surrounding area.
Today the operation employs Joe, his wife, and one
part-time person. “The people of Valley City have
embraced us very well despite the cold winter.”
Financing the business with Dacotah Bank was a
natural decision. “Dick Gulmon (market president in
Valley City) is my personal banker for RFM and Bridges
Car Wash. He has been very good to work with when we
financed the land and construction. He also has given us
insight regarding insurance.”
Like any good senior banker, Gulmon is supported by
a great team in Valley City. “All the people at Dacotah
Bank have helped us reach our goals. Plus, they all use
the car wash!” said Faure.
Photo submitted by Ward Schumacher of Aberdeen, SD
community investments: Brookings , sd
paul moriarty
Paul Moriarty started his real estate and construction
business in 1956 building single family homes and multiunit apartments in the Brookings, South Dakota area.
Over the years his organization has grown to include the
building and management of industrial and commercial
facilities. Local residents will recognize Paul’s latest
project, the recently built Golf View Apartments in
Brookings.
Paul says the business has evolved to what it is today,
“Today we are a small company that primarily manages
the maintenance and upkeep on its own properties.”
The majority of owned and managed properties are in
the Brookings market.
Moriarty Enterprises was awarded the 2009 Family
Business of the Year by the Brookings Area Chamber of
Commerce. Paul has been active in many organizations
including the South Dakota State University Foundation
for 46 years and has served as president of the foundation
board for two years.
Paul currently employs five people in his office and six
maintenance managers. He has only good things to say
about his home market, “Brookings is a good, clean, and
growing town. Brookings is a great place to do business.”
Even though Paul has been in business for decades, he
appreciates his banking relationship with Dacotah Bank
and his business banker, Wayne Avery. “I enjoy working
with Wayne because he is cognizant of the fact small
businesses need good finances. He is a good advisor.”
Photo courtesy of George Dutton of Valley City
community investments: Valley City, ND
straus Mall
A local real estate sales business opened in Valley
City, North Dakota in 1964. These many years later,
George Gaulker’s firm manages 3,000 rental units and
has developed housing units in several communities.
One of his growth markets is Williston in North Dakota’s
oil rich region. “During the past five years we have
developed multi-family housing and commercial real
estate in Valley City, Fargo, and Williston in North
Dakota. In previous years we also did building projects
in Minnesota and South Dakota.”
There was a time when George’s company employed
a construction crew but much of the construction work
today is sub-contracted out to others.
“We have 15 full-time people in development and
sales and up to 50 part-time property managers in the
markets we serve.” George says a number of things have
contributed to the business’ success. “The economic
growth in Fargo and the oil patch has helped our
business.” A recent major construction was a 235 unit
senior housing project in Fargo.
At home, the remodeling of the Straus Mall in
downtown Valley City, a $500,000 project, is underway.
George has a primary goal for the unique building,
“We will bring the 10,000 square foot office and retail
space up to code. This will be a very nice addition to our
community.”
George’s relationship with the bank actually pre-dates
Dacotah Bank’s acquisition of the former Farmers and
Merchants Bank in Valley City. “Dacotah Bank has really
been my bank for 20-25 years; through good times and
bad times like we all have. Joe Senger, Dacotah Bank’s
executive vice president has just been wonderful to
work with. He has been in touch and helpful all along
the way with our recent projects. Everyone at the Valley
City branch has been good to work with.”
He concludes that it isn’t always about real estate
loans, “In addition to our financing, Dacotah Bank has
helped with our management account. Over the years
I have enjoyed working with Dave Johnsen (retired
market president) Dick Gulmon (new market president
for Valley City) and everyone at Dacotah Bank.”
Photo courtesy of Kim Lietz of Brookings, SD
community investments: volga , sd
edman Development, LLC
Volga, South Dakota is a community about seven miles
west of Brookings. Joel Edman is focused on developing
the rural community of about 1,800 people to grow and
prosper by providing homes. “Our local housing project
started in early 2012 with proposed platting,” he says.
“The affordable housing development is possible in part
with Tax Increment Financing (TIF) and Dacotah Bank.”
as far as the economy in this region is concerned. I see
very positive signs and sales volumes are up at local
businesses.”
Brookings is home to several nationally known
industrial companies like Larson Storm Doors and
Daktronics and the 12,500 students at South Dakota
State University. In addition to potential buyers from
Brookings, new home owners will include local
employees from the Volga school, a trucking firm, and
the new Pioneer Seed research facility. “We will have 25
single family homes available at $149,000 each.”
The economic development progress lead by Edman
has been supported by his banker at Dacotah Bank
in Brookings. “My experience with Wayne Avery and
Dacotah Bank has been great – very positive. He works
with me and is quick in responding to my questions and
any issues that come up. You have to have your financing
information together but they are good to work with.”
The owner of a local convenience store and truck
stop in Volga, Joel is not done yet. “We still will have
3.5 acres yet to be developed. Things are getting better
Joel walks the walk and talks the talk providing jobs to
eight people at the C-store. “The labor side of the service
sector is being challenged and is getting tougher but we
are all in this together and long-term will do well.”
Joel Edman’s story is an example of the work ethic
and commitment to local communities throughout
Dacotah Territory.
children’s home society
Rick Weber, development director, at Children’s Home
Society (CHS) has a lot of good work to be proud of. “The
organization was founded in 1893 as an orphanage.
Over our 120 year history we have evolved to provide a
continuum of services with a primary focus on serving
children who have been victims of abuse or neglect.
In 2012 over 2,000 children were served through
emergency shelter, residential treatment, education,
foster care and adoption programs, forensic interview
and examination centers, and prevention services.
The statewide non-profit organization respects their
financial supporters, “We work very hard to be good
stewards of philanthropic gifts and funding from federal,
state, and local sources. Our administrative overhead is
only about 7.5%.”
CHS provides care and services at several locations
including Black Hills Children’s Home near Rockerville,
Messengers Children’s Center in Rapid City, and Sioux
Falls Children’s Home and Children’s Inn in Sioux Falls.
The South Dakota Department of Social Services is their
biggest client.
Like most non-profits, Weber says it isn’t getting
any easier, “Funding from all sources continues to be
a challenge as governments work to balance budgets,
and we recognize the many demands for the charitable
dollar from corporate and individual donors.”
CHS has 260 full-time and 100 part-time employees
serving youngsters and their families across the state.
“We are keeping up with demand for services and
haven’t had to cut or lay off staff,” says Weber. “We are
very busy and our programs are well utilized. Our beds
are full or nearly full and there is a waiting list as the
needs of abused children and their families continues to
be very high.”
Dacotah Bank has a long relationship with Children’s
Home. “The partnership with Dacotah Bank has helped
us not just raise funds but has also helped us share our
story to an entirely new audience. In addition to funding,
the bank’s employees volunteer their time and help with
special events.”
For the past several years during the Christmas holidays,
Dacotah Bank and employees have hosted special
appearances by Tom Roberts, CHS professional and author
of a series of faith-based family books. Revenue from the
book sales is earmarked for CHS and other deserving
charities in the bank’s markets. “The bank’s friendship and
partnership with CHS is a good example of how we have
been able to keep our programs going strong. The various
book projects and other ways of support is why there can
be a good ending to a child’s story.”
community investments: flandreau, sd
mad mary’s steakhouse and saloon
For 20 years people have come from all over to enjoy
one of the best steakhouse meals around. Owner Randy
Tiedeman says the restaurant got a big boost in exposure
after appearing on a regional television program. “A
fella was in and told us we really needed to be featured
on the ‘Place and Plate’ TV show originating from Sioux
Falls. Because of that show we have had guests in from
all over.” The two full-time and 18 part-time staff serves
clientele from about 100 miles in every direction; from
Fairmont and Pipestone in Minnesota to Aberdeen,
Brookings, and Sioux Falls in South Dakota.
Randy and his wife, Diane, both started working at the
business years ago, she as a waitress in 1999 in addition
to her day care business. Randy served customers as a
bartender when he was not driving truck. They purchased
Mad Mary’s five years ago. “We bought the business and
improved it. Our sales are up over the previous owners’
best year despite the fact we purchased the steakhouse
on the eve of the country’s biggest recession ever.” Since
becoming owners they have installed a new kitchen,
new air conditioning, paved the parking lot, and the city
recently paved the street to the steakhouse.
When asked about their relationship with Dacotah
Bank Randy beams, “It’s been everything! We shopped
around in Flandreau and Sioux Falls and the bankers we
talked to didn’t have an understanding of what we were
trying to do. Our accountant introduced us to Wayne
(Avery) and there was no comparison – it’s been easy!”
Like most Dacotah Bank clients, the Tiedeman’s benefit
from a number of services at their bank. “It’s a strong
relationship. We’ve been able to grow the business
because of Dacotah Bank. We refinanced when rates
were low and converted to Dacotah Bank’s merchant
credit card program. It’s great! We get calls every
week inviting us to change our credit card acceptance
program and no way – we are very happy with Dacotah
Bank’s program.”
Photo submitted by Josh Phillips of Aberdeen, SD
community investments: aberdeen, sd
taylor music
John Taylor, a big band musician living in Aberdeen,
South Dakota opened a small, traditional retail music
store close to Main Street in the early 1950s. He ran it for
only a few years and then added Clark W. Newman as
his business partner who later purchased the business.
The name, Taylor Music, has remained. The business
was owned by the Newman family and employees until
2005. It is currently employee- owned and has operated
out of the Main Street location for over 55 years.
Stan Kolb, president, tells of changes that started
some 45 years ago. “In 1970, we entered the mail order
business with the ‘Taylor Music Newsletter.’ Our first mail
order territory was South Dakota then North Dakota. At
one time we were sending 22,000 catalogs eight times
a year. With technology changes we now send about
5,000 catalogs six times a year.”
In those days, most people bought band instruments
locally and a mail order business was not always
appreciated by out-of-state music store owners. “About
20 years ago we began to market Taylor Music across
the country as 1-800-USA-BAND to promote our toll
free telephone number and our online e-commerce
business (www.1800usaband.com)”.
Taylor Music is nationally known with a primary sales
territory of the Midwest from Michigan to Texas. Stan
says the digital age has made a difference. “Marketing,
distribution, and available options have changed with the
internet.” The business has seen an increase in individual
orders online as most music stores now have websites.
Taylor Music provides new and refurbished band
instruments to schools, band directors, and students
and their parents. The Aberdeen-based family business
employs 25 full-time and 4 part-time people. Kolb says
the recent years were not as bad as some might expect
for a national merchant. “Despite thinner margins,
smaller school bands, and online competition, we did
remarkably well during the recession years.”
A 25 year working relationship with Dacotah Bank is
rich with respect and familiarity. “They are fantastic!
We began working with Dacotah Bank in 1988. The first
year was not good. We went down to the bank, showed
them the numbers and said we’re going to fix it. They
didn’t quiver then and have stood by us since. Today we
use Dacotah Bank’s online business banking. It’s a great
service for us; easy, fast, accurate. We really like using it.”
Stan is quick to give a testimony about his bank.
“When people talk to me about banking I tell them, ‘Get
over to Dacotah Bank!’ They get an A plus! Paul Fauth is
our business banker. He’s great!”
The story of Taylor Music and its president, Stan Kolb,
is very similar to other success stories often told about
business people in Dacotah Territory. “I’ve done about
every job around here there is to do.” But then, he is not
one to toot his horn…
community investments: aberdeen, sd
wooden mallet
The next time you stay at a hotel or visit the doctor’s
office check out the coat rack or magazine rack. If it’s
made of wood there is a good chance it may have been
manufactured in Aberdeen, South Dakota. David Kreber,
owner of Wooden Mallet, says the business had a humble
beginning. “My father, Jim, started the business in 1974
doing custom cabinets in his basement. In the ‘80s he
switched to manufacturing.”
Today, Wooden Mallet mass produces a wide range
of wood office furnishings including: magazine racks,
brochure display racks, chart holders, luggage racks,
coat racks, reception chairs, sofas, and end tables built
from solid Northern Red Oak.
The history of Wooden Mallet is related to another
local success story; Super 8 Motels. Super 8 Motels was
founded in Aberdeen and helped launch Jim’s business
with wood coat racks for their properties.
“There was no competition for wood products as other
companies only produced metal and plastic items,”
David says. Then a road trip to the Twin Cities paid off.
“Jim met a buyer in a parking lot in Minneapolis and
talked him in to featuring the company’s new product
line in a catalog.”
While 97% of their orders are U.S.-based, a small
volume is shipped to Canada. “The internet has
changed everything; our marketing and our distribution
channels. It has opened up the home market for us too.”
The company employs 25 full-time people.
In addition to succeeding in a product niche, the
company’s facilities are cutting edge. “Our facility is
unique in that we use the latest technology. We were
among the first wood product manufacturing company
in the U.S. to utilize an ultra-violet (UV) finishing line. We
recently added technology that allows us to make our
own cardboard boxes so we no longer have to inventory
different sizes. We can make specific boxes for shipping
on the fly.”
Wooden Mallet also demonstrates that what’s good
for the environment can sometimes also be good for the
checkbook. “In the winter we use our wood shavings to
heat our building so we don’t use any gas. In the warmer
months the shavings are used as horse bedding around
the area.”
The future also inspires this second generation owner,
“The internet has made things exciting. Our products
can now be found at Amazon.com and Walmart.com.
This has really helped us open up the home owner
market for product sales.”
“Dacotah Bank saw potential in me and in our business.
When (Jim) wanted to retire they listened well and
helped make things happen. I purchased the business
from Jim in 2010 with Dacotah Bank’s help. Brad Moore
and Paul Fauth were great to work with. They prepared
several options for us to consider and helped us make
good decisions.”
Photo courtesy of Valley City-Barnes County
Economic Development Corporation
community investments: valley city, nd
Barnes County Economic Development Corporation
The Valley City - Barnes County Development
Corporation (VC-BCDC) is a private, non-profit 501(c)
6 corporation organized in 1985 for job creation and
retention and is operated by a volunteer board of
directors. The corporation’s director of development,
Jennifer Feist, has held her position for 25 years. Alicia
Hoffarth, resource development specialist, provides
grant services (research, identification, grant application
review, and compliance writing).
VC-BCDC coordinates tax incentives, financing
assistance, job training through the Regional Council
and State of North Dakota, and helps secure land,
buildings, and infrastructure for businesses and
community development projects.
VC-BCDC targets information technology and
manufacturing companies that need a higher level of
technical services, skills, and processes. In addition,
a revolving loan fund is available to service and retail
businesses to access the Bank of North Dakota’s
Flex PACE Program. Tax incentives are also available
under the Image Enhancement Grant program and
Renaissance Zone.
A recent highlight includes the I-94 Regional
Development Corridor. VC-BCDC purchased over
76 acres of land along Interstate 94. The $10 million
project includes:
•Extended concrete frontage road to serve new
development and connect manufacturers directly to
the I-94 interchange and completed Winter Show Road
from 8th Avenue SW to Business Loop I-94.
• Water main extension and installation of fire hydrants.
• Sanitary sewer extension and lift station.
• Extended storm sewer.
In 2011 construction of Tech II, a $3 million two-story
20,000 square foot technology building home to Eagle
Creek Software Services was completed. The company
currently employs 65 people and expects to employ
over 135 people within two years.
The VC-BCDC operates the Regional Technology
Center (RTC), an incubator for new and expanding
technology companies. VC-BCDC partners with Valley
City State University (VCSU) to provide classroom work
and internships so students succeed in technology
careers at companies like Eagle Creek.
Jennifer says the board has a lot to be proud of, “The
success of Eagle Creek, John Deere Seeding Group, and
other manufacturers demonstrate Valley City is among
the best locations for growing companies.”
John Deere has expanded production and begun
construction of its $20 million Phase 1 100,000 square
foot facility; adding on to its 225,000 square foot
facility. John Deere currently employs 320 people and
expects to add between 50 to 100 new jobs. A logistics
service provider is planning to locate in a new 12,000
square foot facility east of John Deere. The sum of these
projects equates to a new payroll of $4 million and an
annual economic impact of over $21 million.
The North Dakota National Guard will locate its new
$32 million Regional Training Center on 20 acres near
John Deere. When completed, the National Guard
expects over 24,000 vehicles per year accessing
the facility. Construction of the first building, a field
maintenance center, is slated for 2015.
According to Jennifer, “Dacotah Bank is the lead
lender providing financial resources to establish the I-94
Regional Development Corridor. Without Dacotah Bank’s
faith in VC-BCDC, our goals and mission, and ability to be
successful, the Corridor would not be possible.”
Dacotah Bank supports growth through the Flex PACE
projects and other efforts. Volunteers have helped VCSU,
the Development Corporation, Chamber of Commerce,
Parks and Recreation, and others. “We know we can
count on Dacotah Bank to provide community and
banking leadership.”
community investments: sioux falls , sd
a&b business
A&B Business is locally owned and operated and has
grown from one office with three employees in 1981 to
18 locations in six states with more than 120 full-time
employees.
Since their beginning as an office equipment company
in Sioux Falls, South Dakota, they have grown into a
complete office solutions provider assisting clients in all
aspects of technology; basic print
services, managed print services,
document
solutions,
managed
information technology (IT), office
supplies, furniture, coffee, and
water filtration systems. A&B’s goal
is to put the ultimate success of
their clients first by embracing a
consultative approach to sales and
service.
Dennis Aanenson, president and
founder, sees a correlation between
his business and Dacotah Bank,
“A&B’s commitment to customers
and giving back to the communities
we serve is a vital part of our
success. Business relationships like
the one we have with Dacotah Bank
generate synergy in communities
we both serve.” A&B values their
relationship with Dacotah Bank and
contributes part of their continued
growth and success to the bank’s support.
“Dacotah Bank’s belief in staying close to their
customers, remaining large enough to serve most
customers and small enough to react to their special
needs is shared by A&B Business,” Dennis said. A&B
Business features an in-house service trainer who
certifies each A&B service technician on all products
offered by the company. This dedication has earned
customer praises as well as the ProMaster Elite service
award. The ProMaster Elite service award is awarded
to one dealer in the country who exemplifies the
highest quality of service. To be eligible for the award,
dealers must have surpassed 32
rigorous performance standards, an
ongoing qualification process, and
a solid commitment to exceptional
customer service and support.
A&B Business is aligned with
industry leaders such as Ricoh,
Samsung, Hewlett Packard (HP), and
Toshiba. The company’s partnership
with Toshiba includes the Toshiba
America toner plant in Mitchell,
SD. The Mitchell plant produces
toner used around the world,
offers
wonderful
employment
opportunities,
and
generously
supports organizations charitably
throughout the country.
A&B Business is proud to be
associated with Dacotah Bank. When
describing his business’ relationship
with Dacotah Bank, Dennis stated,
“They are good people. They listen
well and work on relationships. They understand the
customer and it’s the way they do business all the way
from the chairman of the board to my banker, Matt
Smith, and the people who manage all the details behind
the scenes.”
Photo courtesy of VCHS Yearbook
community investments: valley city, nd
valley city schools
The mission statement for Valley City Public Schools says
‘we learn, we value and practice responsibility and respect
for ourselves, others, our work and our environment.
Together we are building a legacy of excellence, one
student at a time.
The first school in Valley City, North Dakota was
established in 1878 when there were about 500 people in
Barnes County. The district has experienced many changes.
Over the past two years the Junior and Senior High
School in Valley City, North Dakota has implemented math
and reading interventions to address academic concerns
for students. Additionally, a concerted effort has been
made to improve the accessibility of technology for the
1,131 students enrolled in K-12.
According to Dan Larson, 7th and 8th grade principal
and activities director for the school, great strides have
been made with technology, “New iPad learning labs were
created to allow the needed flexibility for our staff members
and students to utilize technology. Our classrooms are
equipped with SmartBoards and document cameras
which help transform our classrooms by the providing
our teachers with adequate technology to enhance their
lessons. Our computer labs have been updated for use in
our traditional classes in addition to supporting our math
and reading curriculum.”
The Valley City School District employs 137 full-time
certified and non-certified employees and 40 part-time
employees. The campus includes two elementary buildings
and a Junior/Senior high facility. Jefferson Elementary has
an enrollment of 332 students in grades K-3. Kindergarten
is a full-day everyday program. Washington Elementary
has an enrollment of 234 in grades 4-6. The Junior High
enrollment is 157 students and the Senior High enrollment
is 345 students. The Valley City School District has one
private school, St. Catherine Elementary, which has an
enrollment of 57 students.
Larson says the community is proud of another
educational opportunity for young people. “Our
alternative high school program offers options other than
the traditional program for students to receive credits
toward a high school diploma. The district is a member
of the Sheyenne Valley Career Tech Center, a local area
vocational/technical center offering training in various
fields to high school juniors and seniors.” Interactive
television (ITV) classes are also available to high school
students through a consortium. The Valley City School
District provides ITV classes that are not available in
consortium member communities. Valley City students
may select from about 73 courses which also include six
courses considered dual credit options through Valley City
State University.
Dan said Dacotah Bank was an important partner in
getting the Valley City schools’ scoreboard project off
the ground. “Their enthusiastic support provided the
momentum to take this project to the next step and to
seek out additional sponsorship to turn this project into
a reality. The project was well supported by our area
businesses and sports boosters. Most exciting of all was
the fact that we had it in place and fully operational by our
second home football game of the season. Dacotah Bank
was instrumental in being one of our leading sponsors and
in helping Valley City Public Schools garner the necessary
community support.”
The addition at the sports field was just one of many
upgrades according to Dan. “The scoreboard project at
Hanna Field really was an integral piece to improving our
football facility. Over the past few years the school has
been steadily making improvements such as new bleachers
and press boxes. The scoreboard and the technology it
incorporates added an exciting new element to our games
especially as we utilize the LED display to highlight our
community, school, and students during games.”
Photo courtesy of Steven Dahlmeier
grants help with affordable housing
U.S. Senator Tim Johnson (D-SD), Chairman of the
Senate Committee on Banking, Housing, and Urban
Affairs, announced $1.9 million in grants for South
Dakota organizations from the Federal Home Loan Bank
(FHLB) of Des Moines. Senator Johnson congratulated
the recipients and highlighted the economic and
humanitarian impact the funds will have. The grants will
be used to rehabilitate and repair hundreds of properties
across the state, helping South Dakota families raise
their children in safe and healthy environments.
“These funds will help South Dakota families
rehabilitate their homes, to build a strong foundation for
their children’s future, and to strengthen and stabilize
the neighborhoods where they live. Rehabilitating
houses helps increase property value for homeowners,
improves neighborhoods, and boosts local economies.
The Federal Home Loan Bank of Des Moines and all of
these dedicated housing organizations deserve a lot of
credit for the work they do for families and communities
across this state,” said Senator Johnson.
The funds were provided by the Federal Home Loan
Bank of Des Moines, as part of their Affordable Housing
Program (AHP) to create safe and affordable homes for
families and individuals across South Dakota. Projects
in South Dakota have received over $20 million since
the creation of the Affordable Housing Program. The
grants are privately-funded by FHLB’s earnings, and no
taxpayer funds are involved.
Seven organizations in South Dakota share the $1.9
million in funding including the following grants totaling
$766,390 facilitated by Dacotah Bank:
Homes Are Possible (HAPI), Inc. will use a $300,000
grant to provide vital repairs to 50 homes, making
them safer and more affordable. Repairs include
major work on roofs, plumbing and electrical systems
and HVAC equipment.
Oglala Sioux Lakota Housing will receive $166,390 to
repair and improve seven homes for elderly residents
on the Pine Ridge Reservation.
The Sisseton Wahpeton Housing Authority will
receive $300,000 to help 30 homeowners on the
Lake Traverse Reservation. The recipients, all tribal
members, will receive assistance in either making
structural repairs or improving accessibility.
Independent Auditor’s Report
The Stockholders and Board of Directors
Dacotah Banks, Inc.
Aberdeen, South Dakota
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Dacotah Banks, Inc. and subsidiaries, which comprise the
consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012,
and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Dacotah Banks, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2012, in accordance with accounting principles generally accepted in the United States of America.
Other Matter
We have also examined, in accordance with attestation standards established by the American Institute of Certified Public Accountants, Dacotah Banks, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 28, 2013, expressed an unqualified opinion.
March 28, 2013
w ww .ei de bai ll y .com
Page 25 | Dacotah
Banks,
Inc.
2012
Annual
Report
24 Second Ave. S.W. | P.O. Box 430 | Aberdeen, SD 57402-0430 | T 605.225.8783
| F 605.225.0508 | EOE
Consolidated Balance Sheets
DECEMBER 31, 2012 AND 2011
(Dollar Amounts in Thousands)
2012
2011
ASSETS
Cash and cash equivalents
Cash due from banks $87,850 $
50,628
Interest-bearing deposits in bank
23,50066,700
Total cash and cash equivalents Interest-bearing deposits in banks Securities Loans held for sale Loans, net of allowance for loan losses Interest receivable Premises and equipment, net Foreclosed assets Investment in life insurance contracts
Goodwill
Intangible assets Prepaid FDIC assessment Other assets Total assets 111,350 117,328
5,788 5,049
357,818 325,556
3,819 2,887
1,470,511 1,362,943
17,327 18,364
43,222 43,644
2,452 1,982
33,5528,346
6,2586,258
2,094 2,348
2,480 2,678
8,382 8,379
$2,065,053 $ 1,905,762
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits $1,825,560 $ 1,679,420
Borrowings 21,005 25,009
Interest payable 5,283 6,699
Accrued expenses and other liabilities 13,641 10,552
Total liabilities 1,865,489 1,721,680
STOCKHOLDERS’ EQUITY
Common stock, $4 par value; 5,000,000 shares
authorized, 1,428,598 shares issued and outstanding Capital surplus Retained earnings Accumulated other comprehensive income Treasury stock, 312,346 shares in 2012 and
315,702 shares in 2011, at cost 5,714 5,714
10,704 10,188
192,483 177,973
2,283 1,835
Total stockholders’ equity 199,564 184,082
Total liabilities and stockholders’ equity
(11,620) $ 2,065,053 (11,628)
$ 1,905,762
See Notes to Consolidated Financial Statements
Consolidated Statements of Income
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
201220112010
INTEREST INCOME
Loans $ 79,398 $ 81,354 $ 83,311
Securities
Taxable 4,133 4,202 4,198
Exempt from federal income taxes 1,038 884 869
Deposits in banks 88 104 113
Federal funds sold 145 112 94
84,802 86,65688,585
INTEREST EXPENSE
Deposits 15,344 19,211 23,356
Borrowings 711 791 1,303
16,055 20,002 24,659
NET INTEREST INCOME 68,747 66,654 63,926
PROVISION FOR LOAN LOSSES 6,750 5,300 6,100
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 61,997 61,354 57,826
NON-INTEREST INCOME
Income from fiduciary activities 1,202 912 765
Service charges on deposit accounts 3,956 4,259 4,166
Insurance commissions 4,068 3,889 3,870
Fees on sale of residential mortgages 2,634 1,897 2,256
Other income 4,109 4,152 3,379
15,969 15,109 14,436
NON-INTEREST EXPENSES
Salaries and employee benefits 31,692 30,776 29,624
Occupancy, net 3,967 3,896 3,861
Furniture and equipment 2,176 1,965 2,112
FDIC assessment 310 2,911 1,996
Other expenses 12,438 11,397 10,914
50,583 50,945 48,507
INCOME BEFORE INCOME TAXES 27,383 25,518 23,755
INCOME TAX EXPENSE 9,529 8,972 8,690
NET INCOME $ 17,854 $ 16,546 $ 15,065
PER SHARE OF COMMON STOCK
Net income - basic $ 16.03 $
14.87
$
13.54
3.00 $
2.60 $
2.00
Cash dividends declared See Notes to Consolidated Financial Statements.
$
Consolidated Statements of Income
NET INCOME (continued)
201220112010
$ 17,854 OTHER COMPREHENSIVE INCOME
Unrealized gains on securities:
Unrealized holding gains arising during period
Tax expense
$ 16,546
$ 15,065
689
4,094
(2,256)
(241)
(1,433)
790
Other comprehensive income
448
2,661
(1,466)
Comprehensive Income
$18,302
$19,207
$13,599
Consolidated Statements of Stockholders’ Equity
BALANCE, DECEMBER 31, 2009 Total
$ 156,390 CommonCapital
Stock
Surplus
$ 5,714 $ 9,814
Net income 15,065 - -
Other comprehensive loss
(1,466)
-
-
Purchase of treasury stock, net (38)
-
62
Cash dividend declared, $2.00 per share
(2,226)
- -
BALANCE, DECEMBER 31, 2010 167,725 5,714 9,876
16,546 - -
-
-
Net income Other comprehensive income
Executive incentive stock awards 160
-
122
Purchase of treasury stock, net (116) - 190
Cash dividend declared, $2.60 per share (2,894) - -
BALANCE, DECEMBER 31, 2011 184,082 2,661
5,714 10,188
Net income 17,854 - -
Other comprehensive income 448
- -
-
242
Purchase of treasury stock, net
205
-
274
Cash dividend declared, $3.00 per share (3,344) - -
BALANCE, DECEMBER 31, 2012 See Notes to Consolidated Financial Statements.
$ 199,564 $ 5,714 $ 10,704
Consolidated Statements of Stockholders’ Equity (continued)
Retained
Earnings
Accumulated
OtherShares
Comprehensive
Treasury
Income (Loss)
Stock
Common Treasury
$ 151,482 $
640 $ (11,260) 15,065--
-(1,466)
-
-
- (100)
(2,226)--
164,321 (826) (11,360)
1,429 316
-
-
-
-
-
-
-
-
1,429 316
16,546--
-
-
- 2,661
-
-
-
-
-
38
-
-
-
- (306)
-
-
-
-
-
1,429
316
-
-
-
-
-
-
77 -
(4)
(2.894)
-
177,973 1,835
17,854 -
- - -
-
-
(11,628) 448 (69)
(3,344)--
192,483 2,283 (11,620) -
-
-
-
1,429 312
Consolidated Statements of Cash Flows
201220112010
OPERATING ACTIVITIES
Net income $
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses Depreciation and amortization Executive incentive stock awards Provision for deferred income taxes Increase in cash surrender value of life insurance
(Increase) decrease in loans held for sale Decrease (increase) in interest receivable Decrease in other assets, net (Decrease) increase in interest payable Increase (decrease) in accrued expenses and other liabilities Net cash from operating activities 17,854 $ 16,546 $ 15,065
6,750 5,300 6,100
6,896 6,924 6,150
319 160
(390) (832) (2,132)
(1,206)(498) (711)
(932) 995 4,301
1,037 1,993
(52)
1,144 2,587 2,015
(1,416) (1,679) 51
3,089 (819) 4,069
33,145 30,677 34,856
INVESTING ACTIVITIES
Proceeds from maturities and calls of securities available
for sale and interest-bearing deposits with banks 171,471 147,271 136,018
Purchases of securities available for sale and
interest-bearing deposits with banks (206,875) (190,140) (235,426)
Net increase in loans (115,328) (27,557) (30,562)
Purchases of premises and equipment (3,128) (3,695) (2,163)
Sale of foreclosed assets, net 540 1,122 1,818
Purchase of investment in life insurance contracts (24,800)-Net cash used by investing activities (178,120) (72,999) (130,315)
FINANCING ACTIVITIES
Increase in non-interest-bearing deposits, net 123,879 62,423 40,714
Increase in interest-bearing deposits, net 104,677 65,688 58,654
(Decrease) increase from issuance of
certificates of deposit, net (82,416) (36,327) 42,435
Decrease in federal funds purchased - -
(3,100)
Repayments of borrowings (4,004) (5,419) (3,314)
Sale (purchase) of treasury stock, net 205 (116) (38)
Dividends paid to stockholders (3,344) (2,894) (2,226)
Net cash from financing activities 138,997 83,355 133,125
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,978) 41,033 37,666
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 117,328 76,295 38,629
CASH AND CASH EQUIVALENTS, END OF YEAR See Notes to Consolidated Financial Statements.
$ 111,350 $ 117,328 $ 76,295
Notes to Consolidated Financial Statements
NOTE 1 – PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activity
Dacotah Banks, Inc. (Company) is a one-bank holding company and provides a full range of banking services to individuals and businesses
through its market banks in Aberdeen, Brookings, Clark, Custer, Faulkton, Lemmon, Mobridge, Rapid City, Sioux Falls, Sisseton,
Watertown, and Webster, South Dakota, and Dickinson, Hettinger, Minot, Rolla, and Valley City, North Dakota.Trust services are provided
to individuals and businesses in the South Dakota locations. General insurance operations are conducted in fourteen of the thirty-two
banking offices.The Company’s primary deposit products are demand deposits and certificates of deposit, and its primary lending products
are commercial, agricultural, real estate mortgage and consumer loans.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary bank and companies. All significant
intercompany accounts and transactions have been eliminated in consolidation. The subsidiary bank and companies employ, in all material
respects, similar accounting policies.
Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management
is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material
estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.
Significant Group Concentrations of Credit Risk
Most of the Company’s loans are with customers primarily in South Dakota and North Dakota. Concentrations of credit are present in the
agricultural industry. Due to the pervasive nature of agriculture in the economy of the Dakotas, all loans, regardless of type, are impacted
by agriculture. Loans for agricultural purposes comprised approximately 43% and 39% of total loans as of December 31, 2012 and 2011,
respectively.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold and
interest-bearing deposits in banks, all of which have original maturities of three months or less.
Interest-Bearing Deposits in Banks
Interest-bearing deposits in banks that are not classified as cash and cash equivalents mature within five years and are carried at cost.
Securities
The Company’s securities are all classified and accounted for as securities available for sale. Securities classified as available for sale are those
debt securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale
are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Premiums
and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the sale and
calls of securities are recorded on the trade date and are determined using the specific identification method.
The Company is required to hold Federal Reserve Bank stock in order to be a member of the Federal Reserve Bank System and, because
of its borrowing arrangement with the Federal Home Loan Bank; the Company is required to own Federal Home Loan Bank stock. Since
their ownership is restricted, these securities are carried at cost and evaluated periodically for impairment.
Notes to Consolidated Financial Statements (continued)
The Company adheres to required recognition and presentation of other-than-temporary impairment. The guidance specifies that (a) if a
company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the
debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When
an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its
cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining
portion in other comprehensive income.
Fair Value Measurements
The Company determined the fair value of certain assets in accordance with the provisions of FASB ASC Topic 820, Fair Value Measurements
and Disclosures, which provides a framework for measuring fair value under generally accepted accounting principles.
FASB ASC Topic 820 defines fair value as the exchange price that would be received for an asset in the principal or most advantageous
market for the asset in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820 requires that
valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. FASB ASC Topic 820 also
establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.
Level 1 inputs consist of quoted prices in active markets for identical assets that the reporting entity has the ability to access at the
measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset. Level
3 inputs are unobservable inputs related to the asset.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net
unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans
Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses and
unearned discount.
Interest income is accrued on the unpaid principal balance. The accrual of interest on loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well secured and in process of collection. Past due status is based on contractual terms of the loan. Loans are
placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All current year interest
accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income. All prior year interest
accrued but not collected is charged-off against the allowance for loan losses. The interest on these loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured.
The Company has determined that the accounting for nonrefundable fees and costs associated with originating or acquiring loans does not
have a material effect on their financial statements. As such, these fees and costs have been recognized during the period they are collected
and incurred, respectively.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.
Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the
collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the
borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For
those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is
based on historical chargeoff experience and expected loss given default derived from the Company’s internal risk rating process. Other
adjustments can be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are
not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect
the scheduled payments of principal or 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. Loans that experience insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral in the loan if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not
separately identify individual consumer and residential loans for impairment disclosures, unless such loans are subject of a restructuring
agreement due to financial difficulties of the borrower.
The general component relates to loans that are not classified as impaired. For those loans are not classified as impaired, an allowance
is established for each portfolio segment, based on historical losses adjusted for the effects of qualitative or environmental factors that
are likely to cause estimated credit losses associated with the institution’s existing portfolio to differ from historical loss experience.
Qualitative and environmental factors include the following: changes in lending policies and procedures, including changes in underwriting
standards and collection, charge-off and recovery practices; changes in national, regional and local economic and business conditions and
developments that affect the collectibility of the portfolio; changes in the nature and volume of the portfolio and in the terms of loans;
changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past
due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; changes in the quality of the
institution’s loan review system; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any
concentrations of credit, and changes in the level of such concentrations; and the effect of other external factors such as competition and
legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.
Portfolio segments identified by the Company include commercial, commercial real estate, agricultural, residential real estate, and consumer
loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial
performance on commercial, commercial real estate and agricultural loans and credit scores, debt-to income, collateral type and loan-tovalue ratios for residential real estate and consumer loans.
Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit. Such
financial instruments are recorded when they are funded.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets
is deemed to be surrendered when (1) the assets have been isolated from the Company – put presumptively beyond the reach of the
transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control
over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to
return specific assets.
Investment in Life Insurance Contracts
Investment in life insurance contracts is stated at cash surrender value of various insurance policies. The income of the investment is
included in non-interest income.The life insurance policies are intended to provide funding for salary continuation contracts for executive
officers of the Company and its subsidiaries.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation for buildings and improvements is provided generally
by the straight-line method based on estimated useful lives of 10 to 50 years. Depreciation for furniture, fixtures and equipment is provided
generally by the double-declining balance method based on estimated useful lives of five to seven years.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the unrecovered loan balance
or fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses
from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.
Goodwill and Other Intangible Assets
Intangible assets consist of goodwill and core deposits associated with the acquisition of banks and insurance agencies. Goodwill is not subject to
amortization. Core deposits are amortized on an accelerated basis over 10 to 15 years.The Company assesses goodwill for impairment annually,
and more frequently in certain circumstances. Goodwill is assessed for impairment on a reporting unit level by applying a fair-value-based test
using discounted estimated future net cash flows. Impairment exists when the carrying amount of the goodwill exceeds its implied fair value.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. The Company files separate state income tax returns. It is
the policy of the Company to allocate federal income taxes or credits to each subsidiary on the basis of the subsidiary’s taxable income or
loss included in the consolidated return.
The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense
reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or
excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized
if it is more likely than not, based on technical merits, that the tax position will be realized or sustained upon examination.The term more
likely than not means a likelihood of more than 50%; the terms examined and upon examination also include resolution of the related
appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority
that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not
recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not
that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
Advertising Costs
Advertising costs are expensed as incurred.
Comprehensive Income
The Company recognizes and includes revenue, expenses, gains and losses in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of comprehensive income.
Earnings per Common Share
Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares
outstanding during the period.
Earnings per common share have been computed based on the following:
201220112010
Average number of common shares outstanding (in thousands)
1,113 1,114 1,113
NOTE 2 – RESTRICTION ON CASH AND DUE FROM BANKS
Based on the type and amount of deposits received, the Company must maintain an appropriate amount of noninterest bearing cash balances in accordance with Federal Reserve Bank reserve requirements.The total of those reserve requirements was satisfied with vault cash.
NOTE 3 - SECURITIES
Debt and equity securities have been classified in the consolidated balance sheet according to management’s intent. The carrying amounts
of securities as of December 31, 2012 and 2011 consist of the following:
Securities available for sale, at fair value Investments in government corporations, at cost 2012 2011
$ 347,206 10,612 $ 357,818 $ 316,602
8,954
$ 325,556
The amortized cost and fair value of securities available for sale with gross unrealized gains and losses are as follows:
GrossGross
AmortizedUnrealizedUnrealized Fair
Cost Gains LossesValue
DECEMBER 31, 2012
Securities Available For Sale
U.S. Government And Federal Agency $ 239,990
State And Municipal 50,512
Mortgage-Backed 51,962
Other 1,230
$ 1,866 $
1,176 735 - $ 343,694 $ 3,777 $
103
$ 241,753
123 51,565
39 52,658
- 1,230
265 $ 347,206
December 31, 2011
Securities Available For Sale
U.S. Government And Federal Agency $ 237,670 $
State And Municipal 33,684 Mortgage-Backed 41,193 Other 1,232 2,177 $
925 221 - 82 $ 239,765
327 34,282
89 41,325
2 1,230
3,323 500 $ 313,779 $
$
$ 316,602
Investment securities with a carrying value of $175,577 and $173,548 as of December 31, 2012 and 2011, respectively, were pledged to
secure public deposits and for other purposes required by law.
The amortized cost and fair value of debt securities by contractual maturity at December 31, 2012 follows:
Amortized Cost Fair
Value
Within one year $ 42,659 $ 42,947
Over one through five years 228,529 230,869
Over five through ten years 67,209 67,946
Over ten years 5,297 5,444
$ 343,694 $ 347,206
Mortgage-backed obligations are included in the preceding table based on management’s estimates of remaining life, after considering
prepayments.
There were no sales of securities during 2012, 2011 and 2010.
Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011 aggregated by investment category and
length of time that individual securities have been in a continuing loss position follows:
Less Than Twelve Months
Over Twelve Months
Gross Gross
Unrealized Fair Unrealized Fair
LossesValueLossesValue
DECEMBER 31, 2012
Securities available for sale
Agencies $
103 $ 41,609 $
-
$
State and municipal 40 10,883 83 468
Mortgage backed 38
13,810 1
1,652
$
181 $ 66,302 $
84 $ 2,120
Less Than Twelve Months
Over Twelve Months
Gross Gross
Unrealized Fair Unrealized Fair
LossesValueLossesValue
DECEMBER 31, 2011
Securities available for sale
Agencies $
82 $ 12,157 $
-
$
State and municipal 157 2,306 170 31,975
Mortgage backed 84
16,253 5
17,819
Other 2200 - $
325 $ 30,916 $
175 $ 49,794
At December 31, 2012, three state and municipal securities had unrealized losses with aggregate depreciation of 5% or more from the
Company’s amortized cost basis caused by interest rate changes. At December 31, 2011, five securities had unrealized losses with aggregate
depreciation of 5% or more from the Company’s amortized cost basis caused by interest rate changes. In analyzing an issuer’s financial
condition, management considers whether the securities are issued by federal, state, and municipal governments or their agencies; whether
downgrades by bond rating agencies have occurred; and industry analysts’ reports. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost
bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.
NOTE 4 - LOANS
A summary of the balances of loans follows:
2012 2011
Commercial
$ 240,515 $ 242,246
Commercial real estate 288,728 273,595
Agricultural
634,982539,007
Residential real estate 262,340 252,012
Consumer 62,838 74,263
Total loans 1,489,403 1,381,123
Allowance for loan losses 18,892 18,180
Total loans, net $1,470,511 $ 1,362,943
Extension of agricultural credit is the primary lending activity of the Company. The Company generally requires collateral on all
agricultural loans. Collateral typically consists of livestock, feed, grain, machinery and farmland.
The Company has maintained a diversified loan portfolio. At December 31, 2012 and 2011, there were no customer loan concentrations
that exceeded 1.5% of total loans. However, a substantial portion of the Company’s customers’ ability to honor their loan agreements is
influenced by the agricultural economy.
Total loans to directors, executive officers and principal stockholders of the Company’s common stock including their affiliates were
$3,259 and $6,594 at December 31, 2012 and 2011. Management believes that such loans were made in the ordinary course of business
on substantially the same terms and conditions, including interest rates and collateral as those prevailing at the same time for comparable
transactions with other customers and do not represent more than a normal risk of collection.
Included in loans are overdrafts of $2,700 and $2,634 as of December 31, 2012 and 2011, respectively.
Changes in the allowance for loan losses are as follows:
2012 2011 2010
Balance, beginning of year $ 18,180 $ 16,039 $ 11,197
Provision for loan losses 6,750 5,300 6,100
Recoveries 724 360 492
Loans charged off (6,762) (3,519) (1,750)
Balance, end of year $ 18,892 $ 18,180 $ 16,039
The following table presents the activity in the allowance for loan losses for the years ended December 31, 2012 and 2011 and the
recorded investment in loans and impairment methods as of December 31, 2012 and 2011 by portfolio segment.
Commercial Residential
DECEMBER 31, 2012
Commercial
Real Estate
Agricultural
Real Estate
Consumer
Total
Balance, beginning of year $
4,929
$
5,167
$
3,462
$
3,014
$
1,608
$
18,180
Provision for loan losses
1,901
249
572
3,765
263
6,750
Loans charged off
(2,006)
(131)
(382)
(3,772)
(471)
(6,762)
Recoveries 91
5 136 347 145 724
Balance, end of year
$
4,915
$
5,290
$
3,788
$
3,354
$
1,545
$
18,892
Individually evaluated for
impairment
$
2,105
$
986
$
88
$
2,243
$
408
$
5,830
Collectively evaluated for
impairment 2,810
4,304
3,700
1,111
1,137
13,062
$
4,915
$
5,290
$
3,788
$
3,354
$
1,545
$
18,892
$
9,106
$
8,209
$
15,903
$
12,948
$
945
$
47,111
Loans
impairment
impairment
231,409
280,519
619,079
249,392
61,893 1,442,292
240,515
288,728
634,982
262,340
62,838
$
$
$
$
$
$ 1,489,403
Commercial Residential
DECEMBER 31, 2011
Commercial
Real Estate
Agricultural
Real Estate
Consumer
Total
Balance, beginning of year $
4,046
$
4,255
$
3,981
$
2,117
$
1,640
$
16,039
Provision for loan losses
2,067
1,153
(129)
1,990
219
5,300
Loans charged off
(1,275)
(328)
(438)
(1,123)
(355)
(3,519)
Recoveries 91 87 48 30 104 360
$
4,929
$
5,167
$
3,462
$
3,014
$
1,608
$
18,180
impairment
$
2,030
$
698
$
335
$
2,299
$
350
$
5,712
impairment 2,899
4,469
3,127
1,258
12,468
$
4,929
$
5,167
$
3,462
$
3,014
$
1,608
$
18,180
$
6,990
$
5,569
$
8,012
$
10,983
$
945
$
32,499
715
Loans
impairment
impairment
235,256
268,026
530,995
241,029
73,318 1,348,624
242,246
273,595
539,007
252,012
74,263
$
$
$
$
$
$ 1,381,123
Credit Quality Indicators
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt
including current financial information, historical payment experience, collateral adequacy, credit documentation, public information,
current economic trends, and other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis
typically includes larger, non-homogeneous loans such as commercial real estate, agricultural real estate, commercial and agricultural loans.
This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for risk ratings:
Pass – Loans classified as pass represent loans that are evaluated and are performing under the stated terms. Pass rated assets are analyzed by
the paying capacity, the current net worth, and the value of the loan collateral of the obligor.
Watch – Loans classified as watch possess potential weaknesses that require management attention, but do not yet warrant adverse
classification. While the status of a loan placed in this classification may not technically trigger a classification as substandard or doubtful,
it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and does result in a
loss for the Bank.
Substandard – Loans classified as substandard are inadequately protected by the current net worth, paying capacity of the obligor, or by the
collateral pledged. Substandard loans have a well-defined weakness or weaknesses that jeopardize the repayment of the credit as originally
contracted. They are characterized by the distinct possibility that the Bank will sustain a loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have the weaknesses of those classified as substandard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and
improbable. Loans in this category are allocated a specific reserve based on the estimated discounted cash flows from the loan (or collateral
value less cost to sell for collateral dependent loans) or are charged off if deemed uncollectible.
Based on the most recent analysis performed, the risk category of loans by portfolio segment as of December 31, 2012 and 2011 was as follows:
Credit risk profile by internally assigned grade – Commercial, Commercial Real Estate and Agricultural
Pass
Watch SubstandardDoubtful Total
DECEMBER 31, 2012
Commercial
$
198,021$33,860$ 8,117$ 517$
240,515
Commercial Real Estate
229,385
50,9858,358
-
288,728
Agricultural
532,726
89,235
12,788 233
634,982
$
960,132$
174,080$29,263$
750$
1,164,225
Pass
Watch SubstandardDoubtful Total
DECEMBER 31, 2011
Commercial
$
199,689$33,033$ 9,524$
-$
242,246
233,444
33,3666,785
-
273,595
Agricultural
432,767
90,472
15,768
-
539,007
$
865,900$
156,871$32,077$
-$
1,054,848
Credit risk profile by class based on payment activity – Residential and Consumer
Residential real estate and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days
or more or are not accruing interest are considered nonperforming. The following table presents the recorded investments in residential
real estate and consumer loans based on payment activity as of December 31, 2012 and 2011:
Non
Performingperforming Total
DECEMBER 31, 2012
Residential Real Estate$
256,276$ 6,064$
262,340
Consumer
62,397 441
62,838
$
318,673$ 6,505$
325,178
Non
Performingperforming Total
DECEMBER 31, 2011
Residential Real Estate$
243,377$ 8,635$
252,012
Consumer
73,592 671
74,263
$
316,969$ 9,306$
326,275
The following tables summarize the aging of the past due loans by portfolio segment as of December 31, 2012 and 2011:
Still Accruing
30-89 Days
Over 90 Days
Nonaccrual
DECEMBER 31, 2012
Past Due
Past Due
Balance
Commercial$ 957$
36$ 3,544
Commercial Real Estate1,251 3173,808
Agricultural1,252 1383,115
Residential Real Estate1,977 1425,922
Consumer 605 42 398
Total$ 6,042$
675$16,787
Still Accruing
30-89 Days
Over 90 Days
Nonaccrual
DECEMBER 31, 2011
Past Due
Past Due
Balance
Commercial$ 1,300$ 861$ 5,208
Commercial Real Estate 890 7312,903
Agricultural 8561,0564,010
Residential Real Estate1,926 9567,679
Consumer1,183 176 495
Total$ 6,155$ 3,780$20,295
The following table summarizes individually impaired loans by portfolio sement as of December 31, 2012 and 2011:
UnpaidAverage
Interest
RecordedPrincipal Related RecordedIncome
DECEMBER 31, 2012
Investment
Balance (1)
Allowance
Investment Recognized
With no related allowance recorded
Commercial
$ 4,428$ 4,428$
Commercial Real Estate1,3581,358
Agricultural
12,736
12,736
Residental Real Estate4,5734,573
Consumer 197 197
-$ 4,278$
-2,997
-
10,328
-5,569
- 344
-
-$23,516$
-
$23,292$23,292$
UnpaidAverage
Interest
DECEMBER 31, 2012
Investment
Balance (1)
Allowance
Investment
Recognized
With an allowance recorded
Commercial
$ 4,679$ 5,513$ 2,105$ 4,434$
Commercial Real Estate6,8516,944 9865,065
Agricultural3,1673,400 882,506
Residental Real Estate8,3748,6782,2438,416
Consumer 748 861 408 709
-
-
$23,819$25,396$ 5,830$21,130$
(1) Represents the borrower’s loan obligation, gross of any previously charged-off amounts.
UnpaidAverage
Interest
DECEMBER 31, 2011
Investment
Balance (1)
Allowance
Investment Recognized
With no related allowance recorded
Commercial
$ 2,513$ 2,513$
Commercial Real Estate2,3532,353
Agricultural7,2117,211
Residental Real Estate4,7184,718
Consumer 185 185
-$ 3,401$
-4,079
-5,182
-6,883
- 184
-
-$19,729$
-
$16,980$16,980$
UnpaidAverage
Interest
DECEMBER 31, 2011
Investment
Balance (1)
Allowance
Investment
Recognized
With an allowance recorded
Commercial
$ 4,477$ 4,539$ 2,030$ 3,702$
Commercial Real Estate3,2163,216 6982,130
Agricultural 801 812 335 490
Residental Real Estate6,2656,4672,2994,978
Consumer 760 789 350 703
-
-
$15,519$15,823$ 5,712$12,003$
The following table represents the effects of the trouble debt restructuring during the years ended December 31, 2012 and 2011.
2012
Premodification
Postmodification
Outstanding
Outstanding
Number of
Recorded
Income
Contracts InvestmentRecognized
Troubled debt restructurings
Commercial Business
27$14,617$11,290
148,0487,566
that subsequently defaulted
Commercial Business
6 248
5 750
2011
Premodification
Postmodification
Outstanding
Outstanding
Number of
Recorded
Income
Contracts InvestmentRecognized
Commercial Business
21$ 4,553$ 3,613
169,8929,059
that subsequently defaulted
Commercial Business
7 125
1 148
NOTE 5 - PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of premises and equipment follows:
2012 2011
Land $ 6,470 $ 6,470
Buildings and improvements 56,216 54,733
Furniture, fixtures and equipment 23,054 21,787
85,740 82,990
Accumulated depreciation and amortization (42,518) (39,346)
$ 43,222 $ 43,644
Depreciation and amortization charged to occupancy and furniture and equipment expense in the consolidated statements of income
amounted to $3,550 in 2012, $3,386 in 2011, and $3,642 in 2010.
NOTE 6- GOODWILL AND INTANGIBLE ASSETS
The summary of the net carrying amount of the intangible assets as of December 31, 2012, 2011 and 2010 follows:
2012 2011 Core deposit intangible $ 4,846 $
Accumulated amortization 2,752 2010
4,846 $
2,498 4,846
2,186
2,094 2,348 2,660
Goodwill 6,460 6,460 6,460
Accumulated amortization 202 202 202
6,258 6,258 6,258
$ 8,352 $
8,606 $
8,918
There were no impairment losses related to the intangible assets during the years ended December 31, 2012 and 2011. Impairment testing
is performed annually on goodwill. If certain factors become present that could lead to impairment of core deposit intangible, impairment
testing will be performed at that time. Amortization expense for intangible assets was $254, $312, and $332 for the years ended December
31, 2012, 2011 and 2010.
At December 31, 2012, the estimated amortization expense for intangible assets for the succeeding five years is as follows:
2013 2014 2015 2016 2017 Page 45 | Dacotah Banks, Inc. 2012 Annual Report
$ 254
246
240
240
240
NOTE 7 - DEPOSITS
A summary of the balances of deposits follows:
2012 Demand $ 458,625 $ Interest checking 241,643 Money market accounts 234,842 Dacotah Gold money market accounts 233,541 Time, $100,000 and over 232,316 Other time 424,593 2011
334,746
193,111
201,828
210,410
264,523
474,802
$ 1,825,560 $ 1,679,420
At December 31, 2012, the scheduled maturities of certificates of deposit were as follows:
2013 2014 2015 2016 2017
Thereafter $ 387,150
117,978
42,783
49,254
59,727
17
$ 656,909
NOTE 8 - BORROWINGS
Borrowings consisted of the following:
2012 Federal Home Loan Bank advances $
9% contract for deed due in monthly installments to 2014 $
2011
21,000 $ 25,000
5 9
21,005 $ 25,009
The contractual maturities of borrowings are as follows: 2013 - $13,004; 2014 - $3,001; 2015 - $3,000: 2018 - $2,000 .
The Federal Home Loan Bank (FHLB) advances outstanding at December 31, 2012, mature from January 2013 through August 2018. All
advances have fixed rate interest, ranging from 0.79% to 5.50%. The Company maintains a collateral pledge agreement with the Federal
Home Loan Bank of Des Moines covering secured advances whereby the Company has agreed to retain, free of all other pledges, liens,
and encumbrances, agricultural, residential, and commercial real estate loans totaling $301,518 and $283,958 as of December 31, 2012
and 2011. The pledged loans are discounted at a factor of 135% to 200% when aggregating the amount of loans required by the pledge
agreement. In addition, these borrowings are collateralized by Federal Home Loan Bank stock of $8,478 and $6,811 as of December 31,
2012 and 2011. The net excess of pledged collateral over the outstanding indebtedness was $146,931 as of December 31, 2012.
As of December 31, 2012 and 2011, the Company pledged loans totaling $101,257 and $106,170 for an available borrowing line of
$71,491 and $72,986 under the Federal Reserve Bank’s Borrower in Custody (BIC) program.
The Company also has an unsecured federal funds purchased borrowing capacity of $40,000 at December 31, 2012 and 2011.
NOTE 9 – EMPLOYEE BENEFIT PLANS
The Dacotah Banks, Inc. 401(k) savings plan covers substantially all employees of the Company and its subsidiaries. Contributions to this
defined contribution plan are based on percentages of eligible employee salaries. Amounts contributed under the plan shall not exceed
the maximum amounts deductible for federal income tax purposes. Charges to employee benefits expense for the plan in the consolidated
statements of income amounted to $1,756 in 2012, $1,700 in 2011, and $1,637 in 2010.
The Company has salary continuation contracts with executive officers of the Company and its subsidiaries. The provision for salary
continuation expense amounted to $838, $825 and $928 in 2012, 2011, and 2010. Retirement payments of $191, $148 and $136 were made
in 2012, 2011 and 2010. The Company has life insurance policies in place to provide funding for these benefits. Cash surrender value of
these policies was $33,552 and $8,346 at December 31, 2012 and 2011.
The Dacotah Banks, Inc. 2003 Stock Incentive Plan (the “Stock Plan”) authorized the issuance of up to 100,000 common shares for the
grant of stock options and several other types of stock-based awards. The Company awarded 2,088 and 1,047 treasury shares in the form
of fully vested incentive stock grants to executive officers of the Company in 2012 and 2011. The fair market value of the stock award
was $153 per share or a total of $319 and $160 at December 31, 2012 and 2011. There were 89,868 and 91,956 unissued common shares
remaining under the Stock Plan at December 31, 2012 and 2011.
NOTE 10 - INCOME TAXES
Income tax expense for the three years ended December 31, 2012, 2011 and 2010 were:
2012 2011
2010
Current
Federal $ 8,748 $ 8,566 $ 9,308
State 1,170 1,238 1,514
9,918 9,804 10,822
Deferred
Federal (389) (832) (2,132)
$
9,529 $
8,972 $
8,690
Deferred income taxes are provided for the temporary differences between the financial reporting and the tax bases of the Company’s assets
and liabilities. Temporary differences comprising the net deferred tax asset, included in other assets on the consolidated balance sheet, are
as follows:
2012
Assets Liabilities Total 2011
Allowance for loan losses $ 6,898 $
- $ 6,898 $ 6,491
Property and equipment - 2,431 (2,431) (2,058)
Accrued salary continuation provision 2,736 - 2,736 2,444
Unrealized (gain) loss on
securities available for sale (1,229) - (1,229) (988)
Other 777 26 751 687
$ 9,182 $
2,457 $ 6,725 $ 6,576
The Company has determined that it is not necessary to establish a valuation reserve for the deferred tax asset since it is more likely than
not that the deferred tax asset of $9,182 will be principally realized.
The consolidated effective tax rates are reconciled to the statutory rate as follows:
2012 2011 2010
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income
tax benefit 2.8 3.2 4.1
Tax-exempt income (1.7) (1.1) (1.3)
Non-deductible expenses incidental to
business acquisitions 0.1 0.2 0.3
New market tax credit (1.2) (1.3) (1.4)
Other, net (0.2) (0.8) (0.1)
34.8% 35.2% 36.6%
Income taxes payable of $1,423 is included in accrued expenses and other liabilities at December 31, 2012. Income taxes receivable of $346
is included in other assets at December 31, 2011.
The Company adopted the provisions of FASB ASC 740-10 Accounting for Uncerainty in Income Taxes. The Company had no
unrecognized tax benefits as of December 31, 2012 and 2011.The Company recognized no interest and penalties on the underpayment of
income taxes during the years ended December 31, 2012 and 2011, and had no accrued interest and penalties on the balance sheet as of
December 31, 2012 and 2011.The Company has no tax positions for which it is reasonably possible that the total amounts of unrecognized
tax benefits will significantly increase with the next twelve months.The Company’s tax returns are subject to examination for the past three
years by the Federal and State tax authorities.
NOTE 11 - MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Company and the subsidiary Bank are subject to various regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Company’s and Banks’ financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines
that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding
companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum
amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. As of December 31, 2012 and
2011, management believes the Company and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2012, the most recent regulatory financial reports filed with the Federal Deposit Insurance Corporation categorized
the Bank as well capitalized under the regulatory framework for prompt corrective action.To be categorized as well capitalized, a bank must
maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions
or events since the notification that management believes have changed the Company’s category.
The actual capital amounts and ratios for the Company and its bank subsidiary are presented in the following table (in thousands):
For Capital To Be Well
ActualAdequacy Purposes: Capitalized:
AmountRatio
Amount Ratio
Amount Ratio
DECEMBER 31, 2012
Total Capital
(to Risk Weighted Assets)
Company $207,820 12.9% >$129,022 8.0% N/A N/A
Bank $204,059 12.6% >$129,726 8.0% >$162,158 10.0%
Tier I Capital
Company Bank $188,928 $185,167 11.7% 11.4% >$64,511 >$64,863 4.0% N/A 4.0% >$ 97,295 N/A
6.0%
Tier I Capital
(to Average Assets)
Company Bank $188,928 $185,167 9.6% 9.5% >$78,656 >$78,411 4.0% N/A 4.0% >$ 98,013 N/A
5.0%
$ 191,821 $ 187,532 13.1% 12.8% >$117,211 >$117,439 8.0% N/A 8.0% >$146,799 N/A
10.0%
$ 173,641 $ 169,352 11.9% 11.5% >$58,605 >$58,720 4.0% N/A 4.0% >$ 88,079 N/A
6.0%
$ 173,641 $ 169,352 9.3% 9.1% >$74,668 >$74,439 4.0% N/A 4.0% >$ 93,048 N/A
5.0%
DECEMBER 31, 2011
Total Capital
Company Bank Tier I Capital
Company Bank Tier I Capital
(to Average Assets)
Company Bank NOTE 12 - OPERATING LEASES
The Company leases office space and bank premises under leases classified as operating leases.
Future minimum rental payments required under the above operating leases as of December 31, 2012 are as follows:
2013 $
2014 2015 2016 2017 Thereafter $
At the conclusion of the initial term and any succeeding renewal term, these leases
will automatically renew for an additional year. Rent expense for the above leases was as follows:
2012 2011 Bank premises $ 17 $
Office space 147 Total Page 49 | Dacotah Banks, Inc. 2012 Annual Report
$ 164 160
160
160
157
142
712
1,491
$
2010
5
$
124 5
107
129 112
$
NOTE 13 - LITIGATION
The Company and certain of its subsidiaries are defendants in various matters of litigation incidental to their business. In the opinion of
management, based upon the opinion of legal counsel, disposition of these matters will not materially affect the consolidated financial
position of the Company and its subsidiaries at December 31, 2012.
NOTE 14 - OFF-BALANCE-SHEET ACTIVITIES
The Company is a party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest risk in excess of the amount recognized in the balance sheet.
The Company’s exposure to credit loss is represented by the contractual amount of these instruments. The Company uses the same credit
policies in making commitments as it does for on-balance-sheet instruments.
At December 31, 2012 and 2011, the following financial instruments were outstanding whose contract amounts represent credit risk:
Contract Amount
2012 2011
Commitments to grant loans $ 328,995 $ 304,884
Standby letters of credit 9,652 17,245
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The
commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements.The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s
credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment.
Unfunded commitments under revolving credit lines and overdraft protection agreements are commitments for possible future extensions
of credit to existing customers. These lines-of-credit are uncollateralized and usually do not contain a specified maturity date and may not
be drawn upon to the total extent to which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have
expiration dates within one year.The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company holds collateral supporting those commitments if deemed necessary.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices
for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the
instrument. FASB ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements.
Management estimates that the fair value of all financial instruments at December 31, 2012 and 2011 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have
been determined by management using available market information and appropriate valuation methodologies. Considerable judgment
is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market exchange.
NOTE 16 - FAIR VALUE MEASUREMENTS
Assets measured at fair value on a recurring basis at December 31, 2012 and 2011 are as follows:
DECEMBER 31, 2012
Available-for-sale securities Loans held-for-sale Total assets Quoted Prices in Active Markets
(Level 1) Other Observable
Inputs
(Level 2) Unobservable
Input
(Level 3) Total
$
$
-
$ 347,206 $
- 3,819
-
$ 351,025 $
- $
-
- $
347,206
3,819
351,025
DECEMBER 31, 2011
Available-for-sale securities $
Loans held-for-sale Total assets $
-
$ 316,602 $
- 2,887 -
$ 319,489 $
-
-
-
316,602
2,887
319,489
$
$
The fair value of available-for-sale securities is estimated based on third-party pricing services information. This information is derived
from comparison to similar securities traded in active markets. The fair value of loans held-for-sale is based on a comparison of market
rates to portfolio rates.
Assets measured at fair value on a non-recurring basis at December 31, 2012 and 2011 are as follows:
DECEMBER 31, 2012
Impaired loans Foreclosed assets
Total assets Quoted Prices in Active Markets (Level 1) $
$
DECEMBER 31, 2011
Impaired loans $
Foreclosed assets Total assets Other Observable
Inputs (Level 2) Unobservable
Inputs
(Level 3) Total
-
$
- -
$
-
$ 41,281
- 2,452
-
$ 43,733
$
-
$
- -
$
-
$
- -
$
26,787
1,982
28,769
$
$
41,281
2,452
43,733
26,787
1,982
28,769
The fair value of impaired loans is estimated based on either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The fair value
of foreclosed assets is estimated based on reference to market prices and information for similar assets, less estimated costs to sell.
NOTE 17 - SUPPLEMENTAL DISCLOSURES RELATED TO STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
2012 2011 2010
Cash payments for
Interest $ 17,471 $ 21,681
$ 24,608
Income taxes 8,351 10,359 7,947
Supplemental schedule of non-cash investing and financing activities:
2012
Other real estate acquired in settlement of loans $1,010
Reduction of intangible assets and borrowings $-
$
$
2011 2010
403 $ 1,999
- 202
NOTE 18 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of the independent auditor’s report which is the date the financial
statements were available to be issued.
NOTE 19 - CONDENSED FINANCIAL INFORMATION OF PARENT
Balance Sheets
December 31,
2012 2011
ASSETS
Investments in subsidiaries:
Banks $ 195,435 $ 179,427
Insurance agencies and property companies 1 43
Loans 975 1,068
Investments in life insurance contracts
1,1681,144
Cash 3,362 4,507
Other assets 1,954 1,161
$ 202,895 $ 187,350
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Other liabilities $
STOCKHOLDERS’ EQUITY
Common stock, $4 par value; 5,000,000 shares
authorized, 1,428,598 shares issued and outstanding Capital surplus Retained earnings Accumulated other comprehensive income (loss) Treasury stock, 312,346 shares in 2012 and
315,702 shares in 2011 Total stockholders’ equity Page 53 | Dacotah Banks, Inc. 2012 Annual Report
3,331 $
3,268
5,714 5,714
10,704 10,188
192,483 177,973
2,2831,835
(11,620)(11,628)
199,564 184,082
$ 202,895 $ 187,350
Income Statements
Years Ended
December 31,
2012 2011
Dividend income from subsidiary bank $ 2,300 $ 2,000
Management fees and other income 2,263 2,591
Total income 4,563 4,591
Salaries and employee benefits expense Other expenses Total expenses 1,450 877 2,327 Income before income taxes and equity in
undistributed earnings of subsidiaries 2,2362,302
Income tax expense
1,591
698
2,289
(86)
57
Income before equity in undistributed
earnings of subsidiaries 2,293 2,216
Equity in undistributed earnings of subsidiaries 15,561 14,330
Net income $ 17,854 $ 16,546
Statements Of Cash Flows
Years Ended
December 31,
2012 2011
OPERATING ACTIVITIES
Net income $ 17,854 $ 16,546
Adjustments to reconcile net income to
net cash from operating activities:
Equity in undistributed earnings of subsidiaries (15,518)(14,330)
Depreciation and amortization 199140
(Increase) decrease in cash surrender value of life insurance
(24) 5
Increase in other assets, net (210)(150)
Increase in other liabilities, net 63260
Net Cash From Operating Activities 2,683 INVESTING ACTIVITIES
Net decrease in loans Purchases of premises and equipment, net 93
(782) 115
(401)
Net Cash Used By Investing Activities (689) (286)
FINANCING ACTIVITIES
Sale (purchase) of treasury stock, net Dividends paid 205 (3,344) (116)
(2,894)
Net Cash Used By Financing Activities (3,139) (3,010)
NET CHANGE IN CASH (1,145) (665)
CASH, BEGINNING OF YEAR 4,507 CASH, END OF YEAR Page 55 | Dacotah Banks, Inc. 2012 Annual Report
$ 3,362 $
2,631
5,172
4,507
D acotah B anks , I nc . D irectors
Back Row (L to R): Kent E. Edson, Richard L. Westra, Catherine O. Dutenhoffer, Arthur R. Russo, William S. Lamont
Front Row (L to R): Robert B. Lamont, II, Bradford J. Wheeler, J. Douglas Austin, Rodney W. Fouberg
Rodney W. Fouberg (1984*)
Chairman of the Board
Arthur R. Russo (1985*)
Partner
RhodesAnderson Insurance
J. Douglas Austin (1992*)
Practicing Attorney
Austin, Hinderaker, Hopper,
Strait & Bratland
Watertown, South Dakota
Bradford J. Wheeler (1997*)
President
Wheeler Manufacturing, Inc.
Lemmon, South Dakota
Kent E. Edson (1996*)
Retired President and
Chief Financial Officer
Richard L. Westra (2005*)
President and
Chief Executive Officer
Catherine O. Dutenhoffer (2012*)
Businesswoman
Watertown, South Dakota
William S. Lamont (1985*)
Architect and
Planning Consultant
Lamont Associates
Robert B. Lamont, II (2001*)
Private Investor
Robert J. Fouberg – Secretary
*Year first elected.
D acotah B anks , I nc . M anagement
Rodney W. Fouberg
Executive Vice President
Joseph A. Senger
President and
Richard L. Westra
Senior Vice President and
Chad D. Bergan
Senior Vice President
Human Resources
Bob L. Compton
Senior Vice President Risk
Management and
General Counsel
Robert J. Fouberg
D acotah B ank D irectors
Rodney W. Fouberg
Richard L. Westra
President and
Arthur R. Russo
Kent E. Edson
Partner
RhodesAnderson Insurance
Retired President and
Donna M. Boekelheide
Robert J. Gruman
Farming
Northville, South Dakota
Business Consultant
Bob Gruman Consulting
Dale A. Melius
JoAnn R. Hooper
Farming
Faulkton, South Dakota
Certified Public Accountant
Valley City, North Dakota
Robert J. Fouberg – Secretary
D acotah B ank steering committee
Back Row (L to R): Diana L. Pfister, Thomas Heisler, Jr., Richard L. Westra, Bob L. Compton, Joseph A. Senger, Stacy J. Sandvig
Front Row (L to R): Robert J. Fouberg, Michael K. Hollan, Chad D. Bergan, Steven M. Schaeffer, Paul R. McDonald
President and
Richard L. Westra
Human Resources
Bob L. Compton
Insurance Services
Thomas Heisler, Jr.
Executive Vice President
Joseph A. Senger
Senior Vice President Risk
Management and General Counsel
Robert J. Fouberg
Vice President Marketing
Paul R. McDonald
Senior Vice President and
Chad D. Bergan
Senior Vice President Operations
and Technology
Michael K. Hollan
Vice President Compliance
Diana L. Pfister
Vice President Treasury
Stacy J. Sandvig
Senior Vice President Trust
Steven M. Schaeffer
D acotah B ank M anagement
regional presidents
(L to R) Daniel R. Vollmer, Richard J. Rylance, David D. Johnsen, David W. Bangasser, Bradley D. Moore, Steven A. Dutenhoffer
David W. Bangasser, Sioux Falls, SD
Southeast Region
Bradley D. Moore, Aberdeen, SD
Mid-Dakota Region
Steven A. Dutenhoffer, Watertown, SD
Eastern Region
Richard J. Rylance, Rapid City, SD
Western Region
David D. Johnsen, Valley City, ND
Northeast Region
Daniel R. Vollmer, Rolla, ND
Northern Region
market presidents
Back Row (L to R): John V. Scherbenske, Jeffry C. Moore, Daniel N. Menking, David J. Gibson, Kevin B. Wegehaupt, Travis J. Ellison
Front Row (L to R): G.W. Melgaard, Darrell D. Schlepp, Dwight D. Hossle, Thomas R. LaBrie
Daniel L. Baumgarten, Lemmon, SD
(Jan. 1–June 30)
Dwight D. Hossle, Faulkton, SD
Jeffry C. Moore, Dickinson, ND
Thomas R. LaBrie, Clark, SD
John V. Scherbenske, Hettinger, ND
Travis J. Ellison, Lemmon, SD
(July 1–Dec. 31)
G.W. Melgaard, Minot, ND
Darrell D. Schlepp, Mobridge, SD
David J. Gibson, Brookings, SD
Daniel N. Menking, Webster, SD
Kevin B. Wegehaupt, Sisseton, SD

Notes to Consolidated Financial Statements

Transcription

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