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| Yep.
The $2.2 Million in Capital on 12-31-2022 means they had a capital ratio of less than 4%. They should be in the 8% range, so something happened before that date to impair capital to that level. Loans to independent truckers would not be my first choice for a loan concentration. Loans to solid companies brokering freight could be a different story.
Small banks in Iowa have a tough business model to navigate through. Let’s say the bank had a 8% capital or about $5 Million. The legal lending limit is 15% of capital, so that means the most the bank could lend to one borrower is $750,000. Not enough to finance a good 80 acre parcel of land. There are some exceptions such as the limit increases to 25% for purchase price cattle loans in Iowa. But, that means putting 25% of your entire bank’s capital on the line to one borrower.
That might explain why this bank chose to go into commercial lending instead. $5 Million is not a great amount of money these days relative to the size of average farm clients. I wonder how many reading this post have 250 acres of good ground paid for. That’s what we are talking about. This bank had $2 Million going into 2023. Not enough.
There are many small banks in Iowa for sale. I am not saying their capital is impaired like this one’s, but it’s a tough sell to larger or medium size banks when they could just open up an office the same town(s) with little capital outlay. And, many of the would-be-buyer banks are trying to heal their own balance sheets due to losses in their bond portfolio because interest rates rose.
Edited by Iowegian 11/4/2023 15:04
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You NW Iowa farmers borrowing too much money for land and
