Ames National Corporation Announces 2020 Q1 Earnings (4/17/20)
AMES NATIONAL CORPORATION ANNOUNCES 2020 FIRST QUARTER EARNINGS
First Quarter 2020 Results:
For the quarter ended March 31, 2020, net income for the Company totaled $3,555,000, or $0.39 per share, compared to $4,237,000, or $0.46 per share, earned in the first quarter of 2019. The decrease in earnings is primarily the result of the additional provision for loan losses in 2020.
The Company conducts business in the State of Iowa and Iowa began to place significant restrictions on companies and individuals on March 9, 2020 as a result of the COVID-19 pandemic. The State of Iowa continues to evaluate the need for any additional restrictions it may consider necessary. As an organization that focuses on community banking, we are concerned about the health of our customers, employees and local communities and keep that thought at the forefront of our decisions. The Company, as a financial institution, is considered an essential business and therefore continues to operate. The Company’s bank lobbies are generally closed to the public, although business is still being transacted through our drive up facilities, online, telephone or by appointment. Although the Company anticipates these arrangements will remain in effect until the restrictions are lifted by governmental authorities, the Company continues to operate and maintain customer relationships. Our employees' health is a concern to the Company and every effort is being made to have employees work from home or, if working from the Company’s locations are required, to maintain social distancing. Our customers' financial health is also a concern to the Company. As the economic slowdown continues to evolve due to COVID-19 restrictions, our customers may experience decreased revenues, which may correlate to an inability to make timely loan payments or maintain payroll. This, in turn, could adversely impact the revenues and earnings of the Company by, among other things, requiring further increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio. We would also expect a slowdown in traditional loan demand, although the volume of certain types of government guaranteed loans under the CARES Act currently are estimated to close between $65 million and $70 million in the second quarter of 2020.
As previously announced, the Company acquired Iowa State Savings Bank on October 25, 2019 (the “Acquisition”). The acquired assets totaled approximately $215 million. Retention of loan and deposit customers from the Acquisition has been favorable. The impact of the Acquisition on the Company’s quarterly net income was accretive.
First quarter 2020 loan interest income was $1,886,000 higher than first quarter 2019; deposit interest expense also increased $292,000. First quarter 2020 net interest income totaled $13,046,000, an increase of $2,076,000, or 19%, compared to the same quarter a year ago. The increase in net interest income was primarily due to the Acquisition. The Company’s net interest margin was 3.18% for the quarter ended March 31, 2020 as compared to 3.23% for the quarter ended March 31, 2019.
A provision for loan losses of $2,316,000 was recognized in the first quarter of 2020 as compared to $98,000 in the first quarter of 2019. Net loan charge offs (recoveries) totaled $26,000 for the quarter ended March 31, 2020 compared to $(30,000) for the quarter ended March 31, 2019. The increase in the provision for loan losses was primarily due to the economic slowdown associated with COVID-19 and to a lesser extent loan growth. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect the loans associated with hospitality and entertainment industries. 8.5% of our loan portfolio as of March 31, 2020 is associated with these industries. We are anticipating requests for loan payment deferrals and have had a significant number of requests for the Paycheck Protection Program loans in April, 2020. The federal government is providing numerous programs to lessen the effects of COVID-19 on the economy and on our loan portfolio. The severity of the effect of COVID-19 on our operations is difficult to determine at this time. The State of Iowa has significant restrictions on non-essential businesses as well as enforcing social distancing. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.
Noninterest income for the first quarter of 2020 totaled $2,631,000 as compared to $1,926,000 in the first quarter of 2019, an increase of 37%. The increase in noninterest income was primarily due to a security gain of $386,000 in 2020 and to a lesser extent the Acquisition.
Noninterest expense for the first quarter of 2020 totaled $9,050,000 compared to $7,457,000 recorded in the first quarter of 2019, an increase of 21%. Most of the increase was related to the Acquisition, salary and employee benefits and the amortization of Federal new market tax credits, offset in part by a decrease in the FDIC insurance assessments. Salaries and employee benefits, excluding the Acquisition, increased 7% primarily due to normal salary increases, increases in health insurance costs and additional personnel. The decrease in FDIC insurance assessments was due to the receipt of a small bank credit as the deposit insurance reserve ratio exceeded 1.35%. The efficiency ratio was 57.7% for the first quarter of 2020 as compared to 57.8% in the first quarter of 2019.
Income tax expense for the first quarter of 2020 totaled $756,000 compared to $1,104,000 recorded in the first quarter of 2019. The effective tax rate was 17.5% and 20.7% for the quarters ended March 31, 2020 and 2019, respectively. The lower than expected tax rate in 2020 and 2019 was due primarily to tax-exempt interest income and new market tax credits recognized in 2020.
Balance Sheet Review:
As of March 31, 2020, total assets were $1,797,746,000, a $325.4 million increase, as compared to March 31, 2019. The increase is primarily due to the Acquisition, growth in interest bearing deposits in financial institutions and to a lesser extent organic loan growth.
Securities available-for-sale as of March 31, 2020 increased to $489,304,000 from $455,554,000 as of March 31, 2019. The increase in securities available-for-sale is primarily due to the Acquisition and purchase of corporate bonds, offset in part by maturities of municipal bonds and payments received on mortgage backed securities.
Net loans as of March 31, 2020 increased 22%, to $1,079,657,000, as compared to $886,557,000 as of March 31, 2019. The increase in loans was primarily due to the Acquisition and to a lesser extent organic growth in the real estate loan portfolio at the Company’s largest affiliate bank, First National Bank. Impaired loans were $17,712,000 and $3,340,000 as of March 31, 2020 and March 31, 2019, respectively. The increase in impaired loans was due primarily to the deterioration of one loan relationship in the hospitality portfolio and one relationship in the agriculture portfolio. The allowance for loan losses on March 31, 2020 totaled $14,909,000, or 1.36% of gross loans, compared to $11,812,000, or 1.31% of gross loans, as of March 31, 2019. The increase in the allowance for loan losses as a percent of loans is mainly due to increased risk associated with the loan portfolio due to the economic slowdown associated with COVID-19 and to a lesser extent organic growth in the loan portfolio. These increases were offset in part by the initial recording of the purchased loan portfolios from the Acquisition without an allowance for loan losses, as the credit risk was reflected in the fair value of loans on the acquisition date. Additional increases in the allowance for loan losses and charge-offs are anticipated if the effects of the COVID-19 restrictions negatively impacts our loan portfolio.
Goodwill totaled $12,424,000 as of March 31, 2020, compared to $9,744,000 as of March 31, 2019. This increase is due to the Acquisition. Goodwill is currently evaluated for impairment quarterly and in the future may be impaired if the effects of the COVID-19 restrictions negatively impacts our net income and fair value, particularly of our most recent acquisition. An impairment of goodwill would decrease the Company’s earnings during the period in which the impairment is recorded.
Other assets totaled $5,852,000 as of March 31, 2020, compared to $1,650,000 as of March 31, 2019. This increase is primarily due to the investment in new market tax credits.
Deposits totaled $1,552,425,000 on March 31, 2020, compared to $1,252,514,000 recorded at March 31, 2019. The growth in deposits is primarily due to the Acquisition and to a lesser extent increases in core deposits, including retail, commercial and public funds.
The Company’s stockholders’ equity represented 10.5% of total assets as of March 31, 2020 with all of the Company’s six affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $188,493,000 as of March 31, 2020, compared to $177,777,000 as of March 31, 2019. The increase in stockholders’ equity was primarily the result of the retention of net income in excess of dividends and an increase in the market value of the Company’s investment portfolio, offset in part by stock repurchases.
Annualized return on average assets was 0.8% and 1.2% for the quarters ended March 31, 2020 and 2019, respectively. Annualized return on average equity was 7.4% and 9.7% for the quarters ended March 31, 2020 and 2019, respectively.
The Company has a stock repurchase program that is authorized to purchase up to 100,000 shares of our common stock. This program commenced November 13, 2019. The Company has completed this repurchase program with the purchase of 100,000 shares of common stock in the first and second quarter of 2020.
The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $20.45 on March 31, 2020. During the first quarter of 2020, the price ranged from $18.00 to $28.05.
On February 12, 2020, the Company declared a quarterly cash dividend on common stock, payable on May 15, 2020 to stockholders of record as of May 1, 2020, equal to $0.25 per share. Dividends in the future may be reduced or eliminated if the COVID-19 restrictions have an adverse effect on net income.
Given the evolving nature of the COVID-19 pandemic, at this time, the Company cannot forecast with reasonable accuracy the full duration, magnitude, and pace of recovery across our markets. Therefore, the Company believes it is prudent to withdraw our forecast earnings guidance for 2020.
Click here to view the Consolidated Balance Sheets & Statements of Income (unaudited)
About Ames National Corporation
Ames National Corporation is listed on the NASDAQ Capital Market under the ticker symbol, ATLO. The Corporation affiliate banks, all located in central Iowa, include: First National Bank, Ames; Boone Bank & Trust Co., Boone; State Bank & Trust Co., Nevada; Iowa State Savings Bank, Creston; Reliance State Bank, Story City; and United Bank & Trust, Marshalltown. Information regarding the process for purchasing stock can be obtained through Richard Nelson at First Point Wealth Management, (515) 663-3074.
For further information contact:
John P. Nelson, President and CEO
(515) 232-6251 or [email protected]