Date:
10/18/2019
Title:
Ames National Corporation Announces 2019 Q3 Earnings (10/18/19)
AMES NATIONAL CORPORATION
ANNOUNCES EARNINGS FOR THE THIRD QUARTER OF 2019
Third Quarter 2019 results:
For the quarter ended September 30, 2019, net income for Ames National Corporation (the Company) totaled $4,041,000 or $0.44 per share, compared to $4,459,000 or $0.48 per share earned in 2018. The decrease in earnings is primarily the result of higher deposit interest expense, salaries and employee benefits and provision for loan losses, offset in part by improved loan interest income.
As previously announced, the Company’s largest subsidiary bank, First National Bank (FNB) acquired Clarke County State Bank in Osceola, Iowa on September 14, 2018 (the “Acquisition”). The acquired assets totaled approximately $103 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. In addition, the Company announced the signing of a stock purchase agreement on July 29, 2019, to acquire all of the outstanding stock of Iowa State Savings Bank (ISSB). ISSB’s main office is located in Creston, Iowa and has four additional offices in Corning, Creston, Diagonal, and Lenox. ISSB has assets of approximately $205 million as of September 30, 2019. The Company expects to close this acquisition in the fourth quarter of 2019.
Third quarter 2019 loan interest income was $956,000 higher than third quarter 2018; deposit interest expense also increased $807,000. Third quarter 2019 net interest income totaled $10,814,000, an increase of $228,000, or 2%, compared to the same quarter a year ago. The increase in the net interest income was primarily due to the Acquisition, offset in part by a decrease in tax-exempt interest income and foregone interest on nonaccrual loans of $272,000 for this quarter as compared to $80,000 for the third quarter of 2018. Tax-exempt interest income decreased primarily due to the maturity of municipal bonds. Deposit interest rates were higher than a year ago due to general market interest rates in 2018 and heightened competition for deposits among financial institutions. The Company’s net interest margin was 3.15% for the quarter ended September 30, 2019 as compared to 3.28% for the quarter ended September 30, 2018.
A provision for loan losses of $379,000 was recognized in the third quarter of 2019 as compared to $100,000 in the third quarter of 2018. Net loan charge offs totaled $314,000 for the quarter ended September 30, 2019 compared to net loan charge offs of $195,000 for the quarter ended September 30, 2018. The loan charge offs this quarter were primarily related to one commercial relationship that was restructured. While the current provision for loan losses are not related to agricultural loans, the Iowa agricultural economy remains challenged as the result of the low grain prices throughout much of 2018 and 2019 and tariff concerns on Iowa exports. Grain prices rebounded since the second quarter of 2019; however, initial crop reports in our markets indicate significant variability in crop yields. Presently, it is too early to gauge the financial impact of the 2019 growing season on most of our agricultural borrowers.
Noninterest income for the third quarter of 2019 totaled $2,119,000 as compared to $2,162,000 in the third quarter of 2018, a decrease of 2%. The decrease in noninterest income was primarily due to the $162,000 gain on foreclosure of real estate in 2018, offset in part by increases due to the Acquisition and gain on the sale of loans. The increase in the gain on sale of loans was due to higher loan volume driven by a healthy residential mortgage market in central Iowa.
Noninterest expense for the third quarter of 2019 totaled $7,475,000 compared to $6,988,000 recorded in the third quarter of 2018, an increase of 7%. Most of the increase was related to higher salaries and employee benefits and data processing costs, offset in part by one time data conversion costs incurred in 2018 related to the Acquisition and a decrease in FDIC insurance assessments. The increase in salaries and employee benefits were primarily due to the Acquisition and normal salary increases. The increase in data processing costs were due to the cost associated with expanded services and the Acquisition. 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 57.8% for the third quarter of 2019 as compared to 54.8% in the third quarter of 2018.
Income tax expense for the third quarter of 2019 totaled $1,038,000 compared to $1,201,000 recorded in 2018. The effective tax rate was 20% and 21% for the quarters ended September 30, 2019 and 2018, respectively. The lower than expected tax rate was due primarily to tax-exempt interest income.
Nine Months 2019 results:
For the nine months ended September 30, 2019, net income for the Company totaled $12,896,000 or $1.40 per share, compared to $12,813,000 or $1.38 per share earned in 2018. The increase in earnings is primarily the result of improved loan interest income, offset in part by elevated deposit interest expense and higher salary and employee benefits.
For the nine months ended September 30, 2019 loan interest income was $4,580,000 higher than the first nine months of 2018; while deposit interest expense increased $2,777,000. Net interest income for the nine months ended September 30, 2019 totaled $32,715,000, an increase of $1,731,000, or 6%, compared to the same period a year ago. The increase in the net interest income was primarily due to the Acquisition. The higher loan volume, resulting primarily from the Acquisition, and improved loan yields more than offset higher interest expense due to market interest rate increases. The Company’s net interest margin was 3.20% for the nine months ended September 30, 2019 as compared to 3.21% for the nine months ended September 30, 2018.
A provision for loan losses of $545,000 was recognized in the nine months ended September 30, 2019 as compared to $193,000 for the nine months ended September 30, 2018. Net loan charge offs totaled $295,000 for the nine months ended September 30, 2019 compared to $226,000 for the nine months ended September 30, 2018. While the current provision for loan losses are not related to agricultural loans, the Iowa agricultural economy remains challenged as the result of the low grain prices throughout much of 2018 and 2019 and tariff concerns on Iowa exports. Grain prices rebounded since the second quarter of 2019; however, initial crop reports in our markets indicate significant variability in crop yields. Presently, it is too early to gauge the financial impact of the 2019 growing season on most of our agricultural borrowers.
Noninterest income for the nine months ended September 30, 2019 totaled $6,258,000 as compared to $5,917,000 for the nine months ended September 30, 2018, an increase of 6%. The increase in noninterest income is primarily due to the Acquisition and higher wealth management income, offset in part by a gain on foreclosure of other real estate owned in 2018. The increase in wealth management income was primarily related to growth in the assets under management, fueled by a favorable equity market and new account relationships.
Noninterest expense for the nine months ended September 30, 2019 totaled $22,150,000 compared to $20,566,000 for the nine months ended September 30, 2018, an increase of 8%, which was primarily due to the Acquisition. Salaries and benefits was the largest component of the increase in noninterest expense which also includes normal salary and employee benefit increases, offset in part by a one-time $1,000 bonus paid to full-time employees in 2018. Another component of the increase in noninterest expense was the increase in data processing costs which was due primarily to the cost associated with expanded services and the Acquisition. The efficiency ratio was 56.8% and 55.7% for the nine months ended September 30, 2019 and 2018, respectively.
Income tax expense for the nine months ended September 30, 2019 and 2018 totaled $3,381,000 and $3,328,000, respectively. The effective tax rate was 21% for the nine months ended September 30, 2019 and 2018. The lower than expected tax rate was due primarily to tax-exempt interest income.
Balance Sheet Review:
As of September 30, 2019, total assets were $1,499,976,000, a $51.7 million increase in assets, as compared to September 30, 2018. The increase is primarily due to growth in interest bearing deposits in financial institutions and to a lesser extent loan growth, offset in part by a smaller investment portfolio.
Securities available-for-sale as of September 30, 2019 declined to $457,995,000 from $474,442,000 as of September 30, 2018. The decrease in securities available-for-sale is primarily due to maturities of municipal bonds and payments received on mortgage backed securities. This decrease was offset in part by purchases of corporate bonds and an increase in the unrealized gain on the investment portfolio as changes in market interest rates caused an increase in the fair value of the investment portfolio.
Net loans as of September 30, 2019 increased 3%, to $882,130,000, as compared to $859,830,000 as of September 30, 2018. Impaired loans were $4,923,000 and $3,040,000 as of September 30, 2019 and 2018, respectively. The allowance for loan losses on September 30, 2019 totaled $11,934,000, or 1.33% of gross loans, compared to $11,288,000 or 1.30% of gross loans as of September 30, 2018. Loan demand appears to have softened during 2019, as loans outstanding have declined slightly since December 31, 2018.
Deposits totaled $1,249,133,000 on September 30, 2019, compared to $1,215,761,000 recorded at September 30, 2018. The growth in deposits is primarily due to increases in NOW account balances with public entities and certificates of deposits.
The largest source of funding for the Company in addition to deposits is securities sold under agreements to repurchase which totaled $52,196,000 as of September 30, 2019 as compared to $48,859,000 recorded as of September 30, 2018.
The Company’s stockholders’ equity represented 12.4% of total assets as of September 30, 2019 with all of the Company’s five affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $186,163,000 as of September 30, 2019, compared to $168,630,000 as of September 30, 2018. 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.
Shareholder Information:
Return on average assets was 1.10% and 1.31% for the quarters ended September 30, 2019 and 2018, respectively. Return on average equity was 8.7% and 10.5% for the quarters ended September 30, 2019 and 2018, respectively.
Return on average assets was 1.18% and 1.25% for the nine months ended September 30, 2019 and 2018, respectively. Return on average equity was 9.6% and 10.1% for the nine months ended September 30, 2019 and 2018, respectively.
The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $28.61 on September 30, 2019. During the third quarter of 2019, the price ranged from $25.50 to $29.27.
On August 14, 2019, the Company declared a quarterly cash dividend on common stock, payable on November 15, 2019 to stockholders of record as of November 1, 2019, equal to $0.24 per share.
Click here to view the Consolidated Balance Sheets & Statements of Income (unaudited)
Click here to view a PDF of the Q3 Report.
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]