Date: 7/22/2022

Title: Ames National Corporation Announces Earnings 2022 Q2 Earnings (07/22/22)

AMES NATIONAL CORPORATION ANNOUNCES EARNINGS FOR THE SECOND QUARTER OF 2022

Ames National Corporation (Nasdaq: ATLO; the “Company”) today reported net income for the second quarter of 2022 of $4.2 million, or $0.46 per share, compared to $5.9 million, or $0.64 per share, earned in the second quarter of 2021. For the six months ended June 30, 2022, net income for the Company totaled $9.3 million or $1.03 per share, compared to $11.9 million or $1.30 per share earned in 2021. The decrease in earnings for the three and six months ended is primarily the result of lower interest income on loans and higher income tax expense, offset in part by an increase in interest income on taxable securities. The reduction in interest income on loans was primarily due to fewer Paycheck Protection Program (“PPP”) fees recognized into income compared to the same period in 2021. The increase in interest income on taxable securities was primarily due to growth in the portfolio.

 

Effective June 17, 2022, the State of Iowa enacted a phased-in reduction to the bank franchise tax rate through annual reductions of 0.3% over a five-year period. The reduction commences in 2023 and results in the current rate of 5% declining to 3.5% in 2027. This rate decrease created a non-recurring reduction to the Company’s deferred income tax asset and increased income tax expense by $780 thousand in the second quarter of 2022. Once the rate reduction is fully implemented in 2027, the Company expects to realize tax savings of approximately $120 thousand for every $10 million of taxable income.

 

 

Second Quarter 2022 Results:

Second quarter 2022 loan interest income was $1.2 million lower than second quarter 2021. The decrease is primarily due to fewer PPP fees recognized into income. Fees recognized from PPP loans during the second quarter of 2022 were $15 thousand as compared to $1.3 million of fees during the second quarter of 2021. Taxable securities interest income was $835 thousand higher than the second quarter of 2021 due primarily to increased balances. Deposit interest expense increased $62 thousand during this same period due to an increase in market rates on deposits. Second quarter 2022 net interest income totaled $13.6 million, a decrease of $536 thousand, or 4%, compared to the same quarter a year ago. The Company’s net interest margin was 2.57% for the quarter ended June 30, 2022 as compared to 2.84% for the quarter ended June 30, 2021. The decrease in net interest margin was primarily due to a decline in PPP fees and to a lesser extent growth in deposits was reinvested in loans and investments at lower average interest rates.

 

A credit for loan losses of ($59) thousand was recognized in the second quarter of 2022 as compared to a credit for loan losses of ($20) thousand in the second quarter of 2021. Net loan charge-offs totaled $5 thousand for the quarter ended June 30, 2022 compared to net loan recoveries of $6 thousand for the quarter ended June 30, 2021.

 

Noninterest income for the second quarter of 2022 totaled $2.4 million as compared to $2.6 million in the second quarter of 2021, a decrease of 10%. The decrease in noninterest income was primarily due to fewer gains on sale of residential loans held for sale as refinancing volume has slowed and offset in part by an increase in wealth management income due to growth in assets under management and new account relationships.

Noninterest expense for the second quarter of 2022 totaled $9.9 million compared to $9.4 million recorded in the second quarter of 2021, an increase of 5%. The increase is primarily due to data processing costs as a result of additional investments in technology. The efficiency ratio was 61.5% for the second quarter of 2022 as compared to 56.0% in the second quarter of 2021.

 

Income tax expense for the second quarter of 2022 totaled $2.0 million compared to $1.5 million recorded in the second quarter of 2021. The effective tax rate was 33% and 21% for the quarters ended June 30, 2022 and 2021, respectively. The increase in income tax expense and higher than expected tax rate in 2022 was due to a $780 thousand adjustment to deferred taxes for the reduction in future Iowa bank franchise tax rates enacted in the second quarter of 2022.

 

Six Months 2022 Results:

For the six months ended June 30, 2022 loan interest income was $2.6 million lower than the first six months of 2021. The decrease is primarily due to a reduction in interest rates, less income recognized from PPP fees, and a reduction in the recovery of interest income on nonaccrual loans. Fees recognized from PPP loans during the six months ended June 30, 2022 were $215 thousand as compared to $2.2 million of fees during the same period 2021. Nonaccrual interest income recognized in the six months ended June 30, 2022 was $37 thousand compared to $347 thousand recognized during the same period of 2021. Taxable securities interest income was $1.4 million higher than 2021 due primarily to increased balances. Deposit interest expense declined $344 thousand during this same period primarily related to a lower volume of time deposits. The net interest income for the six months ended June 30, 2022 totaled $26.8 million, a decrease of $1.0 million, or 4%, compared to the same period a year ago. The Company’s net interest margin was 2.56% for the six months ended June 30, 2022 as compared to 2.85% for the six months ended June 30, 2021. The decrease in net interest margin was primarily due to a decline in PPP fees and to a lesser extent growth in deposits was reinvested in loans and investments at lower average interest rates.

 

A credit for loan losses of ($186) thousand was recognized for the six months ended June 30, 2022 as compared to a credit for loan losses of ($446) thousand for the six months ended June 30, 2021. Net loan charge-offs totaled $15 thousand for the six months ended June 30, 2022 compared to net loan recoveries of $124 thousand for the six months ended June 30, 2021. The credit for loan losses in the 2021 was primarily due to loan recoveries, a reduction in a specific reserve and lower loan balances from December 31, 2020.

 

Noninterest income for the six months ended June 30, 2022 totaled $4.9 million compared to $5.1 million for the six months ended June 30, 2021, a decrease of 4%. The decrease in noninterest income was primarily due to fewer gains on sale of residential loans held for sale as refinancing volume has slowed and offset in part by an increase in wealth management income due to growth in assets under management and new account relationships.

 

Noninterest expense for the six months ended June 30, 2022 totaled $19.2 million compared to $18.4 million for the six months ended June 30, 2021, an increase of 4%. The increase is primarily due to data processing costs as a result of additional investments in technology. The efficiency ratio was 60.6% and 55.9% for the six months ended June 30, 2022 and 2021, respectively.

 

Income tax expense for the six months ended June 30, 2022 and 2021 totaled $3.3 million and $3.1 million, respectively. The effective tax rate was 26% and 21% for the six months ended June 30, 2022 and 2021, respectively. The increase in income tax expense and higher than expected tax rate was due to a $780 thousand adjustment to deferred taxes for the reduction in future Iowa bank franchise tax rates enacted in 2022.

 

Balance Sheet Review:

As of June 30, 2022, total assets were $2.13 billion, an increase of $46 million, as compared to June 30, 2021. This increase in assets is primarily due to investment securities which was funded by growth in deposits.

 

Securities available-for-sale as of June 30, 2022 increased to $828.4 million from $740.1 million as of June 30, 2021. The increase in securities available-for-sale is primarily due to deposit growth deployed to purchase U.S. treasuries and municipals, offset in part by a decline in fair value of the portfolio due to interest rate increases during 2022.

 

Net loans as of June 30, 2022 increased slightly to $1.14 billion, as compared to $1.12 billion as of June 30, 2021. The increase was primarily due to increases in the 1-4 family and commercial real estate loan portfolios, offset in part by a reduction in PPP loans. PPP loans totaled $202 thousand and $37.6 million as of June 30, 2022 and 2021, respectively. Impaired loans were $11.2 million and $12.7 million as of June 30, 2022 and 2021, respectively. Loans classified as substandard were $34.2 million and $38.7 million as of June 30, 2022 and 2021, respectively. Loans classified as watch and special mention totaled $133.8 million and $157.0 million as of June 30, 2022 and 2021, respectively. The allowance for loan losses on June 30, 2022 totaled $16.4 million, or 1.42% of gross loans, compared to $16.9 million, or 1.48% of gross loans, as of June 30, 2021. The decrease in the allowance for loan losses is mainly due to lower specific reserves and improved quality of the loan portfolio, offset in part by loan growth, excluding PPP loans. PPP loans are government guaranteed and their impact on the allowance for loan loss was not significant. Additional increases in the allowance for loan losses and charge-offs are possible if the effects of the COVID-19 pandemic or high inflation levels negatively impact our loan portfolio in the future.

 

Deposits totaled $1.93 billion as of June 30, 2022, an increase of 5%, compared to $1.83 billion recorded as of June 30, 2021. The growth in deposits is primarily due to increases in interest-bearing core deposits, including retail, commercial and public funds, offset in part by a decrease in time deposits. Balances fluctuate as customers’ liquidity needs vary and could be impacted by additional government stimulus or distressed economic conditions.

 

The Company’s stockholders’ equity represented 7.4% of total assets as of June 30, 2022 with all of the Company’s six affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $157.4 million as of June 30, 2022, compared to $210.1 million as of June 30, 2021. The decrease in stockholders’ equity was primarily the result of an increase in unrealized losses on the investment portfolio, offset in part by the retention of net income in excess of dividends.

 

Share Repurchase Program

For the period April 1, 2022 through June 30, 2022, under the repurchase program that was announced in November 2021, the Company completed the share repurchase program and repurchased 100,000 shares of its common stock at an average price of $23.01 per share and a total cost of $2.3 million.

 

Cash Dividend Announcement

On May 11, 2022, the Company declared a quarterly cash dividend on common stock, payable on August 15, 2022 to stockholders of record as of August 1, 2022, equal to $0.27 per share.

 

Click here to view the Consolidated Balance Sheets & Statements of Income (unaudited)

 

About Ames National Corporation

Ames National Corporation affiliate Iowa banks are First National Bank, Ames; Boone Bank & Trust Co., Boone; State Bank & Trust Co., Nevada; Reliance State Bank, Story City; United Bank & Trust, Marshalltown; and Iowa State Savings Bank, Creston, Iowa.

Private Securities Litigation Reform Act of 1995 provides the Company with the opportunity to make cautionary statements regarding forward-looking statements contained in this News Release, including forward-looking statements concerning the Company’s future financial performance and asset quality.  Any forward-looking statement contained in this News Release is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking into account all information currently available to management.  These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to management.  If a change occurs, the Company’s business, financial condition, liquidity, results of operations, asset quality, plans and objectives may vary materially from those expressed in the forward-looking statements.  The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:  the substantial negative impact of the COVID-19 pandemic on national, regional and local economies in general and on our customers in particular; competitive products and pricing available in the marketplace; changes in credit and other risks posed by the Company’s loan and investment portfolios, including declines in commercial or residential real estate values or changes in the allowance for loan losses resulting from the COVID-19 pandemic or as dictated by new market conditions or regulatory requirements; fiscal and monetary policies of the U.S. government; changes in governmental regulations affecting financial institutions (including regulatory fees and capital requirements); changes in prevailing interest rates; credit risk management and asset/liability management; the financial and securities markets; the availability of and cost associated with sources of liquidity; and other risks and uncertainties inherent in the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s annual report on Form 10-K.  Management intends to identify forward-looking statements when using words such as “believe”, “expect”, “intend”, “anticipate”, “estimate”, “should”, “forecasting” or similar expressions.  Undue reliance should not be placed on these forward-looking statements.  The Company undertakes no obligation to revise or update such forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

For further information contact:
John P. Nelson, President and CEO
(515) 232-6251 or [email protected]