Date:
10/23/2023
Title:
Ames National Corporation Announces Earnings for the Third Quarter of 2023
NEWS RELEASE | FOR IMMEDIATE RELEASE | October 23, 2023
Contact: John P. Nelson, CEO & President | 515-232-6251
Ames, Iowa – On October 20, 2023, Ames National Corporation (Nasdaq: ATLO; the “Company”) reported net income for the third quarter of 2023 of $2.9 million, or $0.33 per share, compared to $5.5 million, or $0.62 per share, earned in the third quarter of 2022. For the nine months ended September 30, 2023, net income for the Company totaled $8.7 million or $0.97 per share, compared to $14.9 million or $1.64 per share earned in 2022. The decrease in earnings is primarily the result of higher interest expense on deposits and other borrowed funds, offset in part by an increase in interest income on loans. The higher interest expense on deposits is due to an increase in market rates. Since March 1, 2022, The Federal Open Market Committee has increased its target for the federal funds interest rate by 5.25%. The increase in interest income on loans was primarily due to higher rates and growth in the loan portfolio.
Third quarter 2023 Results
Third quarter 2023 loan interest income was $2.9 million higher than third quarter 2022 and was primarily due to higher average interest rates and growth in the loan portfolio. Deposit interest expense increased $4.7 million during this same period due primarily to an increase in market interest rates. Third quarter 2023 net interest income totaled $10.7 million, a decrease of $3.0 million, or 21.8%, compared to the same quarter a year ago. The Company’s net interest margin was 2.11% for the quarter ended September 30, 2023, as compared to 2.71% for the quarter ended September 30, 2022. The net interest margin was 2.20% for the quarter ended June 30, 2023. The decrease in net interest margin was primarily due to an increase in market interest rates on deposits in excess of rate increases on interest-earning assets.
A credit loss benefit of ($274) thousand was recognized in the third quarter of 2023 as compared to a credit loss benefit of ($520) thousand in the third quarter of 2022. Net loan recoveries totaled $4 thousand for the quarter ended September 30, 2023, compared to net loan charge-offs of $3 thousand for the quarter ended September 30, 2022.
Noninterest income for the third quarter of 2023 totaled $2.4 million as compared to $2.3 million in the third quarter of 2022, an increase of 3%.
Noninterest expense for the third quarter of 2023 totaled $9.8 million compared to $9.5 million recorded in the third quarter of 2022, an increase of 3%. The increase is primarily due to higher FDIC assessments and normal increases in salaries and benefits. The efficiency ratio was 75.1% for the third quarter of 2023 as compared to 59.5% in the third quarter of 2022.
Income tax expense for the third quarter of 2023 totaled $597 thousand compared to $1.4 million recorded in the third quarter of 2022. The effective tax rate was 17% and 21% for the quarters ended September 30, 2023, and 2022, respectively. The lower-than-expected tax rate in 2023 and 2022 was due primarily to tax-exempt interest income and New Markets Tax Credits.
Nine Months 2023 Results
For the nine months ended September 30, 2023, loan interest income was $8.4 million higher than the first nine months of 2022. The increase is primarily due to higher average rates and growth in the loan portfolio. Taxable securities interest income was $695 thousand higher than 2022 due primarily to increased rates. Deposit interest expense increased $13.3 million during the same period due to an increase in market interest rates. The net interest income for the nine months ended September 30, 2023, totaled $33.7 million, a decrease of $6.8 million, or 16.8%, compared to the same period a year ago. The Company’s net interest margin was 2.21% for the nine months ended September 30, 2023, as compared to 2.63% for the nine months ended September 30, 2022. The decrease in net interest margin was primarily due to an increase in market interest rates on deposits in excess of rate increases on interest-earning assets.
A credit loss expense of $34 thousand was recognized for the nine months ended September 30, 2023, as compared to a credit loss benefit of ($706) thousand for the nine months ended September 30, 2022. Net loan charge-offs totaled $177 thousand for the nine months ended September 30, 2023, compared to net loan charge-offs of $18 thousand for the nine months ended September 30, 2022. The credit loss expense in 2023 was primarily due to charge-offs in the agriculture loan portfolio. The credit loss benefit in the third quarter of 2022 was primarily due to a reduction in specific reserves and an overall improvement in the quality of the loan portfolio.
Noninterest income for the nine months ended September 30, 2023, totaled $6.9 million compared to $7.2 million for the nine months ended September 30, 2022, 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.
Noninterest expense for the nine months ended September 30, 2023, totaled $30.1 million compared to $28.7 million for the nine months ended September 30, 2022, an increase of 5%. The increase is primarily due to a wire fraud loss of $523 thousand recorded in the second quarter of 2023 and normal increases in salaries and employee benefits. The efficiency ratio was 74.3% and 60.2% for the nine months ended September 30, 2023, and 2022, respectively.
Income tax expense for the nine months ended September 30, 2023, and 2022 totaled $1.7 million and $4.8 million, respectively. The effective tax rate was 17% and 24% for the nine months ended September 30, 2023, and 2022, respectively. The decrease 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. The lower-than-expected tax rate in 2023 was due primarily to tax-exempt interest income and New Markets Tax Credits.
Balance Sheet Review
As of September 30, 2023, total assets were $2.15 billion, an increase of $67.1 million, as compared to September 30, 2022. The increase in assets is primarily due to interest-bearing deposit and loan growth funded by other borrowings. The increase was offset in part by a decrease in securities available-for-sale due primarily to maturities in the investment portfolio.
Securities available-for-sale as of September 30, 2023, decreased to $736.9 million from $784.0 million as of September 30, 2022. The decrease in securities available-for-sale is primarily due to maturities in excess of purchases. The Company's investment portfolio had an expected duration of 3.64 years as of September 30, 2023.
Net loans as of September 30, 2023, increased to $1.23 billion, as compared to $1.18 billion as of September 30, 2022. The increase was primarily due to an increase in the construction and multi-family real estate loan portfolios. Impaired loans were $14.0 million and $15.0 million as of September 30, 2023, and 2022, respectively.
Effective January 1, 2023, the Company adopted the Financial Instruments – Credit Losses (CECL) accounting guidance. The adoption of this guidance established a single allowance framework for all financial assets carried at amortized cost and certain off-balance sheet credit exposures. The framework requires that management’s estimate reflects credit losses over the full remaining expected life of each credit and considers expected future changes in macroeconomic conditions. The adoption resulted in the recognition on January 1, 2023, of cumulative effect adjustments of $518 thousand related to the allowance for credit losses and $273 thousand related to the liability for off-balance sheet credit exposures. The allowance for credit losses on September 30, 2023, totaled $16.1 million, or 1.29% of loans, compared to $15.9 million, or 1.34% of loans, as of September 30, 2022. The increase in the allowance for credit losses is mainly due to loan growth.
Deposits totaled $1.83 billion as of September 30, 2023, a decrease of 2%, compared to $1.87 billion recorded as of September 30, 2022. The decline in deposits is primarily due to decreases in savings and money market accounts, offset in part by an increase in time deposits as customers continue to seek higher interest rates. Deposit balances fluctuate as customers’ liquidity needs vary and could be impacted by prevailing market interest rates, competition, and economic conditions.
Liquid assets of cash on hand, balances due from other banks and interest-bearing deposits in financial institutions for September 30, 2023, totaled $90.1 million. Other sources of liquidity available to the Banks as of September 30, 2023, include available borrowing capacity with the FHLB of $281.6 million and federal funds borrowing capacity at correspondent banks of $111.0 million. The available borrowing capacity represents 21% of total deposits.
The Federal Reserve Board created the Bank Term Funding Program (BTFP) in 2023, offering loans of up to one year in length to banks pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The BTFP allows for borrowing from the Federal Reserve Bank up to the par value of the pledged collateral and will provide an additional source of liquidity. The Company had $83.3 million borrowed under the BTFP as of September 30, 2023.
The Company’s stockholders’ equity represented 6.8% of total assets as of September 30, 2023, with all of the Company’s six affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $146.6 million as of September 30, 2023, compared to $137.3 million as of September 30, 2022. The increase in stockholders’ equity was primarily the result of a decrease in unrealized losses on the investment portfolio and retention of net income in excess of dividends.
Cash Dividend Announcement
On August 9, 2023, the Company declared a quarterly cash dividend on common stock, payable on November 15, 2023, to stockholders of record as of November 1, 2023, equal to $0.27 per share
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 Co., Marshalltown; and Iowa State Savings Bank, Creston, Iowa.
The 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 performance and asset quality. Forward-looking statements contained in this News Release are not historical facts and are based on management’s current beliefs, assumptions, predictions and expectations of future events, including the Company’s future performance, taking into account all information currently available to management. These beliefs, assumptions, predictions and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to management and many of which are beyond management’s control. 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. Accordingly, investors are cautioned not to place undue reliance on such forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “forecasts”, “continuing,” “ongoing,” “expects,” “views,” “intends” and similar words or phrases. The risks and uncertainties that may affect the Company’s future performance and asset quality include, but are not limited to, the following: national, regional and local economic conditions and the impact they may have on the Company and its customers; 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 credit losses as dictated by new market conditions or regulatory requirements; changes in local, national and international economic conditions, including rising inflation rates; 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 headings “Forward-Looking Statements and Business Risks” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022. Any forward-looking statements are qualified in their entirety by the foregoing risks and uncertainties and speak only as of the date on which such statements are made. The Company undertakes no obligation to revise or update such forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.