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Date: 7/17/2015

Title: Ames National Corporation Announces 2015 Q2 Earnings (7/17/15)

Ames National Corporation Announcement Second Quarter Earnings

Second Quarter 2015 Results:

For the quarter ended June 30, 2015, net income for Ames National Corporation (the Company) totaled $3,365,000 or $0.36 per share, compared to $3,855,000 or $0.41 per share earned in 2014. The lower earnings were primarily related to a provision for loan losses of $922,000 and an other real estate owned impairment write down of $563,000. The increase in the provision for loan losses was due to growth in the loan portfolio. Offsetting these expenses were increases in loan interest income and security gains.

As previously announced, the Company’s largest subsidiary bank, First National Bank (FNB), acquired First Bank, West Des Moines, Iowa on August 29, 2014 (the “Acquisition”). The acquired assets totaled approximately $89 million. Loan growth in the West Des Moines market has exceeded expectations since the Acquisition. The impact of the Acquisition on the Company’s net income was not significant for the quarter but in line with expectations.

Second quarter net interest income totaled $9,787,000, an increase of $808,000, or 9%, compared to the same quarter a year ago, due primarily to growth in the real estate loan portfolios. Loan growth was attributable to the Acquisition and favorable economic conditions in our markets. Excluding the Acquisition, the loan portfolio grew over 13% from a year ago. The Company’s net interest margin was 3.32% for the quarter ended June 30, 2015 as compared to 3.30% for the quarter ended June 30, 2014.

A provision for loan losses of $922,000 was recognized in the second quarter of 2015 as compared to $36,000 in the second quarter of 2014. Net loan recoveries were $24,000 for the quarter ended June 30, 2015 compared to net loan charge-offs of $87,000 for the quarter ended June 30, 2014. The growth in the loan portfolio was a primary factor in the increase in the provision for loan losses. Asset quality indicators for the Company, including impaired and past due loans, remain at favorable levels, including those problem assets obtained in the Acquisition. Payment performance on the Acquisition’s loan portfolio has exceeded management expectations through June 30, 2015.

Noninterest income for the second quarter of 2015 totaled $2,407,000 as compared to $1,734,000 for the same period in 2014. The increase in noninterest income is primarily due to security gains in 2015, with no corresponding gain in 2014. Exclusive of realized securities gains, noninterest income increased 10% in the second quarter of 2015 compared to the same period in 2014, primarily due to increased gain on sale of loans held for sale and higher merchant and card fees. The increase in merchant and card fees was primarily due to the Acquisition.

Noninterest expense for the second quarter of 2015 totaled $6,692,000 compared to $5,409,000 recorded in 2014, an increase of 24%, which was significantly impacted by the Acquisition. The increase in noninterest expense was primarily due to increases in salaries and benefits, other real estate owned expenses, data processing and occupancy expenses. The increase in salaries and benefits, data processing and occupancy expenses was mainly the result of additional expenses attributed to the Acquisition. The increase in other real estate owned expenses was due primarily to the impairment write down previously mentioned. The efficiency ratio for the second quarter of 2015 was 54.88%, compared to 50.49% in 2014.

Six Months 2015 Results:

For the six months ended June 30, 2015, net income for Ames National Corporation (the Company) totaled $7,000,000 or $0.75 per share, compared to $8,381,000 or $0.90 per share earned in 2014. The lower earnings were primarily related to the gain on the sale of premises and equipment in 2014 of $1,242,000 with no corresponding gain recorded in 2015; as well as a higher provision for loan losses, increased noninterest expense associated with the Acquisition and other real estate owned impairments in 2015.

Net interest income for the six months ended June 30, 2015 totaled $19,233,000, an increase of $1,520,000, or 9%, compared to the same period a year ago, due primarily to growth in the real estate loan portfolio. The Company’s net interest margin was 3.30% for the six months ended June 30, 2015 as compared to 3.27% for the six months ended June 30, 2014.

A provision for loan losses of $999,000 was recognized in the six months ended June 30, 2015 as compared to $75,000 in the same period a year ago. Net loan recoveries were $34,000 for the six months ended June 30, 2015 compared to net loan charge-offs of $130,000 for the six months ended June 30, 2014.

Noninterest income for the six months ended June 30, 2015 totaled $4,173,000 as compared to $4,680,000 for the same period in 2014. The decrease in noninterest income is primarily due to a gain on the sale of premises and equipment in 2014, with no corresponding gain in 2015. Exclusive of realized securities gains and gain on sale of premises and equipment, noninterest income increased 11% in the six months ended June 30, 2015 compared to the same period in 2014, primarily due to increased gain on sale of loans held for sale and higher merchant and card fees.

Noninterest expense for the six months ended June 30, 2015 totaled $12,831,000 compared to $10,738,000 recorded in 2014, an increase of 19%, which was significantly impacted by the Acquisition. The increase in noninterest expense was primarily due to increases in salaries and benefits and other real estate owned expenses. The increase in salaries and benefits was mainly the result of additional payroll costs attributed to the Acquisition. The increase in other real estate owned expenses was due primarily to the impairment write down. The efficiency ratio for the six months ended June 30, 2015 was 54.82%, compared to 47.95% in 2014. 
 
Balance Sheet Review:

As of June 30, 2015, total assets were $1,322,119,000, a $86,415,000 increase compared to June 30, 2014. The increase in assets was due primarily to a higher volume of loans, as previously discussed, offset in part by a decrease in securities available-for-sale.

Securities available-for-sale as of June 30, 2015 declined to $546,633,000 from $599,239,000 as of June 30, 2014. The decrease in securities available-for-sale is primarily due to the sale or pay downs of U.S. government mortgage-backed bonds and matured or called state and political subdivision bonds. These bond proceeds were largely utilized to fund loan demand.

Net loans as of June 30, 2015 increased 23% to $677,580,000 as compared to $549,980,000 as of June 30, 2014. The growth was primarily due to the Acquisition and favorable lending environments in most of the affiliate bank communities. This growth is primarily reflected in all categories of loans, with the primary increases in the commercial real estate and construction real estate portfolios. Asset quality remained favorable as impaired loans, net of specific reserves, totaled $1,697,000, or 0.25% of gross loans as of June 30, 2015, compared to $967,000, or .17% of gross loans as of June 30, 2014. The allowance for loan losses on June 30, 2015 totaled $9,872,000, or 1.44% of gross loans, compared to $8,517,000 or 1.52% of gross loans as of June 30, 2014. The increase in the allowance for loan losses can be primarily attributed to loan growth.

Other real estate owned was $4,588,000 and $8,929,000 as of June 30, 2015 and 2014, respectively. The decrease in the other real estate owned was due to the sale of properties and impairment write downs. Due to potential changes in the real estate markets, it is at least reasonably possible that management’s assessments of fair value will change in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.

Deposits totaled $1,079,378,000 on June 30, 2015, a 10% increase from the $982,570,000 recorded at June 30, 2014. The increase in deposits was primarily due to the Acquisition.

Securities sold under agreements to repurchase totaled $43,478,000 on June 30, 2015, a 29% decrease from the $61,152,000 recorded at June 30, 2014. The decrease was primarily the result of the withdrawal of a portion of one customer’s securities sold under agreements to repurchase balances.

The Company’s stockholders’ equity represented 11.84% of total assets as of June 30, 2015 with all of the Company’s five affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $156,569,000 as of June 30, 2015, and $152,325,000 as of June 30, 2014. The increase in stockholders’ equity was primarily the result of net income, offset by lower fair value on the securities available-for-sale which is reflected as a decrease in accumulated other comprehensive income and dividends.

Shareholder Information:

Return on average assets was 1.01% for the quarter ended June 30, 2015, compared to 1.23% for the same period in 2014. Return on average equity was 8.48% for the quarter ended June 30, 2015, compared to the 10.27% in 2014.

Return on average assets was 1.05% for the six months ended June 30, 2015, compared to 1.34% for the same period in 2014. Return on average equity was 8.86% for the six months ended June 30, 2015, compared to the 11.33% in 2014.

The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $25.10 on June 30, 2015. During the second quarter of 2015, the price ranged from $23.51 to $26.43.

On May 13, 2015, the Company declared a quarterly cash dividend on common stock, payable on August 17, 2015 to stockholders of record as of August 3, 2015, equal to $0.20 per share.

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, Reliance State Bank, Story City, and United Bank & Trust, Marshalltown.  Additional information about Ames National Corporation can be found at www.amesnational.com.  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:
Thomas H. Pohlman, President and CEO
(515) 232-6251 or Tom.Pohlman@amesnational.com