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Date: 10/19/2018

Title: Ames National Corporation Announces Q3 Earning Results (10/19/18)

AMES NATIONAL CORPORATION ANNOUNCES 2018 THIRD QUARTER EARNINGS RESULTS

Third Quarter 2018 results:



Ames National Corporation (the “Company”) is pleased to announce the completion of the acquisition of Clarke County State Bank with its three branches located in Osceola and Murray, Iowa by First National Bank (FNB), the Company’s largest affiliate bank, on September 14, 2018 (the “Acquisition”). The Company and FNB welcome our new employees and customers, and look forward to a mutually beneficial long term relationship. The newly combined staffs of FNB have made outstanding progress during the third quarter with the integration of the new branches and are to be commended on their significant efforts to ensure a smooth transition. Non-routine costs associated with the Acquisition totaled approximately $340,000 for the quarter ended September 30, 2018.

For the quarter ended September 30, 2018, net income for Ames National Corporation totaled $4,459,000 or $0.48 per share, compared to $3,928,000 or $0.42 per share earned in 2017. The improvement in earnings is primarily the result of an increase in loan interest income and lower federal income tax expense, offset in part by higher deposit interest expense, an increase in salaries and benefits and non-routine costs associated with the Acquisition.

Third quarter net interest income totaled $10,586,000, an increase of $434,000, or 4%, compared to the same quarter a year ago. The improvement in net interest income was mainly due to increased loan volume and rates and recognition of nonaccrual interest income. Nonaccrual interest income recognized in the three months ended September 30, 2018 was $143,000 as compared to $20,000 for the same period in 2017. Loan and deposit interest rates increased in conjunction with general market interest rates, as the Federal Reserve Bank increased short term interest rate targets by 1.00% since September 30, 2017. The Company’s net interest margin was 3.28% for the quarter ended September 30, 2018 as compared to 3.29% for the quarter ended September 30, 2017. The net interest margin was negatively impacted in 2018 by the lower tax equivalent yield on tax-exempt securities interest income computed in 2018 based upon a 21% federal income tax rate as compared to a 35% federal income tax rate used in 2017.

A provision for loan losses of $100,000 was recognized in the third quarter of 2018 as compared to $57,000 in the third quarter of 2017. Net loan charge offs totaled $195,000 for the quarter ended September 30, 2018 compared to net loan charge offs of $105,000 for the quarter ended September 30, 2017. The Iowa agricultural economy remains challenged as the result of the current low grain prices, potential tariff concerns on Iowa exports and excessive rainfall in most of our markets.

Noninterest income for the third quarter of 2018 totaled $2,162,000 as compared to $1,860,000 for the same period in 2017, an increase of 16%. The increase in noninterest income is primarily due to higher wealth management income and a one-time gain on the foreclosure of other real estate owned. The higher wealth management income was primarily due to an increase in estate fees.

Noninterest expense for the third quarter of 2018 totaled $6,988,000 compared to $6,296,000 recorded for the same period in 2017, an increase of 11%, which was primarily due to the Acquisition and increases in salaries and employee benefits. This increase in salaries and benefits was primarily due to normal salary increases, additional personnel and changes in the Company’s paid time off benefits. The efficiency ratio was 54.8% for the third quarter of 2018 as compared to 52.4% in 2017.

The provision for income taxes expense for the quarter ended September 30, 2018 and 2017 was $1,201,000 and $1,730,000, respectively, representing an effective tax rate of 21% and 31%, respectively. The reduction in the effective income tax rate from one year ago was primarily related to the enactment of the Tax Cut and Jobs Act legislation signed on December 22, 2017. This legislation lowered the marginal statutory federal corporation income tax rate for the Company from 35% to 21% beginning January 1, 2018. The effective tax rates are lower than the statutory rates for both periods primarily due to tax-exempt income.

Nine Months 2018 results:



For the nine months ended September 30, 2018, net income for the Company totaled $12,813,000 or $1.38 per share, compared to $11,011,000 or $1.18 per share earned in 2017. The improvement in earnings is primarily the result of an increase in loan interest income, a reduction in the provision for loan losses and lower federal income tax expense.

For the nine months ended September 30, 2018, net interest income totaled $30,983,000, an increase of $883,000, or 3%, compared to the same period a year ago. The improvement in net interest income was mainly due to increased loan interest rates and recognition of nonaccrual interest income on loans, offset by an increase in deposit interest expense and a decrease in interest income on tax-exempt securities. Nonaccrual interest income recognized in the nine months ended September 30, 2018 was $452,000 as compared to $33,000 for the same period in 2017. The decrease in tax-exempt interest income on investments is mainly due to higher yielding municipal bonds maturing and being called. Loan and deposit interest rates increased in conjunction with general market interest rates, as the Federal Reserve Bank increased short term interest rate targets by 1.00% since September 30, 2017. The Company’s net interest margin was 3.21% for the nine months ended September 30, 2018 as compared to 3.25% for the nine months ended September 30, 2017. The decrease in the net interest margin was primarily due to the lower tax equivalent yield on tax-exempt securities interest income computed in 2018 based upon a 21% federal income tax rate as compared to a 35% federal income tax rate used in 2017.

A provision for loan losses of $193,000 was recognized in the nine months ended September 30, 2018 as compared to $1,222,000 in the nine months ended September 30, 2017. Net loan charge offs totaled $226,000 for the nine months ended September 30, 2018 compared to net loan charge offs of $589,000 for the nine months ended September 30, 2017.

Noninterest income for the nine months ended September 30, 2018 totaled $5,917,000 as compared to $5,966,000, a decrease of 1%, for the same period in 2017. The decrease in noninterest income is primarily due to lower security gains, offset in part by higher wealth management income and a gain on the foreclosure of other real estate owned. The higher wealth management income was primarily due to an increase in estate fees.

Noninterest expense for the nine months ended September 30, 2018 totaled $20,566,000 compared to $19,172,000 recorded in 2017, an increase of 7%, which was primarily due to non-routine costs associated with the Acquisition of $340,000 and increases in salaries and employee benefits. This increase in salaries and benefits was primarily due to a normal salary increases, additional personnel and one-time $1,000 bonus paid to full-time employees. The efficiency ratio was 55.7% for the nine months ended September 30, 2018 as compared to 53.2% in 2017.

The provision for income taxes expense for the nine months ended September 30, 2018 and 2017 was $3,328,000 and $4,662,000, respectively, representing an effective tax rate of 21% and 30%, respectively. The reduction in the effective income tax rate from one year ago was primarily related to the enactment of the Tax Cut and Jobs Act legislation signed on December 22, 2017. This legislation lowered the marginal statutory federal corporation income tax rate for the Company from 35% to 21% beginning January 1, 2018. The effective tax rates are lower than the statutory rates for both periods primarily due to tax-exempt income.

Balance Sheet Review:



As of September 30, 2018, total assets were $1,448,252,000, an $83.3 million increase, compared to September 30, 2017. The increase in assets, primarily loans, was mainly due to the acquisition of the Clarke County State Bank.

Securities available-for-sale as of September 30, 2018 declined to $474,442,000 from $503,368,000 as of September 30, 2017. The decrease in securities available-for-sale is primarily due to payments and maturities of mortgage backed securities and municipals and higher unrealized loss in the investment portfolio as higher market interest rates caused a decline in the fair value of the investment portfolio. This decline was offset in part by the Acquisition and purchases of U.S. agency securities.

Net loans as of September 30, 2018 increased 13%, to $859,830,000, as compared to $764,229,000 as of September 30, 2017. The growth in the loan portfolio is primarily due to the Acquisition. Loan demand has moderated over the past twelve months. The allowance for loan losses on September 30, 2018 totaled $11,288,000, or 1.30% of gross loans, compared to $11,140,000 or 1.44% of gross loans as of September 30, 2017. The decrease in the percentage of allowance for loan losses to gross loans can be primarily attributed to the Acquisition. The purchased loan portfolio is initially recorded without an allowance for loan loss, as the credit risk is reflected in the fair value of loans on the acquisition date.

Deposits totaled $1,215,761,000 on September 30, 2018, compared to $1,114,538,000 recorded at September 30, 2017, a 9% increase from a year ago. The growth in the deposits was due primarily to the Acquisition.

Securities sold under agreements to repurchase totaled $48,859,000 as of September 30, 2018 as compared to $39,001,000 recorded as of September 30, 2017.

The Company’s stockholders’ equity represented 11.6% of total assets as of September 30, 2018 with all of the Company’s five affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $168,630,000 as of September 30, 2018, compared to $173,329,000 as of September 30, 2017. The decrease in stockholders’ equity was the result of the after tax impact of depreciation in the fair value of securities available for sale, offset in part by the retention of net income in excess of dividends.

Shareholder Information:



Return on average assets was 1.31% for the quarter ended September 30, 2018, compared to 1.15% for the same period in 2017. Return on average equity was 10.54% for the quarter ended September 30, 2018, compared to the 9.08% in 2017. Return on average assets was 1.25% for the nine months ended September 30, 2018, compared to 1.07% for the same period in 2017. Return on average equity was 10.15% for the nine months ended September 30, 2018, compared to the 8.64% in 2017.

The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $27.25 on September 30, 2018. During the third quarter of 2018, the price ranged from $26.20 to $32.15.

On August 8, 2018, the Company declared a quarterly cash dividend of $0.23 per common share. The dividend is payable November 15, 2018, to shareholders of record at the close of business on November 1, 2018.

 

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

 

Click here to view a PDF of the Third Quarter 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, 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 John.Nelson@amesnational.com