UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

July 17, 2020

Date of Report (Date of Earliest Event Reported)

 

AMES NATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)

 

IOWA 0-32637 42-1039071
(State or Other Jurisdiction of  (Commission File Number) (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

405 FIFTH STREET

AMES, IOWA 50010

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (515) 232-6251

 

NOT APPLICABLE

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

ATLO

NASDAQ Capital Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

 

Emerging growth company   ☐

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

 

 

Item 2.02 Results of Operations and Financial Condition

 

Item 7.01 Regulation FD Disclosure

 

The following information is furnished pursuant to Items 2.02 and 7.01:

 

On July 17, 2020, Ames National Corporation issued a News Release announcing financial results for the three and six months ended June 30, 2020 and commenting on the current and anticipated impacts of the COVID-19 pandemic on its operations. A copy of the News Release is furnished as Exhibit 99.1.

 

Item 9.01 Financial Statements and Exhibits

 

(d) Exhibits:

 

          Exhibit No.                    Description

 

               99.1               News Release dated July 17, 2020

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

AMES NATIONAL CORPORATION 

 

 

 

 

 

 

 

 

 

Date: July 17, 2020

By:

/s/ John P. Nelson

 

 

 

John P. Nelson, Chief Executive Officer and President

 

 

 

Principal Executive Officer

 

 

 
ex_194236.htm

Exhibit 99.1

 

NEWS RELEASE CONTACT: JOHN P. NELSON
FOR IMMEDIATE RELEASE   CEO AND PRESIDENT
    (515) 232-6251
July 17, 2020     

 

 

AMES NATIONAL CORPORATION

ANNOUNCES EARNINGS FOR THE SECOND QUARTER OF 2020

 

Second Quarter 2020 results:

 

For the quarter ended June 30, 2020, net income for the Company totaled $4,428,000, or $0.49 per share, compared to $4,618,000, or $0.50 per share, earned in the second quarter of 2019. The decrease in earnings is primarily the result of the additional provision for loan losses in 2020.

 

The Company conducts business in the State of Iowa and Iowa began to place significant restrictions on companies and individuals on March 9, 2020 as a result of the COVID-19 pandemic. The State of Iowa has eased many of the restrictions related to the COVID-19 pandemic. As an organization that focuses on community banking, we are concerned about the health of our customers, employees and local communities and keep that thought at the forefront of our decisions. The Company, as a financial institution, is considered an essential business and therefore continues to operate. The Company’s bank lobbies are generally open to the public, although business is also being transacted through our drive up facilities, online, telephone or by appointment. Some of the other mitigations related to COVID-19 include face coverings, social distancing, frequent hand washing, and protective shields. Although the Company anticipates moving toward normalized operations, changes in restrictions by governmental authorities may change these plans. As the economic slowdown continues to evolve due to COVID-19 restrictions, our customers may experience decreased revenues, which may correlate to an inability to make timely loan payments or maintain payroll. This, in turn, could adversely impact the revenues and earnings of the Company by, among other things, requiring further increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio. We would also expect a slowdown in traditional loan demand, although the volume of certain types of government guaranteed loans under the CARES Act currently are approximately $78.3 million as of June 30, 2020.

 

As previously announced, the Company acquired Iowa State Savings Bank on October 25, 2019 (the “Acquisition”). The acquired assets totaled approximately $215 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.

 

The Company announced the closing of two branches of Iowa State Savings Bank located in Diagonal and Corning, Iowa and the closing of one branch of First National Bank located in Murray, Iowa as a result of limited customer activity. We expect to serve these customers at other branches.

 

Second quarter 2020 loan interest income was $1,762,000 higher than second quarter 2019, primarily due to the Acquisition; deposit interest expense decreased $708,000 during this same time period, primarily due to market rate decreases. Second quarter 2020 net interest income totaled $13,680,000, an increase of $2,750,000, or 25%, compared to the same quarter a year ago. The increase in net interest income was primarily due to the Acquisition. The Company’s net interest margin was 3.10% for the quarter ended June 30, 2020 as compared to 3.20% for the quarter ended June 30, 2019.   

 

A provision for loan losses of $1,566,000 was recognized in the second quarter of 2020 as compared to $68,000 in the second quarter of 2019. Net loan charge offs totaled $471,000 for the quarter ended June 30, 2020 compared to $11,000 for the quarter ended June 30, 2019. The increase in the provision for loan losses was primarily due to the economic slowdown associated with COVID-19 and to a lesser extent the increase in net charge-offs. The economic slowdown associated with COVID-19 will adversely affect our loan portfolios, but will more quickly affect the loans associated with hospitality and entertainment industries. As of June 30, 2020 approximately 8.3% of our loan portfolio is associated with these industries. There have been requests for loan payment modifications across all loan portfolios. These modifications were primarily related to payment deferrals or interest only payments for up to six months. The total loans modified was approximately $122,782,000 as of June 30, 2020. The federal government is providing numerous programs to lessen the effects of COVID-19 on the economy and on our loan portfolio. The severity of the effect of COVID-19 on our operations is difficult to determine at this time. The State of Iowa has been easing restrictions on non-essential businesses. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.

 

 

 

Noninterest income for the second quarter of 2020 totaled $2,428,000 as compared to $2,213,000 in the second quarter of 2019, an increase of 10%. The increase in noninterest income was primarily due to gains on sale of loans held for sale from increased refinancing in a low interest rate environment and to a lesser extent the Acquisition.

 

Noninterest expense for the second quarter of 2020 totaled $9,100,000 compared to $7,218,000 recorded in the second quarter of 2019, an increase of 26%. Most of the increase was related to the Acquisition. Excluding the Acquisition, the increases were related to salaries and employee benefits, data processing and the amortization of the investment in Federal New Market Tax Credit Projects, offset in part by a decrease in the FDIC insurance assessments. Salaries and employee benefits, excluding the Acquisition, increased 6% primarily due to normal increases in salaries, other employee benefits including health insurance costs and additional personnel. Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees. 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 remaining credit was fully utilized in the second quarter. The efficiency ratio was 56.5% for the second quarter of 2020 as compared to 54.9% in the second quarter of 2019.

 

Income tax expense for the second quarter of 2020 totaled $1,015,000 compared to $1,239,000 recorded in the second quarter of 2019. The effective tax rate was 19% and 21% for the quarters ended June 30, 2020 and 2019, respectively. The lower than expected tax rate in 2020 and 2019 was due primarily to tax-exempt interest income and new market tax credits further lowered the tax rate in 2020.

 

Six Months 2020 results:

 

For the six months ended June 30, 2020, net income for the Company totaled $7,982,000 or $0.87 per share, compared to $8,855,000 or $0.96 per share earned in 2019. The decrease in earnings is primarily the result of the additional provision for loan losses in 2020.

 

For the six months ended June 30, 2020 loan interest income was $3,647,000 higher than the first six months of 2019, primarily due to the Acquisition; deposit interest expense decreased $417,000, primarily due to market interest rate decreases. The net interest income for the six months ended June 30, 2020 totaled $26,726,000, an increase of $4,825,000, or 22%, compared to the same period a year ago. The increase in the net interest income was primarily due to the Acquisition. The Company’s net interest margin was 3.14% for the six months ended June 30, 2020 as compared to 3.22% for the six months ended June 30, 2019.

 

A provision for loan losses of $3,883,000 was recognized in the six months ended June 30, 2020 as compared to $166,000 for the six months ended June 30, 2019. Net loan charge offs totaled $496,000 for the six months ended June 30, 2020 compared to net loan recoveries of $19,000 for the six months ended June 30, 2019. The increase in the provision for loan losses was primarily due to the economic slowdown associated with COVID-19 and to a lesser extent loan growth and the increase in net charge-offs.

 

Noninterest income for the six months ended June 30, 2020 totaled $5,059,000 as compared to $4,139,000 for the six months ended June 30, 2019, an increase of 22%. The increase in noninterest income was primarily due to an increase in security gains, gains on sale of loans held for sale due to increased refinancing in a low interest rate environment, and the Acquisition.

 

Noninterest expense for the six months ended June 30, 2020 totaled $18,150,000 compared to $14,675,000 for the six months ended June 30, 2019, an increase of 24%. Most of the increase was related to the Acquisition. Excluding the Acquisition, the increases were related to salaries and employee benefits, data processing and the amortization of the investment in Federal New Market Tax Credit Projects, offset in part by a decrease in FDIC insurance assessments. Salaries and benefits was the largest component of the increase in noninterest expense which includes increases in normal salaries, other employee benefits including health insurance costs and additional personnel. Data processing costs, excluding the Acquisition, increased primarily to facilitate remote access for customers and employees. The efficiency ratio was 57.1% and 56.4% for the six months ended June 30, 2020 and 2019, respectively.

 

 

 

Income tax expense for the six months ended June 30, 2020 and 2019 totaled $1,771,000 and $2,343,000, respectively. The effective tax rate was 18% and 21% for the six months ended June 30, 2020 and 2019, respectively. The lower than expected tax rate in 2020 and 2019 was due primarily to tax-exempt interest income and new market tax credits further lowered the tax rate in 2020.

 

Balance Sheet Review:

 

As of June 30, 2020, total assets were $1,896,972,000, a $428.4 million increase, as compared to June 30, 2019. The increase is primarily due to the Acquisition, Payroll Protection Program loans, organic loan growth and to a lesser extent growth in interest bearing deposits in financial institutions. This growth was funded by the Acquisition and growth in our deposits.

 

Securities available-for-sale as of June 30, 2020 increased to $513,616,000 from $458,763,000 as of June 30, 2019. The increase in securities available-for-sale is primarily due to the Acquisition.

 

Net loans as of June 30, 2020 increased 31%, to $1,146,046,000, as compared to $873,639,000 as of June 30, 2019. The increase in loans was primarily due to the Acquisition, commercial real estate loans and government guaranteed loans under the Paycheck Protection Program. Paycheck Protection Program loans totaled $78.3 million as of June 30, 2020. The organic growth of the commercial real estate loans was primarily at the Company’s largest affiliate bank, First National Bank. Impaired loans were $17,901,000 and $5,119,000 as of June 30, 2020 and 2019, respectively. The increase in impaired loans was due primarily to the deterioration of one loan relationship in the hospitality portfolio. Loans classified as watch totaled $176.8 million and $104.6 million as of June 30, 2020 and 2019, respectively. The increase relates mainly to the weakened economy due to the COVID-19 pandemic. The allowance for loan losses on June 30, 2020 totaled $16,004,000, or 1.37% of gross loans, compared to $11,869,000, or 1.34% of gross loans, as of June 30, 2019. The increase in the allowance for loan losses is mainly due to increased risk associated with the loan portfolio due to the economic slowdown associated with COVID-19 and to a lesser extent organic growth in the loan portfolio. The initial recording of the purchased loan portfolios from the Acquisition did not have an allowance for loan losses, as the credit risk was reflected in the fair value of loans on the acquisition date. Also, the Paycheck Protection Program loans are government guaranteed and the impact on the allowance for loan loss was not significant. Additional increases in the allowance for loan losses and charge-offs are anticipated if the effects of the COVID-19 conditions negatively impacts our loan portfolio.

 

Goodwill totaled $12,424,000 as of June 30, 2020, compared to $9,744,000 as of June 30, 2019. This increase is due to the Acquisition. Goodwill is currently evaluated for impairment quarterly and goodwill has been determined to not be impaired as of June 30, 2020. In the future goodwill may be impaired if the effects of the COVID-19 restrictions negatively impacts our net income and fair value, particularly of our most recent acquisition. An impairment of goodwill would decrease the Company’s earnings during the period in which the impairment is recorded.

 

Other assets totaled $5,713,000 as of June 30, 2020, compared to $1,631,000 as of June 30, 2019. This increase is primarily due to the investment in New Market Tax Credit Projects.

 

Deposits totaled $1,643,543,000 on June 30, 2020, compared to $1,244,457,000 recorded as of June 30, 2019. The growth in deposits is primarily due to the Acquisition and to a lesser extent increases in core deposits, including retail and commercial funds.

 

There was no dividends payable on June 30, 2020. In the past, dividends were declared in one quarter and then paid in the subsequent quarter. For the quarter ended June 30, 2020 the dividend was not declared until July 8, 2020 and will be paid in the third quarter of 2020.

 

The Company’s stockholders’ equity represented 10.6% of total assets as of June 30, 2020 with all of the Company’s six affiliate banks considered well-capitalized as defined by federal capital regulations. Total stockholders’ equity was $201,150,000 as of June 30, 2020, compared to $183,252,000 as of June 30, 2019. 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, offset in part by stock repurchases.  The Company repurchased 65,847 shares in the second quarter and completed the stock repurchase program on April 20, 2020.

 

 

 

Shareholder Information:

 

   

Three Months Ended

 

Six Months Ended

 
   

June 30, 2020

 

June 30, 2019

 

June 30, 2020

 

June 30, 2019

 
                           

Annualized return on assets

    0.94%     1.27%     0.88%     1.22%  
                           

Annualized return on average equity

    9.1%     10.3%     8.3%     10.0%  

 

The Company’s stock, which is listed on the NASDAQ Capital Market under the symbol ATLO, closed at $19.74 on June 30, 2020. During the second quarter of 2020, the price ranged from $17.25 to $23.89.

 

On July 8, 2020, the Company declared a quarterly cash dividend on common stock, payable on August 14, 2020 to stockholders of record as of July 31, 2020, equal to $0.25 per share. Dividends in the future may be reduced or eliminated if the COVID-19 restrictions have an adverse effect on net income.

 

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.

 

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 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 restrictions 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 restrictions 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.

 

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Unaudited)

 

   

June 30,

   

June 30,

 

 

 

2020

   

2019

 
ASSETS                

Cash and due from banks

  $ 32,528,234     $ 22,615,322  

Interest bearing deposits in financial institutions and federal funds sold

    145,990,834       67,435,442  

Securities available-for-sale

    513,615,814       458,763,315  

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, at cost

    3,154,800       2,655,700  

Loans receivable, net

    1,146,046,388       873,639,020  

Loans held for sale

    2,033,360       766,945  

Bank premises and equipment, net

    17,628,860       15,733,212  

Accrued income receivable

    10,801,448       8,998,009  

Other real estate owned

    631,647       217,856  

Bank-owned life insurance

    2,878,838       2,806,029  

Deferred income taxes

    -       1,213,746  

Other intangible assets, net

    3,524,814       2,374,906  

Goodwill

    12,424,434       9,744,472  

Other assets

    5,712,963       1,631,159  
                 

Total assets

  $ 1,896,972,434     $ 1,468,595,133  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

LIABILITIES

               

Deposits

               

Demand, noninterest bearing

  $ 332,285,659     $ 220,241,881  

NOW accounts

    483,065,694       386,894,248  

Savings and money market

    553,546,573       413,412,483  

Time, $250,000 and over

    69,189,546       50,144,650  

Other time

    205,455,750       173,763,838  

Total deposits

    1,643,543,222       1,244,457,100  
                 

Securities sold under agreements to repurchase

    36,892,657       31,693,100  

FHLB advances

    3,000,000       2,000,000  

Dividends payable

    -       2,215,709  

Deferred income taxes

    1,194,894       -  

Accrued expenses and other liabilities

    11,191,759       4,977,688  

Total liabilities

    1,695,822,532       1,285,343,597  
                 

STOCKHOLDERS' EQUITY

               

Common stock, $2 par value, authorized 18,000,000 shares; issued and outstanding 9,122,747 and 9,232,122 shares as of June 30, 2020 and June 30, 2019, respectively

    18,245,494       18,464,244  

Additional paid-in capital

    17,001,736       19,019,767  

Retained earnings

    151,910,115       142,312,863  

Accumulated other comprehensive income

    13,992,557       3,454,662  

Total stockholders' equity

    201,149,902       183,251,536  
                 

Total liabilities and stockholders' equity

  $ 1,896,972,434     $ 1,468,595,133  

 

 

 

AMES NATIONAL CORPORATION AND SUBSIDIARIES
 
Consolidated Statements of Income
(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Interest and dividend income:

                               

Loans, including fees

  $ 12,569,869     $ 10,808,142     $ 25,156,883     $ 21,509,571  

Securities

                               

Taxable

    1,917,332       1,554,713       3,738,572       3,043,565  

Tax-exempt

    954,525       1,067,955       1,864,422       2,168,529  

Other interest and dividend income

    195,703       290,465       713,015       528,033  
                                 

Total interest and dividend income

    15,637,429       13,721,275       31,472,892       27,249,698  
                                 

Interest expense:

                               

Deposits

    1,898,046       2,606,384       4,548,412       4,965,216  

Other borrowed funds

    59,355       184,634       198,527       383,848  
                                 

Total interest expense

    1,957,401       2,791,018       4,746,939       5,349,064  
                                 

Net interest income

    13,680,028       10,930,257       26,725,953       21,900,634  
                                 

Provision for loan losses

    1,566,476       68,320       3,882,631       166,414  
                                 

Net interest income after provision for loan losses

    12,113,552       10,861,937       22,843,322       21,734,220  
                                 

Noninterest income:

                               

Wealth management income

    909,728       1,019,143       1,771,461       1,803,757  

Service fees

    305,544       387,133       746,237       757,429  

Securities gains, net

    43,910       1,890       429,925       1,890  

Gain on sale of loans held for sale

    572,718       224,031       839,458       396,757  

Merchant and card fees

    410,414       386,384       836,254       747,525  

Other noninterest income

    185,910       194,358       436,081       431,289  
                                 

Total noninterest income

    2,428,224       2,212,939       5,059,416       4,138,647  
                                 

Noninterest expense:

                               

Salaries and employee benefits

    5,812,449       4,797,497       11,587,645       9,513,325  

Data processing

    1,336,401       872,064       2,527,453       1,763,445  

Occupancy expenses, net

    656,752       518,559       1,347,938       1,117,564  

FDIC insurance assessments

    49,857       91,666       49,857       191,895  

Professional fees

    397,755       382,983       741,479       771,829  

Business development

    181,546       248,178       445,689       516,775  

Intangible asset amortization

    217,223       139,314       434,446       302,978  

New market tax credit projects amortization

    145,390       -       290,771       -  

Other operating expenses, net

    302,138       167,717       724,282       496,923  
                                 

Total noninterest expense

    9,099,511       7,217,978       18,149,560       14,674,734  
                                 

Income before income taxes

    5,442,265       5,856,898       9,753,178       11,198,133  
                                 

Income tax expense

    1,014,600       1,239,305       1,771,000       2,343,105  
                                 

Net income

  $ 4,427,665     $ 4,617,593     $ 7,982,178     $ 8,855,028  
                                 

Basic and diluted earnings per share

  $ 0.49     $ 0.50     $ 0.87     $ 0.96  
                                 

Declared dividends per share

  $ -     $ 0.24     $ 0.25     $ 0.48